What caught my eye this week.
A new report from Goldman Sachs – the title riffs on the Everything, Everywhere, All at Once movie – is filled with enough graphs and factoids to drive a dozen Weekend Reading discussions.
But the crux is Goldman’s best attempt at a snapshot of an investable world portfolio today:
Study the chart. Do you think a 2% sliver allocated to real estate looks short a few thousand Knightsbridges and Mayfairs? Congratulations – collect your gold star.
This is – theoretically – an investable portfolio. So only real estate that’s listed or accessible via funds is in the mix. There’ll also be relatively little in the way of privately-owned businesses, or rolling arable fields in the Ukraine.
That might seem okay given this portfolio tries to represent what we can actually put into our ISAs and SIPPs. But it is a pretty limited view of global assets when you think about it.
Just consider what your own home is valued at, versus your investment portfolio. For most of us it’ll be a pretty hefty share of our net worth (even if you don’t like to think about it that way for reasons inexplicable). Scale that up to global proportions and you can see the issue.
Real estate and land alone represents a massive amount of global wealth. And while the US would still comprise a vast share of global assets, I doubt it would be quite so dominant if, say, Indian and Chinese farmland was in the mix – amongst much else.
Asset allocation by Mystic Meg
There’s plenty else to ponder in the report. Not least that it inevitably drifts into a discussion of what you can hold to do better than owning a 60/40 portfolio.
Passive purists will scoff – perhaps rightly so. This seems to me a particularly dangerous exhibit:
As I understand it the graphic shows what an investor would have been best holding at various points in history, based on the subsequent performance.
But of course that future performance is unknowable in advance.
Now you don’t get to work at Goldman without being smart enough to realise this. And to be fair to the report, it isn’t saying anyone could really have shifted around to track these allocations.
However it is sort of implying it.
True it couches things with talk of ‘strategic tilting’ and ‘structural macro regimes’. But the clear implication is that you can move away from owning a dumb world portfolio and towards investing in a more smartypants one.
The future ain’t what it used to be
That might sound reasonable to some. But any Here’s What You Could Have Won portfolio that falls out of such modelling is driven by data-mining historical returns. Not by using metrics to predict the future.
I don’t think the exercise is totally worthless. In as much as it makes the case for more diversification – such as holding gold – or de-weighting very expensive markets – such as the US – then those two links will take you to similar discussions here on Monevator.
My point isn’t that a keen investor can’t potentially take steps to improve their returns beyond just blindly following the market. It’s that very often such steps will and have led investors astray. Many will indeed do better to simply let the weight of the world’s money direct their actions.
But that’s unknowable, too! The AI sure-looks-like-a-bubble could pop on Monday, the US stock market could plunge, and in five years we might all wish we’d overweighted bonds and cash and British small caps.
Who knows? Not even Goldman Sachs. But its full report is still worth a read.
Have a great weekend.
From Monevator
How passive investing is improving your mental toughness – Monevator
Password managers for the Post-it generation – Monevator
From the archive-ator: The contrasting fortunes of Europe’s stock markets – Monevator
News
Reeves says she is looking at tax rises ahead of Budget – BBC
Four big themes as IMF takes aim at UK growth and inflation – Sky
Fears over US regional banks cause stock market jitters – BBC
German Chancellor calls for pan-European stock exchange – City AM
Miliband defends clean power goal after energy bills rise… – BBC
…and warnings of an extra 20% hike to come over four years – Guardian
How a £1m banker bonus will be paid under new rules – eFinancial Careers
We’re in the midst of an EV charging cable theft crime wave – This Is Money
Trio win Nobel economics prize for work on creative destruction – Reuters
UK equity bulls may not be contrarians for long – Reuters
Budget tax speculation mini-special
Reeves revives plan to cut cash ISA allowance despite backlash – City AM
Ten ways Reeves might shakeup pensions in the Budget – This Is Money
Options for tax increases [Long report, with PDF] – IFS
Raising income tax is ‘least damaging option’, says NIESR – Yahoo Finance
Budget rumours spark a surge in client queries for financial advisers – City AM
British Chamber of Commerce warns it’s ‘make or break’ for firms – Sky
Fixing the welfare state looks electorally impossible [Paywall] – The Economist
Products and services
Disclosure: Links to platforms may be affiliate links, where we may earn a commission. This article is not personal financial advice. When investing, your capital is at risk and you may get back less than invested. With commission-free brokers other fees may apply. See terms and fees. Past performance doesn’t guarantee future results.
Marcus raises its one-year fixed savings rate to 4.55% – This Is Money
Average mortgage rates are rising, too – Which
Get up to £200 cashback when you open or switch to an Interactive Investor SIPP. Terms and fees apply, affiliate link. – Interactive Investor
Lloyds Ultra 1% cashback credit card review – Be Clever With Your Cash
Nine ways to save money when dining out – Which
This new energy tariff lets you set your own peak time for use – This Is Money
Get up to £100 as a welcome bonus when you open a new account with InvestEngine via our link. (Minimum deposit of £100, T&Cs apply, affiliate link. Capital at risk) – InvestEngine
Can money transfer credit cards save you money? – Be Clever With Your Cash
Four things to watch out for when buying a funeral plan – Which
Homes for sale in converted castles, in pictures – Guardian
Comment and opinion
Why this investing expert has a financial planner – Morningstar
Retiring at a market high – Simple Living in Somerset
What drives gold’s value and returns? – Financial Advisor
A second opinion on the 60/40 portfolio – GMO
How to invest ethically without [article claims…] harming your returns – Which
Should big inheritance expectations change your plans today? – Best Interest
Morgan Housel reads the first chapter of his new book… [Podcast] – via Apple
…and argues getting wealthy requires long-term effort – CNBC
All the money, none of the satisfaction – Of Dollars and Data
Are we earning enough? The new squeeze on the middle classes [Paywall] – FT
Vacations just aren’t as great once you retire early – Financial Samurai
The case against holding bonds [Paywall] – The Economist
A private market primer – Morningstar
Naughty corner: Active antics
Soaring fund manager pay cost this London hedge fund dear – Reuters
What’s the ideal level of leverage? – FIRE v London
Bucket shops, crypto, and flash crashes – John Hempton
Seeking safety in credit – Trustnet
Investing rules are loosening. Could it cause another 1929? – N.Y.T. [via A.R.]
Recent academic research on investing – Alpha in Academia
Kindle book bargains
The Art of Uncertainty by David Spiegelhalter – £0.99 on Kindle
Narconomics: How to Run a Drug Cartel by Tom Wainwright – £0.99 on Kindle
Great Britain? by Torsten Bell – £0.99 on Kindle
Supremacy: AI, ChatGPT by Pammy Olson – £0.99 on Kindle
Or pick up one of the all-time great investing classics – Monevator shop
Alternative energy mini-special
Why big tech’s nuclear plans could blow up – BBC
Mega batteries are unlocking an energy revolution – FT
The liquid air alternative to fossil fuels – BBC
Hybrid plug-ins emit almost as much CO2 as conventional cars – T&E
Environmental factors
The world’s first climate tipping point has been crossed – Time
Nicholas Stern: climate investment the only growth opportunity – Guardian
Are medicines in waterways fuelling antibiotic resistance? – The Conversation
The maritime lions hunting seals on the beach – BBC
Homes fitted with insulation under government scheme need repairs – Sky
Some UK towns may be abandoned due to growing flood risk – Guardian
A once-global species has been declared extinct – Independent
Robot overlord roundup
Waymo’s robotaxis are coming to London – Wired
Eminem’s Without You but it’s 1950s soul [AI music] – via Instagram
Rescuing democracy from the quiet rule of AI – Noema
Imperial College plans new AI campus in White City, London – BBC
When the machine becomes the portfolio manager – Alpha Architect
Too much AI, too soon – Uncover Alpha
How digital platforms and AI degrade the information ecosystem [Research] – SSRN
Not at the dinner table
SNP are the latest proof that things change quickly in politics – BBC
“I am the only one that matters”: Trump dishes it out at Gaza summit – Guardian
Trump’s role was decisive, but this is not a roadmap to peace – BBC
Off our beat
A huge dinosaur trackway discovery in the UK [Fancy graphics] – BBC
“Please can I have a million pounds?” – Guardian
Here’s what actually fixes your gut health – Which
Life expectancy around the world [Infographic] – Visual Capitalist
How one supplement sums up the uneasy science of selling youth – FT
The emotional impact of downsizing – Next Avenue
Has intelligent life stopped bothering to try to contact Earth? – Guardian
And finally…
“There’s an old saying that nothing’s worse than getting what you want but not what you need. That sums up so many people’s relationship with money.”
– Morgan Housel, The Art of Spending Money
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I love articles like this.
A friend called me last week. Knowing I had been invested in the stock market for years, he said he had inherited a decent amount of money, and was looking for ideas.
I was quick to point to the MV website and gave a potted summary of passive investing, and that an MV post a couple of weeks back had listed all the financial crisis my simple portfolio had sat though. That despite the panic on each occasion there had been little longer term effect.
I’m not sure how to interpret exhibit 33? I would have though that with the benefit of hindsight the ‘optimal’ portfolio would be 100% one of the asset classes listed? Possibly if they’re choosing an arbitrary time span, say a year, then it starts to make sense? Not sure how useful it is over the classic ‘quilt’ type chart (which are genuinely invaluable for the insight they offer)?
@Rob – I’ve had relatives ask similar questions. I’m always wary I have everything to lose and little to gain in such scenarios. Even when I have offered up some guidance no one has ever actioned it. So I think I’m safe.
@Rhino, I was a bit confused too. The report mentions risk-adjusted returns in the paragraph before the chart, so perhaps that’s it – they’re applying some risk constraint which precludes an all-in portfolio.
Owning “everything, everywhere” sounds elegantly neutral – if you’re an academic invested in the strong form of the EMH 😉
But the capital weighted average of all investors globally is not the embodiment of your personal investment preferences given your own specific goals, risk tolerances and timescales.
Moreover your liabilities, tax regime and job are all GBP denominated, so layering in unhedged global bonds + commodities adds complexity without diversification benefit.
A global mix also hides some big implicit bets: US equities and bonds worryingly dominate, listed assets exclude most real world wealth (property, private business, infra), and asset weights reflect market prices, not future value. So you end up overweight whatever’s recently expensive and underweight what’s cheap.
Rather than theoretical perfection a much simpler world equity tracker plus a few inflation resilient diversifiers can probably capture most of the benefit without the noise and Sturm und Drang of an all in there asset stew.
If you want to get more optimised then you could (like I have) try capital efficiency / return stacking and go with WGEC ETF, rather than VWRL ETF, but, for those with access to it (it’s only on US echanges), the IRL implementation of the global assets portfolio in Cambria’s Global Asset Allocation ETF is, IMHO, probably not offering that much by way of real practical additional benefits.
GAA ETF’s done 5.88% nominal $ CAGR since launch in 2014, versus 7.48% for a regular balanced equity / bond mix.
I’d agree wholeheartedly though that’s it’s not enough to just try and diversify with bonds.
You need also some hedged commodities, gold and trend following (if not also infrastructure and alternatives).
But you should always chose for yourself how to mix it up, and in what proportions, to best fit your own needs and risk appetite.
@Rhino, Learner
Yes, this seems to be the key explanation, from the paragraph before figure 32:
> We split the World Portfolio into 5 parts, US and non-US equities and bonds as well as Gold, and run Markowitz optimal portfolios – unsurprisingly, over shorter horizons, like 1-3 years, potential Sharpe ratios for the optimal portfolios are much higher as business cycle swings and bear markets can drive large market timing opportunities (Exhibit 32). However, even on 10-year or 25-year horizons Sharpe ratios for the optimal portfolio were much higher compared to the World Portfolio.
I was trying to remember which paper I read recently that took a more robust approach, by only testing allocations on out-of-sample data. But I can’t seem to find it. It reached a conclusion we’d be familiar with: future returns are so hard to predict, you’re better off diversifying broadly.
The “optimal portfolio” they are showing in exhibit 33 is the highest Sharpe ratio portfolio over the prior 10 years e.g. 2015 to 2025 the highest Sharpe portfolio was 50/50 US equities and gold
Oh, it was of course the paper linked to in the weekend reading last week: https://link.springer.com/article/10.1057/s41260-025-00420-4
Thanks both for the guidance, that makes a lot more sense. It would be quite nice if you could tab in to some online tool when you started investing, and it then comes back with what your optimal asset allocation would have been, and what the overall return was. Effectively what’s been done here, but for your own personal time interval.
FT Alphaville also has a piece on this report that you might find interesting;
https://www.ft.com/content/88638834-efa4-4f9c-a4f2-11fba5b2e485
They agree with you on the second chart:
“We think they’re trying to show how much better you could’ve done as an active asset allocator with a well-functioning crystal ball. And yes — buying the best stuff is always better than not buying the best stuff.”
@Rhino
Indeed. You could call it Bullseye: here’s what you could have won.
That John Hempton piece is incredibly ill-informed. The massive crypto liquidations on 10 October were in the perpetual futures markets, not the spot market. No one expects the exchange to hold the underlying assets for perps positions, as longs are matched with shorts. This was explained very well (as ever) by Matt Levine (paywalled unfortunately): https://www.bloomberg.com/opinion/newsletters/2025-10-13/openai-keeps-doing-deals?srnd=undefined
(He’s also at least 5 years out of date with the claim that KYC isn’t a thing for offshore exchanges.)
That’s an excellent reference to a very good movie
Thanks @The Investor, I really appreciate the time you spend compiling these weekly posts.
One further article I wanted to flag was this from the FT about plans to introduce a minimum UK shareholding in ISAs (with some pushing for it to be as high as 50%): https://www.ft.com/content/99b91223-aced-4262-b7ff-356cee84a185
Any thoughts on how this could possibly be implemented? Surely it couldn’t apply to existing ISA holdings.
@Bob — Good to hear and thanks for spreading the word!
@Delta Hedge — Agreed on each to their own. 🙂 I think most sensible asset allocations will do the business long-term.
@Rhino @Learner @Tetromino @Vic — Indeed, hold your nose and own 100% the long-term winner would be MaxBackTestPortfolio. But in practice most of us want a bit of a smoother ride, and because we don’t know the future (a) can’t be sure of what we’re putting 100% into *in advance* and (b) will have to live through to that future, so want to spread our bets *in advance* anyway to sleep at night — not just from lower portfolio level volatility but also from knowing we’ve covered our bases. 🙂
(I think your proposed tool sounds like a new way to feel pain, mostly, Rhino! 😉 )
@Squirrel — Hah, aptly put by the FT guys!
@c-strong — I thought similar re: KYC, at least with respect to the big Western platforms where I’ve had to jump through all sorts of hoops.
@flyer123 — Yes, a fav. Wasn’t there meant to be a sequel?
@MDAABG — Thanks, re: the thanks! Was just discussing with my gf this evening how it’s become a huge task (the reading and choosing / rejecting more than typing the links, obviously, it’s easily 1.5 days work a week now)
Re: the British ISA variations, we’ve kicked this about a few times.
e.g. https://monevator.com/uk-isa/
I think it could be implemented in half-cocked way. If you go back far enough the PEP (forerunner to the ISA) had to be invested in British assets when it was first unveiled. Re: existing holdings, you’d probably be allowed to keep what you have but not buy new holdings. (There’s precedent for this with funds that fall out of scope for ISAs etc)
We’ll have to wait and see. Infuriating confusion window as usual.
“the PEP (forerunner to the ISA) had to be invested in British assets when it was first unveiled”
So people presumably bought internationally diversified Investment Trusts? I remember that that’s what our few pennies were put into.
Of course we diversified – by buying both the old Alliance Trust and the Second Alliance Trust. No flies on us!
Re the UK ISA, of course announced by Hunt in March 24 and scrapped by Reeves in Oct 24, only to be….??
I cannot see how it is workable except by having a ringfenced UK allowance (as per the Hunt proposal). If its only a proportion, and only for future purchases, how could it be implemented within one overall £20k allowance? So either its an extra allowance (as per Hunt) or its within the current £20k (as per the LISA, but with it compulsory, so effectively the limit for non UK assets is reduced). Anything else is surely unworkable. And I’d love to see how they define ‘UK investment’. Can we just buy gilts?
For the UK ISA, the most straightforward way would be to announce an additional UKISA with its own £20k allowance that would allow an additional £20k to be invested in UK stocks, UK debt, or funds/ETFs investing in UK securities. So we can be sure this is not what Labour will do.
@Baron — Sure most of us would like more ISA capacity around here, but it’s hardly trivial doubling the size of the UK’s prime tax-free shelter at a stroke. (Whether we should or not is a separate discussion.)
Also, that £20K can be invested in UK stocks, debt or funds/ETFs already. It just can’t be invested within an ISA. Plenty of very wealthy people hold substantial non-ISA/SIPP portfolios.
Personally I think the whole UK ISA thing is a jingoistic distortion and there are a dozen better ways to help London/the UK, some of which don’t even involve taking a time machine back to 2016… 😉
@The Investor Oh I totally agree it’s jingoistic and probably misguided. But if the government wants to encourage more saving in general, more retail S&S investing and more in UK securities specifically, this would be the straightforward way to do it.
At the same time I would be delighted to move £20k a year of FTSE UK All-Share Index Fund from my GIA to a new UKISA. A gift horse need not fear any glances at its mouth from me!
Haha, touche!