Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 04-10-2008, 04:41 PM   #41
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by lswswein View Post
A post by Larry Swedroe on the morningstar boards from a while back(11-02-98 to be exact). Posted without any addln comments other than highlighting by me
Sorry but I'm not sure I get the point of that. Fill me in. For one thing you are only looking at 26 years of data, a very small sample size. For another, how much did it beat the indexes by? I didn't see that in the post. I also do not think the investments in that article are uncorrelated.
__________________

__________________
RockOn is offline   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!

Old 04-10-2008, 04:48 PM   #42
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by samclem View Post
I don't think you are agreeing with what I meant to say.
I'm not sure what you mean, I thought we did agree for the most part.
__________________

__________________
RockOn is offline   Reply With Quote
Old 04-10-2008, 05:08 PM   #43
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by innova View Post
RockOn,

The problem I think you're having is you don't want to rely on history. So, we can devise a simple math model to prove it, but I doubt you would like that because it doesn't model any 'investable' scenarios. So whats left?
I always wonder why using history is good for justifying some ideas but not others. For instance, you are using historic returns to claim a highly diversified uncorrelated AA portfolio will produce excess returns. But if I were to use market history to devise a market timing method of investing I suspect you would argue it isn't valid. For instance if I were to show you with 50 years of historic data that "only holding stocks for a few days at the end of a month and then again at the beginning a month (commonly known as seasonality)" generates far superior risk adjusted returns, would you support that as a valid investment method?

Another example of this is when we think nobody can predict short term moves in stocks. We all agree nobody can make a profit by short term trading but then we go out and buy mutual funds with turnover rates of 100% or more a year. Some things just don't make sense to me.

On the math model, I would be interested if it actually represented what we are talking about. I think if you can mathematically prove that you can lower risk and increase return with a highly diversified uncorrelated portfolio, you should be Chief Economist at the Fed.
__________________
RockOn is offline   Reply With Quote
Old 04-10-2008, 05:26 PM   #44
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,676
Is it my imagination or is this thread experiencing extreme main subject drift?
__________________
Lsbcal is offline   Reply With Quote
Old 04-10-2008, 05:27 PM   #45
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
drifting, sorry. But somewhat on track, investment advice is what he was looking for, we're looking at some options on what is the best advice. I think.
__________________
RockOn is offline   Reply With Quote
Old 04-10-2008, 07:29 PM   #46
Moderator Emeritus
Nords's Avatar
 
Join Date: Dec 2002
Location: Oahu
Posts: 26,616
Quote:
Originally Posted by RockOn View Post
On the math model, I would be interested if it actually represented what we are talking about.
Whatever it is that you're searching for, I think you're gonna be working seeking it for a long time.

Good luck with that.
__________________
*
*

The book written on E-R.org, "The Military Guide to Financial Independence and Retirement", on sale now! For more info see "About Me" in my profile.
I don't spend much time here anymore, so please send me a PM. Thanks.
Nords is offline   Reply With Quote
Old 04-10-2008, 07:35 PM   #47
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
Quote:
Originally Posted by Nords View Post
Whatever it is that you're searching for, I think you're gonna be working seeking it for a long time.

Good luck with that.
Just the backup (other than proof based on a small slice of market history) to some claims I read, that's all.
__________________
RockOn is offline   Reply With Quote
Old 04-10-2008, 08:11 PM   #48
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by RockOn View Post
I agree with that.

Using a highly diversified and uncorrelated AA tends to reduce risk and reduce return verses a highy correlated portfolio. The idea that a highly diversified and uncorrelated AA should increase return, as I have read more than once, is not a valid premise. (even though it might have happened in the past history)
Sorry, another long post coming . . .
The restatement that you made is not what I intended to communicate. Here's what I believe:
-1) In general, each asset class has a return that is proportional to its risk. (i.e. Highly risky asset classes provide higher returns, if we look at a very long time period.)
-2) Many people are trying to pick the next "hot" asset, and information that might affect the future performance of these assets and the means to analyze this information are easily available to everyone. As a result, it is very unlikely that an individual can consistently pick the next asset class that will significantly outperform the others.

Now, here are the conclusions that follow from this:
To get maximum return over time, an investor needs to invest in risky (i.e. volatile) assets (by rule 1 above). By rule 2, there's no reliable way to decide which particular asset class will do best in the near future. But, I know that, historically, some of these highly volatile (that are, by rule one, also the ones that produce the best payoff over time) increase and decrease in value in ways that are unrelated to, or even opposite of, the ways other asset classes perform. So, I divide up my money and I put a little of it in each of these asset classes.
Result: If I follow this, I've invested all my money in the highly volatile asset classes (the only ones that can produce high returns), but my overall portfolio will have low volatility. High return, low volatility. That's what we're after. And I didn't have to try to guess winners and losers.
I think it's obvious how this approach reduces volatility compared to plunking all your dough into whatever asset class I "predict" will do best. Does this approach reduce returns? Well, if you accept rule 1 than this approach will certainly produce better results over time than putting all the money on a single low-volatility (low return) pot (e.g. money-market funds). If an investor rejects rule two, then he's likely believe he can pick the winners (consistently, over many years), and will want to concentrate his money on his bets. This investor is likely to believe that spreading assets among many high-risk, high return classes will lower overall returns.

I think he's wrong. The research indicates he's wrong. The firsthand experience of many investors indicates he's wrong. And I'm fairly sure I'll end up supporting many of these people through my taxes, which makes me grumpy.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is offline   Reply With Quote
Old 04-10-2008, 08:46 PM   #49
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 798
I agree with that as you describe it. No arguement that it is a reasonable process. (Especially if you are 25)

The only part I question is that you are assuming you will pick some outperforming assets in your limited investing time frame (actually not really long term if you are older). If 50% of your assets have a reasonably good future return and 50% of your assets have a reasonably poor future return, you would have little risk, but also likely low returns. The assets returns will tend to cancel each other out. If there continues to be asset bubbles as we go forward, you will likely make out fine. If there are limited market dramatics, you are investing in a very low risk manner and you may have a better return in a CD ladder. Your method has risk, a CD ladder has almost no risk.

What I am saying is you are reducing your risk with your method, that's a given, how much you could pay for it in lower returns, is unknown.

I'm not saying it is a bad plan, only that it is not the only way to do it. Going with more correlated assets and taking more risk with those assets, could easily turn out to be a better way to go. For example, instead of going 75risky/25fixed (or even 100% risky) in your AA method you might be better off going 25risky/75fixed but put the 25 all in value stocks (or whatever you like) with no hedge. Which method has a higher potential reward verses risk taken? Only time will tell. Hedging can be a double edged sword.

Telling someone how to invest when they are approaching retirement with their nest egg on the line is risky business.
__________________

__________________
RockOn 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
Need Advise on if I should retire dex Hi, I am... 10 04-02-2017 03:08 PM
Willing to advise a newbie? Samson Hi, I am... 12 06-22-2007 07:25 PM
What would yo advise them to do? Hillbilly Health and Early Retirement 8 04-02-2007 12:42 PM
I need some advise regarding my retirement plan xmanz3 Young Dreamers 8 12-15-2006 12:31 PM
Need advise from the more experienced... acmcclellan Hi, I am... 9 05-11-2004 02:04 PM

 

 
All times are GMT -6. The time now is 04:23 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.