A recent CFA Institute article tested a theory (shared by a large investment management firm) that a portfolio invested 51% in the S&P 500 could yield the same returns as one that is 100% invested in the index. “In other words, the strategy delivers the same portfolio return at only half the volatility.”

The article notes: “At a time when market volatility exceeds 2008-2009 financial crisis levels, such a strategy has an understandable appeal. Given the potential implications, we gave the research a closer look.”

The analysis compared the returns of $100,000 invested 100% in the S&P 500 under a buy-and-hold strategy on March 24, 2000 and a 51% investment in the index starting the same date. While it found the theory to be correct, it also found that results hinged in a big way on the three rebalancing dates used: October 9, 2002, October 9, 2007 and March 9, 2009.

“What jumped out at us was the serendipity of the three rebalancing dates,” the article notes. “Those from 2007 and 2009 correspond to a market top and bottom, respectively.” By adjusting the rebalancing dates by as little as two weeks (early or later), the CFA analysis found that results changed significantly for the worse.

The article notes that recent pandemic-related market volatility underscores how difficult it is to time the market, concluding, “To pull off the 51% market-weight strategy requires extreme market timing: the specific rebalancing dates must be chosen perfectly. Failing that, we’re better off with a buy-and-hold strategy that is 100% invested in the market.”