Risk Return Tool - Opinions ?

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Risk Return Tool - Opinions ?

Postby Bustoff » Tue Jan 29, 2013 9:56 am

https://personal.vanguard.com/us/insights/investingtruths/investing-truth-about-risk

Using the Vanguard tool in the link above, this mix produced the highest avg.return and lowest number of years with a loss.
(you can toggle views in the tool by clicking icons in top right of page)

ASSET MIX:
30% STOCKS, 50% BONDS, 20% CASH
TIME FRAME: 1926 — 2011 (86 YEARS)

Number of years with a gain 63
Number of years with a loss 23

Average annual return 3.81% (Returns are adjusted for inflation per Vanguard footnotes)


Please let me know if you think this is a good tool or if you find a better risk/return mix.
Bear in mind, my focus was "lowest years with a loss".
"There is a principle which cannot fail to keep a man in everlasting ignorance...that principle is contempt prior to investigation." - HERBERT SPENCER
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Re: Risk Return Tool - Opinions ?

Postby Col Klink » Tue Jan 29, 2013 10:16 am

I think the tool is fine for statistical purposes only. It does not consider whatsoever the age of the person, their risk tolerance, nor their current financial position relative to their financial goals. All of this needs to be considered in developing a personal investment plan.
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Re: Risk Return Tool - Opinions ?

Postby midareff » Tue Jan 29, 2013 10:22 am

that does not seem to be consistent with the results shwn in their portfolio models......

https://personal.vanguard.com/us/insigh ... llocations
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Re: Risk Return Tool - Opinions ?

Postby scone » Tue Jan 29, 2013 10:24 am

I get just about the same results using Simba's backtester, Long Term Returns, and Firecalc. So after a lot of thought, this is the allocation I picked-- it suits my "cut off the left tail" mentality (that expression always reminds me of the Three Blind Mice).
"Risk is our business!" -- Captain Kirk, Star Trek
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Re: Risk Return Tool - Opinions ?

Postby Bustoff » Tue Jan 29, 2013 1:43 pm

scone wrote:I get just about the same results using Simba's backtester, Long Term Returns, and Firecalc. So after a lot of thought, this is the allocation I picked-- it suits my "cut off the left tail" mentality (that expression always reminds me of the Three Blind Mice).


Hey scone . . . excuse my novice question, but what does "cut off the left tail" mean ?
"There is a principle which cannot fail to keep a man in everlasting ignorance...that principle is contempt prior to investigation." - HERBERT SPENCER
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Re: Risk Return Tool - Opinions ?

Postby scone » Tue Jan 29, 2013 2:02 pm

Bustoff wrote:
scone wrote:I get just about the same results using Simba's backtester, Long Term Returns, and Firecalc. So after a lot of thought, this is the allocation I picked-- it suits my "cut off the left tail" mentality (that expression always reminds me of the Three Blind Mice).


Hey scone . . . excuse my novice question, but what does "cut off the left tail" mean ?

O.K., I'm probably going to get nitpicked to death, given all the math geeks on this site, but this is my understanding. It's from statistics, the idea that your returns form a "normal distribution," or the famous bell curve. In other words, over a long period of time, most of your yearly returns will be average (middle of bell curve), while a few will be worse than average (left side of bell curve), and a few will be better than average (right side of bell curve). "Cutting off the left tail" means trying to minimize the number of bad years on the left side of the distribution, and hopefully reducing their severity. Or something like that. The expert on this strategy is Larry Swedroe, and if you search his posts, he can explain this stuff far better than I can. Unlike me, he actually knows whereof he speaks! HTH!
"Risk is our business!" -- Captain Kirk, Star Trek
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