What about share overlap though? Some of my funds have overlap in the same shares, not very highly (under 2% in all cases). Is it essential to avoid overlap?
Originally posted by KrytenIceCubeHead

I'd only really see it as a potential problem if it meant that an individual company made up a significant part of your portfolio. If you were invested directly in shares, then you might go with the general advice that 20-30 carefully chosen shares would give you plenty of diversification. That would mean that your largest holdings are likely to be in excess of 5% of your portfolio. I would be surprised if a balanced portfolio of several funds, even with significant overlap, would give you more than 2% exposure to any single company. I generally make sure I have a good spread across industry and sector and leave it at that.


I've also been inspired by the other thread to run some rebalancing simulations for a lump sum portfolio over differing periods, it seems that in a couple of different scenarios infrequent (every 2 years) rebalancing beats frequent rebalancing (every 1 year or less). It's quite difficult to draw any meaningful conclusions without a larger data set and a lot more time, but it does make me wonder whether these multi-asset funds that rebalance quarterly (or even more frequently) are missing a trick.
Originally posted by masonic

Unsurprisingly, a lot of people have run a lot of simulations on this. There are many threads on e.g. the Bogleheads forum discussing the benefits or otherwise of rebalancing. One thread to get you started:


The basic conclusion around returns is that --- shock! --- for a given period and a given asset allocation, there is an optimal rebalancing strategy in hindsight, and that the particular optimal rebalancing strategy varies depending on the period and the asset allocation. There does not appear to be any reason to believe that one strategy is intrinsically better than another. But if we believe that long-run returns are somewhat correlated with short-term volatility, then rebalancing provides a way to keep your risk exposure steady without sacrificing return.

Bowlhead, I have to admit to not reading all of your post as I'm up early tomorrow to fit a kitchen in our BTL but from what I have read, I doff my cap to you Sir.

Will read in more detail tomorrow.


"volatility harvesting".
Originally posted by kidmugsy

I have found over the years that whenever there is a financial advantage to be gained in some way it almost always comes with the (basic) need for volatility. Volatility in numbers is something that confuses the human brain very easily and if you can see through that and use it to your advantage you will do yourself proud. There seems to be almost always an extra edge gained for increasing the volatility as well.

So when do you rebalance? Is it an autonomic annual/6 monthly/more frequent event? I read the OP as a 'this is how well you could do in the market if you timed the market', which is obvious, if impossible.

Without in any way diminishing the value of a superb post, this stuff is obvious once one has "got it".

It is well worth posting, because few people will get it intuitively and most of us need reminding when we are staring at "losses".

If all our holdings moved up and down together, we wouldn't be diversified.

Thanks Bowlhead.

Due to being a new user here I can post links so cannot help with the post of the month, despite this being a great example. One similar suggestion for long term visibility might be a link in the sticky on this board?

On a more on topic note, I reread the motivator section linked to above. Combined with the thoughts here and, well let's say that I'm glad there is a bank holiday coming up to let me refine some of my thinking about my investments!

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