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Rebalancing: Who gives a Fug? — 7IM Short Thoughts

2 min watch
Ben Kumar, Head of Equity Strategy16 Nov 2023

Does rebalancing portfolios work? Jakob Fugger (1459-1525), arguably the richest man ever to have lived, had strong views on this question.

Ben Kumar, Head of Equity Strategy, takes inspiration from the 15th century investor to explain how far having a diversified investment portfolio with a consistent strategy can go today*.

Watch now.


Why am I starting this video with what looks like a medieval painting of a German monk? Well, it's because that painting is of Jakob Fugger. He was a German merchant who is still, so far, the richest man ever to have lived. Worth 2% of Europe's GDP at the time of his death in 1525, about $400 billion in today's money.

And how did he do it? Well, he followed a pretty simple rebalancing strategy. He had a widely spread portfolio of assets, and when one lost money, he would take some money from the winners and reinvest it in the losers. And following that strategy over time, built up this massive amount of wealth.

And it still works today. If you look at the FTSE 100 and a global government bond index between 93 and 2008, a kind of time when interest rates are about the same as they are now, the FTSE 100 returned about 200% and the global government bond index about 170%.

Now, if you were to, say, take a 50/50 blend of those portfolios, you might expect the returns to be somewhere in the middle. But this is where rebalancing every month is your friend. You sell the winner, buy the loser. Suddenly that 50/50 portfolio returns 196%, just a smidge behind the FTSE 100. And look at the orange line. See how much smoother a journey you get. The biggest drawdown is 15% compared to a nearly 50% fall in the FTSE 100.

*Returns are not guaranteed – past performance isn’t a guide to future returns.
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