Bogleheads.org

Stocks are "less risky" in the longterm in the way people mean it -- to their portfolio. (only academics are talking about stock, in a vacuum, are more "risky"). ie, if you invested 1k in 1929 all in the equity index, you'd be feeling pretty good right about now. You wouldn't be...

Do you believe bonds are safer the longer they are held? I believe that what is determined by the length of the holding period is the safest asset. In the theory of portfolio selection the risk-free (safest) asset is defined as the security that offers a perfectly predictable rate of return in term...

To convert annual sd to monthly sd you divide by sqrt(12).
So 17.38/sqrt(12) = 5.02

Hope that helps.

Yes our estimate of the future mean return may be in error. That was the point I was making. If we knew the "true" future mean return of equities then investing in equities would involve roughly the same amount of risk regardless of the holding period, because we would be closing in on th...

I see Bodie's argument was mentioned (that higher option prices with longer time horizons proves that risk increases with time). So I am reposting a post of mine from years ago, maybe someone can answer my question. IIRC, Bodie concluded that the cost of insuring against earning less than the risk-f...

Another example of the perils of bubble predictions. The Economist called a bubble at $80, now after wandering north of $200 it is back at $80. Will the Economist admit their prediction was wrong? Nah, they will probably take credit for accurately calling a bubble in advance. See Prof Scott Sumner's...

Thanks Assumer, that was very helpful.

The equation for risk of ruin (the chance of losing all your money at any time in the future) is: ( (1 - EV / Std) / ( 1 + EV / Std ) ) ^ ( Total_Money / Standard Deviation ). There are also equations for losing $X after Y hours, gaining $X after Y hours, or losing $X before reaching $Z, ad infinit...

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If it were not possible to predict stock prices, then algorithmic program traders would not be making money. Obviously, some people have figured out in some time frames and under some defined parameters to make money predicting price movements. Isn't it enough for BH's to be happy to make money the...

What exactly is a "real, productive asset"? farms, real estate, timber, goats, forklifts, etc A tenet of Boglehead philosophy is that index funds (invested in listed securities) are priced by liquid markets eliminating the need for investors to have- or hire skill to determine value. Thes...

I think he would say that the probabilities of these rare events (black swans) are unknowable. And that anyone who says they can calculate them is a charlatan (he often uses more colorful terms!) so basically you need to position yourself to benefit from them. if you are left standing when everyone...

I think some are perhaps missing the point. Taleb does not consider himself an investor anymore, nor a statistician but a philosopher. I've just bought the book and am finding it very good so far. "And we can almost always detect antifragility (and fragility) using a simple test of asymmetry; ...

Eric Falkenstein resumes his long standing feud with Nassim Taleb with this lengthy but telling review of Taleb’s latest book ‘Antifragile’ http://falkenblog.blogspot.com/2012/11/taleb-mishandles-fragility.html Some excerpts: ‘His latest book Antifragile is driven by his discovery that there is not ...

As the only Saffer on this forum (to my knowledge) I need to gloat: Well done Ernie,you deserve it, no matter how they come! 4 Majors for SA in 5 years. Nearly another one at the Masters this year (but well done Bubba, I enjoyed your victory through my tears for Louis). We are emerging market invest...

As the article is titled ‘The arguments for and against investing in gold’, I think the argument made by Profs. Fama and French should have been included. It is the best argument against gold as an investment as far as I’m concerned. See: http://www.dimensional.com/famafrench/2010/04/qa-does-gold-be...

"Hoping to get a higher return" is not analogous to an equity premium. Equity premium means that stocks, matter of fact, average a higher return than bonds over the long-term. It means that for your risk you get a greater return, given an infinite time period. The expected equity risk pre...

--Expected returns and actual returns are inversely related. When investors expect high returns (as in 1999), prices are bid up which causes future actual returns to be low. When investors expect low returns (March 2009), prices are low which causes future returns to be high. This is not the view o...

An equity premium is optional for the typical human. This may well be true. You may not have much respect for the ability of aggregate investors to make rational decisions, but perhaps you have more faith in the world’s corporate leaders who are expected to make smart decisions in return for their ...

I ran some random numbers where asset1 has a 50% probability of returning +100% or -40% in any given year and asset2 has a 50% probability of returning +100% or -50% in any given year. My results indicated a geometric mean of between 15-16%, not 27.5%. I think Wbond meant to say 'perfectly negative...

For JSE listed ETFs see these links. http://www.etfsa.co.za/ http://www.satrix.co.za/default.aspx http://etf.absacapital.com/Products/Exchange%20Traded%20Funds/Pages/default.aspx ERs are in the 40bps range. The major problem I find is that tax advantaged accounts charge at least an additional 1% abo...

BobK I had a look at the pages of the book available on Google books. If you perhaps still have the book at hand, I would appreciate if you can answer my question below: Table 7.1 in the chapter on Kolmogorov shows Lifetime Ruin Probabilities with a Balanced Portfolio. Does it mention elsewhere how ...

The formula you use for a fixed annuity is a rough approximation (in fact very rough).
See pg 2 of this thread for a better calculation method which is based on actual mortality tables.

viewtopic.php?f=10&t=95318&p=1377979#p1377979

I know nothing about the DFA managed DC retirement plan, but I think I understand what they are trying to achieve – they are trying as much as possible to mimic a DB pension fund. I agree that the graph shown is a bit too optimistic for the managed plan, but the median for the managed plan could be ...

It's not that hard to do amateur-actuary stuff and get a ballpark estimate. On SPIAs, I figure it has got to be more like a 90% benefits/premium ratio, probably a little higher because of adverse selection. It just can't be 60%. BRK Direct EZ-Quote says, for a man born 4/1/1947 (age 65) "Your ...

Dr. Falkenstein published this entry on his blog: http://falkenblog.blogspot.com/2012/04/who-gets-equity-risk-premium.html He seems to have changed his mind from 'The equity risk premium is zero', to 'The equity risk premium is zero for the marginal investor'. Relative risk theory only makes sense i...

I'd just like to remind people that getting longevity insurance via an SPIA and the asset allocation after annuitising can be decoupled, so current low bond yields are not necessarily a reason to avoid an SPIA. My favourite UK annuity product would enable me to select from a range of funds inside t...

The "anatomy of annuity" chart is interesting being dated 2009. One can presume that most of the "interest" is from LT Treasuries; so when their rate drops, the total income from annuitizing early drops a lot. If LT Treasuries are at above average rates, then lock it in... The p...

Due to adverse selection, SPIA's probably only offers value to less than 25% of the population (The healthiest quartile).

The "risk" of equities that generates the ERP is the annual volatility. It's a complete fallacy that appears in many ways in ever discussion of equity risk on this board that the real risk of equities is some intrinsic property of the asset class, rather than being an attribute of the rel...

It's assumed that the likelihood that an investor follows a plan is independent of how aggressive the plan is. All the theory assumes that investors will actually stay the course, whatever course they've chosen. Yet Chuck Jaffe claims in a throwaway remark for which I can't find a source, that in r...

The great thing about stocks versus bonds is that historically the distribution of outcomes over long holding periods has been almost all upside. But the thing stock enthusiasts continually miss is that the lower end of that distribution is about the same as bonds. What this means is that you need ...

The great thing about stocks versus bonds is that historically the distribution of outcomes over long holding periods has been almost all upside. But the thing stock enthusiasts continually miss is that the lower end of that distribution is about the same as bonds. What this means is that you need ...

I apologise for going off topic, but I would like to know if anyone has an answer to my math question below which relates to the calculation of joint life expectancy. Using the Gompertz law I use the following excel formula to calculate life expectancy for a single life: =LN(1-1/(EXP((Ap-Mp)/SDp)/LN...

As a point of clarification to magician's analysis, for a normal distribution the mean and median should be equal (or approximately equal). I find it pretty interesting that a sample set as large as you chose does not have a median that is more inline with the mean. Magician's analysis assumes that...

With the parameters that you gave to us, this is what I would do. 1)Purchase a $5.1 million dollar participating whole life policy. The rest of the money can be invested, and there would be no need to avoid touching the priciple. An annuity won't do it on it's own because of the need to have the gu...

I agree, this is a non-starter for retail investors. Even for institutional investors these opportunities are very limited due to the borrowing costs issue.

[ well, if some bad ETF cost 1.1% and a cheap similar ETF cost 0.1%, you could make a guaranteed 1%. However, unfortunately ETFs don't cost 5% so you can just get your 1% from a FDIC savings account instead. No, the short position will yield cash earning the short-term rate. The payoff = short-term ...

Wouldn't the primary mechanism for this efficiency be ... a lower price for the ETF with the higher expense ratio? ie if this level of sophistication exists in pricing, it would seem that the expected return for the two ETFs would necessarily be the same. The price of an ETF should track the NAV of...

How risky is a 30 year nominal bond portfolio held by a retiree drawing down 4% of initial portfolio + cola every year?
To me the only amazing thing here is that 30 year bonds have beaten the stock market so rarely over long periods, it should happen a lot more frequently.

Yes, there is an arbitrage opportunity.
These opportunities are quickly arbitraged away because there is great demand for borrowing the high ER ETF to sell it short which raises borrowing costs.
Try to borrow one of these and you will see what I mean.

The most cited paper on the issue of the performance gap (time weighted - $ weighted returns) is Ilia D. Dichev of U. of Michigan, "What are stock investors’ actual historical returns? Evidence from dollar-weighted returns" ( http://papers.ssrn.com/sol3/papers.cfm?abstract_id=544142 ) The ...

Could someone who read Bodie's latest book please tell me if he recommends the “all Tips portfolio to cover base-needs” for the accumulation phase, the retirement phase or both. OP implies that his advice relates to the accumulation phase, but many posters are discussing investing during retirement...

Could someone who read Bodie's latest book please tell me if he recommends the “all Tips portfolio to cover base-needs” for the accumulation phase, the retirement phase or both. OP implies that his advice relates to the accumulation phase, but many posters are discussing investing during retirement....

Long term gov.bonds are far from risk free. For the 30 years 81-2010 the SD for VTSMX (total US stock market) was 17.5% vs VUSTX (long term gov. bonds) 12.1% (PER TrevH's data).
A 12% SD exposes a retirement decumulation stage portfolio to substantial sequence of return risk.

Larry - as you favor TIPS, I'd be interested in your disagreement with Bodie's views, especially as it relates to retirees in decumulation vs. accumulators. What's wrong with an all-TIPS retirement portfolio as the "default" portfolio for most retirees? From memory I am sure in 'Worry Fre...

Ah. Well now. A 6% semiannual rate is 6.09% annual rate. This is only true if the coupon is reinvested at the same rate. In the OP's example he assumes a 2% yield when the bond was purchased with rates rising to 6% subsequently. So: the effective rate would have been: 1%+1%+2%/2*1% = 2.01% if rates...

larryswedroe wrote:PE has 30% illiquidity premium which should be adjusted for, even before you take other risks into account, like size.

Is that a 30% annual premium added to expected return?

I wish you a long prosperous retirement.
I will be a devoted follower greedily devouring any future additions to the new website.

gordoni2 wrote:Is this line of thinking flawed?

Yes.
The market only prices market risk. It does not price the diversifiable specific risk borne by each individual company.