I know that the S&P is only 20-25% tech.
If you have a 60/40 portfolio and your equities rise to 65% of your portfolio while bonds fell to 35% you would likely rebalance down to 60/40 effectively "selling high" and "buying low" or the opposite if equities fell to 55% and your bonds comprised 45% you might sell bonds to buy equities.
Why is that an investor would remain overweight tech and not rebalance sectors?
One of my biggest qualms with index fund investing only (such as 100% S&P500 or three fund portfolio) as that you are "at the will" of increasing and decreasing risk levels. If the S&P was 10% tech and shot up to 20% tech your original risk tolerance is no longer in line with the new allocation.
Are investors taking considerably more risk than they are aware?
Another problem I have is people who try to claim the S&P500 averaged 8% annually so it will continue to do so. The weighting of the S&P500 40 years ago is completely different than the weighting today.
It would be like claiming a growth fund from 30 years ago that never changed holdings is still a growth fund. Likely it's now a value fund since a stock is unlikely to remain a growth stock forever.
While I still see index funds as a great way to get broad exposure, I think a time will come when people realize how different their pie chart looks today from when it began if they don't rebalance their allocation.
Submitted November 03, 2018 at 08:24PM by Timelapze https://ift.tt/2zptj70
