Comments on: Risk and Return in Pictures

By: Risk and Return in Pictures Part II : WhereDoesAllMyMoneyGo.com

Risk and Return in Pictures Part II : WhereDoesAllMyMoneyGo.com — Mon, 06 Oct 2008 02:02:30 +0000

[...] week’s post “Risk and Return in Pictures” received some requests to chop up the data in different ways, so this follow up post will [...]

By: Preet

Preet — Fri, 03 Oct 2008 13:11:09 +0000

@DG – will do, hope to get this done for Monday’s post. As you can imagine, not rebalancing can look good simply because the higher performing asset class will increasingly represent more of your portfolio so over time the portfolio return drifts up towards the highest performing class. (Risk goes up too)

By: DG

DG — Fri, 03 Oct 2008 03:02:24 +0000

If you do a non-rebalancing graph, it would be interesting see how the allocations drifted after 20 years.

Thanks,
Dan.

By: This and That # 112: Credit Crisis Firefight Edition

This and That # 112: Credit Crisis Firefight Edition — Fri, 03 Oct 2008 00:04:15 +0000

[...] Preet generated a nice graph to show the trade off between risk and return. [...]

By: Preet

Preet — Mon, 29 Sep 2008 23:48:39 +0000

@Mark – in this case the risk is measured via standard deviation, which is not the only measure. Conclusions? You need a long time for buy and hold to work out – perhaps one should consider using options? :)

@Sampson – I will make a separate post later this week to show just what you describe.

@Peter – glad to be of service. :)

@Traciatim – I’ll put up data to end of September when the files are available – guess is that it still holds up although not as convincing. Of course if someone needed to take out all their money at once they’d be ill-advised to have so much money in equities. But if they have a 30 year potential retirement, significant exposure to equities isn’t too scary to me.

@Aaron – portfolios were re-balanced annually. Again, I will post later this week with scenarios suggested or asked for by commenters – including not rebalancing, and I will have a log plot too for both.

By: Aaron

Aaron — Mon, 29 Sep 2008 23:18:06 +0000

I assume that the portfolios are not being rebalanced periodically. It would be very interesting to see how annual re-balancing would affect the graph. Would it just moderate the highs and lows?

A log plot would be revealing too since it is difficult to see the variations in value when the values are smaller.

I also find it amazing that the graph isn’t exponential and appears very linear (especially the 90%fixed/10% equities). What happened to compound interest?

Interesting, nonetheless.

By: Traciatim

Traciatim — Mon, 29 Sep 2008 22:21:00 +0000

Hows the spread doing after today’s massive drops? I sure hope the people in the 90/10 portfolios don’t need their money any time soon :)

By: Peter

Peter — Mon, 29 Sep 2008 17:36:26 +0000

A picture is worth a thousand words. This graph tells me a lot – and thank you for using such a nicely diversified portfolio – quite nicely done! I’m printing this out and putting it up in my office.

By: Sampson

Sampson — Mon, 29 Sep 2008 15:50:04 +0000

I suppose a significant factor in selecting the ‘correct’ allocation will ultimately depend on time frame and goals, since if you had taken the same analysis, but began 1 year earlier (Dec 86), the results would probably look a little different. Also, what if you had charted the same comparison, but began in 1999. The difference would likely be less dramatic.

By: Risk and Return in bPictures/b

Risk and Return in bPictures/b — Mon, 29 Sep 2008 07:00:45 +0000

[...] Preet wrote an interesting post today onRisk and Return in bPictures/bHere’s a quick excerptThe trade off between Risk and Return is something that will always be talked about when it comes to investing. Unfortunately, while investors seem to indicate that they understand the concept, they normally don’t in reality. b…/b [...]