This follow-up article keeps exploring Time Value of Money concepts in the context of early retirement. The intent is to find a flexible way to manage one’s portfolio savings and annual spending levels in combination with various types of irregular cash flows while waiting for stable fixed income (e.g. social security, pension) to settle in.
As we have seen in Part 1, a few spreadsheet formulas can go a long way. Such ‘annuitization’ approach involves some extra risks though and this follow-up article will discuss ways to mitigate such risks.
This article will explore Time Value of Money concepts in the context of early retirement. The intent is to find a flexible way to manage one’s portfolio savings and annual spending levels in combination with various types of irregular cash flows while waiting for stable fixed income (e.g. social security, pension) to settle in. As we will see, a few spreadsheet formulas can go a long way.
Vanguard international index funds track FTSE indexes. These indexes are described in the wiki. In response to a request for index tickers, we have added an external link in these pages to a spreadsheet providing ticker information. We expand this…
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.
Many North American investors tend to look carefully at historical returns in the US and in Canada, and draw various conclusions. Occasionally, some references are made to Japan and the UK, and few people look any further. The world changes though. The UK was undoubtedly the world economic leader at the end of the 19th Century, while the US clearly dominates nowadays. Japan was on a roll, had a bigger market capitalization than the US in the 80s, and yet badly faltered since then. The world changes in ways we cannot predict, and it would be naive to assume that several decades from now, the situation will be similar to today’s environment. One thing we can do to get some perspective, is to try to draw some analogies with what happened in a larger sample of countries.
This article focuses on the historical returns from 16 developed countries, looking from the perspective of a local investor, and assuming a strong home country bias to begin with (i.e. solely using domestic stocks and domestic bonds). We will look at more diversified portfolios mixing domestic and global investments in Part 3.
True Bogleheads know the power of diversification. And yet, many such investors (including John Bogle himself!) are reluctant to diversify beyond domestic investments. Japanese investors could have perceived the same thing, with a remarkable run in the 80s in terms of market capitalization (nearly half of the world, higher than the US at some point) and in terms of stock returns. Unfortunately for Japan, as discussed in a previous blog article, this impressive success was followed by the worst equity crisis in modern history. This study about Japan also showed how some level of international diversification would have helped a local investor to mitigate this extremely painful crisis.
This raised an interesting question. Could one simply invest in the world, using global stocks and global bonds? And if this proves unsatisfying, is there a proper middle ground between domestic and global allocations?
Portfolio Losses and Volatility Volatility, the constant change in a stock fund or portfolio value, is normal and cannot be avoided. None the less, it scares people, or to be more accurate, downside volatility scares people, while upside volatility makes…
Tagged with: Stocks
Posted in Investing
Investors have the tendency to invest in markets as they perform well, and disinvest as they perform poorly. This pattern extends to the stock, bond, and money markets.
Once an investor develops a reasonable plan for long-term investment, a vital component to its success is for the investor stay the course and stick to the plan. This is perhaps the most challenging part of long-term investing.
Investors are exposed to a never-ending stream of newsprint articles, media talking heads, and internet chat filled with prognostications and auguries that now is the time to buy or sell a specific stock; or now is time to jump in…