If you google asset allocation on YouTube you’ll find several videos of YouTubers who claim their portfolio mix is superior to traditional portfolio mixes. Most have foundation etf in VTI/VOO and also a growth fund (SCHG or QQQM). They never speak to overlap or uncompensated risk. Any thought about this? I would love to add growth/tech to my mix but it’s incredibly high and concentrated in US domestics.
Posted by Cornelious00
2 Comments
If you own broad market index funds you already own a lot of growth and tech.
Tech or growth has outperformed since the GFC , so for the last 20 years people have been rewarded for being overweight in large cap tech.
It’s really that simple. Uncompensated risk in sort of a theory or model as it deals with expected future returns what obviously are not fully known.
Well expected returns are not always actual returns . So you could argue people overweight in large cap stock are taking an uncompensated risk for being concentrated in tech because that what the model says.
However people who did take an uncompensated risk and were overweight in growth and tech actually did outperform for the last 20 years or so.
Well, most of the YouTube furus wouldn’t have a clue what Beta, Alpha, and correlation. You really shouldn’t be taking investment advice from randoms on the internet.
SPY and QQQ are high positive correlation, so they tend to follow each other. QQQ has a higher Beta so it tends to outperform the broader market.
Historically speaking, being tilted to large-cap growth has paid off very well. What you’re actually doing is increasing your market risk aka Beta.
Will past results continue into the future? No one knows. So approach your portfolio allocation based off your own risk tolerance and long-term goals.
In general, based off a ton of historical data, very few investors have actual skill, and most excessive market returns are driven by excess risk.