Most of the time I talk about long-term investing but not everyone has a long time to invest. What if you are saving for a house …
source
Most of the time I talk about long-term investing but not everyone has a long time to invest. What if you are saving for a house …
source
Input your search keywords and press Enter.
34 comments
The risk of a negative return is almost zero , when you start with a small amount invested and make contributions regularly.
I tried this in portfolio visualizer.
So you've Monte-Carlo modelled a single normal distribution return compounding over multiple years, and got a log-normal distribution overall return as an output as expected? Great video to show the effects of variance over several years, but didn't need Monte-Carlo and could have concentrated more on long tail excess return chances vs short tail loss chances. Also didn't catch mention of just buying individual bonds, which have minimal 'risk' if held to maturity…
Great video! Kudos! You just conquered a new subscriber (and a "like") from Italy.
this is amazing, thank you.
Hi Ramin. Thank you for the great video, I just subscribed to your channel.
In your Monte Carlo simulations, how was the money invested? Single one-time buy-in at the start of the investment period or Dollar Cost Averaging over the simulation's investment period? If the former, I would like to learn what you think about DCA and its effects on softening market fluctuations in the short-mid term.
Thanks!
Noob question here. My medium term window is 6-9 years in a taxable account (I max out my tax advantaged options every year). Given that window, would it make sense just to go 100 equity, say the S&P 500, and just pull out the money at some point after year 6 when its on a tear? I'm quite new to all this theory, but it seems to me that downturns of two years or longer are fairly rare so this strategy would be ok if you're risk tolerant which I seem to be.
by listening to you, I realized that I am not a dummy
Regarding the assumption that investment in say the S&P 500 is safe long term relative to inflation and gold I think there are three issues:
1. The usual S&P index since 1870 graph suggests phenomenal growth in the average investment in companies that make up the S&P 500 compared to Gold n Inflation – BUT the S&P 500 companies in say 1920 are not the same S&P 500 companies as today – many of the S&P 500 companies of say 1920 long ago evaporated / went bust, yet this graph assumes they are the same – that they are still in the S&P index (when of course they are not). Obviously a company drops out of the S&P 500 as it fails and is replaced by a new up and coming more profitable company with better prospects – but those invested in the failing companies lost share value yet their lose is not represented in this S&P 500 index graph! So the comparison with gold and inflation is false. This is not to deny many have done exceedingly well investing in the stock market during the 20th Century … just not on average 9.2% plus a large number of people made huge loses.
2. The period 1870 to say the year 2000 (note for example the last 20 years before 2000 huge power increases in computers n the development of the Internet).. since the year 2000 there have been new developments re: using the newly powerful computers n the Internet but not many if any really huge fundamental technological developments n really huge changes in fundamental physics understanding (eg quantum mechanics – which is behind integrated circuit design and so the increasing power of computers n the Internet) to feed huge future fundamental technological developments … the S&P growth has been fed by fundamental physics understanding and on the back of this huge fundamental technological developments… but this pattern may not continue / may even have ground to a full stop? The evidence since about the year 2000 is that it has ground to a halt may be there is little new to learn in fundamental physics, less applicable to technological development and / or less investment and interest in fundamental physics research to drive technological breakthroughs eg in cheap long term battery storage, super conductivity (low resistance and therefore cheap electricity), fusion reactors, quantum computing etc.
3. There has been huge world wide political stability especially since the early 1990s and in general since world war II leading to world wide trade and so huge friction-less trade and the S&P companies for example have benefited enormously but that trend seems to be coming to an end with China and Russia retreating from global markets plus aggressively tending towards war with former 'colonies' plus Western countries setting up trade barriers to world wide trade and immigration in an (I think misguided) attempt to protect their home markets and populous plus Western democratic voters tending to chose popular leaders rather than the best people for the job.
It's the usual past performance is not an indicator of future performance… I take issue with assuming that stock market investment is long term a low risk choice… right now with high inflation we can see there is almost no investment that is likely to return a gain if we take inflation into account.
Personally I in the UK have 5 year NS&I CPI tracking bonds maturing in 2026/27 which were/are only available to those with already maturing NS&I CPI tracking bonds – That is because I always view inflation as currently the greatest threat to assets and NS&I CPI (formally RPI) tracking bonds plus possibly UK property as the best counter balances to inflation… investment in a small careful selection of potentially growing UK companies already providing a good dividend yield … buying in say 1 or 2 years+ time within an ISA (tax protected) — when the recession / depression may be bottoming out may? also work out well long term… to provide passive income – of course who really knows … it's almost impossible to predict the future… so many variables and too many unknowns.
Regarding investing – The greatest rewards and losses are always associate with the greatest risk – may be that is the one thing we can state with certainty.
Just my humble opinion.
What do you think about lifestratrgy 20 as option for the medium term?
Hi Ramin, would ultra short term bond funds be a reasonable solution for a short time frame like you discuss here? For example JPST or ICSH? I was thinking you would mention these in this video so it makes me wonder what the downside is to them. Thanks!
In my opinion, the Goldenbutterfly portfolio or the Permanent Portfolio is the perfect solution for this scenario. Your drawdown is very limited, and the upside is much higher. Vanguard Wellesley or Wellington would work, too, depending on your risk tolerance. Wellesley ( more Bonds) more than Wellington ( more equities) , perhaps
PhD -do Monte Carlo for a living. You need to be very clear on your input distributions, your random variables, or this isn’t useful. All the appearances of sophistication, without underlying rigor. I could be wrong, but as a professional engineer, I can’t make use of this data
If you want to profit within 5 years, you need more info as an input (i.e. understand macro context), that's it.
I really appreciate these videos Ramin, thank you very much for your detailed and systematic, unemotive approach.
I have always been suspicious of financial advisors who in my experience have chiefly promoted their profit. My extremely cautious approach though, has meant I have missed out on any investment opportunities in my 30 year career. I had recently contacted a financial advisor with a rather significant amount to invest. To my amazement, they weren't interested. Even at a rather high (I thought) percentage commission of what I wanted to invest, they weren't interested.
I'm still cautious about investing in equities, but will be keen to invest if markets drop substantially. I know I need to listen to you re 'time in the market' … I'm getting there! Thanks again, I'm going to keep watching and listening
Hi Ramin
Please could you tell me do Vanguard lifestrategy funds hold any shorter duration bonds
I like this vid. Good insight.
My medium-term portfolio:
30% Equities
45% Gilts
25% Gold
This is probably more a question for your slack/discord (I still have to sort my ** out and actually join.. am on it promise) but I always wondered since the returns distribution is asymmetric.. could you in theory say go long the sp500, then hedge away some/all the downside risk with a long duration put option with strike at either current or say 10% below current??
Would be interesting to see the viability and how it affects return vs volatility (obviously including fees) in these cases??
Tx Ramin! Is volatility here used the same as standard deviation? Furthermore how was the volatility measured with these lifestrategy funds? Was this by analysing all price action since inception and looking at the yearly standard deviation? If so, how long was the period used to calculate this deviation?
Are there vanguard money market funds you would recommend?
2 year bonds did over 2k % from 2021 to 2022
Money market funds lol. Good luck beating inflation. Negative real return locked in.
There's no difference, in the end, in terms of risk of loss, between currency hedging or not. It's an illusion (in fact I bet hedging has a higher risk due to the costs associated of doing so).
Hi Ramin, I felt like covered call funds would help mitigate risk for medium term, which is my horizon. I am still kind of on the fence about it (as you may know from my previous comments) but it still seems like a safer bet than pure equity funds or leveraged CEF's (which i like for their income production but not for expenses or leverage). Currently I have a lot of JEPI, QYLD, RYLD and HNDL. My portfolio is only down 1.7% for the year so I guess it has been a good strategy at least for this year.
Can you share your code on GitHub? Would like to see how you generated this data. The other dimension would be to plot those distributions for different horizons.
Great video as usual
Could you do one about REITs? They look really cheap atm
Again a very helpfull presentation on the mechanisms which influence investment results. Congratulations on the briljant didactic effort!
This is really helpful, thank you!
Good video, can you look to add chapters please
I loooove your graphs ramen, best noodle man about
Really good video. I have the 40% markets / 60% bonds fund which I use for 15% of my portfolio.
I am a long term holder, 5 more years minimum, so don't want too much leaning towards bonds but value having some sort of hedge there.
Do these analysis take inflation into consideration?
In Denmark, we have pension products with built-in benefit guarantee options, e.g. you can decide to turn on the guarantee (secure the benefit) 10 years before retirement (at the price of a risk premium). Moreover, if your goal solely is your own economy buying a life annuity (with no guarantee) is an option since you earn the negative death risk premium (which increases with age). This extra return can be quite substantial (and even tax-free), especially in a low-interest environment.