What caught my eye this week.
Investing in riskier asset classes usually delivers higher returns in the long-term – unless you’re putting money into emerging markets as opposed to developed ones.
Economic shocks are more important to investors than geopolitics – unless the politicians turn to global war.
Geographic diversification has improved your return profile – unless you were a domestic investor in the US, Mexico, South Africa, or [checks notes] Chile.
Just a few of the (paraphrased) insights I gleaned from skimming the new UBS Global Investment Returns Yearbook.
When I first encountered this annual stats smorgasbord from professors Dimson, Marsh, and Staunton 20 years ago – when it was the Credit Suisse Yearbook – it seemed like something out of J.K. Rowling.
Here were the secrets of the investment universe, compiled into one handy tome!
But subsequent years have shown again and again that past is only partially prologue in our particular fantasy realm. (Negative interest rates, anyone?)
All the same, I’ll always have a read of the Yearbook. Even the PDF summary is packed with morsels such as:
Since 1900, equities and bonds have on several occasions lost more than 70% in real terms.
Yet a 60:40 equity:bond blend has never declined more than 50%.
It’s just that after nearly three decades in the game, I see a statistic like that and think, “I suppose it’s overdue then…”
Have a great weekend.
From Monevator
Gold: an asset for troubled times – Monevator
The cheapest stocks and shares ISA on the market – Monevator
From the archive-ator: Why commodities belong in your portfolio – Monevator
News
UK regulator examines glitch that showed customers others’ accounts – Guardian
OECD warns UK is the only country with inflation above 3% – This Is Money
Revolut finally has a full British banking license – CNBC
UK house prices hit £301,151, says Halifax – This Is Money
AI scams drove UK reports of fraud to 440,000 last year – Guardian
Government under fire over ‘bungled’ crypto ISA policy [Paywall] – FT
IEA agrees to release record 400m barrels of oil – CNBC
Rented property in UK sees ‘largest value decline this century’ – This Is Money
Tesla set to supply electricity in Britain – Reuters
Trump sees massive increase in wealth as new billionaire list released – Sky
The debt beneath the data centre dream – Om
Products and services
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Average mortgage rate tops 5% as lenders scurry to reprice loans – Guardian
Low-cost platform Lightyear has further reduced its fees – Lightyear
Get up to £1,500 cashback when you transfer your cash and/or investments to Charles Stanley Direct through this affiliate link. Terms apply – Charles Stanley
Barclays switch offer: £200, or £400 for a premium account – B.C.W.Y.C.
What’s happening to home insurance premiums? – Which
Get up to £3,000 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link – Interactive Investor
Five mistakes not to make in your will – Which
Why authenticator apps are the best option for security – Oblivious Investor
First-class stamps going up to £1.80 from April – Be Clever With Your Cash
Victorian homes for sale, in pictures – Guardian
Comment and opinion
The 60/40 portfolio versus the bucket strategy – A Retirement Manifesto
Government is seizing ‘Henry VIII’ powers to direct pensions – This Is Money
How to rig an index to appease a billionaire – Keubiko’s Musings
Ways to cut the cost of commuting – Guardian
Why is it so hard to predict financial markets? – Behavioural Investment
“I make good money. Why do I still feel like this?” – Your Brain on Money
Rich or poor, we all share the same fate – The Root of All
How the Middle East war could affect your finances – Which
Buffett’s 90/10 is wrong. Even though it’s right – Humble Dollar
Portfolio theory in a spreadsheet [Podcast] – Rational Reminder
Naughty corner: Active antics
Hijacking the huckster’s hypebook – Investing 101
Exploring real wealth creation in UK stocks [Research] – J.O.A.M.
The untold story of Reddit – Quartr
Ten things on Berkshire Hathaway’s 10K – Kingswell
The best defensive strategies: two centuries of evidence [Nerdy, research] – Alpha Architect
Home or office working mini-special
Average UK office attendance at highest level since before Covid – Guardian
The great central London office crisis – Standard
Is legal uncertainty killing remote work productivity? – The Conversation
Kindle book bargains
The End of Reality by Jonathan Taplin – £0.99 on Kindle
Boomerang by Michael Lewis – £0.99 on Kindle
Money Men by Dan McCrum – £0.99 on Kindle
Economica by Victoria Bateman – £0.99 on Kindle
Or pick up one of the all-time great investing classics – Monevator store
Environmental factors
Net zero by 2050 is cheaper for the UK than just one fossil fuel crisis – Guardian
The planet is overheating. Why is the news looking away? – Grist
Peak District carbon capture plans hit opposition – BBC
Reversing extinction – Aeon
Can plastic-eating fungi help clean up nappy waste? – BBC
Extreme heat now affects one in three people globally, study finds – Guardian
Robot overlord roundup
The labour market impacts of AI so far – Anthropic
A library of ‘thinking prompts’ for Claude and other chatbots – Tom’s Guide
The legibility problem with AI science… – Asimov Press
…and the same sort of discussion regarding maths – Daniel Litt
The lobster – SpyGlass
Minimum wages and the rise of the robots [Research, nerdy, PDF] – NBER
Not at the dinner table
Carneymania is sweeping Canada – The Walrus
The Iranian warship the US sunk was unarmed. The US Navy knew it – New Republic
Why shadow tankers are the only ships moving through that Strait – The Conversation
TACOs with a side order of war porn – The Bulwark
I am sick and tired of all the winning – Drezner’s World
Freak out! – The Pursuit of Happiness
A web of financial ties between Trump officials and the industries they regulate – ProPublica
Why the US is facing a military defeat in Iran – Policy Tensor
What happens when low-skilled immigration is curbed [Research] – NBER
Off our beat
How geography determines architecture – Uncharted Territories
The science of personality change – Range Widely
Patrons of journalism – How Things Work
Should people start paying to visit the UK’s free museums? – Independent
Is low fertility in high-income countries here to stay? – C.R.R.
Rewind through 30 years of the World Wide Web [Interactive] – Web Rewind
Let it go – We’re Gonna Get Those Bastards
And finally…
“The statistic that separates skilled investors from the rest is the payoff ratio. If the hit ratio measures how often the investor right, the payoff ratio measures how right the investor usually is.”
– Clare Flynn Levy, Stock Market Maestros
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What a piece of sunshine in my inbox this morning!
> ‘It’s just that after nearly three decades in the game, I see a statistic like that and think, “I suppose it’s overdue then…”’
Well, all good-looking economies (Rome, Byzantium, Imperial Russia, Imperial China, Ottoman Empire, the Kingdom of France, Argentina and so on) imploded eventually, so investment, that is, sacrificing consumption note for disproportionately bigger gains in the future, has always been an act of faith and hope. That’s why people who lend money are called “creditors”: They have come to believe (‘credere’ in Latin) that they will get their capital back from the borrower, with interest.
At the moment, one has been far more likely to avoid the most extreme outcomes, good and bad, with an asset-class-mixed portfolio. You may be right that this is about to change, but is it any more likely than that the sky will fall down upon us?
This was a rather disturbing article about how Uber-style piecework is coming for white-collar workers too (because of AI companies … of course): https://nymag.com/intelligencer/article/white-collar-workers-training-ai.html (archive link: https://archive.ph/syqsk)
The problem here is in deciding what’s really the risky asset?
Are equities really more risky than bonds?
They’re more volatile for sure, but global stocks have provided an annualised real (inflation adjusted) return of approximately 5% in USD over the 126 years since 1900 beating Treasury bills by 4.6% and bonds by 3.3% per year.
Global equities outperformed bonds, bills, and inflation in all 35 markets surveyed in the Global Investment Returns Yearbook.
Given time, that compounds to orders of magnitude differences in returns.
And while, since 2000, gold has shown strong performance, looking back to 1900, global stocks have significantly higher appreciation.
As for commodities, they display high volatility, often with long term real returns close to zero, as they don’t produce any income (dividends or interest) unlike stocks or bonds.
So, which is the truly risky asset?
The one which moves around the most, or the one that, after decades, leaves you poorer? (I’m looking at you bonds, gold and commodo).
Stocks gyrate about like a rhythm free, tone deaf, embarrassingly drunk uncle hitting the dance floor at a out of control wedding party.
But, whilst the typical stock fails to beat the long term returns from investing in even 90 day T Bills (as 58% of US stocks did from 1926-2016, for example), investing in the aggregate of all stocks globally absolutely crushed it over multi decades time frames.
And for an investor building wealth with DCA, the volatility is an opportunity, not a threat.
That’s why you BTFD.
Eventually it works.
In that sense, and from that perspective, if you’re accumulating long term. then every ‘catastrophe’, be it war, banking crises or pandemics; is just another buying opportunity to take stocks out of weaker hands at discounted prices.
“Why authenticator apps are the best option for security – Oblivious Investor”
Who pays for authenticator apps?