Beyond Buy-and-Hold #114 — Four Valuation-Informed-Indexing Portfolio Allocation Strategies

I’ve posted Entry #114 to my weekly Beyond Buy-and-Hold column at the Out of Your Rut site. It’s called Four Valuation-Informed-Indexing Portfolio Allocation Strategies.

Juicy Excerpt: I steered away from advocacy of The Gradualist Approach in the early years of my development of the Valuation-Informed Indexing Model. I was influenced by the intense opposition of the Buy-and-Holders to allocation shifts into trying to avoid frequent changes. I’ve come to believe that that was a mistake.

I certainly don’t think that you should make more than one allocation change in a year. But there’s no big problem with making an annual allocation shift. Buy-and-Holders plant the idea that annual shifts are a bad idea by pointing to the fact that there are costs associated with shifts. But the Buy-and-Holders themselves believe in annual rebalancing and rebalancing brings on costs too. So I don’t think the transactions costs incurred should be the deciding factor. You want to get your allocation percentage right. If there are small costs associated with doing that, those costs are worth paying.

The beauty of The Gradualist Approach is that you never have to debate whether to make a significant allocation change or not. Your allocation changes are less dramatic than those made by investors following other strategies. This means that you feel less emotion about the change. That’s good!

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