Good reads from around the Web.
I have found a new website and it’s right up our street. Called Portfolio Charts [1], it’s dedicated to exploring asset allocation visually – and assuming all the maths is correct and the resultant graphs are accurate – it appears to be brilliant.
Now don’t get me wrong. I still think most people are best off not immersing themselves in the minutia of a dozen different asset allocations and wondering for six months whether the Coward’s Portfolio, the Merriman Ultimate, or the Golden Butterfly is the best allocation for them (or indeed whether they’re really finishing moves from Street Fighter III).
In truth, The Accumulator’s [2] back of a blackboard graphs are about as spuriously precise as is required to overcome inertia and keep new investors focused on what matters.
But if you’ve been coming here for a while, there’s a good chance you’re not most people. And that while you know you should know better, you’ll also have plenty of fun clicking around the site looking at how adding 10% more Treasuries dampened volatility if you were power-shouldered 1980s New York executive buying stocks to fund a place in the Hamptons.
(Yes, it’s American of course. Perhaps that’s an advantage if it means we focus on the gist rather than the detail?)
Less risky but more rewarding
The latest post exploring whether an investor should go 100% equities [3] is a good place to get started.
The author writes:
In investing, the concept of efficiency is most commonly discussed in terms of risk-adjusted returns. Basically, it’s all about trade-offs.
What are you willing to risk for your potential higher gain?
Sure you can invest in a portfolio with a higher average return, but with the trade-off that your odds of actually achieving that return with any certainty are much lower.
Portfolios that work towards good returns while minimizing downside risk tend to do quite well compared to pedal-to-the-metal portfolios.
Now that sounds great, but how is one to identify these magical portfolio unicorns with superior risk-adjusted returns to the stock market?
Surely they are quite rare, so why waste our time chasing the unattainable?
Here’s the thing — they’re not rare at all.
Then follows this graph, which goes straight into the Monevator Hall of Money Shots.
[4](Click to enlarge)
Source: PortfolioCharts.com
The square red box on the far left represents the performance of an all-stocks portfolio. The other symbols mark the same for a variety of lazy portfolios [5].
What this graphic shows is that over the period, adding other assets to your 100% stocks portfolio typically resulted in a less-steep worst year loss1 [6] while also tending to increase the minimum long-term annual compound returns your portfolio earned.
It doesn’t mean you won’t do better with 100% stocks – it doesn’t prove anything will happen in the future, because it is only a study of the past – but it does indicate very clearly that for long-term investors, diversifying assets has historically done the business on the basis of risk versus reward.
There’s plenty more where that came from over at Portfolio Charts [1].
Enjoy!
From the blogs
Making good use of the things that we find…
Passive investing
- History for passive investors [Video] – The Evidence-Based Investor [7]
Active investing
- Spot the red flags – A Wealth of Common Sense [8]
- The fast and the furious income seekers – The Value Perspective [9]
- 5 reasons why BT shares could be riskier than you think – UK Value Investor [10]
Other articles
- Why do bond prices work the way they do? – Oblivious Investor [11]
- The Whoosh! of exponential retirement – The Retirement Cafe [12]
- Metropolitan myths that led to Brexit – Tim Harford [13]
- My proposed wealth tax – FireVLondon [14]
- Waste money now or waste money later – The Finance Buff [15]
Product of the week: Would you lock away your money for seven years in a debenture touting an 8% return, asks The Guardian [16], after you’ve discovered it’s powered by recycled cooking oil from the local chippie? It sounds both ethical and righteous, and yet also a bit like the end of times – something that will be cited by historians of our low interest era in the years to come. The promoter – Abundance Energy [17] – says it hasn’t had any investment failures yet, but the debenture clearly isn’t paying 8% for nothing. Do your own in-depth research (and personally I only invest a small single figure percentage of my net wealth into such alternative assets in total.)
Mainstream media money
Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber of that site.2 [18]
Passive investing
- Swedroe: The cost of socially responsible investing – ETF.com [19]
- Global asset allocation versus home bias [PDF] – Vanguard [20]
- Smart Beta ETFs enjoy a popularity surge in Europe – Institutional Investor [21]
- Who bought US stocks after 2008? – Morningstar [22]
- Asset management: Actively failing [Search result, two weeks old] – FT [23]
Active investing
- Buffett’s Superinvestors speech revisited – Advisor Perspectives [24]
- M&G and Aberdeen howlers top ‘Spot the Dog’ list [Search result] – FT [25]
- Maybe negative yields are a sign of prosperity? – Bloomberg [26]
- Why Masayoshi Son bought ARM Holdings – Institutional Investor [27]
- Apple’s new normal – Bloomberg [28]
A word from a broker
- What is the outlook for the commodities sector? – TD Direct [29]
- Barclays may finally be turning around – Hargreaves Lansdown [30]
Other stuff worth reading
- Leasehold flats: What estate agents won’t tell you [Search result] – FT [31]
- Doubts grow over ‘totemic’ triple-lock pension – Guardian [32]
- A nice pension problem to have: £40K for life or £1.3m now? – Telegraph [33]
- How to get a good mortgage if you’re self-employed – ThisIsMoney [34]
- Renting in your 40s and 50s is on the rise [Search result] – FT [35]
- The incalculable value of finding a job you love – New York Times [36]
- Carl Richards is hopping off the hedonic treadmill – New York Times [37]
- How I learned to love the economic blogosphere [Search result] – FT [38]
Timewaster of the week: Blame the hot summer in London or digital distractions, but I’m reading fewer books than usual. I did however play a neat card-based quiz game in a pub garden in Hampstead yesterday called Timeline [39], which made me feel momentarily smart. Just don’t ever ask me when “the language of bees” was invented again. That stung.
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- i.e. Maximum drawdown – the fall in the value of your portfolio from peak to trough. [↩ [44]]
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩ [45]]