Full Mixed Asset Classes Portfolio - Diversification is the key

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Topic Author
Mister643
Posts: 33
Joined: Wed Aug 21, 2019 6:00 am

Full Mixed Asset Classes Portfolio - Diversification is the key

Post by Mister643 » Fri Aug 23, 2019 2:37 pm

Easily Applicable Dollar Cost Averaging Portfolio in 1k chunks

10% iShares MSCI USA Value Factor UCITS ETF USD Acc (US Large and Mid Cap Value) - QDVI EUR Xetra - TER 0.20%
10% SPDR MSCI USA Small Cap Value Weighted UCITS ETF USD Acc (US Small Cap Value) - ZPRV EUR Xetra - TER 0.30%
10% iShares Edge MSCI Europe Value Factor UCITS ETF EUR Acc (Europe Large and Mid Cap Value) - CEMS EUR Xetra - TER 0.25%
10% SPDR MSCI Europe Small Cap Value Weighted UCITS ETF EUR Acc (Europe Small Cap Value) - ZPRX EUR Xetra - TER 0.30%
20% iShares Edge MSCI EM Value Factor UCITS ETF EUR Acc (EM Small, Mid and Large Cap Value) - 5MVL EUR Xetra - TER 0.40%
10% iShares European Property Yield UCITS ETF EUR Acc (European REIT) - IPRE EUR Xetra - TER 0.40%
20% iShares JP Morgan EM Bond UCITS ETF USD Acc (Emerging Markets Hard Debt) - JPEE EUR LSE - TER 0.45%
10% iShares Physical Gold ETF - EGLN EUR LSE - TER 0.25%

Total Expense Ratio: 0.34%

Portfolio Annualized Returns since 1970: 7.5% average real return

https://gyazo.com/c068ed4753bb6715e72a48b03388ebed

Portfolio Growth: 11-15 years to reach investment goals

https://gyazo.com/54c66a98039d30f63538f7c17e60d3a0

Max Drawdown: -29%; Longest Drawdown: 4 years

https://gyazo.com/37f058ce0a3e0a24ba0698c5af14ba22

10 years rolling real CAGR:

https://gyazo.com/2ad39440a86a1d9f5b7ff2cac05d0e0a

Long Term Returns:

https://gyazo.com/85951fbd89548f24ceab33ee7d828e95

Portfolio Sensitivity:

https://gyazo.com/d0e5cb4fb5e26f33fc447cb514610136

Safe and Perpetual Withdrawal Rates:

https://gyazo.com/9768fa9a53c5c9a07a1faee8a9ee79d0

P.S: The most exciting thing is that this portfolio has been built to deal well in the future, not to have been performed well in the past. Yet, past performance is not bad either and 6% safe withdrawal rate is something few portfolios can offer. I believe the benefits of diversification are well proved by both academic research and empirical evidence. For the years to come, huge returns are expected for emerging markets equities.

heyyou
Posts: 3596
Joined: Tue Feb 20, 2007 4:58 pm

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by heyyou » Sat Aug 24, 2019 12:06 am

If the future is very nearly identical to the past, that will be the perfect portfolio.

Topic Author
Mister643
Posts: 33
Joined: Wed Aug 21, 2019 6:00 am

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by Mister643 » Sat Aug 24, 2019 3:07 am

Correct. But if the future will be different than the past, this portfolio will perform better. I will also replace US government bonds with EM hard debt but I couldn't backtest that. I'm still thinking if I need the benefits of diversification so that I can give up some return by keeping gold and REITs or replicate only the equity part of the portfolio by mixing it with bonds. Gold has nice diversification benefits so it might not be the worst choice.

Schlabba
Posts: 253
Joined: Sat May 11, 2019 9:14 am

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by Schlabba » Sat Aug 24, 2019 3:23 am

Mister643 wrote:
Fri Aug 23, 2019 2:37 pm
Easily Applicable Dollar Cost Averaging Portfolio in 1k chunks

10% iShares MSCI USA Value Factor UCITS ETF USD Acc (US Large and Mid Cap Value) - QDVI EUR Xetra - TER 0.20%
10% SPDR MSCI USA Small Cap Value Weighted UCITS ETF USD Acc (US Small Cap Value) - ZPRV EUR Xetra - TER 0.30%
10% iShares Edge MSCI Europe Value Factor UCITS ETF EUR Acc (Europe Large and Mid Cap Value) - CEMS EUR Xetra - TER 0.25%
10% SPDR MSCI Europe Small Cap Value Weighted UCITS ETF EUR Acc (Europe Small Cap Value) - ZPRX EUR Xetra - TER 0.30%
20% iShares Edge MSCI EM Value Factor UCITS ETF EUR Acc (EM Small, Mid and Large Cap Value) - 5MVL EUR Xetra - TER 0.40%
10% iShares European Property Yield UCITS ETF EUR Acc (European REIT) - IPRE EUR Xetra - TER 0.40%
20% iShares JP Morgan EM Bond UCITS ETF USD Acc (Emerging Markets Hard Debt) - JPEE EUR LSE - TER 0.45%
10% iShares Physical Gold ETF - EGLN EUR LSE - TER 0.25%

Total Expense Ratio: 0.34%

Portfolio Annualized Returns since 1970: 7.5% average real return

https://gyazo.com/c068ed4753bb6715e72a48b03388ebed

Portfolio Growth: 11-15 years to reach investment goals

https://gyazo.com/54c66a98039d30f63538f7c17e60d3a0

Max Drawdown: -29%; Longest Drawdown: 4 years

https://gyazo.com/37f058ce0a3e0a24ba0698c5af14ba22

10 years rolling real CAGR:

https://gyazo.com/2ad39440a86a1d9f5b7ff2cac05d0e0a

Long Term Returns:

https://gyazo.com/85951fbd89548f24ceab33ee7d828e95

Portfolio Sensitivity:

https://gyazo.com/d0e5cb4fb5e26f33fc447cb514610136

Safe and Perpetual Withdrawal Rates:

https://gyazo.com/9768fa9a53c5c9a07a1faee8a9ee79d0

P.S: The most exciting thing is that this portfolio has been built to deal well in the future, not to have been performed well in the past. Yet, past performance is not bad either and 6% safe withdrawal rate is something few portfolios can offer. I believe the benefits of diversification are well proved by both academic research and empirical evidence. For the years to come, huge returns are expected for emerging markets equities.
Hi mister643.
In just a few days you posted multiple portfolios. Which one will you go for yourself? Remember ‘stay the course’ is a very inportant part of the returns.
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

User avatar
Sandtrap
Posts: 8675
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by Sandtrap » Sat Aug 24, 2019 8:23 am

It's possible that a simple portofolio consisting of 3-5 low cost index funds could perform as well as this one.

Or better with lower costs. Maybe.

j
Wiki Bogleheads Wiki: Everything You Need to Know

Topic Author
Mister643
Posts: 33
Joined: Wed Aug 21, 2019 6:00 am

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by Mister643 » Fri Aug 30, 2019 3:29 pm

Sandtrap wrote:
Sat Aug 24, 2019 8:23 am
It's possible that a simple portofolio consisting of 3-5 low cost index funds could perform as well as this one.

Or better with lower costs. Maybe.

j
It is not possible because low cost ETFs are mostly trash like IWDA, EIMI or AGGH.

User avatar
JoMoney
Posts: 8175
Joined: Tue Jul 23, 2013 5:31 am

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by JoMoney » Fri Aug 30, 2019 5:36 pm

:D I found this good for a chuckle, although I expect it was not intended to be funny.
Good luck, I really mean that.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

Schlabba
Posts: 253
Joined: Sat May 11, 2019 9:14 am

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by Schlabba » Sat Aug 31, 2019 2:31 am

Mister643 wrote:
Fri Aug 30, 2019 3:29 pm
Sandtrap wrote:
Sat Aug 24, 2019 8:23 am
It's possible that a simple portofolio consisting of 3-5 low cost index funds could perform as well as this one.

Or better with lower costs. Maybe.

j
It is not possible because low cost ETFs are mostly trash like IWDA, EIMI or AGGH.
:oops:
IWDA: MSCI World | EMIM: MSCI Emerging Markets | AGGH: Global Aggregate Bond Hedged to €

steveyg50
Posts: 35
Joined: Tue Jul 09, 2019 6:35 pm

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by steveyg50 » Sat Aug 31, 2019 2:40 pm

All your equity is in Value
1/3 of your equity is in small cap
1/3 of your equity is in EM

It doesn't look very diversified to me.

andrew99999
Posts: 558
Joined: Fri Jul 13, 2018 8:14 pm

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by andrew99999 » Sat Aug 31, 2019 9:25 pm

As far as I'm aware growth and value tend to move up and down at different times in the economic cycle, providing a diversification benefit to have both.
The same way that you include both large and small, would be the reason I would want both value and growth.

Also that is a LOT of emerging markets at 40% of your portfolio. EM bonds are more risky, and I'm wondering if they are more likely to go down in a global crisis, and if so they would be lacking the diversification you would get with something like US treasuries.

heyyou
Posts: 3596
Joined: Tue Feb 20, 2007 4:58 pm

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by heyyou » Sat Aug 31, 2019 10:29 pm

The seeking of higher than normal returns based on the historical record is troublesome. The future is often just enough different from the past to thwart following the precision of the historical record. If that precision was reliable, giant mutual funds would be doing it, not just amateurs. I suppose that could be a facet of momentum, but longer term.

My successful path to early retirement was saving relatively more than others for 30 years, since I'm not clever enough for more nuanced methods.

typical.investor
Posts: 1363
Joined: Mon Jun 11, 2018 3:17 am

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by typical.investor » Sat Aug 31, 2019 11:28 pm

Mister643 wrote:
Fri Aug 23, 2019 2:37 pm
10% iShares MSCI USA Value Factor UCITS ETF USD Acc (US Large and Mid Cap Value) - QDVI EUR Xetra - TER 0.20%
10% SPDR MSCI USA Small Cap Value Weighted UCITS ETF USD Acc (US Small Cap Value) - ZPRV EUR Xetra - TER 0.30%
10% iShares Edge MSCI Europe Value Factor UCITS ETF EUR Acc (Europe Large and Mid Cap Value) - CEMS EUR Xetra - TER 0.25%
10% SPDR MSCI Europe Small Cap Value Weighted UCITS ETF EUR Acc (Europe Small Cap Value) - ZPRX EUR Xetra - TER 0.30%
20% iShares Edge MSCI EM Value Factor UCITS ETF EUR Acc (EM Small, Mid and Large Cap Value) - 5MVL EUR Xetra - TER 0.40%
10% iShares European Property Yield UCITS ETF EUR Acc (European REIT) - IPRE EUR Xetra - TER 0.40%
20% iShares JP Morgan EM Bond UCITS ETF USD Acc (Emerging Markets Hard Debt) - JPEE EUR LSE - TER 0.45%
10% iShares Physical Gold ETF - EGLN EUR LSE - TER 0.25%
Past returns are irrelevant. Let's look at the exposure.

EM bonds are great long term, and I think probably better than EUR bonds, but do you really want the USD exposure? They are USD denominated bonds correct? So if the local currency drops, you could see repayment trouble.

I think I'd want a local currency bond fund. It might be denominated in USD but that's different than the bonds being denominated in USD. It's the currency of the bonds that matters for currency exposure and not the currency of the fund holding the bonds.

I think you should trim the EM equity exposure (-10%), drop gold (-10%), use more em local currency bonds (+5%) and hold IWMO MSCI World Momentum Factor. That would at least give you some exposure to developed Asia.

Oh developed Asia ... yeah guess you don't care.

I don't care what the back tests show. Your "diversification" effectively is constraining your exposure to only US, European and emerging value companies. It's not really reflective of the global economy.

steveyg50
Posts: 35
Joined: Tue Jul 09, 2019 6:35 pm

Re: Full Mixed Asset Classes Portfolio - Diversification is the key

Post by steveyg50 » Thu Sep 05, 2019 1:42 pm

Who was it said ' many a good plan is ruined by the pursuit of a perfect one.'

Could be what you're doing.

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