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Re: Correlations of Risk Factors in Down Markets

I don't see how you can have a stock market crash unless you do have high correlations. If you didn't, the crash wouldn't have occurred. The saw "In a crisis, all correlations go to one" is a tautology--it's just a way of saying "stock market crashes happen."
by nisiprius
Thu Dec 18, 2014 3:45 pm
 
Forum: Investing - Theory, News & General
Topic: Correlations of Risk Factors in Down Markets
Replies: 5
Views: 209

Re: Effect of 0.79 correlation: fantasy vs. reality

...Now that I stated all that above I am not that bright because I can not figure out Nisi's curves of the combination of Sp500 and small cap. The last graph of his shows the best combo seems to be "8.5% small caps". So is he saying as one goes to more large cap that there is a higher ret...
by nisiprius
Thu Dec 18, 2014 1:03 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 32
Views: 1270

Re: Effect of 0.79 correlation: fantasy vs. reality

No offense, but don't think this workup is anything new. Basically, it shows that if correlation is high the mix of any two asset classes in a portfolio will be the weighted average of the means of assetA and assetB. What is new about that? Markowitz and others figured this out many years ago. It's...
by nisiprius
Thu Dec 18, 2014 12:56 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 32
Views: 1270

Re: Effect of 0.79 correlation: fantasy vs. reality

With regard to "it is a purely mathematical chart," maybe, but only in the sense that "if your investment doubles in ten years, its CAGR is 7.2% is "purely mathematical." There are two ways of looking at it. One is that it is a precisely correct description of past results. ...
by nisiprius
Thu Dec 18, 2014 12:20 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 32
Views: 1270

Re: Effect of 0.79 correlation: fantasy vs. reality

Bertilak, your understanding is the same as mine. HueyLD, I adjusted the wording a bit to say The light green line shows mixes of the S&P 500 and the riskless asset. The dark green line shows mixes of the riskless asset with best possible combination of the S&P 500 and small-caps, and it tur...
by nisiprius
Thu Dec 18, 2014 12:10 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 32
Views: 1270

Re: Effect of 0.79 correlation: fantasy vs. reality

Very interesting analysis OP. So the conclusion you came to is that because of the high correlation between S&P500 and the small cap index, that one is not really achieving any true diversification adding small caps, and that you're better off simply holding the S&P500 by itself? And that t...
by nisiprius
Thu Dec 18, 2014 10:33 am
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 32
Views: 1270

Re: Effect of 0.79 correlation: fantasy vs. reality

Any rebalancing going on here? If so, what method of rebalancing? Rebalance on lowest day of year for small caps? Bands? A calendar date? This is a simple illustration of MPT math. Efficient-frontier-and-tangent-line charts are based on precisely six numbers: standard deviation and average for each...
by nisiprius
Thu Dec 18, 2014 9:59 am
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 32
Views: 1270

Re: Effect of 0.79 correlation: fantasy vs. reality

Another example, but I want to acknowledge that it's cherry-picked, involves the combination of U.S. (i.e. the S&P 500) and international (EAFE). I am using the specifically chosen decade 1996-2005 inclusive. (The point is "correlations," not "international." I picked the tim...
by nisiprius
Thu Dec 18, 2014 9:40 am
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 32
Views: 1270

Effect of 0.79 correlation: fantasy vs. reality

People are apt to say "well, the lower the better, but anything that isn't 1.0 is still helpful ." I am going to illustrate the meaning of not-so-low correlations by investigating the effectiveness of a "small-cap tilt" over the period 1926-2009, using data from the Ibbotson SBBI...
by nisiprius
Thu Dec 18, 2014 8:39 am
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 32
Views: 1270

Re: Risk-Adjusted Equity Returns - CAPM vs. Fama-French

I think the reality is closer to "Nobody knows nothin'" than "what are the numbers?" There are not just one but THREE elephants in the room. Elephant #1 is that financial data series, all financial data series, are so incredibly variable that averages just don't settle down even ...
by nisiprius
Thu Dec 18, 2014 8:09 am
 
Forum: Investing - Theory, News & General
Topic: Risk-Adjusted Equity Returns - CAPM vs. Fama-French
Replies: 15
Views: 717

Re: Total stock market funds - is real estate accounted for?

Leeraar, I've read a number of articles that urge overweighting some sector or another on the basis that "it is a much larger part of the total economy than it is of the stock market." REITs and small caps for U.S. investments. Emerging markets for international investments. Not one of the...
by nisiprius
Wed Dec 17, 2014 7:27 pm
 
Forum: Investing - Help with Personal Investments
Topic: Total stock market funds - is real estate accounted for?
Replies: 8
Views: 687

Re: Total stock market funds - is real estate accounted for?

Go to Morningstar. Type VTSMX in the "quote" box. Click on the "Portfolio" tab. Read answer here: http://s7.postimg.org/863wcnhjf/Captura_de_pantalla_2014_12_17_a_las_5_22_35_PM.png So, it's "accounted for," but be aware that it's not a lot--if you have some investment ...
by nisiprius
Wed Dec 17, 2014 5:26 pm
 
Forum: Investing - Help with Personal Investments
Topic: Total stock market funds - is real estate accounted for?
Replies: 8
Views: 687

Re: Bogle: How Bond Indexing Could Be Better

Given the possible concerns about illiquid bonds in bond funds--both the SEC and the IMF have been floating proposals to require redemption fees on bond funds to cool down any possible runs on bond funds--I actually am quite happy with the Total Bond Fund being Treasury-heavy. Rick Ferri wrote an in...
by nisiprius
Wed Dec 17, 2014 5:19 pm
 
Forum: Investing - Theory, News & General
Topic: Bogle: How Bond Indexing Could Be Better
Replies: 14
Views: 1125

Re: Bogle: How Bond Indexing Could Be Better

Link to interview

I am particularly puzzled because for several years now the Vanguard Total Bond Market Index Fund has followed the Barclay's U.S. Aggregate Float Adjusted Index, which excludes the Treasury bonds that are held by the Federal Reserve.
by nisiprius
Wed Dec 17, 2014 5:04 pm
 
Forum: Investing - Theory, News & General
Topic: Bogle: How Bond Indexing Could Be Better
Replies: 14
Views: 1125

Re: On average, how often do you check your investment balan

I said once a month, but it's irregular. I'm afraid I'm apt to peek whenever there are postings in this forum suggesting that something dramatic has occurred. But I try to avoid looking at actual numbers and just glance at the miniature "balances over time" chart. That usually calms my ner...
by nisiprius
Wed Dec 17, 2014 4:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: On average, how often do you check your investment balances?
Replies: 43
Views: 2278

Re: Why would you invest in a bond fund?

If TwoByFour is spending his dividends, then wouldn't it make more sense to say that dividends are all he cares about? (That's what dividend stock enthusiasts usually say if you bring total return charts into the picture...) I think that if you have chosen, for whatever reason, to spend all the div...
by nisiprius
Wed Dec 17, 2014 3:51 pm
 
Forum: Investing - Theory, News & General
Topic: Why would you invest in a bond fund?
Replies: 25
Views: 1909

Re: Are 3-funds better than 2?

Am I correct to understand that you're saying the returns are slightly better when including international but the main reason for a 3rd fund is to reduce risk?? Is 50/50 the best percentage split for risk reduction? Thank you It is not a perfect comparison because the composition of Vanguard LifeS...
by nisiprius
Wed Dec 17, 2014 3:47 pm
 
Forum: Investing - Theory, News & General
Topic: Are 3-funds better than 2?
Replies: 17
Views: 1088

Re: Are 3-funds better than 2?

Over the longest period during which a good international index has existed, the best percentage split, within the stock allocation, for risk reduction would have been around 25-30% international, not 50/50. But. Nobody knows what it will be going forward, and the only long-term international index,...
by nisiprius
Wed Dec 17, 2014 3:36 pm
 
Forum: Investing - Theory, News & General
Topic: Are 3-funds better than 2?
Replies: 17
Views: 1088

Re: Are 3-funds better than 2?

IJim, this is all in the range of stuff that gets argued interminably, and you'll have to decide for yourself what you think. 1) The theory is that IF two asset classes... say domestic and international stocks... had about the same return and about the same volatility but moved somewhat independentl...
by nisiprius
Wed Dec 17, 2014 3:26 pm
 
Forum: Investing - Theory, News & General
Topic: Are 3-funds better than 2?
Replies: 17
Views: 1088

Re: Why would you invest in a bond fund?

No, the total return graph is the right one to use. It's not about reinvesting dividends, it's about not spending increased dividends. If TBM gives you increased dividends and you spend them all, then TBM deserves some credit and you deserve some blame for increasing your spending. Wait, I'm confus...
by nisiprius
Wed Dec 17, 2014 2:21 pm
 
Forum: Investing - Theory, News & General
Topic: Why would you invest in a bond fund?
Replies: 25
Views: 1909

Re: Why a Boglehead doesn't invest in individual companies?

Larry Swedroe, "Rules of Prudent Investing:" #17: Owning individual stocks and sector funds is more akin to speculating, not investing. The market compensates investors for risks that cannot be diversified away, like the risk of investing in stocks versus bonds. Investors shouldn't expect ...
by nisiprius
Wed Dec 17, 2014 12:55 pm
 
Forum: Investing - Help with Personal Investments
Topic: Why a Boglehead doesn't invest in individual companies?
Replies: 39
Views: 2547

Re: "Gold to tank in 2014: Goldman Sachs"

Really. That is not at all like making diamonds, but still news to me. Yes, but of course it is not cheap or cost effective. I looked it up just now and see also that you can make gold in a particle accelerator. I bet that isn't cheap either. It's not cheap, but it's worth it. Gold atoms made in th...
by nisiprius
Wed Dec 17, 2014 11:14 am
 
Forum: Investing - Theory, News & General
Topic: "Gold to tank in 2014: Goldman Sachs"
Replies: 109
Views: 9812

Re: Long term care insurance?

As others have said, my experience might well be irrelevant and out of date. There are two separate issues here. a) Ten-year paid-up option. This is not inflation protection as such, or I don't think of it that way. I was thinking of it as "lapse protection" by having the burden of premium...
by nisiprius
Wed Dec 17, 2014 10:45 am
 
Forum: Personal Finance (Not Investing)
Topic: Long term care insurance?
Replies: 23
Views: 1821

Re: U.S. stocks in freefall

Browser wrote:At current valuation levels, a prudent strategy would be to adopt a conservative AA and plan to save more to compensate. The immortality of this thread is testament to the anxiety about stocks. Sell some stocks, sleep better.
+1
by nisiprius
Wed Dec 17, 2014 10:29 am
 
Forum: Investing - Theory, News & General
Topic: U.S. stocks in freefall
Replies: 1051
Views: 183888

Re: Individual Bonds vs. Bond Funds

I don't use munis, but I do use individual TIPS. Managing them is a royal PITA. And let's not even talk about the CP2000 love note the IRS sent me one year, when I screwed up and forgot that one of them had matured because a brokerage forgot to send me a 1099. (Theoretically I could have misplaced i...
by nisiprius
Wed Dec 17, 2014 7:40 am
 
Forum: Investing - Help with Personal Investments
Topic: Individual Bonds vs. Bond Funds
Replies: 9
Views: 1061

Re: Long term care insurance?

We decided to buy LTCi about fifteen years ago. My wife and I talked it over and it made sense to us. We fell in the zone where Consumer Reports seemed to think it made sense--too poor to say "if it happens we'll just pay for it," but rich enough to afford the insurance. We used an insure...
by nisiprius
Tue Dec 16, 2014 9:48 pm
 
Forum: Personal Finance (Not Investing)
Topic: Long term care insurance?
Replies: 23
Views: 1821

Re: I'm an Irrational Bond Chicken Little

Leesbro63 wrote:Had TBM existed what would this have looked like from, say 1970 to 1984?
I don't know, but this is what the (non-indexed) Fidelity Investment Grade Bond Fund looked like:

Source: Morningstar

Image
by nisiprius
Tue Dec 16, 2014 9:37 pm
 
Forum: Investing - Help with Personal Investments
Topic: I'm an Irrational Bond Chicken Little
Replies: 32
Views: 2912

Re: Why would you invest in a bond fund?

I get index investing, but I don't get the point of investing a set portion of your income into a bond fund. Especially now with interest rates low, and set to increase at some point. What am I missing? Possibly: 1) An understanding of the difference between the Fed overnight rate and the 10-year T...
by nisiprius
Tue Dec 16, 2014 9:26 pm
 
Forum: Investing - Theory, News & General
Topic: Why would you invest in a bond fund?
Replies: 25
Views: 1909

Re: Dividend Growth Investing & Indexing = ???

...Why not use an index fund oriented toward the "dividend growth" approach, if you're actually convinced that has some advantage?... Specifically, why not Vanguard Dividend Appreciation Index Fund (VDAIX, VDADX; ETF VIG), which Seeks to track the performance of the NASDAQ US Dividend Ach...
by nisiprius
Tue Dec 16, 2014 9:02 pm
 
Forum: Investing - Theory, News & General
Topic: Dividend Growth Investing & Indexing = ???
Replies: 4
Views: 470

Re: Bitcoin: The worst investment in 2014

In April it was said that The Bitcoin Investment Trust announced plans in early 2014 to release an over-the-counter Bitcoin ETF. The latter is taking a different regulatory approach that does not require approval from the SEC, and has projected a launch in the fourth quarter of 2014. So, anyone kno...
by nisiprius
Tue Dec 16, 2014 4:16 pm
 
Forum: Investing - Theory, News & General
Topic: Bitcoin: The worst investment in 2014
Replies: 17
Views: 2156

Re: WHY is retirement enjoyable / something to look forward

Intellectual "work" is misnamed; it is a pleasure, a dissipation, and is its own highest reward. The poorest paid architect, engineer, general, author, sculptor, painter, lecturer, advocate, legislator, actor, preacher, singer is constructively in heaven when he is at work; and as for the...
by nisiprius
Tue Dec 16, 2014 2:37 pm
 
Forum: Personal Consumer Issues
Topic: WHY is retirement enjoyable / something to look forward to?
Replies: 136
Views: 6706

Re: Long term care insurance?

"Self-insure" is a misnomer in my opinion and I wish people would stop saying it and just say "I've decided I am willing to take the risk." When a company with a group of employees decides to act as insurer instead of buying insurance from an insurance company, that is "self...
by nisiprius
Tue Dec 16, 2014 2:24 pm
 
Forum: Personal Finance (Not Investing)
Topic: Long term care insurance?
Replies: 23
Views: 1821

Re: Marketcap vs. FACTOR indexing

The evidence for the superiority of factor investing (aka tilting, slice-and-dice, multi-asset investing) is ambiguous. The alleged improvement is small compared to the huge differences that result from choices of endpoints, specifics of the strategies, etc. In other words, even if the alleged impro...
by nisiprius
Tue Dec 16, 2014 12:37 pm
 
Forum: Investing - Theory, News & General
Topic: Marketcap vs. FACTOR indexing
Replies: 6
Views: 494

Re: WHY is retirement enjoyable / something to look forward

"Well," said George, "we'll have a big vegetable patch and a rabbit hutch and chickens. And when it rains in the winter, we'll just say the hell with goin' to work, and we'll build up a fire in the stove and set around it an' listen to the rain comin' down on the roof." .... &qu...
by nisiprius
Tue Dec 16, 2014 12:20 pm
 
Forum: Personal Consumer Issues
Topic: WHY is retirement enjoyable / something to look forward to?
Replies: 136
Views: 6706

Re: Annuities

So, this is probably a strange question, but when would it ever be a good idea to have/use an annuity? From what I have read regarding them, it appears to be a way to surrender a large amount of money in exchange for a regular cash payment over time, but seems to only depreciate in value (no inflat...
by nisiprius
Tue Dec 16, 2014 11:31 am
 
Forum: Personal Finance (Not Investing)
Topic: Annuities
Replies: 20
Views: 1531

Re: Bought in, and then they start tumbling

Dear bogleheads, it has happened again. Bought on 15th according to plan, when local markets here dropped 1.0%. On 16th, it dropped 2.4%. Who knows what will happen next... Stay the course and continue to buy on 15th of every month according to plan... :| It's selective attention. It's the same thi...
by nisiprius
Tue Dec 16, 2014 11:11 am
 
Forum: Investing - Theory, News & General
Topic: Bought in, and then they start tumbling
Replies: 67
Views: 9104

Re: WHY is retirement enjoyable / something to look forward

The extreme: Jack London's short story of a child millworker, burned out in his teens: The Apostate I wonder if Frank Gilbreth knew of this story... quote]"I'm goin' away, ma," he announced, "an' I jes' want to say good-by." She threw her apron over her head and sat down suddenly...
by nisiprius
Tue Dec 16, 2014 9:40 am
 
Forum: Personal Consumer Issues
Topic: WHY is retirement enjoyable / something to look forward to?
Replies: 136
Views: 6706

Re: WHY is retirement enjoyable / something to look forward

So what do you think is the real factor at work? Age. But first of all, not everybody does feel that way. There's huge individual variation. It's a balance of personal cost (in time and psychic energy) and perceived reward. And of course it depends on the work and what you are doing. But in many ca...
by nisiprius
Tue Dec 16, 2014 9:28 am
 
Forum: Personal Consumer Issues
Topic: WHY is retirement enjoyable / something to look forward to?
Replies: 136
Views: 6706

Re: Is it speculation to use the Callan Periodic table?

...and then go to Morningstar and look for growth of $10,000 in VFINX since 1/1/1995 up to 12/31/2013. Hey, that's cheating :) . If you want practice, one of the entries in the Callan Table is the S&P. You can extract that for each year and multiply as above. It should match the Morningstar res...
by nisiprius
Mon Dec 15, 2014 10:25 pm
 
Forum: Investing - Theory, News & General
Topic: Is it speculation to use the Callan Periodic table?
Replies: 26
Views: 1773

Re: Is it speculation to use the Callan Periodic table?

Would excel work? Yes. It's what I use. The only reason I said "spreadsheet" is that almost any spreadsheet would do, I was just covering myself in case you had something, uh, offbrand like Apple's "Numbers" or LibreOffice "Calc"--which would also work fine. Am I just ...
by nisiprius
Mon Dec 15, 2014 10:23 pm
 
Forum: Investing - Theory, News & General
Topic: Is it speculation to use the Callan Periodic table?
Replies: 26
Views: 1773

Re: DFA

My wife and I visited Cape May some time ago and picked up a few Cape May "diamonds" from the beach. A lovely weekend and a lovely memory... ...the advantage (or not) of DFA funds... This is always good for a debate in this forum. For orientation, read: DFA . You may also want to look at m...
by nisiprius
Mon Dec 15, 2014 8:47 pm
 
Forum: Investing - Help with Personal Investments
Topic: DFA
Replies: 8
Views: 773

Re: Odds of portfolio survival = 90%; odds of my survival =

Quite honestly, how many of you know folks who have made it to 85 and are humming along just fine? John C. Bogle turned 85 on May 8th, 2014. You would have to ask him if he's "humming along just fine," but I'm guessing that he feels better today than he did in 1995 when he was waiting for...
by nisiprius
Mon Dec 15, 2014 7:03 pm
 
Forum: Investing - Theory, News & General
Topic: Odds of portfolio survival = 90%; odds of my survival = 0.1%
Replies: 161
Views: 8349

Re: Is it speculation to use the Callan Periodic table?

new2bogle2, I did the calculation. I actually posted the answer in a tricky way--hidden until you drag the mouse--but then I deleted it again, because I think it is really important that you personally take the time to do the actual calculation yourself. Let me ask a question: do you have access to ...
by nisiprius
Mon Dec 15, 2014 6:04 pm
 
Forum: Investing - Theory, News & General
Topic: Is it speculation to use the Callan Periodic table?
Replies: 26
Views: 1773

Re: An alternative to alternative investments [QSPIX]

Uncorrelated assets are interesting. I have a big problem with "uncorrelated risk factors " that do not exist in themselves, but only as mathematically differences between actual assets--and thus cannot be invested in directly, but only by manufacturing them by the use of derivatives and s...
by nisiprius
Mon Dec 15, 2014 4:57 pm
 
Forum: Investing - Theory, News & General
Topic: An alternative to alternative investments [QSPIX]
Replies: 201
Views: 18876

Re: in the past there was a period when active outperformed

Active investors outperform in inefficient markets or situations that involve information asymmetry. So yes, if you go back far enough active investing was better than passive. Nowadays things have gotten so efficient that even hedge funds are getting creamed. As Benjamin Graham observed--in 1976! ...
by nisiprius
Mon Dec 15, 2014 4:48 pm
 
Forum: Investing - Theory, News & General
Topic: in the past there was a period when active outperformed
Replies: 30
Views: 1566

Re: Is it speculation to use the Callan Periodic table?

I believe the whole point of the Callan table is to show you how un predictable asset classes are, and thus the wisdom of investing in many of them and just rebalancing--without trying to do any form of market timing other than rebalancing to fixed target allocations. Whether your strategy will work...
by nisiprius
Mon Dec 15, 2014 4:26 pm
 
Forum: Investing - Theory, News & General
Topic: Is it speculation to use the Callan Periodic table?
Replies: 26
Views: 1773

Re: Do Vanguard Bond funds include many high yield bonds?

"High yield" or "junk" bonds are bonds with an S&P rating below "BBB" or lower (or Moody's rating of below "Baa"). Bonds with higher ratings are referred to as "investment grade." Vanguard Total Bond Market Index fund is described by Vanguard as ...
by nisiprius
Mon Dec 15, 2014 4:16 pm
 
Forum: Investing - Help with Personal Investments
Topic: Do Vanguard Bond funds include many high yield bonds?
Replies: 5
Views: 605

Re: A perfect profession

...One of the most influential books, Influence: The Psychology of Persuasion , by Robert Cialdini was first published in 1984 and is still a best-seller. Note that Cialdini is Professor Emeritus of Psychology and Marketing at Arizona State University. Victoria I remember The Hidden Persuaders , by...
by nisiprius
Mon Dec 15, 2014 3:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: A perfect profession
Replies: 58
Views: 5260

Re: Odds of portfolio survival = 90%; odds of my survival =

A lot of your chances of survival have to do with your family history. Does everyone in your family tend to live to 90-95 years old, with no history of cancer or heart disease? Then your odds of survival might be 50% instead of 0.1%. Does everyone in your family seem to kick the bucket at 70-75 yea...
by nisiprius
Mon Dec 15, 2014 3:15 pm
 
Forum: Investing - Theory, News & General
Topic: Odds of portfolio survival = 90%; odds of my survival = 0.1%
Replies: 161
Views: 8349
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