Quote:
Originally Posted by jIM_Ohio
Not enough data for me.
The study was 20 years 1986-2006. This included the biggest bull market in history and generally the 1990's were one of best decades to invest in any type of equity (energy or other).
I have read other (similar) studies which suggested that during draw down a 7 asset portfolio behaved better than a 6-5-4-3-2 or 1 asset portfolio.
Asset 1 large cap stocks
Asset 2 small cap stocks
Asset 3 foreign stocks
Asset 4 bonds
Asset 5 cash
Asset 6 REITs
Asset 7 commodities
The logic behind the study I refer to was that 7 assets (in equal weightings) kept the portfolio from having 3 year performance periods where the portfolio lost money, which is the single biggest risk when drawing down (drawing down when a portfolio lost money).
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Is this the study to which you are referring?
The Benefits of Low Correlation -
If you look at Figure 4 you see that the 7 asset portfolio also had the highest return over the 37 year period (1970-2006). Personally I would be ecstatic if my portfolio returned 11.5% while in the accumulation phase. Granted this 7-asset portfolio does not include energy, so there would need to be further data to incorporate energy into the model to see if it helps or hurts performance. But Israelson's other research showed that energy & REITs were a viable substitute for commodities so I think it is justified to draw the conclusion that substituting energy for commodities would give similar results to the 7 asset portfolio.