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Originally Posted by Slava
I'm trying to avoid a mammoth post here. Its interesting that you say passive investors are seemingly completely passive though, when there are a number of decisions to be made there. Asset allocation being the first.
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Minor quibbles, but I tend to think that the first decision to be made in regards to investing is "How much do I want to invest"?
The next decision, in my mind, is "In what do I wish to invest"?
The third decision, to me, would then be, "How do I wish to allocate all of my investments"?
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Originally Posted by Slava
You can't buy and buy and buy as you suggest without first deciding what to buy and how much.
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True, but see above.
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Originally Posted by Slava
Do you want that currency exposure hedged?
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Granted, there may be a few issues that Canadian investors need to deal with that US investors don't, so currency exposure isn't something I give a great deal of thought to (nor, to be honest, that I need to).
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Originally Posted by Slava
The in the next sentence you talk about re-balancing. On what basis exactly? So you cut the flowers to water the weeds or how do you make the decision that one sector/holding is overvalued and the others are undervalued?
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I'll try to keep this simple:
Lets' say you have decided that you have $100K, want a 60/40 stock:bond allocation, and you plan on investing an additional $1K a week from here to eternity.
You wish to keep things as simple (and as cheap) as possible, so you simply buy two funds: Vanguard's Total Stock Market Index Fund and Vanguard's Total Bond Market Index Fund*. Thus, your initial investment is $60K in the Total Stock Fund, and $40K in the Total Bond Fund, and each week thereafter, you invest your $1K in a similar 60/40 split.
Now, on a regular basis (monthly, quarterly, semi-annually, annually, whatever), you review your holdings and determine which of the two, if either, are no longer in sync with the 60/40 allocation (say, due to a bull stock market, your stock/bond ratio is now 65/35), and you either (i) buy more, over time, of what is "under" allocated (perhaps even to the exclusion of buying any of what is "over" allocated) [so that you buy more of the bond fund and little to no of the stock fund]; or (ii) sell enough of what is "over," [the stock fund] and use the proceeds to immediately buy what is "under" [the bond fund] so that, by the next day, you will be back at your 60/40 allocation.
It is really that simple. There is no market timing involved, there is little to no thought involved, and there is no emotion involved. It is simply performing a mathematical calculation and implementing its results. I don't consider that to be an "active" strategy--it is simply maintaining your portfolio.
* In absolute terms, it isn't really an "index" fund, but it is pretty much as close as can be in the bond world.
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Originally Posted by Slava
Clearly there is an active strategy of some kind here.
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Could be a matter of semantics, but the "active strategy" I'm discussing is simply the implementation and following of one's plans (which some people, annoyingly in my view, refer to as their "investment policy statement").
Do some people need paid help to determine what their "active strategy" should be? I guess...but at the same time, no one is going to care about your money or your future as much as you will and, besides, where are all the customers' yachts**?
** Good book, by the way.
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Originally Posted by Slava
I do think its interesting that you are willing to forgo knowing what to buy in order to just buy the index, but not willing to forgo that thought for something actively managed though. Its seems incongruent to me.
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Honestly, I have no idea what you are saying.