Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Allocation Returns
Old 03-05-2006, 04:23 PM   #1
 
Posts: n/a
Allocation Returns

xxxx
__________________
  Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: Allocation Returns
Old 03-05-2006, 05:04 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,627
Re: Allocation Returns

Some of what you want might be here:
http://www.fundadvice.com/articles/b...llocation.html
and in other articles at the same site.
__________________

__________________
LOL! is offline   Reply With Quote
Re: Allocation Returns
Old 03-05-2006, 10:26 PM   #3
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Re: Allocation Returns

Quote:
Originally Posted by LOL!
Some of what you want might be here:
http://www.fundadvice.com/articles/b...llocation.html
and in other articles at the same site.
The table suggests that 100% equity is the best for a long investment horizon.
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Re: Allocation Returns
Old 03-06-2006, 06:53 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,627
Re: Allocation Returns

Quote:
Originally Posted by BabyApe
LOL!
Do you use thier model portfolio?
No, but Merriman's web site has influenced my asset allocation just as the writings of Bernstein and many others have.

Quote:
Originally Posted by Spanky
The table suggests that 100% equity is the best for a long investment horizon.
Only if you ignore risk and the efficient frontier.
__________________
LOL! is offline   Reply With Quote
Re: Allocation Returns
Old 03-06-2006, 07:56 AM   #5
Thinks s/he gets paid by the post
wildcat's Avatar
 
Join Date: Feb 2005
Location: Lou-evil
Posts: 2,025
Re: Allocation Returns

100% equity portfolio looks the best in a straight return sense but it doesn't account for return per unit of risk. According to "theory", we, as risk averse people, should choose the highest return portfolio per unit of risk or the highest return/lowest risk.
__________________
"These walls are kind of funny. First you hate 'em, then you get used to 'em. Enough time passes, gets so you depend on them"
wildcat is offline   Reply With Quote
Re: Allocation Returns
Old 03-06-2006, 10:14 AM   #6
Thinks s/he gets paid by the post
Spanky's Avatar
 
Join Date: Dec 2004
Location: Minneapolis
Posts: 4,046
Re: Allocation Returns

Quote:
Originally Posted by wildcat
100% equity portfolio looks the best in a straight return sense but it doesn't account for return per unit of risk. According to "theory", we, as risk averse people, should choose the highest return portfolio per unit of risk or the highest return/lowest risk.
If we considered the Sharpe ratio as the basis for optimal return, 10% equity is the best.
Code:
Sharpe Ratio = (return - risk free) /STD

fixed
Income  1.26
10	  1.42
20	  1.32
30	  1.20
40	  1.06
50	  0.95
60	  0.86
70	  0.80
80	  0.75
90	  0.70
100	  0.66
S&P500	0.47
__________________
May we live in peace and harmony and be free from all human sufferings.
Spanky is offline   Reply With Quote
Re: Allocation Returns
Old 03-06-2006, 09:28 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: Allocation Returns

LOL,
Thanks for posting this -- great resource. I like Merriman and have his most recent book "Live it Up without outliving your money!". He is a financial planner, though, and charges a fee for his services.

Which may be why for some of us, the numbers could look even better than those on his chart -- he has taken out 1% management fee from the returns in the table. If you were able to buy the funds and manage your own portfolio, you should be able to do even better.
__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Re: Allocation Returns
Old 03-06-2006, 10:14 PM   #8
Full time employment: Posting here.
 
Join Date: Jan 2006
Posts: 899
Re: Allocation Returns

Babyape,

A do-it-yourself suggestion:

Run FIREcalc with a zero withdrawal rate and various stock/bond allocations.

Click the "Detailed Results" button to get the year-by-year results and pull the results into Excel and plot them as distribution functions.

The higher return/extra risk for stocks will give a higher average return but will also have a broader distribution with more negative returns for the short time periods.

MB
__________________
mb is offline   Reply With Quote
Re: Allocation Returns
Old 03-06-2006, 11:38 PM   #9
Thinks s/he gets paid by the post
wildcat's Avatar
 
Join Date: Feb 2005
Location: Lou-evil
Posts: 2,025
Re: Allocation Returns

Equity Sharpe
10.0% 0.222222222
20.0% 0.340909091
30.0% 0.418181818
40.0% 0.434782609
50.0% 0.44047619
60.0% 0.43
70.0% 0.431034483
80.0% 0.424242424
90.0% 0.416107383
100.0% 0.407185629

I got something different Spanky It was more in line with what I would have expected.
__________________
"These walls are kind of funny. First you hate 'em, then you get used to 'em. Enough time passes, gets so you depend on them"
wildcat is offline   Reply With Quote
Re: Allocation Returns
Old 03-07-2006, 11:13 AM   #10
Full time employment: Posting here.
bosco's Avatar
 
Join Date: Jul 2005
Posts: 987
Re: Allocation Returns

Quote:
Originally Posted by ESRBob
L
Which may be why for some of us, the numbers could look even better than those on his chart -- he has taken out 1% management fee from the returns in the table. If you were able to buy the funds and manage your own portfolio, you should be able to do even better.
I agree, but let's give him credit for taking the 1% out of the table. I get the feeling that many of his ilk conveniently don't do this. His website has a lot of useful information.

I remember back in the 1980s he coauthored a book on (gasp!) market timing and how to generate your own timing signals. I used a version of his system and deftly side-stepped the 1987 crash. That was the upside. The downside is I didn't get back in at the bottom.

I am no longer a "dirty market timer" (mostly because it doesn't fit my emotional temprament) but nevertheless think there IS a place for timing, unlike many on this board. Merriman's website is a source of useful info on this as well, although I'm not sure his signals are the best.

__________________
I have an inferiority complex, but it's not a very good one.
bosco is offline   Reply With Quote
Re: Allocation Returns
Old 03-09-2006, 08:41 PM   #11
Thinks s/he gets paid by the post
 
Join Date: Mar 2004
Posts: 1,318
Re: Allocation Returns

Baby Ape,
5-10% should be fine. It kind of depends on how many different asset classes you are in -- the more you delve into foreign bonds, commodities, oil and gas, international equities etc the fewer percents you have to go around and that might squeeze you toward the 5%. If you are just in some plain vanilla US stocks and US bonds, then it makes sense to be higher on your REITs (10% or so) as something that will be diversifying you away from the risks somewhat of those other asset classes.
__________________

__________________
ER for 10 years; living off 4.3% of savings (and a few book royalties ;-)
ESRBob is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Asset Allocation: Effective but not feasible? Hillbilly FIRE and Money 20 04-28-2007 11:02 PM
how are returns computed? zakenjanei FIRE and Money 6 02-26-2005 02:24 PM
Annualized Returns JWR1945 FIRE and Money 3 07-25-2004 10:26 AM
Interesting study on P/E ratios & expected returns Cb Other topics 2 06-30-2002 10:48 PM

 

 
All times are GMT -6. The time now is 01:58 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.