My passive investment experiment

Audaxer

Linton wrote: »

It also may or may not be relevent in that a sensible objective isnt maximum return but rather sufficient return at minimum risk.

If the objective is sufficient return at minimum risk, I would have thought that would be easier to achieve investing in a portfolio of index funds or better still in a multi asset fund of passive indexes? If the level of returns you are aiming for is above the average market returns that passive investing will give you, then surely you are aiming to beat the market?

pip895

Audaxer wrote: »

If the objective is sufficient return at minimum risk, I would have thought that would be easier to achieve investing in a portfolio of index funds or better still in a multi asset fund of passive indexes? If the level of returns you are aiming for is above the average market returns that passive investing will give you, then surely you are aiming to beat the market?

It would appear though, that it is possible to build a lower volatility portfolio out of active investments and still get a better return!

Linton

Audaxer wrote: »

If the objective is sufficient return at minimum risk, I would have thought that would be easier to achieve investing in a portfolio of index funds or better still in a multi asset fund of passive indexes? If the level of returns you are aiming for is above the average market returns that passive investing will give you, then surely you are aiming to beat the market?

The growth portfolio investment strategy is to reduce risk by increasing diversification and reducing the effects of high correlations between major global companies and high allocations to particular markets/sector/companies inherent in market cap weighted indexes. 60%+ allocated to US would worry me, as would having 10% of my portfolio allocated to Microsoft/Facebook/Amazon/Apple/Google.



Investing solely in passive funds significantly restricts your investment options. In particular small companies present a major problem. This is important as they tend to be less correlated than large companies.



The Growth Portfolio is less than 50% of my assets. Most risk mitigation is achieved through the separate Wealth Preservation and Income portfolios. It is difficult to see how the objectives of either of those portfolios could be achieved with passive funds. The financial plan is based on the Growth portfolio returning no more than inflation. Beating The Index is a possible side effect of the investment strategy and perhaps a hobby rather than a primary objective.

Audaxer

Linton wrote: »

The financial plan is based on the Growth portfolio returning no more than inflation.

I'm a bit confused now, as I thought the aim of your Growth Portfolio with 100% equity was to turbo charge your returns giving you average returns well above inflation, and your Wealth Preservation portfolio aiming to maintain your wealth in line with inflation?

bostonerimus

pip895 wrote: »

It would appear though, that it is possible to build a lower volatility portfolio out of active investments and still get a better return!

Ding Ding Ding...you are Eugene Fama and I claim my prize. Although actively overweighting things like small companies in large indexes is very different from the stock picking funds like Woodford, Fundsmith and Lindsell Train that are highly visible today.

Your statement is true, but it is in a family of truthful statements that also include:

"It would appear though, that it is possible to build a higher volatility portfolio out of active investments and still get a lower return!"

...and that's what sometimes happens.

pip895

bostonerimus wrote: »

Your statement is true, but it is in a family of truthful statements that also include:

"It would appear though, that it is possible to build a higher volatility portfolio out of active investments and still get a lower return!"

...and that's what sometimes happens.

I have no doubt that you are right - My best guess is that my version of the sentence will happen more often than yours - and that's all I'm really after!:D

bostonerimus

pip895 wrote: »

I have no doubt that you are right - My best guess is that my version of the sentence will happen more often than yours - and that's all I'm really after!:D

Well then, invest away.