Comments on: How Much Risk Do You Need to Take?

By: Thicken My Wallet » Blog Archive » Should I buy an absolute return mutual fund?

Wed, 26 May 2010 08:42:49 +0000

[...] Alternatively, purchase ETFs which track a broad based index (emphasis on broad) and allocate holdings between equity and fixed income to hedge against volatility. For those who are conservative, take 100 minus age as equity allocation. For those who are more conservative, lop another 10%-15% off the previous number. For investment return based on asset allocation, I would refer to this post on equities risk and reward. [...]

By: Canadian Couch Potato

Canadian Couch Potato — Fri, 19 Mar 2010 18:05:26 +0000

Hi Alan: The two reports look at very different data. The Merriman numbers cover a 40-year period from 1970 to 2009. The post you link to looks at a 20-year period from 1962 to 1981, which the author specifically chose as the worst-ever 20-year period for US stocks. So yes, a diversified portfolio earned more than an all-stock portfolio during those 20 years, but in every other 20-year period, the all-stock portfolio would have returned more — with correspondingly more risk, of course.

Hope that helps.

By: Alan

Alan — Fri, 19 Mar 2010 16:42:47 +0000

What do you make of this report/blog post over at Canadian Financial DIY:

http://canadianfinancialdiy.blogspot.com/2009/12/ifa-calculator-demonstrates-diversified.html

The results there are opposite, with the mixed portfolio achieving superior returns over a 20 year period.

I have a long investment horizon (30-35 years) and always have been, and planned to remain, all stocks until I read the post I linked to.

I’d love to hear your take.

By: Canadian Personal Finance Blog » Blog Archive » Random Thoughts: Let the Madness Begin!

Fri, 19 Mar 2010 06:10:21 +0000

[...] Canadian Couch Potato asks How Much Risk Do You Need to Take? which discusses the always interesting discussion about the balance you should have between fixed [...]

By: Should You Invest in Stocks? | Balance Junkie

Should You Invest in Stocks? | Balance Junkie — Thu, 18 Mar 2010 09:51:22 +0000

[...] income, age, risk tolerance, etc.. The Canadian Couch Potato had a great article recently asking How Much Risk Do You Need to Take? I think you’ll find it really [...]

By: Brian

Brian — Tue, 16 Mar 2010 13:58:59 +0000

Here is the stats I was talking about:
http://www.getrichslowly.org/images/bernsteingraph.jpg

30 year annualized returns for the US large cap.

By: Canadian Couch Potato

Canadian Couch Potato — Sat, 13 Mar 2010 21:16:40 +0000

Thanks, Paul!

By: Paul

Paul — Sat, 13 Mar 2010 08:09:42 +0000

Just another word of appreciation for the informative and valuable post(s).

By: Canadian Couch Potato

Canadian Couch Potato — Fri, 12 Mar 2010 02:07:57 +0000

Thanks for the comment, Brian. I think it’s hard to call a 28-year period an outlier. The useful market data we have only goes back about 85 years, so 1980-2008 covers about a third of the whole data set.

Vanguard has done something similar here, using the data right back to 1926, but covering US stocks and bonds only:
https://personal.vanguard.com/us/insights/saving-investing/model-portfolio-allocations

By: Brian

Brian — Thu, 11 Mar 2010 22:52:49 +0000

Another great post CCP. What this tells is again is that risk and return at two sides of the same coin.

“One interesting thing you’ll find in Norbert’s data… Those numbers are skewed by the horrendous bear market of 2008, but compelling nonetheless.”
That 28 year time period would probably be an outlier comparied to other “28 year” periods. It doesn’t amount to much statistically, and would consider it unlikely to happen again.

I recall Dr. Bernstein doing a similar 30 year total return analysis since 1928 in his book Four Pillars.