You have previously suggested a mix of value and blend funds. However, Burton Malkiel states in his book “A Random Walk Down Wall Street” that value and growth are equal over time. His argument suggests that a mix of value and growth – not blend – with annual re-balancing would be a better strategy. Both you and Malkiel cite historical figures. Can you explain the difference in your point of view?
Great question. I cannot speak to the context of how it was stated but I would argue the premise that value and growth are equal over time.
Consider the following return figures from Dimensional Fund Advisors over the period of 1927-2011:
|US Large Cap Value||10.03%|
|US Large Cap Growth||9.75%|
|US Small Cap Value||13.50%|
|US Small Cap Growth||8.8|
As you can see, value has historically outperformed growth.
The use of value and blend funds enables us to take advantage of the value premium illustrated by the preceding figures. Of course, blend is a combination of the two so the same result could be accomplished with a mixture of roughly 3 parts value to 1 part growth. However you slice it up our recommendation is to tilt to value.
Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Compound returns have an assumed rate of return, are hypothetical, and are not representative of any specific type of investment. Standard deviation is one method of measuring risk and performance and is presented as an approximation. Past performance is not a guarantee of future results.