For all the attention we give to the margins of investing, we sometimes miss the basics. We argue about a handful of basis points, when there are hundreds—if not thousands—of bps at stake depending on how we set our asset allocations, or even on how we define the boundaries between asset classes. The truth of the matter is that we often neglect the basic parts of our portfolios. It’s in recognition of this tendency that we revisit the very foundations of our industry.
First up is a wake-up call from Agustin Fleites discussing the supposed demise of core investing. He suggests that recent market turmoil and volatility have caused investors to lose faith in the basic principles of core investing, but that would be a mistake—and he offers proof.
Vanguard’s Christopher Philips, Joseph Davis, Andrew Patterson and Charles Thomas follow with a comprehensive article on the very nature of a huge piece of the asset allocation puzzle. We allocate a large part of our portfolios to fixed income (approaching half, and often increasing as we near retirement). And yet unlike with equities, few of us consider the value of international diversification in that chunk of our investments. This analysis is a healthy portion of food for thought, of the “fistfuls of basis points” variety.
Next up is a provocative contribution from Richard Ferri that attacks the follies of market timing and tactical asset allocation and champions passive investment in the form of strategic asset allocation. Investors—both individual and institutional—need a disciplined investment framework, lest they fall in with the “dumb money.”
David Blitzer weighs in from another angle on core/satellite, suggesting that losing some dogma and hedging your bets may not be such a bad idea. And our roundtable of financial advisors and academics featuring the likes of Burton Malkiel, William Bernstein and David Armstrong, among others, wraps up the issue’s theme with some varied opinions on key questions.
Ronald Slivka and Xin Li are also back—with Yikai Zhang—further exploring the potential of China’s budding futures market, while Heather Bell closes out the issue with some words of wisdom from one of her investing heroes.
As an index investor, these are the golden years, where our investment options are boundless … but at the same time, the amount of opacity and confusion as to what one might do with his or her portfolio remains. We and our contributors suggest that you keep a clear head, stay realistic and get back to the basics.
Jim Wiandt
Editor
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