This month Jason Weaver discusses the three drivers of performance, active versus passive investing and portfolio rebalancing.
THREE DRIVERS OF PERFORMANCE
Mix of assets in a portfolio for an optimal risk-return balance based on risk profile and investment objectives
91.5% difference between performances are explained by asset allocation, according to widely-cited “Determinants of Portfolio Performance” study
Identifying individual securities within asset classes that will make up portfolio.
Buying or selling when downturn is anticipated, based on predictive methods
ACTIVE VS PASSIVE INVESTING
Investment strategy to maximize returns by minimizing buying and selling.
Strengths: Low fees, Transparency, Tax Efficient
Investment strategy that involves ongoing buying and selling activity by the investor.
Strengths: Flexibility, Hedging, Risk Management
Portfolios tend to drift over time – their weights shift due to market performance.
The bull market in stocks would have increased their weight over time relative to other assets.
Regular rebalancing is important to keep these allocations in-line with financial goals.