I’m no market timer, but my investing spreadsheet looks like one. I’ve coded just about all of my investment decisions into one spreadsheet. Whenever I add new savings, the spreadsheet tells me what to buy to bring my portfolio back to its target asset allocation percentages. However, if we look at the rebalancing decisions in isolation, they look like brilliant market timing.
It’s no secret that the Canadian dollar has been extremely volatile compared to the U.S. dollar over the past year. I had no idea this would happen. I didn’t make any predictions. I don’t know what will happen in the future. But my rebalancing spreadsheet looks like it made good predictions.
Before the Canadian dollar began dropping, I was adding new money to U.S. stocks to get my portfolio back to its target percentages. After the Canadian dollar dropped, I was buying Canadian stocks. The recent run-up in the Canadian dollar has me back to buying U.S. stocks. I’ve consistently bought low. How can a simple spreadsheet be so smart?
The answer is that rebalancing looks brilliant whenever the spread between assets grows and then shrinks again. Rebalancing is a loser if the spread between assets just keeps growing. So, as long as the Canadian dollar keeps trading within a given range and Canadian stocks keep up with U.S. stocks over the long run, rebalancing will look a lot like being able to see the future.