Siamond

Leveraged Funds – Historical Modeling

by

In the past decade, a specialized type of fund gained increased popularity, funds implementing leverage over a given index. A previous blog article explored funds leveraging the S&P 500 index and a follow-up article explored a portfolio-level approach mixing stocks and treasury bonds. Unfortunately, leveraged funds have relatively little history, making it difficult to assess trajectories in various economic situations. This article will focus on simulation techniques used to model what leveraged funds might have returned in the past, from 1955 till recently.

Monthly Returns: 16 countries, 50 years

by

In the Investing in the World study, we looked at annual returns of mixes of stocks and bonds over the past 50 years. Some metrics (e.g. correlation) require more granularity to be truly meaningful. This article assembles monthly returns for treasury bonds and stocks, then use such data set to study possible recent correlation patterns.

The Elusive Rebalancing Bonus – Part 3

by

Passive investors typically rebalance their accounts every now and then to get the various positions back in sync with their target asset allocation. In Part 1, we explained and illustrated various rebalancing methods, then documented the data sources used in this study. In Part 2, we pondered if some of those methods provided a significant rebalancing bonus compared to an annual rebalancing model. In Part 3, we will explore miscellaneous topics (e.g. frequent rebalancing, less conventional asset allocations).

The Elusive Rebalancing Bonus – Part 2

by

Passive investors typically rebalance their accounts every now and then to get the various positions back in sync with their target asset allocation. This multi-part article studies various rebalancing methods and analyzes if some of those methods provided a significant rebalancing bonus. Part 1 focused on describing the most typical rebalancing methods and illustrating them. In Part 2, we will perform a more systematic quantitative analysis, using the simple annual rebalancing method as a baseline.

The Elusive Rebalancing Bonus – Part 1

by

Passive investors typically rebalance their accounts every now and then to get the various positions back in sync with their target asset allocation. This multi-part article studies various rebalancing methods and analyzes if some of those methods provide(d) a significant rebalancing bonus. Part 1 will focus on basics, describing typical rebalancing methods and illustrating them with some historical trajectories. The next parts of the study will explore rebalancing in more quantitative details.

Small and Value factors, 16 countries over 25 years

by

There are various models attempting to simulate the history of small/value factors for US investors, before corresponding funds and indices actually existed. Some of those models suffer from significant deficiencies (e.g. not matching the reality of modern index funds), making difficult to calibrate expectations about real life funds. Furthermore, one might ponder if we read too much in the history of one single ‘in-sample’ market (e.g. the US).

Fortunately, we now have 25 years of market history across 16 developed countries thanks to MSCI indices. This should provide a rich source of ‘out-of-sample real-life’ information, which this article will analyze.

Rate of Return for Accumulators

by

When looking at a specific investment (e.g. asset class or an entire portfolio), we tend to analyze historical returns with the help of the Compound Annualized Growth Rate (CAGR). Although useful, the CAGR only captures the growth of an initial investment left alone for a long period of time. In practice, most investors regularly add to their savings (accumulation phase) or withdraw from their savings (e.g. retirement).

One might think that the CAGR associated with an investment remains a valuable metric for such accumulation/retirement phases, but fact is this metric doesn’t capture the powerful side-effects of the sequences of annual returns, which do become significant when money is added or withdrawn on a regular basis. This article discusses a metric more suitable to the accumulation phase, then compares to metrics used for retirement.

50 Years of Investing in the World (Part 3)

by

This article is the third part of a study looking at global and domestic investing from the perspective of local investors.
In Part 1 and Part 2, we took the position of a local investor in one of 16 countries of interest and we explored opposite positions of either investing 100% global or 100% domestic. In Part 2, it became clear that global bonds tend to hurt local investors, while global stocks definitely helped for most scenarios. It is now time to try a middle ground and study portfolios mixing global and domestic stock investments. We will notably look at the mitigation this could bring to the countries having fared the worst, but also consequences for countries having fared better. Of course, it is easy to look at such numbers in hindsight and draw hasty conclusions, so let’s keep in mind that nobody could have predicted winners and losers ahead of time.

50 Years of Investing in the World (Part 2)

by

Many North American investors tend to look carefully at historical returns in the US and in Canada and draw various conclusions. Occasionally, some references are made to Japan and the UK, but few people look any further. The world changes though. The UK was undoubtedly the world economic leader at the end of the 19th century, while the US clearly dominates nowadays. Japan was on a roll in the 80s, with a bigger market capitalization than the US at some point, and yet badly faltered since then. The world changes in ways we cannot predict and it would be naive to assume that a few decades in the future, the situation will be similar to today’s environment. One thing we can do to get some perspective is to analyze what happened in a larger sample of economies.

This article focuses on the historical returns from 16 developed countries over the past 50 years, looking from the perspective of a local investor and assuming a strong home country bias to begin with (i.e. solely using domestic stocks and domestic bonds). We will look at more diversified portfolios mixing domestic and global investments in Part 3.

50 Years of Investing in the World (Part 1)

by

Bogleheads know the power of diversification. And yet many such investors (including John Bogle himself!) are reluctant to diversify beyond domestic investments.

This raises an interesting question. Could one simply invest in the world, using global stocks and global bonds? And if this proves unsatisfying, is there a proper middle ground between domestic and global allocations?

This article is the first part of a study looking at global and domestic investing from the perspective of local investors.