![]() ![]() The fund has lagged 96 percent of its peers over the past five years, and 79 percent over the past decade, and, even worse, has taken on more risk than its peers to earn those disappointing returns. The problem, as you may have guessed, is that they weren't very successful in doing so. And their compensation was strongly linked to their ability to finely tune that model, allowing it to profitably shift the fund's allocation between stocks, bonds, and cash. The fund's managers had many years of experience, and were supported by a deep team of analysts, traders, and economists, who doubtless poured more data than mere mortals could conceive into their quantitative model. This model wasn't built by your buddy Carl in his basement. Their proprietary model estimated expected near-term returns for stocks and bonds, and adjusted the fund's allocation to maximize its return. They could go from 100 percent stocks to 100 percent cash based upon their outlook for the stock and bond markets. What made this fund unique was the leeway its managers were provided. The fund, which was launched in 1988, is a balanced fund that tracks the S&P 500 on the equity side, and the long-term Treasury bond market on the bond side. A fine example of that futility was provided last week when Vanguard announced that it was making changes to its Asset Allocation fund. ![]()
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