Last week we had a post up on the “diversification debate.” In the meantime we have come across a number of items on the surprisingly controversial topic of diversification. The discussion ties in nicely with our post yesterday about the question of how many investors really need custom portfolios. James Picerno at the Capital Spectator takes a look at his Global Market Index under different weighting and rebalancing schemes and comes to this conclusion:
Rather, the point here is simply a reminder that diversifying across asset classes and keeping the mix from going to extremes is competitive and easy to do, and therefore you shouldn’t pay too much for the service. But simple ideas that have a history of working don’t always attract a crowd in finance.
There is no magic in diversification or portfolio rebalancing. It is cheap and easy to follow. That being said one could argue that this simple approach is in a certain sense sub-optimal. However a well-diversified portfolio regularly rebalanced is a strategy that most investors can follow. The same can not be said for other more active portfolio strategies that investors inevitably abandon at the first sign of trouble. Better a sub-optimal strategy than no strategy at all.
Other items worth a look:
The power of two simple investing ideas. (Capital Spectator)
Two persistent myths about international diversification. (CBS Moneywatch)
Why and how diversification works. (Bucks Blog)
More on the diversification debate. (Above the Market)
[repeat] Do you really need a custom portfolio? (Abnormal Returns)
[repeat] The diversification debate. (Abnormal Returns)