Valuethinker wrote:With 90% in equities, you could easily lose 45% of your money in a short space of time. Happy to enjoy that level of risk?
I have a very very strong stomach for risk. This is one of the things that attracted me to this forum - if I follow the advice I will control myself. I recently had 50% of my net worth (which is a large amount) in gold and silver LOL!.
That is not risk appetite so much as risk perverse. High risk without the prospect of high returns. You might as well open up an account at IG Index and start spread betting.
Anyway, losing 45% wouldn't make me happy
, but I wouldn't be that bothered as it would be in an index - so over time I would feel very confident of making it back since I am just holding it.
Not a sure thing, alas, in any single lifetime.
As I get older I would accumulate more and more bonds.
Bonds lock in your nominal return, but not your real return. Only inflation linked bonds do that (and then there is tax).
Thanks for making the interesting point about not being sure if EM pays for the extra risk. I will think about it.
I think I have to run over numbers and really go through it to see what sort of risk I should take fot what sort of reward. Although history doesn't tell us the future, I should run throught what sorts of portfolios have been producing what sorts of ROI's.
On EM Returns read Dimson and Marsh 'Triumph of the Optimists'. It is not the high GDP growth economies which have the best stock market performance.
On returns generally, you should read Ilamen 'Expected Returns' is, I think, the title of his book (eye-el are the first two letters of that name). Published by John Wiley.
Returns are kind of given. Long run, stocks will do 3% real above bonds. Maybe 4% pa with a fair wind. You just have to live long enough. Focus on the downside-- know how bad things really got.
Just to provide a degree of immunity to risk perversion, you should definitely read some books of stock market history:
- The Great Crash by John Kenneth Galbraith
- Manias, Panics and Crashes by Charles Kindleberger
- Liar's Poker by Michael Lewis, also The Big Short
I am not sure what the definitive book of the 1966-1980 period is but Maggie Mahar's 'Bull' is a good place to start on 1980-2000. Adam Smith's 'The Money Game' is a classic of the 1970s.
Burton Malkiel's 'A Random Walk Down Wall Street' used to have a fair bit of stock market history in it. Robert Shiller's Irrational Exuberance (both editions) and his website.
You really need a history of the UK stock market in the 1970s.Understand this. In the 1972-74 period the UK market dropped over 80% in real terms. Imagine losing 80%+ of your wealth.