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Re: what is risk?

I think I understand the disagreement. Stated in simple terms: 1. Risk for some holding period is the variance of the total return over that holding period. (from Markowitz) 2. If the annual variance is known, then the variance for any holding period is known. (from statistics, σT = σ/sqrt(T)) There...
by grayfox
Wed Oct 01, 2014 5:36 am
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 116
Views: 4076

Re: what is risk?

I guess we'll have to agree to disagree because I don't think you have answered the question at all, nor offered up any data to show anything, nor offered up any measure anyone else could even investigate. What other question is there to answer, what data is there to show, what else is there to inv...
by grayfox
Wed Oct 01, 2014 4:09 am
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 116
Views: 4076

Re: Calculating Bond Fund What-Ifs

The previous simulation used a 5-year bond model. According to this calculator , duration of a 6-year 2% bond YTM=2% semiannual payments is 5.68 years. So I'll use a 6-year bond model since it lines up with the 5.7 year duration of VBMFX. The bond price after the 100 bps rise. So it didn't fall quit...
by grayfox
Wed Oct 01, 2014 3:32 am
 
Forum: Investing - Theory, News & General
Topic: Calculating Bond Fund What-Ifs
Replies: 55
Views: 3627

Re: what is risk?

My position is that the Markowitz model is fine exactly the way it is. The uncertainty lies in the dispersion (spread) of the outcome at the end of the holding period. You can measure the spread with variance, standard deviation, range or whatever. Standard deviation seems most convenient. If the ho...
by grayfox
Tue Sep 30, 2014 5:48 pm
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 116
Views: 4076

Re: Calculating Bond Fund What-Ifs

BTW, here's what would happen if rates don't rise 100 bps, and you started with $10,000 > # 0 bps parallel rise, Year YTM.S YTM.L Bal.Start Interest Bond.Price Mkt.Val Bal.End Cap.Ret Inc.Ret Tot.Ret 1 2014 1.7 2 NA NA 100.000 10000.0 10000.0 NA NA NA 2 2015 1.7 2 10000.0 200.000 101.155 10115.5 103...
by grayfox
Tue Sep 30, 2014 5:06 pm
 
Forum: Investing - Theory, News & General
Topic: Calculating Bond Fund What-Ifs
Replies: 55
Views: 3627

Re: Calculating Bond Fund What-Ifs

rjb112 - taking your NAV drop when rates rise 1% at face value, let's say it happens at the end of 2014. Then assuming you start 2015 with $9,430 and yields are 3% and 2.7% , here is what my simulation of the single-bond model shows: > # rjb112 scenario, VBMFX, duration 5.7, ytm = 2.0 > # 100 bps pa...
by grayfox
Tue Sep 30, 2014 4:33 pm
 
Forum: Investing - Theory, News & General
Topic: Calculating Bond Fund What-Ifs
Replies: 55
Views: 3627

Re: what is risk?

My brother is my twin in every way but instead only has the historical 20-year returns and 20-year std and correlations. He does his best to build an asset allocation. Do we come up with pretty much the same allocation? I think we will. Do you have any evidence we will come to significantly differe...
by grayfox
Tue Sep 30, 2014 12:25 pm
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 116
Views: 4076

Re: rebalancing conundrum/paradox/irony

The Finance Buff had an interesting take on this today. I tend to agree with his final conclusion: "Rebalancing is still a good way to control risk, but don’t think you are buying low and selling high when you rebalance between stocks and fixed income." http://thefinancebuff.com/rebalanci...
by grayfox
Tue Sep 30, 2014 3:12 am
 
Forum: Investing - Theory, News & General
Topic: rebalancing conundrum/paradox/irony
Replies: 82
Views: 4559

Re: what is risk?

Do you have an example where A has higher annual variance than B, but the reverse is true at 20 years? Or the 20 year variance can't be reasonably estimated from the annual variance? You want one example? I will give you a link to hundreds of such securities. But first, this important important mes...
by grayfox
Tue Sep 30, 2014 2:34 am
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 116
Views: 4076

Re: what is risk?

Most people in finance use the terms "volatility" and "correlation" very loosely, and never really know to what characteristic of a security volatility and correlation apply. In Modern Portfolio Theory, they apply to returns, not to prices. So saying that volatility is a measure...
by grayfox
Mon Sep 29, 2014 1:33 pm
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 116
Views: 4076

Re: what is risk?

Here are some quotes from HARRY MARKOWITZ 1952 paper Portfolio Selection page 77 One type of rule concerning choice of portfolio is that the investor does (or should) maximize the discounted (or capitalized) value of future returns….The hypothesis (or maxim) that the investor does (or should) maximi...
by grayfox
Mon Sep 29, 2014 1:15 pm
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 116
Views: 4076

Re: rebalancing conundrum/paradox/irony

It seems to me that the OP followed one of the BH rebalancing strategies in the wiki on Rebalancing Different rebalancing approaches There are a variety of ways in which investors determine it is time to rebalance: When contributing to or withdrawing from your portfolio. For example, if your target ...
by grayfox
Mon Sep 29, 2014 5:51 am
 
Forum: Investing - Theory, News & General
Topic: rebalancing conundrum/paradox/irony
Replies: 82
Views: 4559

Re: Future equities 2% real rhetoric is hogwash

I have been reading lately quite a few people discussing future 2% real returns on equities and I just don't understand how that is possible. Corporations are out there to make a profit. When a corporation makes money it has 2 choices with it. One is to invest back in the corporation thereby increa...
by grayfox
Mon Sep 29, 2014 5:01 am
 
Forum: Investing - Theory, News & General
Topic: Future equities 2% real rhetoric is hogwash
Replies: 45
Views: 3548

Re: what is risk?

I understand that bogleheads are not necessarily in complete agreement with the efficient market hypothesis, however, I believe it is safe to say that we for the most part, accept it. However, I am having a hard time understanding why volatility is considered the determining factor of risk. Almost ...
by grayfox
Mon Sep 29, 2014 4:27 am
 
Forum: Investing - Theory, News & General
Topic: what is risk?
Replies: 116
Views: 4076

Re: Obese airline passenger

I used to fly a lot for business back in the 1980s when flying was wonderful. There was lots of space, half the seats were empty so I often got a row to myself, and passengers were generally treated with respect and dignity. Flight attendants were happy and cheerful. Now there are 9 seats where ther...
by grayfox
Mon Sep 29, 2014 3:17 am
 
Forum: Personal Consumer Issues
Topic: Obese airline passenger
Replies: 62
Views: 4664

Re: rebalancing conundrum/paradox/irony

long story short: For years I've been 60/40, with 90%+ of all new contributions going to fixed income. This has worked because the stock market is going up 25% per year for the last five years, so my portfolio stays balanced. Really haven't had to rebalance at all during that period of time. But in...
by grayfox
Mon Sep 29, 2014 3:09 am
 
Forum: Investing - Theory, News & General
Topic: rebalancing conundrum/paradox/irony
Replies: 82
Views: 4559

Re: What's Your Takeaway from 2014 High Valuation

Whenever I read about high valuations, I go back and read this article: http://www.philosophicaleconomics.com/2013/12/the-single-greatest-predictor-of-future-stock-market-returns/ The best 10 year predictor of stock market returns is not PE10; it's the percentage of stocks in investor's portfolios....
by grayfox
Fri Sep 26, 2014 11:01 am
 
Forum: Investing - Theory, News & General
Topic: What's Your Takeaway from 2014 High Valuation
Replies: 52
Views: 4054

Re: History of U.S. Inflation — Appearances Can Be Deceiving

So what's the takeaway from this brief excursion into historical inflation rates and real stock returns? My sense is that: • As long as the level of future inflation stays moderate (2% is the current Fed target) and also stays relatively stable (standard deviation below, say, 3%), then stocks shoul...
by grayfox
Fri Sep 26, 2014 6:13 am
 
Forum: Investing - Theory, News & General
Topic: History of U.S. Inflation — Appearances Can Be Deceiving
Replies: 16
Views: 2330

Re: Calculating Rolling Returns

I like this way of viewing the returns and would like to calculate (in a spreadsheet) the same rolling returns (for a variety of different time periods as well) for various types of investments (i.e. specific stock mutual funds, index funds, REIT's, Bond funds, etc). My problem is that I do not kno...
by grayfox
Fri Sep 26, 2014 4:00 am
 
Forum: Investing - Theory, News & General
Topic: Calculating Rolling Returns
Replies: 14
Views: 839

Re: Calculating Bond Fund What-Ifs

* In a case like this it's simpler to use the Excel PV function than the PRICE function . Here is how it is used to compute the market value after the first and last years: 992.38 =-PV(2%, 4, 18, 1000, 0) 1039.42 =-PV(4%, 4, 37.60, 1056.29, 0) #Cruncher -- I was able to duplicate your results exact...
by grayfox
Fri Sep 26, 2014 3:24 am
 
Forum: Investing - Theory, News & General
Topic: Calculating Bond Fund What-Ifs
Replies: 55
Views: 3627

Re: Calculating Bond Fund What-Ifs

Wow! Thanks for those computations, #Cruncher. Summarizing the results of this mode for a 5-year holding period: Scenario Yield Curve 4-Yr 5-Yr End Ann Ret 0 Baseline don't care 1,093.30 1.80% 1 Constant 1.5 1.8 1,156.82 2.956% 2 Rising, Flattening 1.5->4.0 1.8->4.0 1,077.02 1.5% 3 Falling, Parallel...
by grayfox
Thu Sep 25, 2014 4:41 pm
 
Forum: Investing - Theory, News & General
Topic: Calculating Bond Fund What-Ifs
Replies: 55
Views: 3627

Re: Calculating Bond Fund What-Ifs

The best way IMHO to run this simulation is to model a bond fund as a single bond which is rolled over frequently. For example, take a 5 year bond, hold it for a year booking the coupons, then sell it as a 4 year bond and roll the proceeds into a 5 year bond again, booking capital gains or losses. ...
by grayfox
Thu Sep 25, 2014 2:59 am
 
Forum: Investing - Theory, News & General
Topic: Calculating Bond Fund What-Ifs
Replies: 55
Views: 3627

Re: Why I sold my gold, and would sell commodities too

I myself arrived at the gold party late and left early. In 2009 when GLD was 93.13 I bought some as part of a HBPP. It was interesting to watch gold and LT Treasuries zig when stocks zagged. It worked on a daily basis. When stocks went down 2%, gold and TLT offset it. Yes, the theory seemed to work....
by grayfox
Wed Sep 24, 2014 8:22 am
 
Forum: Investing - Theory, News & General
Topic: Why I sold my gold, and would sell commodities too
Replies: 56
Views: 4021

Re: Why I sold my gold, and would sell commodities too

I used Yahoo Adj Close, which is Close price adjusted for dividends and splits. So my calculation should take into account diviends.

The growth of $10K chart shown by beammeup tells the story
by grayfox
Wed Sep 24, 2014 7:44 am
 
Forum: Investing - Theory, News & General
Topic: Why I sold my gold, and would sell commodities too
Replies: 56
Views: 4021

Re: Why I sold my gold, and would sell commodities too

After holding gold in my portfolio for the last 12 years, I decided to sell today and never look back. I'd do the same if I'd owned commodity CCFs too. The main reason that I owned gold was as a "portfolio diversifier." I was pretty sold on the idea that gold (and commodities) tend to zig...
by grayfox
Wed Sep 24, 2014 5:34 am
 
Forum: Investing - Theory, News & General
Topic: Why I sold my gold, and would sell commodities too
Replies: 56
Views: 4021

Re: Total bond index or 5 yr CD?

How can the fund do either better or worse. It is not actively run, it is passive, rule based, thus an investor that purchases the fund today and reinvest all the dividends should get about the present 30 day SEC yield. Where am I wrong? The outcome from the CD is $11,204.13. It does not depend on ...
by grayfox
Sun Sep 21, 2014 8:37 am
 
Forum: Investing - Help with Personal Investments
Topic: Total bond index or 5 yr CD?
Replies: 36
Views: 2781

Re: Total bond index or 5 yr CD?

$10,000 in the 5-year CD at 2.3% will give back $11,204.13.

Why would you not get the CD?
Because there is a chance that the bond fund will have a better outcome, i.e. more money, after 5 years than the CD.
But it could also have a worse outcome. That's the risk.
by grayfox
Sun Sep 21, 2014 7:46 am
 
Forum: Investing - Help with Personal Investments
Topic: Total bond index or 5 yr CD?
Replies: 36
Views: 2781

Re: Total bond index or 5 yr CD?

The Vanguard Total Bond Index fund has a duration of a bit over 5 years and a 30 day SEC yield slightly below 2%. At the same time, a FDIC insured 5year CD can be purchased with an annual interest of 2.3%. Please educate me, why would you not get the CD? These are two different kinds of investments...
by grayfox
Sun Sep 21, 2014 7:42 am
 
Forum: Investing - Help with Personal Investments
Topic: Total bond index or 5 yr CD?
Replies: 36
Views: 2781

Re: The dangerous practice of rebalancing...

I apologize for being the scientist / engineer here, but I have a simple question: Stocks drop 40% in a matter of days. Someone told me about this Sharpe Ratio thing, that measures risk-adjusted return and is (Expected Return) / (Standard Deviation). What happened? The Sharpe ratio went up because ...
by grayfox
Fri Sep 19, 2014 11:53 am
 
Forum: Investing - Theory, News & General
Topic: The dangerous practice of rebalancing...
Replies: 191
Views: 14017

Re: Can You Build Your Retirement Portfolio Young, then Coas

Does anyone here have experience with saving and investing heavily while young to build up a retirement portfolio, and then just letting it appreciate on its own over time without contributing as much later on? So for example, how feasible would a plan like this be? Work hard for ten years during o...
by grayfox
Thu Sep 18, 2014 3:44 am
 
Forum: Investing - Help with Personal Investments
Topic: Can You Build Your Retirement Portfolio Young, then Coast?
Replies: 58
Views: 7359

Re: Daily Telegraph: World War One Archive

On September 14, 1914, with the failure of the Schlieffen Plan, Helmuth von Moltke the Younger , Chief of the German General Staff since 1906, was replaced by General Erich von Falkenhayn. http://upload.wikimedia.org/wikipedia/en/0/04/Vonmoltke.jpg Helmuth von Moltke http://upload.wikimedia.org/wiki...
by grayfox
Wed Sep 17, 2014 3:14 pm
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 115
Views: 9233

Re: What evidence would prove the Boglehead mentality wrong?

In the future, people will not own any mutual funds or stocks and bonds in their retirement accounts. There will be no asset allocation or rebalancing to worry about. No small-cap value vs. total stock market. No 100% stocks vs. age in bonds. No glide paths, safe-withdrawal rates, lazy portfolios, ...
by grayfox
Wed Sep 17, 2014 3:34 am
 
Forum: Investing - Theory, News & General
Topic: What evidence would prove the Boglehead mentality wrong?
Replies: 109
Views: 7631

Re: What evidence would prove the Boglehead mentality wrong?

I'm 26 and hopefully should have a long time of investing ahead of me. The benefits of holding a mix of stocks and bonds index funds in a passive investing style is relatively new relative to the length of developed human history. While unlikely, it's entirely possible that at some point during my ...
by grayfox
Wed Sep 17, 2014 2:53 am
 
Forum: Investing - Theory, News & General
Topic: What evidence would prove the Boglehead mentality wrong?
Replies: 109
Views: 7631

Re: Why Invest in Bonds in your early 30s?

I am in my early thirties and am interested in investing for a comfortable retirement (not sure if social security will be around for me). I understand why I should invest in stock funds for retirement: through compounding, a stock fund will generate a lot of value over 20-30 years. But why should ...
by grayfox
Tue Sep 16, 2014 9:04 am
 
Forum: Investing - Help with Personal Investments
Topic: Why Invest in Bonds in your early 30s?
Replies: 43
Views: 3570

Re: The dangerous practice of rebalancing...

Wow! Sure glad I read this before it was too late. Just when I thought I'd arrived at an asset allocation I was relatively comfortable with, along comes Mr. Mandel and throws a huge monkey wrench smack dab into the middle of my plan. Cover your basic retirement needs with safe assets like Social Se...
by grayfox
Sun Sep 14, 2014 6:39 am
 
Forum: Investing - Theory, News & General
Topic: The dangerous practice of rebalancing...
Replies: 191
Views: 14017

Re: Newbie: Is my 10 year plan going to work?

When I ran the simulation, I used current Treasury Yield Curve for the investment return. You would have bought Treasuries each of the 10 years. First a 10-year Treasury for 641K, then a 9-year for 80K, then an 8-year and so on. The last investment was 80K in a 1-year Treasury. Then they all matured...
by grayfox
Sun Sep 14, 2014 4:41 am
 
Forum: Investing - Help with Personal Investments
Topic: Newbie: Is my 10 year plan going to work?
Replies: 35
Views: 3310

Re: Newbie: Is my 10 year plan going to work?

Thank you for input! House does a lifetime annuity work? Would it be for both my spouse and I? Isn't it risky to put all your savings in one annuity? Is that what a lot of people do on here? Most people would not put all their savings into an annuity. Many financial economists recommend dividing yo...
by grayfox
Sun Sep 14, 2014 3:15 am
 
Forum: Investing - Help with Personal Investments
Topic: Newbie: Is my 10 year plan going to work?
Replies: 35
Views: 3310

Re: Newbie: Is my 10 year plan going to work?

I am 48, the wife is 50 and hoping to be FIRE'd in 8-10 years We have $440K in Retirement Accounts, $190K in Taxable account. $11K in Roth's. We will continue to covert the max per year from the taxable account from here on forward. $30K is left on our mortgage which will be paid off in 4 years, we...
by grayfox
Sat Sep 13, 2014 5:31 pm
 
Forum: Investing - Help with Personal Investments
Topic: Newbie: Is my 10 year plan going to work?
Replies: 35
Views: 3310

Re: Daily Telegraph: World War One Archive

Apparently there was a financial crisis in the U.S. at the outbreak of the war. I found this book: When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy William L. Silber According to the blurb, Treasury Secretary McAdoo shut the NY...
by grayfox
Sat Sep 13, 2014 4:17 am
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 115
Views: 9233

Re: Daily Telegraph: World War One Archive

Daily Telegraph September 12 1914 Headline page 7: Retreat of the Germans Brooklyn Daily Eagle, Saturday, September 12, 1914 The Brooklyn paper writes that he French War Office announced that the Germans are in retreat. :arrow: : Major Turning Point: This marks the failure of the Schlieffen Plan, a...
by grayfox
Fri Sep 12, 2014 3:29 pm
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 115
Views: 9233

Re: Daily Telegraph: World War One Archive

Daily Telegraph Wednesday, September 9, 1914 Headline on page 7 GREAT SUCCESS OF THE ALLIED FORCES Advance Along the Line The Battle of the MarneThe Battle of the Marne (5-12 September 1914) is underway. The French under General Joffre and BEF under General Sir John French have turned around from t...
by grayfox
Tue Sep 09, 2014 4:01 am
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 115
Views: 9233

Re: Daily Telegraph: World War One Archive

From timeline of World War I , the First Battle of the Marne is underway. It began on September 5th, The Germans reached within 20 miles of Paris, which was expecting a long siege. But the Great Retreat, which started at the Battle of Mons back on August 23rd, was finally halted at the Marne River. ...
by grayfox
Sun Sep 07, 2014 1:14 pm
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 115
Views: 9233

Re: Own individual stocks? Advisor recommends 20% in blue ch

If the choice is between owning an index fund or paying an advisor 1% of AUM to pick stocks, then it seems that the stocks have to beat the index fund by 1% per year to justify paying the advisor. The advisor says he will pick blue-chip stocks. As others have pointe out, "blue chip" is kin...
by grayfox
Sat Sep 06, 2014 2:27 am
 
Forum: Investing - Help with Personal Investments
Topic: Own individual stocks? Advisor recommends 20% in blue chips?
Replies: 38
Views: 2662

Re: Daily Telegraph: World War One Archive

The Brooklyn Daily Eagle, Friday, September 4, 1914 Page 1 Headlines: GERMANS OCCUPY FIVE TOWNS 25 MILES FROM PARIS; RUSSIANS TAKE LEMBERG; CONTROL EASTERN GALICIA Most Parisian citizens have evacuated the city on trains. The French government has been moved to Bordeaux. In 1914 Lemberg was part of...
by grayfox
Thu Sep 04, 2014 6:27 am
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 115
Views: 9233

Re: Daily Telegraph: World War One Archive

The Brooklyn Daily Eagle, Wednesday, September 2, 1914 Page 1, Germans Renew Assualt--Now Within 50 Miles of Paris. The Great Retreat from Mons , had started on August 24th. North Sea Back on August 28th was the first naval battle of the Great War, Battle of Heligoland Bight (1914) . The British na...
by grayfox
Tue Sep 02, 2014 3:10 pm
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 115
Views: 9233

Re: A Low-Return Future? Are We Prepared?

Your points are well taken, Grayfox. But understand that the rationale behind a low-return future is not that discount rates have been falling for centuries, but that they have fallen dramatically since 1980 . If you read the 2013 piece by Dimson, Marsh and Staunton ("The Low-Return World,&quo...
by grayfox
Mon Sep 01, 2014 12:45 pm
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 189
Views: 12296

Re: A Low-Return Future? Are We Prepared?

Just to offer a concrete example of what a "low-return" future looks like, the table below shows William Bernstein's estimates for expected annual real returns of major asset classes over the next 10 years (from his book, Rational Expectations , published May 2014). These estimates are mo...
by grayfox
Mon Sep 01, 2014 7:28 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 189
Views: 12296

Re: A Low-Return Future? Are We Prepared?

Could we be living through a major shift in the long-term valuation of global financial assets? Many respected financial commentators, from Bill Gross to Burton Malkiel to Vanguard, continue to express their belief that today's persistently-high global asset prices will assure lower future returns ...
by grayfox
Mon Sep 01, 2014 7:11 am
 
Forum: Investing - Theory, News & General
Topic: A Low-Return Future? Are We Prepared?
Replies: 189
Views: 12296

Re: How to become a millionaire retiree -- then and now

Actual data: 1978 BSEE graduates $14,700 exactly BSME and CS were about the same. Business Majors were getting offers of about $12,500. They were very jealous of engineers about that. Geology majors had the highest, maybe about $18,000 - $20,000 ?, shocking everybody. And we thought they were just c...
by grayfox
Mon Sep 01, 2014 6:51 am
 
Forum: Investing - Theory, News & General
Topic: How to become a millionaire retiree -- then and now
Replies: 67
Views: 9966

Re: Daily Telegraph: World War One Archive

Daily Telegraph, Tuesday, August 25, 1914. The Fall of Namur The paper reports on the fall of the fortress at Namur. This was the second, and final, big Belgian fortress blocking the German advance into France. However, the Telegraph downplays the importance of this. There were two fortresses, Lieg...
by grayfox
Mon Aug 25, 2014 3:17 am
 
Forum: Personal Consumer Issues
Topic: Daily Telegraph: World War One Archive
Replies: 115
Views: 9233
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