Random Fund Allocation, bringing you to double it!
I'm sure we've all heard of asset allocation at one time or another. As David Swenson, the administrator of the Yale Endowment Fund, once said, "Over the long term, the central determinant of investment returns is asset Allocation, stock selection and timing are all important after that."
According to Bloomberg information, as of June 30, 2019, the Yale endowment has grown from $1 billion in 1985 to Today at $30.3 billion, it has increased thirty-fold over the past 35 years. The Yale Endowment has achieved an annualized return of 11.4% over the past 20 years, and the fund's net worth has grown by $28.6 billion. Such excellent results are due to Swenson's masterful asset allocation practices.
But no myth is replicable, and for the average investor, diversification of risk is the core purpose of asset allocation. It is not complicated to do asset allocation, and it is important to combine the various broad asset classes with low return correlations, such as stocks, bonds, commodities, gold and Real estate, etc., can be combined and rebalanced over a certain period of time by dynamically adjusting the ratios between the assets in a certain ratio To achieve the effect of smoothing the return curve and reducing overall portfolio withdrawals. Many of the best funds in the Tiger Fund Supermarket can be used as raw material for asset allocation.
Fund Selection
To do a good job, one must first sharpen one's tools, and our tools and comparisons are two Tiger Supermarket funds, representing two assets: stocks and bonds.
A. Franklin Technology Fund A - Stocks
The fund was launched on March 4, 2000 and had a fund size of $3.2 billion at the end of March this year.
The fund's management team is experienced and stable. The strong company background ensures the fund's continuous operation.
The fund mainly focuses on U.S. technology companies, holding the top ten companies are well-known Microsoft, Alibaba, Apple, Amazon, Salesforce, MasterCard, VISA, Tencent, etc. The fund's management team is experienced and stable.
B. Fidelity USD Bond A Fund - Bonds
l Fidelity US Dollar Bond A Fund has been in operation for 30 years and as at 31 March 2020, assets under management amounted to US$1.69 billion.
l Fidelity USD Bond A Fund is heavily weighted in high credit-grade A-rated bonds with a weighting of nearly 70%. more than 90% of the holdings are Investment-grade bonds, which currently have a credit spread of less than 125 basis points to Treasuries.
The Fidelity United States Dollar Bond A Fund has outperformed both the United States Total Bond and the Global Bond Index Total Return from 3 months to 10 years (annualized). Returns. The fund's performance is at the top of its category across all time periods, with the most recent year's returns beating 99% of its peers.
Three different risk appetite equity-bond allocations
Let's use the above stock and bond funds for asset allocation to see how investing in a single fund performs differently than it would if we did the asset allocation.
Weatherproof - Aggressive
Usually aggressive investors prefer to allocate more to stocks, but investing only in stocks is very risky, so doing asset allocation can reduce the volatility (risk) and maximum return (maximum decline) of the portfolio and improve the Sharpe ratio (return per share of risk taken).
Allocation ratio: 90% equity funds, 10% bond funds, rebalanced annually
I'll take them all - balanced.
As a result of the Merrill Lynch clock theory, different assets perform differently in different cycles, and investors who don't want to catch the cycle choose to put the asset We invest in the market in equal portions, trying to catch every upward movement of every asset class in every cycle. Stocks and bonds are the two types of assets that have their own cycles, we all invest half of each.
Allocation ratio: 50% of stock funds, 50% of bond funds, rebalancing every year.
Nasty Development - Defensive
Conservative investors will want to allocate more low-risk assets in an effort to minimize the volatility of their portfolio.
Allocation: 20% to equity funds, 80% to bond funds, rebalanced annually
l Annualized returns approximate, but the risk of an aggressive allocation is less than that of an equity fund
The best performing stock fund of the past decade, the Franklin Technology Stock A Fund. But when we compare the Franklin Technology Stock A Fund with an aggressive allocation we can see that with the addition of a 10% bond fund. The maximum withdrawal and volatility of the aggressive allocation are reduced, meaning investors hold less risk, while the annualized compound return Not much has changed.
l Balanced allocation allows for higher returns with relatively low risk.
Relative to the Franklin Technology A Fund and the Aggressive allocation, the Balanced allocation still delivers 10%+ annualized returns, while volatility and maximum withdrawals are down to single digits.
l Defensive Allocation Takes Lower Risk and Higher Returns
For more conservative investors, instead of buying Fidelity USD Bond A directly, it's better to pair it with a little Franklin Technology Stock A. A defensive allocation with a Sharpe ratio of 1.43 and a maximum withdrawal comparable to buying only Fidelity USD Bond A, while annualized returns A full 2% increase!
Asset allocation saves time and effort in timing
Many of the funds in the Tiger Fund Supermarket have posted good gains this year, despite experiencing a March 2020 global market The big crash, BlackRock World Technology Fund A2, BlackRock World Gold Fund A2 and Fidelity USD Bond A all collapsed this month A new high for the year. With asset allocation, you may not have to agonize over when to buy by choosing different types of asset allocation methods based on your risk appetite , because any point in time can be the starting point on a smooth net earnings curve.
Simply put, making an asset allocation allows you to enjoy lower risk at the same rate of return, or while taking similar risks Enjoy higher returns. Simple asset allocation doesn't require you to pick your own stocks and time, so leave the professional work to the professionals.
