This scenario makes me think of an excellent William Bernstein article on re-balancing. In it, he discusses how re-balancing between assets with (relatively) uncorrelated but similar expected (positive) returns should result in a bonus in terms of performance, and that sounds something like what you are talking about here I think.After reading Scott Cederberg's paper on the case for 100% stocks and focusing on things like total return and less of a care for sharpe, I began reflecting... instead of buying into a single strategy like VTI, why not do an ensemble strategy such as VTI + SCV + MOM + etc of assets with positive long term expected return. In 2022, I was mesmerized with how VTI began to crater but SCV and MOM latched on to energy and had flat YTD periods. So if one were to buy a basket of assets with positive expected return, forget about rebalancing, and check in 30 years, it will be a monster of a portfolio relative to the perfectly balanced things we see here on portfolio visualizer, but it will be diversifying your risk between different strategies that some people are inclined to go all-in on (100% beta investors, 100% value, etc).
For instance, if you held TSM, SCV, another factor, maybe some international or emerging, and re-balanced regularly between them, the math might suggest, or as Nisiprius would say, suggested in the past, that there could be a benefit to that form of 'diversification'. But you would have to be careful that the assets actually did have similar levels of relatively-uncorrelated performance, and that you were re-balancing them on the proper schedule to actually capture such a potential bonus, which may require additional complexity (and luck).
Here is another good read about the subject from Michael Kitces.
Statistics: Posted by Phyneas — Mon Jun 03, 2024 1:51 am — Replies 28 — Views 2870