Posts tagged total stock market

I’ve gotten many questions about slicing up the equity allocation of the Permanent Portfolio to try to capture the “value premium” by biasing the portfolio towards small cap value stocks both domestically and internationally.

Here are my thoughts:

Backtesting investing performance is dangerous. With backtesting, there is this temptation to tweak a portfolio to obtain the best possible historical returns. The one problem with this is: We aren’t going to re-live the past. We are going to live a brand new future that will be different. Even worse, you could introduce risks to the asset allocation that you may overlook as you stare mesmerized by the high annual returns you’ve discovered.

One of the changes you hear people talking about with the Permanent Portfolio (or most index investing strategies) is that some asset or another should be changed because this other asset did best in the past. After all, look at the results. If you just substituted Sub-Saharan Africa Micro Cap Value Stocks for the US Total Stock Market fund, the historical performance went up by X% a year and over Y number of years it creates a dramatic difference.

Too bad we didn’t know that information years ago when we could have actually made use of it. Now would you mind telling us what’s going to do best going forward? That’s something we can actually use.

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