Random Walker wrote: ↑Mon Aug 14, 2017 7:42 am
North Texas Cajun,
im referencing Lussier's book, Successful Investing Is A Process pages 179-180. He simply has a graph labeled Equity weight and Equity volatility. He doesn't specifically name SD or time frame. You seem to be making the argument that the risk of stocks decreases with time. Certainly the overall average annualized return may be more predictable with longer time frame, but the dispersion of outcomes for the portfolio increases with time. And in a single year equities can lose 50%. Stocks are risky no matter what the time frame.
My alternatives are 2 AQR funds: style Premia, time series Momentum and 3 Stone Ridge funds: alternative lending, reinsurance, Variance risk premium.
Not sure of you saw my reply, so here it is again:
We are talking about SD of percent returns. And over time the daily and one year fluctuations tend to cancel out, don't they?
Jeremy Siegel and others have researched the SD of the U.S. Stock returns. Siegel found that it goes way down over time - from 18% over 1 year to 6% over 30 years.
On the other hand, the SD of bonds in the past has not declined as much as would have been expected by a random walk.
I disagree with your statement, Random Walker, that stocks are risky no matter what time frame. Jeremy Siegel has shown that U.S. Stocks are less risky than T bonds and T bills over 30 year periods. That is, over 30 year periods, the standard deviation of real U.S. Stock returns is lower than that of government bonds.
As longinvest pointed out in another post, Professor Siegel's study did not include TIPs. TIPs will likely have a lower SD than all other assets over the long term. But the real returns of TIPs have been close to zero. So, it may be possible to find an asset with less risk than U.S. stocks over the long term, but the price one pays (the foregone return) is very high.