From Attain Capital:
We’ve been seeing more and more posts lately (perhaps it’s just our reading list) that essentially say something along the lines of – why make everything so complex in investing, just stick with the simple stuff. The latest culprit comes from Reformed Broker, suggesting that while the traditional 60/40 portfolio surely isn’t the best portfolio, an average investor probably won’t know the difference between it and a better one – in advance – so why try. Here’s what he had to say:
“Are there better ways to invest than the classic 60/40? Sure there are. Will you be able to identify them in advance? Can you bear the added risk of a portfolio tilted toward higher expected returns, through the really rough times where that extra return is actually earned? What are the costs associated with supposed “better” investment strategies? Can they be justified on an after-tax, net of transaction expense basis?
Those questions are probably some pretty high hurdles for a lot of the so-called “better” or more exciting strategies to surmount, no?”
We’ve been through this before. First, with Business Insider looked at the past 20 years of returns. Next came, one of our favorite bloggers, Barry Ritholtz, saying simple beats complex. We looked back at the past 3 cycles (every 5 years) after that read, and found that simple beating complex wasn’t as simple as it has appeared over the past few years, showing a bit of recency bias. In the latest attempt, Reformed Broker uses a chart from Research Affiliates’ Chris Brightman to show that the old standy 60/40 portfolio has an annualized rate of return of 6.5% and volatility at around 9% – putting it square in the middle of all these other more complex investments designed to beat it.
(Disclaimer: Past performance is not necessarily indicative of future results) Chart Courtesy: The latest culprit comes from Reformed Broker
