What's the riskiest Bogleheadish asset?

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tadamsmar
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What's the riskiest Bogleheadish asset?

Post by tadamsmar » Thu Aug 01, 2013 7:52 am

What the single riskiest asset that Bogleheads advocate? Is it SV mutual funds?

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Re: What's the riskiest Bogleheadish asset?

Post by just_trailing » Thu Aug 01, 2013 7:55 am

Unless you restrict to 3 asset classes, they are Gold, Commodities, REITs.

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Re: What's the riskiest Bogleheadish asset?

Post by IlliniDave » Thu Aug 01, 2013 8:11 am

What is Bogleheadish is defined by the individual Boglehead, it seems. I go by Rick Ferri's premise (from All About Asset Allocation) where investment assets are expected to produce a long-term real return. I understand and respect that others see it different. That said, perhaps an international small value fund would be at the frontier? For me personally in my core portfolio it would be whatever is riskier between diversified emerging markets and domestic SCV. I do indulge my gambler fantasies and have about 2% cumulative in VGPMX (Prec Metals/Mining) and my employer's stock. I don't believe either of those fall within the spirit of the pure Boglehead philosophy.
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Re: What's the riskiest Bogleheadish asset?

Post by tadamsmar » Thu Aug 01, 2013 8:15 am

I agree that the notion of Bogleheadish is vague. I mean something like the highest SD asset that is advocated here without having the advocate pretty much laughed off the board.

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Re: What's the riskiest Bogleheadish asset?

Post by tadamsmar » Thu Aug 01, 2013 8:21 am

Are the fluctuations of gold different than those of an SV mutual fund? I tend to think of SV as acting more like a normal distribution whereas gold tends to be up and down in long phases. Maybe I am full of it. Swedroe seems to imply that S and V have tracking error (should be called tracking differences) vs TSM that require patience.

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Re: What's the riskiest Bogleheadish asset?

Post by Dulocracy » Thu Aug 01, 2013 8:44 am

I slice and dice... I have a DFA Emerging Markets Small Cap that makes up 2% of my portfolio. That is about as risky as you can get and stay bogleheadish, in my opinion. From reading many of the authors' books who are a part of this site, I think that commodities, gold, and individual stocks do not qualify as bogleheadish, though many bogleheads hold such investments. I own some individual stock from pre-boglehead days, but that does not qualify as a bogleheadish investment.
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Re: What's the riskiest Bogleheadish asset?

Post by vesalius » Thu Aug 01, 2013 8:48 am

Dulocracy wrote:I slice and dice... I have a DFA Emerging Markets Small Cap that makes up 2% of my portfolio. That is about as risky as you can get and stay bogleheadish, in my opinion. From reading many of the authors' books who are a part of this site, I think that commodities, gold, and individual stocks do not qualify as bogleheadish, though many bogleheads hold such investments. I own some individual stock from pre-boglehead days, but that does not qualify as a bogleheadish investment.
In a similar vein, Emerging Small value would be my pick. I not only hold, but also see DGS advocated here without those suggesting it being laughed off the board.

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Re: What's the riskiest Bogleheadish asset?

Post by kenyan » Thu Aug 01, 2013 8:56 am

A single asset or asset class should not be considered in isolation. Individual stocks and bonds may be considered in line with the Boglehead philosophy, when properly implemented in a portfolio, and those may be far riskier than a diversified mutual fund when considered in isolation.
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Re: What's the riskiest Bogleheadish asset?

Post by Investing is boring » Thu Aug 01, 2013 8:59 am

EWX - my emerging markets small caps are likely the "most risky single investment" - however, their correlation with the rest of my portfolio actually makes my portfolio SAFER. Funny how diversification works.

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Re: What's the riskiest Bogleheadish asset?

Post by livesoft » Thu Aug 01, 2013 9:01 am

Maybe it is one's home?
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Re: What's the riskiest Bogleheadish asset?

Post by mhc » Thu Aug 01, 2013 9:07 am

I would say the 5-10% some people say is okay to hold in company stock or the 5-10% some people say can be used as play money for random investments/gambling.

I do not support either of the above, but some bogleheads do.

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Re: What's the riskiest Bogleheadish asset?

Post by tadamsmar » Thu Aug 01, 2013 9:22 am

mhc wrote:I would say the 5-10% some people say is okay to hold in company stock or the 5-10% some people say can be used as play money for random investments/gambling.

I do not support either of the above, but some bogleheads do.
I avoid holding company stock because it links your investment capital and your human capital. Creates a specific risk by linking covariances.

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Re: What's the riskiest Bogleheadish asset?

Post by tadamsmar » Thu Aug 01, 2013 9:24 am

kenyan wrote:A single asset or asset class should not be considered in isolation. Individual stocks and bonds may be considered in line with the Boglehead philosophy, when properly implemented in a portfolio, and those may be far riskier than a diversified mutual fund when considered in isolation.
True, but I don't know of any Boglehead who rolls his own diversity from individual stocks.

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Re: What's the riskiest Bogleheadish asset?

Post by DoWahDaddy » Thu Aug 01, 2013 9:25 am

There are countless ETFs broken down by country, sector, etc. all with reasonably low expense ratios that could theoretically be incorporated into and managed in a Bogleheadish portfolio. I'd say it's a thousand-way tie between them.
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Re: What's the riskiest Bogleheadish asset?

Post by YttriumNitrate » Thu Aug 01, 2013 9:41 am

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Re: What's the riskiest Bogleheadish asset?

Post by Investing is boring » Thu Aug 01, 2013 9:41 am

tadamsmar wrote:
kenyan wrote:A single asset or asset class should not be considered in isolation. Individual stocks and bonds may be considered in line with the Boglehead philosophy, when properly implemented in a portfolio, and those may be far riskier than a diversified mutual fund when considered in isolation.
True, but I don't know of any Boglehead who rolls his own diversity from individual stocks.

I think the only way to do that is with something like a Berkshire Hathaway. A mutual fund masquerading as a company.

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Re: What's the riskiest Bogleheadish asset?

Post by tadamsmar » Thu Aug 01, 2013 9:56 am

Investing is boring wrote:
tadamsmar wrote:
kenyan wrote:A single asset or asset class should not be considered in isolation. Individual stocks and bonds may be considered in line with the Boglehead philosophy, when properly implemented in a portfolio, and those may be far riskier than a diversified mutual fund when considered in isolation.
True, but I don't know of any Boglehead who rolls his own diversity from individual stocks.

I think the only way to do that is with something like a Berkshire Hathaway. A mutual fund masquerading as a company.
We use to think GE was a mutual fund masquerading as a company, then came 2008 when we realized GE was a high-risk lender masquerading as mutual fund masquerading as a company.

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Re: What's the riskiest Bogleheadish asset?

Post by Chan_va » Thu Aug 01, 2013 10:04 am

This goes back to the old "Buffet" definition of risk - highest volatility/expected return, or highest probability of losing value long term.

If the former - all responses above, if the latter - cash and short term nominal bonds.

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Re: What's the riskiest Bogleheadish asset?

Post by G-Money » Thu Aug 01, 2013 10:16 am

livesoft wrote:Maybe it is one's home?
Or possibly one's human capital.
Don't assume I know what I'm talking about.

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Re: What's the riskiest Bogleheadish asset?

Post by G-Money » Thu Aug 01, 2013 10:26 am

tadamsmar wrote:I agree that the notion of Bogleheadish is vague. I mean something like the highest SD asset that is advocated here without having the advocate pretty much laughed off the board.
By that definition, I'd say the Guggenheim S&P SmallCap 600 Pure Value ETF (RZV).* I've seen several folks here advocate its use without getting laughed off the board (although it has its detractors). It has extremely high factor loadings. But what makes it particularly risky is it is quite concentrated (~150 stocks) and is incredibly illiquid. Only about $1 million worth of RZV changes hands each day. I think it has rather large spreads.

As noted by other posters, sector funds and commodities also rate quite high on the risky scale, but the general consensus on this forum seems to be to avoid these asset classes (with the exception of REITs, about which people debate whether it's actually a sector fund).

* Your thread title and posts all say "asset," not "asset class," so I figured it was safe to name a specific asset, rather than an asset class.
Don't assume I know what I'm talking about.

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Re: What's the riskiest Bogleheadish asset?

Post by Chan_va » Thu Aug 01, 2013 10:28 am

G-Money wrote:
tadamsmar wrote:I agree that the notion of Bogleheadish is vague. I mean something like the highest SD asset that is advocated here without having the advocate pretty much laughed off the board.
By that definition, I'd say the Guggenheim S&P SmallCap 600 Pure Value ETF (RZV). I've seen several folks here advocate its use without getting laughed off the board (although it has its detractors). It has extremely high factor loadings. But what makes it particularly risky is it is quite concentrated (~150 stocks) and is incredibly illiquid. Only about $1 million worth of RZV changes hands each day. I think it has rather large spreads.

As noted by other posters, sector funds and commodities also rate quite high on the risky scale, but the general consensus on this forum seems to be to avoid these asset classes (with the exception of REITs, about which people debate whether it's actually a sector fund).
I guess the absolute outer envelope would be the above multiplied with leverage from a mortgage or HELOC.

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Re: What's the riskiest Bogleheadish asset?

Post by tadamsmar » Thu Aug 01, 2013 2:53 pm

G-Money wrote:
tadamsmar wrote:I agree that the notion of Bogleheadish is vague. I mean something like the highest SD asset that is advocated here without having the advocate pretty much laughed off the board.
By that definition, I'd say the Guggenheim S&P SmallCap 600 Pure Value ETF (RZV).* I've seen several folks here advocate its use without getting laughed off the board (although it has its detractors). It has extremely high factor loadings. But what makes it particularly risky is it is quite concentrated (~150 stocks) and is incredibly illiquid. Only about $1 million worth of RZV changes hands each day. I think it has rather large spreads.

As noted by other posters, sector funds and commodities also rate quite high on the risky scale, but the general consensus on this forum seems to be to avoid these asset classes (with the exception of REITs, about which people debate whether it's actually a sector fund).

* Your thread title and posts all say "asset," not "asset class," so I figured it was safe to name a specific asset, rather than an asset class.
By asset I meant something in your asset allocation. And visible at the top level division (not that Apple stock in the TSM). I think certain assets or asset classes would fit that.

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Re: What's the riskiest Bogleheadish asset?

Post by freebeer » Thu Aug 01, 2013 3:13 pm

I think there is no absolute answer because it depends not just on the asset class but the % of your portfolio invested in that asset class and the makeup of that overall portfolio.

Bogleheads tend to fall into slice-and-dice and KISS camps. In both camps there are "tilters" who deviate from market allocations to try to capture a premium from risk factors including small-cap and value and sometimes others. I think it's fair to say that both are Boglehead-ish although the KISS folks seem to dominate the wiki content and most advice given to newcomers (probably reasonably so since slice-and-dice and factor-based tilts are both more complex and can blur with speculation and performance chasing).

Slice-and-dicers tend to have up to 10 different asset classes in their equities. And even KISS folks sometimes have a "tilt". So as a relatively narrow "slice" or "tilt" of 5% or 10% of equities no one is likely to scorn small-cap-value (perhaps even narrowed to e.g. emerging markets) as un-Boglheadish even if there may be those who question its efficacy. But that same narrow asset class, if it made up 50% of equities, would be considered un-Bogleheadish because it would grossly violate, rather than just try to tweak and optimize beyond, the core Bogleheads principle of "diversify". Unless, that is, you're doing a Minimize FatTail portfolio but I don't know that there is consensus as to whether that is truly Boglehead-ish since it strays so far from the "diversify" principle and the supposed "compensated risk" for narrower and narrower slices is more and more strongly tied to past results. But at least such a Minimize FatTail portfolio is designed for purpose so it's still Bogleheadish in that sense.

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Re: What's the riskiest Bogleheadish asset?

Post by Bradley » Thu Aug 01, 2013 3:47 pm

just_trailing wrote:Unless you restrict to 3 asset classes, they are Gold, Commodities, REITs.
I think of risk as underperforming the market, therefore I agree that commodities and gold put you at risk for underpermforming the market as well as actively managed stock and bonds. Holding the tradable securities of all of the world's going concerns in the proportion they exit is the least riskiest way to invest.
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Re: What's the riskiest Bogleheadish asset?

Post by greg24 » Thu Aug 01, 2013 3:57 pm

Human capital.

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Re: What's the riskiest Bogleheadish asset?

Post by JoMoney » Thu Aug 01, 2013 4:07 pm

I think you have to define what risk your trying to avoid the most.

... but generically, since we're looking at "Boglehead" assets, I think just looking at what Vanguard lists as its riskiest funds would probably be a starting point:

Something like " Vanguard Emerging Markets Stock Index Fund Investor Shares (VEIEX) ":
Stock market risk
Country/Regional risk
Emerging markets risk
Currency risk
Index sampling risk
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Re: What's the riskiest Bogleheadish asset?

Post by TheTimeLord » Thu Aug 01, 2013 8:40 pm

Cash???
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Re: What's the riskiest Bogleheadish asset?

Post by staythecourse » Thu Aug 01, 2013 8:57 pm

Great question, but would ask back the question over what time frame?? In the short run and equity would qualify as they all have high volatility and over the long run I would say cash and gold as it has the highest shortfall risk.

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Re: What's the riskiest Bogleheadish asset?

Post by dad2000 » Thu Aug 01, 2013 9:10 pm

From my portfolio, I'd say VNQ, VNQI, RZV, DBC. As to whether these are bogleheadish, there may be some disagreement.

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Re: What's the riskiest Bogleheadish asset?

Post by JoMoney » Thu Aug 01, 2013 9:21 pm

Do Bogleheads view short-term volatility as the definition of "risk" ?
Is it "Bogleheadish" to do anything other than "Diversify widely" and "Keep costs low" ?
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Re: What's the riskiest Bogleheadish asset?

Post by Kalo » Thu Aug 01, 2013 9:25 pm

I am not sure about human capital being that risky any more. In the old days, if a subsistence farmer broke his leg just as planting or harvesting season came along, that could be very risky.

But today, if you work in a cube? I'm not sure the odds of my becoming disabled and unable to sit in my chair are all that high. Now if you're talking about the depletion of human capital, it does seem inexorable. But even at that, I see some pretty old people still making money via their human capital.

Maybe I'm missing something.

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Re: What's the riskiest Bogleheadish asset?

Post by nedsaid » Thu Aug 01, 2013 9:29 pm

My best guess would be 1) REITs, 2) Small Cap Value, and 3) Emerging Markets in order of riskiness. These help put the "Tiger in your tank."
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Re: What's the riskiest Bogleheadish asset?

Post by G-Money » Thu Aug 01, 2013 11:20 pm

Kalo wrote:I am not sure about human capital being that risky any more. In the old days, if a subsistence farmer broke his leg just as planting or harvesting season came along, that could be very risky.

But today, if you work in a cube? I'm not sure the odds of my becoming disabled and unable to sit in my chair are all that high. Now if you're talking about the depletion of human capital, it does seem inexorable. But even at that, I see some pretty old people still making money via their human capital.

Maybe I'm missing something.

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Re: What's the riskiest Bogleheadish asset?

Post by bpp » Thu Aug 01, 2013 11:30 pm

tadamsmar wrote:
kenyan wrote:A single asset or asset class should not be considered in isolation. Individual stocks and bonds may be considered in line with the Boglehead philosophy, when properly implemented in a portfolio, and those may be far riskier than a diversified mutual fund when considered in isolation.
True, but I don't know of any Boglehead who rolls his own diversity from individual stocks.
Several of us posters here roll our own mutual funds by holding a number of individual stocks.

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Re: What's the riskiest Bogleheadish asset?

Post by gmtret » Fri Aug 02, 2013 4:13 am

The question is moot, such that no one has a clue. Risk and reward works best when the risk does not appear, and who knows? I figure the primary asset classes are stocks, bonds, and cash. Without doubt, there are permutations concerning such vagaries as small, value, and reit. Establish an asset allocation and add to it every check, through thick and thin, and you, too, can retire without fear.
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Re: What's the riskiest Bogleheadish asset?

Post by Aptenodytes » Fri Aug 02, 2013 6:53 am

CCFs are gaining traction here, and Swedroe recommends them unabashedly. I haven't looked up whether the volatility is higher than international small value, but I'd expect it to be; if not higher then close.

TrevH's spreadsheet can be used to approximate an answer to the question -- take the yield data and calculate SD over the time period. Gold and emerging markets come out on top doing that. REITs aren't even close. I personally have a problem calling gold a Bogleheadish asset, but I have no problem calling TrevH a Boglehead so by syllogism I guess it can be considered in the mix.

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Re: What's the riskiest Bogleheadish asset?

Post by tadamsmar » Fri Aug 02, 2013 7:01 am

gmtret wrote:The question is moot, such that no one has a clue. Risk and reward works best when the risk does not appear, and who knows? I figure the primary asset classes are stocks, bonds, and cash. Without doubt, there are permutations concerning such vagaries as small, value, and reit. Establish an asset allocation and add to it every check, through thick and thin, and you, too, can retire without fear.
Well, you need risk estimates to establish an appropriate asset allocation. These estimates may be moot for some investors, but only because they used a kind of cookbook formula for asset allocation from an authority they trusted, and even most of us who use a cookbook formula have some idea of the risk simply because we are not completely willing to engage in clueless trust of an authority. If authority who created the cookbook thought the risk of assets were moot, then a lot of us are in trouble or the authority just got lucky with a blind guess.

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Re: What's the riskiest Bogleheadish asset?

Post by Boglenaut » Fri Aug 02, 2013 7:02 am

What's the riskiest Bogleheadish asset?
Lately, it seems to be TIPS funds. :wink:

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Re: What's the riskiest Bogleheadish asset?

Post by tadamsmar » Fri Aug 02, 2013 7:05 am

nedsaid wrote:My best guess would be 1) REITs, 2) Small Cap Value, and 3) Emerging Markets in order of riskiness. These help put the "Tiger in your tank."
Yeah, I hold REIT and EM. I keep think The REIT tiger (which makes up 12.5% of my allocation and has seemed relatively tame for more than a decade) might bite off my hand, but I estimate I can make my retirement goals without a hand.

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Re: What's the riskiest Bogleheadish asset?

Post by Call_Me_Op » Fri Aug 02, 2013 7:12 am

Boglenaut wrote:
What's the riskiest Bogleheadish asset?
Lately, it seems to be TIPS funds. :wink:
+1. :wink:
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Re: What's the riskiest Bogleheadish asset?

Post by Caduceus » Fri Aug 02, 2013 4:07 pm

I would vote for cash - the greatest long-term risk is often inflation.

Individual asset classes might be risky, but not so much in a portfolio ... so should risk be assessed at the level of the portfolio?

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Re: What's the riskiest Bogleheadish asset?

Post by netrammgc » Fri Sep 05, 2014 8:14 pm

This is an interesting thread. How about the riskiest Bogleheadish fund/etf with a total investment expense gross at or below 0.18? I am still learning so, if basis points or another low expense term is better used, please correct.

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Re: What's the riskiest Bogleheadish asset?

Post by blueleaf » Fri Sep 05, 2014 8:47 pm

Long nominal bonds.

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Re: What's the riskiest Bogleheadish asset?

Post by CyberBob » Fri Sep 05, 2014 9:11 pm

tadamsmar wrote:I mean something like the highest SD asset...
To paraphrase Warren Buffett, volatility isn't risk.
To more fully quote Warren Buffett:
  • The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability – the reasoned probability – of that investment causing its owner a loss of purchasing-power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a non-fluctuating asset can be laden with risk.

    Investments that are denominated in a given currency include money-market funds, bonds, mortgages,bank deposits, and other instruments. Most of these currency-based investments are thought of as “safe.” In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.

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Re: What's the riskiest Bogleheadish asset?

Post by netrammgc » Fri Sep 05, 2014 9:28 pm

CyberBob wrote:
tadamsmar wrote:I mean something like the highest SD asset...
To paraphrase Warren Buffett, volatility isn't risk.
To more fully quote Warren Buffett:
  • The riskiness of an investment is not measured by beta (a Wall Street term encompassing volatility and often used in measuring risk) but rather by the probability – the reasoned probability – of that investment causing its owner a loss of purchasing-power over his contemplated holding period. Assets can fluctuate greatly in price and not be risky as long as they are reasonably certain to deliver increased purchasing power over their holding period. And as we will see, a non-fluctuating asset can be laden with risk.

    Investments that are denominated in a given currency include money-market funds, bonds, mortgages,bank deposits, and other instruments. Most of these currency-based investments are thought of as “safe.” In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge.
I agree completely. As a new investor I am bothered by the amount of times the word "risk" is used in different contexts. Even Vanguard has the "risk potential" 1-4. I understand words have different contexts at different junctures and levels expertise, but jeesh. This thread identifies cash up through (and past) emerging markets as the riskiest. Very interesting from a newb.

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Re: What's the riskiest Bogleheadish asset?

Post by Dulocracy » Tue Sep 09, 2014 5:27 pm

livesoft wrote:Maybe it is one's home?
Good call.

Honestly, yes. In my case it has been. I hope to goodness that nothing proves riskier than my home has been. At one point, it lost 55% of its value. Now, we are almost back up to 75%. I have put enough into it that I could sell and walk away from it today without owing any money... I think.
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Re: What's the riskiest Bogleheadish asset?

Post by livesoft » Tue Sep 09, 2014 5:54 pm

Wow, a year after that post I started this well-voted poll on home values and got myself an unexpected result:
POLL: My home is worth less/more in 2014 than in 2007?
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Re: What's the riskiest Bogleheadish asset?

Post by denovo » Tue Sep 09, 2014 6:02 pm

just_trailing wrote:Unless you restrict to 3 asset classes, they are Gold, Commodities, REITs.
I don't consider REIT index funds to be riskier than stock index funds.
Last edited by denovo on Tue Sep 09, 2014 6:12 pm, edited 1 time in total.
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Re: What's the riskiest Bogleheadish asset?

Post by denovo » Tue Sep 09, 2014 6:03 pm

livesoft wrote:Maybe it is one's home?
Oh man, preemptive doom derailment warning. Huge argument pending about whether or not one's home is an asset.
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Re: What's the riskiest Bogleheadish asset?

Post by White Coat Investor » Tue Sep 09, 2014 6:19 pm

Frontier microcap value?
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