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Roger Ibbotson on risk vs returns
Old 03-19-2013, 09:43 AM   #1
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Roger Ibbotson on risk vs returns

(I hope this link paste works):
Does Higher Risk Really Mean Higher Return?

High points of a Morningstar interview with Roger Ibbotson.
First, stuff you already know:
  • Stocks beat bonds--equity risk premium
  • Long bonds beat short bonds--horizon or interest rate premium
  • Small stocks beat large stocks--small stock premium
  • Value beats growth--value premium
Now it gets interesting. From a study from 1972 to 2012, within an asset class:
  • Lower risk equities outperformed higher risk equities.
  • Low beta stocks gave higher returns than high beta stocks.
  • Stocks with low share turnover for the previous year outperformed stocks with higher share turnover.
  • Low volatility and low beta (low correspondence with the overall market) gave higher returns in six categories of stocks.
  • Low liquidity stocks had higher returns than high liquidity stocks.
  • Other studies have shown that higher dividend stocks have lower risk and higher return.
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Old 03-19-2013, 10:00 AM   #2
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Interesting idea, and Ibbotson is as good a source as any. When I do a search, I find current credible articles supporting his conclusion, and others seemingly just as credible suggesting otherwise...not sure which to believe at this point.
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Old 03-19-2013, 10:19 AM   #3
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Quote:
Originally Posted by Midpack View Post
Interesting idea, and Ibbotson is as good a source as any. When I do a search, I find current credible articles supporting his conclusion, and others seemingly just as credible suggesting otherwise...not sure which to believe at this point.
Ya pays yur money an' ya takes yur choice.

As I am focusing on dividends in funds and my small individual stock portfolio these days, it is nice to see some authoritative support for my plan. But, will it really work? For me? Only one way to find out. All I can say is that it seems to be working and I could do worse (I have done worse!). I seem to be making fewer and smaller mistakes as time goes by.
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