Momentum is Real

The best estimate of an asset's near term future return is its recent past return. An alternative way of saying this is that bull and bear markets are real. Additionally, there is also clear empirical evidence of this in looking at the annual returns for different rebalance periods. These returns are shown here from an equally weighted portfolio constructed of bonds, domestic stocks, international stocks, commodities, real estate and gold from 12/31/71 through 8/31/16. No rebalancing: 8.62%. Monthly rebalancing: 9.09%. Quarterly rebalancing: 9.36%. Yearly rebalancing: 9.86%. 2-year rebalancing: 9.55%. Improving performance by increasing the rebalance interval through one year imply that outperforming assets tend to keep outperforming for at least a year.

Investing in assets with positive price momentum naturally avoids assets experiencing bear markets thereby reducing portfolio risk and increasing returns. ProFolio's tactical portfolios take advantage of price momentum to improve performance.

 

Disclosure:

The information presented here is the opinion of the author and may quickly become outdated and is subject to change without notice. All material presented in this article are compiled from sources believed to be reliable, however accuracy cannot be guaranteed. No person should make an investment decision in reliance on the information presented here.

The information presented here is distributed for education purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or participate in any particular trading strategy.

Performance data showing past performance results is no guarantee of future returns.

Performance data showing past performance results is no guarantee of future returns.

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