Simplest ever rebalancing investment strategy - Your thoughts - And how to back-test?

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When talking about rebalancing, it's more like investing than trading, right? Let's see...

I got the idea from reading thorough this: https://personal.vanguard.com/us/insights/investingprinciples (A very good read, indeed! You can find a PDF copy as well on the site)

So: the strategy is: 50% cash on the account and 50% of a single volatile investment I am bullish on the long run; let it be SP500, AAPL, gold or bitcoin (all these are up to debate; just for example). You simply rebalance them to 50-50% at the end of the period; let it be a year, a quarter, a month or a week. Ideal period for rebalancing will be found by back-testing. The more volatile the instrument is, the more often you want to rebalance it.

My questions:

What is the simplest way to get the data (for these instruments as an example) to do the back-test?

Easiest way to back-test the data? Anything simpler than manually putting them into an Excel spreadsheet?

Your thoughts? Sure, it's not solid investment advice, not to put all your money in one basket (a portion of it can be) but I thought it might help you lock in some profits from price swings, as the general advice in the investment world goes (as seen in the Vanguard paper) you cannot time the market anyways, why not take out all the guessing and make execution automatic?
 
Thanks for the ETFreplay link!

Yeah, I want to test it with anything including stocks, gold (that can be an ETF) and bitcoin, too.
 
One shortcoming of ETFreplay is data length. ETF's are more recent, where as if you use vanguard funds data lengths are longer. Vanguard Wellington funds go all the way to 1920's and major assets starts from 1972.

Also stocks present different kind of risk. What makes think you can pick next Apple or Google? They might go the way the route of Enron or JDSU

It is better to stick to asset classes in my opinion for long term investing.
 
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Here you go :) SLV at 50% and cash at 50%, rebalanced at the open and the close in green. SLV at 100% in blue. Interestingly, the daily sortino stat at the bottom of the image drops in half for SLV but the sharpe ratio stays roughly the same. Also the max drawdown for SLV over this period is 65%, vs 37% for the rebalanced 50/50 SLV and cash portfolio.

This does not account for transaction costs, and if you rebalance less frequently, you lose some of the benefits, which I could also illustrate if you want.

If you have any questions or want to see something else, please let me know.

slv-at-50-pct.png
 
If I had a lot of money, like I won the lottery or something, I would just go back to the old asset allocation model I heard on Wall Street Week with Louise Rukeyser, on PBS, once a week on Friday night, long before FNN, or CNBC.

60% stocks
30% bonds
10% cash

and reallocate it every year on my birthday

in a good year, I would be selling stocks, and over the last ten years with decreasing interest rates I would have been taking profits in my bond portfolio and be buying stocks all through that 2009 fiasco

nobody likes 10% cash, but in a bad year it becomes dry powder

put that in your back testing pipe and tell me how it smokes

my birthday is December 20th
 
loyek590 said:
If I had a lot of money, like I won the lottery or something, I would just go back to the old asset allocation model I heard on Wall Street Week with Louise Rukeyser, on PBS, once a week on Friday night, long before FNN, or CNBC.

60% stocks
30% bonds
10% cash

and reallocate it every year on my birthday

in a good year, I would be selling stocks, and over the last ten years with decreasing interest rates I would have been taking profits in my bond portfolio and be buying stocks all through that 2009 fiasco

nobody likes 10% cash, but in a bad year it becomes dry powder

put that in your back testing pipe and tell me how it smokes

my birthday is December 20th
More...

OK, but lots of questions remain for you, such as: which stocks? which bonds? and...what kind of cake?
 
drcha said:
OK, but lots of questions remain for you, such as: which stocks? which bonds? and...what kind of cake?
More...
well, let's just go with SPY for stocks
my days of loaning money to the United States Government are over, so, some kind of high yield corporate bonds like the Vanguard High Yield Bond Fund, but for historical testing you could just go with BND.
and for cash, t bills or the Vanguard Prime Money Market, or even 1 year cd's
 
High yields are almost proxy for stocks, their correlation is pretty high. In case of downturn both of them will go down at the same time.

If one wants to earn credit and term premium, it is better to with investment grade corporates. I would rather prefer muni's
 
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