Bogleheads.org

MrMatt2532

William Bernstein analyzed this, and he demonstrates that the return of a regularly rebalanced portfolio is usually in excess of the weighted average return of the assets, which would mean the rebalancing bonus is real: http://www.efficientfrontier.com/ef/996/rebal.htm However, the effect is probabl...

MrMatt2532

Anytime you are comparing a peak (~1999) to a trough (~2009) the returns will look worse than the norm. Similarly, if you compare a trough (~2009) to a peak (maybe today?) they will look better than the norm. Ideally, you should be looking at even longer term and not cherrypick the dates to paint a ...

MrMatt2532

The nice thing about these services is you aren't locked in (ok maybe locked in for a month!). The a la carte model isn't truly available except for premium channels (hbo, etc.) and packages of channels (sports package, etc.). I would just list out the channels you want and buy the service that is c...

MrMatt2532

Take a look at a post I made years ago: https://www.bogleheads.org/forum/viewtopic.php?t=109504 It didn't get much attention but I think it directly answers your question. Specifically look at the discount rate to capture bond like vs stock like jobs. I actually have a simplified approach I use toda...

MrMatt2532

Below 25 years, I suggest just assuming 1/n for the rule. So for 15 years you get 6.67%.

MrMatt2532

I would argue a better approach would be to find the us/international mix that maximizes return per unit risk (via a sharpe or sortino ratio) as opposed to minimizing risk. Then you can add bonds to the stock mix in an amount that brings the portfolio's risk to your desired level.

MrMatt2532

Consider that bond returns can roughly be explained by two risk factors: term risk and default risk. This can give you insight as to whether or not you should be holding international bonds. For somebody that is only interested in exposing themselves to term risk, or near zero default risk, you woul...

MrMatt2532

Using concepts from modern portfolio theory, you can calculate the expected optimal international holding percentage you should use for a two asset portfolio (three including risk free asset). You need to assume various values for for US and ex-US assets. For example, using the following for real ex...

MrMatt2532

Is there any conclusion that can be sought from all of this discussion? The conclusion is the same as the premise: if you have a strong master password there is very little risk. I have been a lastpass user for years and events like this just remind me why I chose the service: because it was built ...

MrMatt2532

Use onenote if you are already using it. Otherwise, wunderlist or todoist would probably be perfect for your needs. Maybe try wunderlist first. Heck actually wunderlist is owned by Microsoft now so expect some future integration with some of their other products.

MrMatt2532

Since the consensus is that the bull is ending and a bear is right around the corner, why don't you just short the market?!? Just kidding, please don't do that. If the thought of investing 250k mostly in stocks doesn't sit well with you, maybe you should dial back on your portfolios risk level, mayb...

MrMatt2532

I think the main reason I would avoid a car loan is for financial simplicity and to make sure I don't fall into the trap of buying more car than I would otherwise buy had I been forced to pay in cash. Purely financially, I think it probably makes sense to get a loan at sub 2% rates for most investor...

MrMatt2532

One fun thing about entropy in an isolated system is that it tends to increase, but it doesn't have to. Thanks to the law of large numbers, it will effectively only increase or stay constant. Basically, what i'm saying is that all the particles in the room you are in could spontaneously go to the ot...

MrMatt2532

When we recently bought a car the dealer limit was $3000. However we also were able to put another $3000 on the card for the warranty (which we later canceled and got a check back in the mail), and finally we were able to put a another $500 deposit down on the card to put the car on hold/reserve (th...

MrMatt2532

Probably because age has a significant negative correlation with life expectancy, just a guess

MrMatt2532

The 10 largest holdings are conglomerates that are the equivalent of many smaller businesses. They should have MUCH more weighting than your local pizza place down the street. The top five holdings in VTSMX are Symbol % Assets YTD Return % AAPL 2.78 25.47 XOM 1.92 -6.25 MSFT 1.52 24.94 JNJ 1.32 16....

MrMatt2532

I am someone who tilts, however I would argue that the equity style box should not be used to show you are undiversified! Do you realize that how they are defining Large/Medium/Small is largely arbitrary? Market weighting is the natural starting point, no question. And just because 75% of the compa...

MrMatt2532

The three fund portfolio equity box looks something like this: ```` Value Core Growth Large`` 25 ` 25 ` 25 Medium ` 6 ` 6 ` 6 Small ``` 2 ` 2 ` 2 This has 75% large caps and is equally balanced between growth/value therefore not taking advantage of the small value premium with only 33% in value and...

MrMatt2532

Unless the expense ratios of these horrible options are anywhere close to 3%, still invest up to the match.

MrMatt2532

Very little discussion of the actual content of the article here. As far as I can tell the authors did two things. First they computed the optimum percent holding in equities as a function of investor risk aversion and investment period for normally distributed stock/bond distributions defined by me...

MrMatt2532

So if 4% is the benchmark for planning purposes for a 30 year retirement what would be the benchmark for a 25 year retirement. I mean if you start taking SS at 67 or 70 then from that point it would seem 25 is more likely than 30. I realized that in retirement a variable withdrawal rate will be the...

MrMatt2532

Larry - thinking about the net result of combining TSM with SCV. Seems to me that, since TSM is loaded negatively on size and value, the addition of SCV is likely to have the effect of "neutralizing" small and value risk factors - moving the net loading toward zero. The net result is that the equit...

MrMatt2532

No - Fund 1 - b3 = 1 -> positive expected return Fund 2 - b3 = -1 bv = 1 -> positive if the value premium is real Fund 3 - b3 = -0.9 bv = -0.1 bs =1 -> positive if the small premium is real after account for Beta and value. If the premiums are real, you would be able to construct three funds that a...

MrMatt2532

I'm not sure about that. What you described in your original post was how to construct three funds: 1) market fund, 2) small exposure only fund, and 3) value exposure only fund. Those three funds are not (necessarily) uncorrelated... We can define the funds as "the premium that a particular factor ...

MrMatt2532

I'm ok with most that you wrote, however the correlations are not zero and there is the nothing in how they are defined that would imply this. See the figure in the post by Simplegift above! You can construct them to be zero by longing or shorting the other factors. E.g. if Value is correlated nega...

MrMatt2532

Most Bogleheads who own SCV funds do so in addition to TSM funds. Tilting like this gets you closer to an equal weight portfolio which would appear to be intuitively more diversified than the 2% Apple, 2% Exxon, etc purely cap weighted portfolio I've tilted since day one myself, however, it has not...

MrMatt2532

At this point, we have 3 funds that don't correlate with each other at all (by definition!) and all of whom have large positive expected value. I'm ok with most that you wrote, however the correlations are not zero and there is the nothing in how they are defined that would imply this. See the figu...

MrMatt2532

Simplegift wrote:Beyond portfolio diversification, another reason for a separate, overweight allocation to REITs is increased inflation protection.

Yes, this is a great point. I would expect REITS would be the next best things after 1) Long term debt and 2) TIPS for inflation protection.

MrMatt2532

1) Because the fees are tiny even compared to the small amount of effort required. 2) Because it removes the temptation to make calls or micromanage. 3) Ask Doc . This. You are basically paying a little bit more for a bond fund for less effort managing. Paying a little bit more for convenience is w...

MrMatt2532

Thanks Matt. Some of those changed quite a lot using the monthly data. Modigliani is one I've not heard of before. Are you saying all those ratios are native calculations in Excel, or do you have some add-in tool pack? I'll have to look some of those stats up to see if I can figure out how to inter...

MrMatt2532

MrMatt, this looks potentially interesting, and I hope you don't take offense that I can't get very far in deciphering it. Would you mind going into a bit more detail, including all the abbreviations you're using? Or maybe even better if you could post the actual spreadsheet? Also wondering, are yo...

MrMatt2532

I just ran a bunch of numbers using the FF data from 1927-2013. Figured it might be useful for the discussion. Generally, you can see, the data shows one could have owned a mix of small and value, decreased beta, and still achieved the same expected return as the market. I computed the sharpe ratio ...

MrMatt2532

Frankly, I don't buy the "don't overcomplicate" argument here. A dollar in a roth is definitely worth more than a dollar in a traditional ira/401k. I agree that you shouldn't waste hours predicting future tax rates and guessing which bracket you are going to fall into, however, almost any correction...

MrMatt2532

I didn't vote because you messed up the math a little bit. I would consider it 55% stocks, 45% bonds.

MrMatt2532

I personally think it is fine for most people under 40. Consider the following: Say you are planing to retire at 65 spending around $80k per year or around $2M in financial assets. Typically, in retirement, around a 50/50 stock bond mix is held. So in this retirement scenario, you would be putting $...

MrMatt2532

I would not count the house as "real estate" for diversification, because you aren't using it as an investment. If housing prices go up, owning your own house doesn't make you any better off, because you still live in the same house. If housing prices fall, owning your own house doesn't hurt you (u...

MrMatt2532

I use 1% of structure cost as an estimate. For example, you could look up on zillow what the home value is, say 300k. Then lookup the "land share" for your state, https://www.lincolninst.edu/subcenters/land-values/land-prices-by-state.asp, say 15%. Then your structure cost is equal to 300k * (1.0 - ...

MrMatt2532

Also this is partially why many here prefer treasuries only for bond component of the portfolio. The issue with corporates is that the default risk (of bonds) is correlated with market risk (of stocks), so you don't get this nice behavior in times of trouble.

MrMatt2532

What ex-US SV fund do you use? With Fidelity I have only been able to find IV and IS, so I do 10% each. But I would prefer to just do 20% ISV. I use DLS for developed markets and DGS for emerging markets. They are technically small but they filter and weight by dividends which is an inherent value ...

MrMatt2532

Generally, I don't think its right to expect any random slice will reduce risk. For example, I wouldn't expect any benefit from taking the 500 companies in the SP500 and randomly separating them into two groups of 250, and then rebalancing between the two halves. However, where I do expect benefit i...

MrMatt2532

I would vote no. Once your taxable account is significant, a big emergency fund doesn't matter so much and only decreases long term returns. I would still keep about 3 months in cash for liquidity purposes.

MrMatt2532

How can you use leverage to invest more in equity? Wouldn't the interest rate on a personal loan be almost as high as the expected market returns? I guess I am leveraging to an extent because I still have student loans but I just make the min payment and max my retirement contributions. Also I don'...

MrMatt2532

IMO the starting point should really be about 50% international, not 30%. US now less than 50% of global equity market and small home country bias is okay due to lower costs of domestic investments and bit more tax efficiency generally and for those with lots of labor capital it's likely US restric...

MrMatt2532

Even if you are in camp 2, can it still make sense to tilt if you have very high risk tolerance? Right, sure. I hinted at this in the first paragraph: if your only goal is to maximize expected return (or you have off the charts risk tolerance), then risk doesn't matter and you should tilt towards s...

MrMatt2532

Here is what most people agree on: 1) Value and/or Small exposure leads to greater expected returns. 2) Value and/or Small exposure leads to greater risk. With just this in mind, it doesn't necessarily make sense to tilt (unless your only goal is just to maximize expected returns). The big question ...

MrMatt2532

Please explain your comments, as they seem to make no sense. Would you agree that your "US Total Market" also includes some "US Small/Mid"? The latter overlaps the former. Would you agree that your "Intl. Small" also includes some small-cap emerging markets? Does your "Emerging Mkt" also include sm...

MrMatt2532

I'll play: Assett Class Portfolio Percentage Target Treas 0.00% 0.00% TIPS 0.00% 0.00% US REIT 4.87% 4.91% Intl REIT 4.84% 4.91% CCF 4.95% 4.91% Gold 4.67% 4.91% US Mkt 20.97% 19.66% US SV 20.87% 19.66% Intl Dev Mkt 15.44% 16.20% Intl Dev SV 14.58% 16.20% EM Mkt 3.60% 3.46% EM SV 3.49% 3.46% CASH 1....

MrMatt2532

I would treat it as a bond, however it is worth less than if the payments are coming from the Treasury. Consider discounting its value according to the rates on an equivalent duration bond from the Fortune 500 company in question.

MrMatt2532

The sharpe ratio is probably the most used. Another is the sortino ratio, which is similar to sharpe but focuses on the downside deviation below a setpoint minimum acceptable return. There is another that I have made up and use sometimes which uses the downside deviation in the denominator. What I d...

MrMatt2532

Gold might not be a bad choice for diversification purposes, but make no mistake that a 80/20 stocks/gold portfolio is more risky than a 80/20 stocks/bond portfolio. Instead, if you want to hold gold, take it out of the stock portion (of course i'm assuming you have picked the correct bond percenta...

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