I am a retiree who is reverting to passive index investing after trying stock picking and timing for six years. When the reversion is complete, my portfolio's target allocations will be 65% broad index stocks (SCHB and SCHF), 30% aggregate bonds (SCHZ), and 5% cash (CD plus loose change at the brokerage). Divs and any new money will go towards preserving portfolio balance. If further rebalancing is needed, I will do it in .5% increments when stocks depart from their target allocation by more than +/- 2%.
While I enjoyed the challenge of picking, at least at first, I found that I was performing roughly the same as my benchmark. More importantly, my learning curve was flat. Perhaps this was because I am a dunce, but I would rather believe it was because stock picking and market timing are more matters of luck than skill.
Put differently, I became convinced that the Efficient Market Theory is essentially correct. Current price reflects all relevant publicly available information, including analysts' estimates of discounted future earnings, and technology allows a virtually instantaneous ability to trade on that information. This means that unless some traders are irrational and we can identify the irrationality, there is no publicly available basis for comparing price to value. For all practical purposes, current price IS fair value, making judgments about future direction matters of faith rather than well grounded belief.
Given all this, I chose to revert to a balanced portfolio reflecting asset allocations that my wife and I are comfortable with in our present circumstances. It will not hit market beating home runs, but it will capture the market's long term upward trend without guesswork or pricy fees for advisors or active management.
IHS Markit (Nasdaq: INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 key business and government customers, including 80 percent of the Fortune Global 500 and the world’s leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.
Ronald J. Surz is a partner and CIO of Paladin FinTech, researching financial technology as well as providing a portal to leading edge financial technologies, including some developed by Paladin.
He is also President of PPCA and Target Date Solutions, and partner of TDF Builder and Sortino Investment Analytics.
Ron has served on several boards, and currently serves on a few. He earned an MBA in Finance at the University of Chicago and an MS in Applied Mathematics at the University of Illinois.
As SA Senior Editor, my task is to make Seeking Alpha the premier destination for financial advisors. I have worked in the FA arena since 1997, and during that time, the New York State Society of CPAs twice awarded its prestigious Excellence in Financial Journalism award to me for a monthly column I wrote on business ethics.
Previously, I reported on international news for Voice of America (where I was awarded a newsroom writing award) and prior to that worked as an editorial assistant at U.S. News and World Report.
I live with my wife and children amidst the verdant and vibrant hills and dales of Jerusalem.