Financial literature from academics has been strongly influenced by the ground-breaking work of Harry Markowitz and William Sharpe, and the concept of risk & reward for a multi-asset portfolio. Although brilliantly innovative, this work is often misused, equating risk with (portfolio) volatility and reward with (portfolio) returns, and applying such principles without acknowledging the fundamental differences between investors and speculators, or accumulators and retirees.
This article will explore risk and reward from a perspective more suitable to retirement, and perform corresponding quantitative analysis of some simple portfolios.
Michael Kitces wrote an intriguing article in 2008, which notably quantified the (empirical) relationship between the Cyclically Adjusted PE ratio (aka CAPE) and safe withdrawal rates (SWR) of subsequent retirement cycles. This blog article extends this study, adding ten more years of data (i.e. up to 2017), and then ponders about the practical applicability of such findings.
This article provides updated Telltale charts, including 2017 returns. It focuses on the relative past performance of value and size factors compared to the total US market, as well as studying international and real estate funds.
Using Telltale charts can be very informative, truly ‘telling the tale’ of what happened over time to portfolio trajectories, illustrating return to the mean properties, or lack thereof.
This blog article is the fourth of a series intended to document the inner workings of the Simba backtesting spreadsheet. […]
The intent of this fourth article is to address a few miscellaneous topics (e.g. end label on charts, compatibility issues, spreadsheet analytics).
This blog article is the third of a series intended to document the inner workings of the Simba backtesting spreadsheet. […]
The intent of this third article is to elaborate on more advanced topics (e.g. unbalancing, safe withdrawal rate, etc). We’ll notably discover that a Safe Withdrawal Rate is just a simple harmonic mean.
This blog article is the second of a series intended to document the inner workings of the Simba backtesting spreadsheet. […]
The intent of this second article is to elaborate on how risk metrics (e.g. volatility, drawdowns, etc) and risk ratios (e.g. Sharpe, Sortino, etc) are computed.
This blog article is the first of a series intended to document the inner workings of the Simba backtesting spreadsheet. […]
The intent of this introductory article is to elaborate on how the spreadsheet is constructed, and provide an overview of its layered structure.
Vanguard and others have put a lot of emphasis on bonds diversification using international bonds in recent years, while the Bogleheads community mostly shrugged. This article studies the effect of such diversification through backtesting techniques, looking at both regular International bonds and Emerging Market bonds. We’ll take a close look by studying monthly returns to better analyze the volatility and correlation properties of various portfolios. Then we’ll perform a similar study about diversification of equities with domestic, global or international real estate funds.
Vanguard manages two funds addressing the International Small-Caps market segment. The Vanguard International Explorer Fund (VINEX) is one of them. It was launched in Nov-96 by a UK investment company (Schroders PLC), then acquired by Vanguard in Mar-02, and it keeps operating as an active fund to this day.
More recently (Apr-09), Vanguard launched the Vanguard FTSE All-World ex-US Small-Cap Index Fund (VFSVX – also known as VSS in ETF form), a passive index fund.
This articles explores the differences between the two funds, as an attempt to help investors decide which one is best suited for them.
This article is the third part of a study looking at global and domestic investing from the perspective of local investors.
In Part 1 and Part 2, we took the position of a local investor in one of 16 countries of interest, and we explored somewhat extreme positions of either investing 100% global or 100% domestic. It is now time to try a more balanced view of things, and study portfolios mixing global and domestic investments. We will notably look at the mitigation this could bring to the countries having fared the worst, but also consequences for countries having fared better. Of course, it is easy to look at such numbers in hindsight and draw hasty conclusions, so let’s keep in mind that nobody could have predicted winners and losers ahead of time.