I would suggest a step beyond though, because rebalancing your portfolio is fun year 1-5, but not so fun year 5-20: have a look at e.g. Vanguard retirement target funds.
Essentially, it's an ETF with a rebalancing rule included for a specific target date. For instance if you buy the target 2050 (your hypothetical retirement age), the ETF rebalances itself between bonds/monetary fund/stocks until it reaches that date, u til it's pretty much all cash in 2050.
Lowest hassle diversified retirement scheme I found.
Rebalancing into bonds and mmmfs is a form of insurance against catastrophic losses equities. But if you have a sufficiently large account then catastrophic losses that affect your life are extremely rare, if they do occur they will likely affect your bond portfolio as well, and the expected loss vs 100% equities over 15-20 years is significant, something like 10x the value of the insurance you are buying.
If you want insurance for a large account then long-dated put options 20% of the money are much cheaper.
US large cap has certainly recently outperformed the other parts of the target date fund (international stocks, bonds). But there is certainly no guarantee that it will happen "every time". In the last 10 years, US equity has been the best overall performing asset class for the past decade but 7 out of those 10 years at least one other category outperformed it: https://www.blackrock.com/corporate/insights/blackrock-inves...
> Like pension funds I bet Vanguard is one of these so-called LPs who give money to VCs like Y Combinator to help ivy league kids follow their dreams.
You can look up the holdings of VFIFX or any other Vanguard fund. There is no private equity or private credit.
Guaranteeing mediocre performance. Not my cup a tea.
What you describe sounds like a kind of momentum/market cap investing, which is favourable in the short term, but suffers a lot when things go bad.
(This is assuming one cannot predict future returns better than the rest of the market. If you do that all the better!)
Seems like there's a lot of confusion on this. I'll see if I can get a fuller article up.
I can point couple companies that suddenly dropped from $90 a share to below $10 and then they never got up “Just eat takeaway.com” between 2018 and 2022 it was looking like they would go to the moon. In 2022 you can see hell of a drop and it is not going back.
If you would sell parts of it before 2022 you would lock at least some of the gains.
But I think you know better when to switch companies ;)
It's not easy to suppress the panic.
There's an even better alternative for someone willing to put in the leg work:
(1) Figure out your investment horizon. For many people, this is way shorter than suggested by generic advice, which makes some diversification beyond "stonks go up" meaningful.
(2) Figure out what costs you'll incur by rebalancing etc.
(3) Write a short script that optimises the amount of activity in portfolio management that improves performance over your investment horizon, given your costs.
Unsurprisingly, the result can vary a lot between people. The result is most likely going to involve a very low level of activity, but the process of finding it out is very informative.
What I've found out (and this is replicated also by more authoritative people like Carver) is that for almost everyone, mixing in some 10--20 % of a safer asset like 10 year bonds and rebalancing yearly outperforms a pure equity portfolio over most realistic investment horizons.