Boghie
Well-known member
Burro,
I wish I had the tools the efficient market types have access to.
I understand 'the why' regarding how mixing a higher risk fund into a lower risk fund reduces makes the overall risk even lower than the latter. Clear as mud... Here goes. The two asset classes are not 100% correlated. The C and S are more correlated than the C and F, however they are not perfectly in sync. The C will buffer short term movement in the S while the S will outgain the C on their more normal glide paths. Also, on the transitions one will buffer the other. You don't necessarily know which. When you are in one fund there is no buffering. There are no investors moving assets to other classes (thus increasing their share prices) because you only own one fund. You want your asset classes to be un-correlated if possible. Then you play one against the other. You will not win huge, but you will not lose huge - unless you are sitting in equities in 2008 when all equities were in a very correlated crash. At that point you bail and watch.
Your 75% C, 25% S is: 7% Return / 13% Risk
A 75% C, 25% I is: 7% Return / 13% Risk
A 75% C, 25% F is: 6% Return / 12% Risk
A 75% C, 25% G is: 5% Return / 12% Risk
Your 50% C, 50% S is: 7% Return / 13% Risk
A 50% C, 50% I is: 7% Return / 12% Risk
A 50% C, 50% F is: 5% Return / 8% Risk
A 50% C, 50% G is: 3% Return / 8% Risk
JPCalvin' Allocation: 0/0/51/26/23 is: 7% Return / 11% Risk because she mixes in the I fund which is less correlated than a mix of pure C/S (which really are very highly correlated). Because the I fund will move around somewhat unrelated to the C/S it will tend to buffer C/S and vice verse. I like her allocation. She has more b@lls than me - and I've even seen here swimsuit:toung:. I might even steal it.
If I were feeling giddy I would be holding something like: 4/16/37/29/14 which would result in: 6% Return / 9% Risk. If I were gung ho the G fund holdings would be in the C/S/I. My problem (stream of thought here) is that I don't trust the F Fund right now. It is held artificially low and really seems kinda toppy. I don't want my 'buffer' to be poised for a crash - but, there it is
I wish I had the tools the efficient market types have access to.
I understand 'the why' regarding how mixing a higher risk fund into a lower risk fund reduces makes the overall risk even lower than the latter. Clear as mud... Here goes. The two asset classes are not 100% correlated. The C and S are more correlated than the C and F, however they are not perfectly in sync. The C will buffer short term movement in the S while the S will outgain the C on their more normal glide paths. Also, on the transitions one will buffer the other. You don't necessarily know which. When you are in one fund there is no buffering. There are no investors moving assets to other classes (thus increasing their share prices) because you only own one fund. You want your asset classes to be un-correlated if possible. Then you play one against the other. You will not win huge, but you will not lose huge - unless you are sitting in equities in 2008 when all equities were in a very correlated crash. At that point you bail and watch.
Your 75% C, 25% S is: 7% Return / 13% Risk
A 75% C, 25% I is: 7% Return / 13% Risk
A 75% C, 25% F is: 6% Return / 12% Risk
A 75% C, 25% G is: 5% Return / 12% Risk
Your 50% C, 50% S is: 7% Return / 13% Risk
A 50% C, 50% I is: 7% Return / 12% Risk
A 50% C, 50% F is: 5% Return / 8% Risk
A 50% C, 50% G is: 3% Return / 8% Risk
JPCalvin' Allocation: 0/0/51/26/23 is: 7% Return / 11% Risk because she mixes in the I fund which is less correlated than a mix of pure C/S (which really are very highly correlated). Because the I fund will move around somewhat unrelated to the C/S it will tend to buffer C/S and vice verse. I like her allocation. She has more b@lls than me - and I've even seen here swimsuit:toung:. I might even steal it.
If I were feeling giddy I would be holding something like: 4/16/37/29/14 which would result in: 6% Return / 9% Risk. If I were gung ho the G fund holdings would be in the C/S/I. My problem (stream of thought here) is that I don't trust the F Fund right now. It is held artificially low and really seems kinda toppy. I don't want my 'buffer' to be poised for a crash - but, there it is
