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Why rebalance?

Most newbie investors have trouble understanding why rebalancing is a valuable tool for a portfolio. It seems unintuitive on the first glance to sell investments in a portfolio that have been the winners and buy the losers. But most investment research has now come to the conclusion that rebalancing is a valuable tool that can reduce risk and enhance returns compared to a buy and hold strategy.

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SVLTI meetup on how to evaluate a Robo-advisor platform?

On 25th of February, SVLTI (Silicon valley long term investors) conducted a meetup on the topic of how to evaluate a Robo-advisor platform? The meetup was warmly received by the audience as evident from the strength of the attendees. The term robo-advisor has become a hot topic in investment community in the last few years. It was only natural that SVLTI conducted a meetup on this topic sooner rather than later.

SVLTI Meetup on Goal-Based Investing with Mental Accounts

On February 1, SVLTI (Silicon valley long term investors) conducted a meetup on the topic of goal-based investing with mental accounts. We invited professor Sanjiv Das from Santa Clara University's Leavey School of Business to speak about this very important topic. Professor Das's seminal research with Markowitz and Statman on the topic of portfolio optimization with mental accounts has had great impact on the subject of goal based wealth management.

The Silicon Valley Long-Term Investors Meeting on Current Investing Environment

On Jan 14, 2016 we had a small informal brain storming session on Current Investing Environment at the Silicon Valley Long-Term Investors (SVLTI) Meetup. The past SVLTI events have been more focused on investment education, rather than taking a snapshot of current investing conditions. It was good to have a meetup on the current investment environment at the beginning of the year, as that sounds like a good time to take stock of (no pun intended) the state of economy and the markets in general.

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How to use ETFs for sector investing?

Sector investing can add to higher diversification score for your portfolio. It can also help in capitalizing on the opportunities that arise because of the changing nature of consumption and growth patterns in the economy. For example, in the late 90s technology in general and the Internet sector in particular was a hot sector. When Greenspan unleashed the easy money policy of early and mid 2000s the home builders and housing were a hot sector to invest in.

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Highlights from the meetup discussion on diversified portfolio construction

We had an amazing meetup on "How to build diversified portfolios?" The attendees were mesmerized by the presentation and the facilities coordinator had to remind us that the building will be closing in 5 minutes or else we would have continued our discussion further. Some of the highlights from the presentation I took away with me were as follows:

Diversification helps in reducing portfolio risk and drawdowns.

ETFs and their expense ratios

In general we tend to think of ETFs as lower expense ratio funds on average than mutual funds. But I looked at the expense ratios of the ETFs in a database of around 1700 ETFs and it is interesting to note that more specialized the strategies higher their expense ratios. For example, look at the following list:

Short Government, 0.13
Intermediate Government, 0.15
Long Government, 0.16
Inflation-Protected Bond, 0.17
Corporate Bond, 0.18
Intermediate-Term Bond, 0.19

How to create a diversified portfolio

The other day I was trying to create a diversified investment portfolio for my 401(k) account. And I was shocked to see how bad the existing allocation was. Back when the financial equivalent of self realization had not dawned on me, I had done a very naive allocation by just sprinkling the money into various investment options in different categories given to me. The categories that were given were as follows;

1. Short term fixed income
2. Fixed Income
3. Long term equity
4. Small and Medium cap equity
5. International Equity
6. Natural Resources

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High Expectations Usually Disappoint

High expectations, on average, lead to negative surprises and low expectations , on average, can lead to positive surprises. We know this intuitively from our past experiences. And it seems to me that in the stock market this must only be more true. After all, the noise generated by media and financial "pundits" usually leads to a lot of hype. Dot.com experience is still fresh in memory.

I wanted to see if this can be verified quantitatively.

Hierarchical clustering of default ETFs used in portfolio replication

ETFscale portfolio replication tool uses IVW,IVE,IJK,IJJ,IJS,IJT,AGG as the default factors/proxies to replicate a portfolio. These correspond to the following asset clases:
U.S. Large Cap Value - IVE
U.S. Large Cap Growth - IVW
U.S. Mid Cap Value - IJJ
U.S. Mid Cap Growth - IJK
U.S. Small Cap Value - IJS
U.S. Small Cap growth - IJT
U.S. Core Aggregate Bond -AGG

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