It's reasonable to assume that given the exact same social/economic conditions, interest rates, inflation rate, earnings/dividend yields etc. that another might buy a house/stock/bond/gold/etc. for a similar inflation adjusted amount as what you paid for that asset. As might you have done the same when you bought that asset. Individually however each asset can (in some cases considerably) vary around that 'trend' line. Combine multiple assets and the collective deviation is smoothed down. 1960's to 1980 and US stocks lagged others - as Japan grabbed a significant amount of global market share from the US. 1980 to 1999 and that pendulum swung back the other way ...etc.What is 'House PO' and what is FTAS?
Also funny that those that advocate broad diversity of assets, may then propose that you concentrate into just one group of assets. Owning a home + imputed rent is somewhat stock + dividends like, combine that with domestic stocks + international stocks ... as your 'equity' allocation. Combine T-Bills with bonds and gold as your 'bond' allocation. Initial equal weightings of those = 50/50 "equities" and "bonds". Rebalancing or not, can yield similar overall outcomes, with non rebalanced the tendency is towards ending up with a high weighting in the asset(s) that performed the best, low weighting in the assets that performed poorly. If you leave your home value non-rebalanced, rebalance the remainder US stocks, Int Stocks, cash, bonds, gold - that's generally fine. The collective of that is inclined to be a less volatile middle road portfolio value, in contrast to the individuals that wax and wane in some cases significantly - that opens up debates such as comparisons of outcome via selected time periods when one asset performed exceptionally well, or poorly.
UK data chart, British RPI (inflation) adjusted
Have reasonable expectations, a 3.33% 30 year return of your inflation adjusted capital, supplement that with additional withdrawals if/when the portfolio value has, as more often will be the case, performed relatively well.
Some may lose out via over-analysis paralysis or repeated profit-chasing (changes) .... "if you held this tilt instead then the rewards were greater" (over a particular period). Or "results were lousy if you held this asset" (again over a particular period). Fundamentally concentration risk is the major risk factor, easily diluted.
Some assets are productive. Buy a farm and work the land and that yields dividends. Buy a farm and leave the land idle and you might just get back what you paid for that farm in inflation adjusted terms when you sell it years later. Owning a home avoids having to find/pay rent to others, stocks pay dividends. Gold, cash, bonds are non productive, might just offset inflation.
Owning your own home, domestic stocks, international stocks, cash, bonds, gold ... a equal six way initial split 16.6% each, and you might opt to periodically rebalance, or not. Broadly it doesn't matter - with non rebalanced if you start with 50/50 in two assets you may end with 80/20 weightings ... similar to as though you'd time averaged 65/35 in the better/worse assets. Rebalanced yearly back to 50/50 and the overall rewards might generally compare to that. In practice one or the other will be the better of the two, but that's random - washes.
Owning a home (price only value) and you should really consider the imputed rent benefit that provides.
Own/use credit cards and that might be considered as covering the 'cash' allocation.
Have pension(s) and that might be considered as the 'bond' holdings.
Leaving surplus residual capital to be spread across domestic stocks, international stocks and gold.
It's non viable to rebalance either the home or pensions elements, so leave them as non-rebalanced, just rebalance the liquid assets.
Broadly might be considered as being 50/50 productive/non-productive (domestic stocks, international stocks, house / cash, bonds, gold). Another may rent instead of owning, have no pensions, not use credit cards - and just hold domestic stocks along with a 10 year treasury or other bond asset allocation, from which they have to cover paying their rent and cash flows. It's not unreasonable to assume the broader diversification and more liability matched (imputed rent) is inclined to be the overall safer choice of the two.
We own our own home, have pensions (that are more than enough in 'bonds'), have several credit cards that collectively cover into 5 digit amounts of 'cash'. Living in England and UK midcap stocks, US large cap stocks, gold supplement those 'assets. From a liquid assets perspective 67/33 stock/gold has been superior to 50/50 stock/bonds https://www.portfoliovisualizer.com/bac ... MpF9DNexh7
We could drop the foreign stocks, just hold domestic stocks alone, as might we drop the gold holdings and opt for bonds - but that's tilting the portfolio, expanding concentration risk, is more inclined to see wider deviations - where our primary concern is avoiding to deepest of negative side deviations.
Statistics: Posted by seajay — Sat Nov 30, 2024 8:48 am — Replies 7573 — Views 1750002