chapter 12
Liquidity
Perhaps one of the most underappreciated advantages of the rational portfolio is its excellent liquidity. The rational portfolio will outperform most actively managed portfolios in the long run, while being tax efficient and tailored to our individual risk profile. But it is also advantageous from a liquidity perspective.
Liquidity is one of those things you mainly hear about in a negative context because things went wrong and there wasn’t enough of it. The rational portfolio is also affected by liquidity issues in the market; times of decreasing liquidity are typically synonymous with declining markets. And the rational portfolio with some risky equity exposure will probably lose money in declining markets, like most ...
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