You should attempt to calculate the resulting expected return and expected risk (volatility of return), evaluate the diversification ratio, and so on in order to have numbers that support your presumptions about what is to be gained, if anything. Included in that analysis would be to do this for various allocations 5%, 20%, 50% or whatever. You can't just mutter things like "not as correlated" and "safety" without quantification. A note is that this is tricky as things like expected return and correlation are not stable properties so there is a data problem about where to get the estimates.I'm looking for feedback on adding a sector fund - XLV to my current taxable account which holds only VTMFX right now -- Vanguard tax managed balanced admiral. I think XLV would be a good addition since healthcare generally is not as correlated with the broader market and the returns of XLV have been very good. It is a low tax option as well keeping with the theory of not putting high tax investments into a taxable account. The challenging part is how much to allocate. I've read no more than 5% but given the returns and the "safety" that healthcare can provide (loosely using that word) that 10% or 100K in this ETF would be my position. I know that sector funds can have undesired results and that to keep allocations at a minimum, but I wanted to get others feedback / experience. I would be investing for at least 10 years for retirement along with the current VTMFX in my taxable account. Or, am I better off just adding to VTMFX as a one fund that has had pretty stellar returns over the years even beating out some 60/40 funds with less volatility and less allocation to stock.
What happens if you Google for academic finance papers on this topic?
Statistics: Posted by dbr — Fri Jul 26, 2024 8:31 am — Replies 2 — Views 135