Fifty / Fifty Approach in Investing

In Financial competency, Investments on 08/12/2011 at 5:13 am

 Some research from America, and how it can tried out here.

Vanguard created a model portfolio divided equally between stocks and bonds, and compared the returns in periods of economic expansion and recession. It found that “the average real returns of such a portfolio since 1926 have been statistically equivalent regardless of whether the U.S. economy was in or out of recession.”

Vanguard’s founder, John C. Bogle, popularized index funds, and the study tracked the stock and bond markets using indexes that mirror the broad markets. Individual stock and bond selection wasn’t involved at all.

What accounts for these results? Put simply, bonds tend to outperform stocks when a recession is on the horizon, while stocks tend to rally when an economic expansion is in the offing. “The financial markets themselves tend to move in advance of the economy,” Mr. Davis said.

Predicting the economy’s direction is famously difficult. So unless you have substantial bond holdings in your portfolio well before a recessions begin, you’ll miss upturns in the bond market. And unless you’re holding stocks before an economic recovery has started, you’ll miss those big rallies.

By holding stocks and bonds in equal proportion — a portfolio that’s easy to construct by using index funds — you won’t need to be prescient; you can stick to your portfolio and ride out the storms.

Of course, a 50-50 stock-bond division is relatively conservative. Alter those proportions and the results will shift significantly. During recessions, for example, a portfolio containing 60 percent stocks and 40 percent bonds fared worse than the 50-50 portfolio, with an average real return of 4.9 percent annually. In expansions it did better, with an average real return of 6.8 percent, according to Vanguard’s calculations.

That points out the allure of market timing. In an ideal world, if you knew in advance where the economy was heading, you’d be a market wizard. You would shift your entire portfolio into stocks during expansions, for example, and put all of it into bonds in recessions. If you could actually do this, the results would be impressive. In expansions, Vanguard found, stocks have gained an average of 11.9 percent annually, after inflation, while the comparable figure for bonds in recessions is 7. 2 percent That kind of timing is ideal.

BUT it’s easy to shoot yourself in the foot. Get the timing wrong and hold only stocks in recessions, for example, and you’d have an annual average gain in those periods of 3.3 percent, after inflation. And if you hold bonds in expansions, you’d lose an average annual 0.7 percent, also after inflation.

 Want to try this here?

 The term sheet says, among many other things:


You are investing in a unit trust constituted in Singapore that passively invests its

assets primarily in S$ denominated fixed income securities and Singapore-listed

equities in the proportion of approximately 50:50 respectively (proportionate

allocations are subject to a 5% variance).

The Managers intend to invest all or substantially all of the Fund’s assets in the

following exchange traded funds (“ETFs”), namely the ABF Singapore Bond Index

Fund and the Nikko AM Singapore STI ETF (the “Underlying Funds”).

Both of the Underlying Funds are managed by the Managers.

The base currency of the Fund is S$.

This is for yr further study. I’m not recommending either the 50/50 strategy or the product.

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