The risk is that valuations are not correct.Valuations and risk are intertwined.
Valuation changes not connected to fundamentals are speculative.When the market determines that risk has increased or decreased, valuations adjust to compensate.
The investor is managing the risk of some portion of changing valuations being driven by speculation.So if an investor reacts to these changing valuations by buying and selling, he is simply undoing everything the market just did.
Again, the market is not omniscient. It's just people (or algos) deciding what price they want to pay for various securities, with either their own or someone else's money.Why would an investor take such a step unless they believe that changes in valuations are actionable, and the market is wrong?
Edit: It's almost like you're coming at this as market cap weighting vs. strategic asset allocation. These aren't mutually exclusive. The three-fund portfolio is strategic asset allocation that uses market cap weighted index funds...
Statistics: Posted by Beensabu — Sun Sep 15, 2024 1:41 am — Replies 6957 — Views 1692020