A recent Canadian Capitalist article on Burton Malkiel's Contradictory Advice generated comments discussing what constitutes proper asset allocation for passive investors. I think these worries can lead investors to make bigger mistakes than just having an imperfect asset allocation.
Malkiel advocates an increased allocation to Chinese equities. Some argue that this makes sense because the Chinese stock market is small relative to its GDP. Others observe that Malkiel's advice is self-serving because he is associated with Chinese ETFs. I think the debate about the perfect asset allocation is less important than the benefit of sticking to a plan.
It is true that improving your asset allocation to the best percentages of various assets classes (bonds/stocks, domestic/foreign, large-cap/small-cap, etc.) may give a small boost to returns for a given level of risk. However, any reasonable allocation that matches your risk tolerance is likely to be close enough. The real concern is whether you frequently jump to the latest and greatest allocation.
What might look like clever shifts to ever more sophisticated asset allocations may be just a case of chasing the latest hot trend. If you were persuaded by the arguments to buy more Chinese equities, are you seeking exposure proportional to the Chinese GDP or is the real reason that China seems hot right now?
As Canadian Capitalist says, could you be persuaded to add First Trust NASDAQ CEA Smartphone ETF (FONE) because "Smartphones are pretty hot these days"? The world is full of temptations to deviate from passive investing. Even the prospect of better passive investing can be just performance chasing in disguise if you make frequent changes.