Re: Asset Allocation
the annual rebalancing maximizes EV yes. however your suggestion doesn't actually maximize EV. The best strategy would be 100% of funds in A on odd years and 100% of funds in B on even years. so your system is leaving money on the table.
the increased returns don't come from diversification, they came from investing in the highest returning vehicle at the time. (something that can be very hard to do practically)
so if you were to employ this strategy, which many people try, you would be trying to time the market. buy low and sell high. a day trader who invests all of his money in microsoft on day A then on day B invests everything in cisco, then puts everything in intel on day C isn't practicing diversification.
so... i don't know what else to say at this point other than diversification is a way of lowering you EV slightly for significantly reducing risk. being over-diversified is dangerous imo and is something to keep in mind.
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