Rebalancing and asset allocation

On July 29, 2019, from A. W. DDS, Ontario, Canada

Question:

I’ve been rearranging my finances for the last few weeks and have started to invest in RSP and TDB166. I really like your investment formula. I was hoping to get some clarifications from you.

I have downloaded the stock price for RSP from 2012 onwards and tried your method of having 50:50 on RSP and TDB166. Then I would buy more with 1/3 of the cash when the stock price is 10% down from the high. As the price goes down another 10%, I would buy more RSP with the rest of the cash. Then I rebalanced the portfolio to 50/50 when it goes back up to 10% from the previous high as well as when the price goes up 10% each time.

I am not sure if I am missing something or misunderstood something but I got a return that is very good. Much better than any of my investment accounts but It is not equal that of the S&P500. I am not sure if your return is better because you have borrowed as much as you can as you mentioned in your book when the stock price went down more than the 20% or is it because that is the difference from writing the covered calls.

Thank you for your help.

Monday Morning Millionaire Program Answer:

Your backtesting represents a lot of work and your results are revealing. Thank you for sharing with the rest of us.

Your understanding of the process is spot on — you did not miss anything. My return is better because, during much of the period that we are talking about here, I had a more aggressive 70/30 at asset allocation.

I recently switched to the more conservative 50/50% allocation to be more consistent with my age.

Also, rebalancing when the market drops 5% and when it rises 10% will likely give us better results.

Two additional notes

  1. Due to a technical issue, our usual Monday Morning Millionaire Program blog did not go out yesterday (Monday) as scheduled. That problem has been resolved.
  2. We offer a free, half-hour discussion meeting with me.  Contact us if you think that it might be useful for you.

Milan

 

Leave a Reply

Dr. Milan Somborac

The Monday Morning Millionaire Program supports do-it-yourself (DIY) investors which I have been for over 50 years. About my team and me

Schedule Your Free Half-Hour Discussion

Get in touch with us and schedule a free half-hour discussion with Milan.