investment portfolio diversification

port_of_spain

Linton said:

port_of_spain said:

Linton said:

port_of_spain said:

What is Lars' key theory? I thought it was that most people don't have an "edge" in investing. Is anybody expecting that to be disproved?

My view is not that the theory is disproved, but rather that it may not be relevent. The "edge" being talked about is in long term returns.  Maximum long term returns may well not be the primary objective of the investor, the main exception being relatively young people with sufficient income to cover day to day needs using contributions from that income to build up a pot that wont be touched until retirement.

Well, the theory is not only relevant to maximizing returns. If an investor's medium- or low-risk portfolio is better than a comparable edgeless medium- or low-risk portfolio — "better", in the sense that: it has higher returns for the same risk level, or the same returns for a lower risk level — then the investor has "edge".

Now, you may say that so-called "risk" levels don't adequately describe the aims of an investor in deccumulation (in plain english: somebody living off their money). It certainly doesn't feel adequate to me. But I'm not convinced there's any better way to guide one's portfolio.

I would certainly say that, which is why I question the approach that implies the only investment decision one needs to make is the value of xx in VLSxx.  The approach that enables me to sleep at night is to identify the basic objectives and focus on achieving them in a way that can easily be controlled by reallocating particular investments.

OK. My next question is: how do you achieve any control, when you are using risk assets (assets that can go down in value)?

DiggerUK

A  diverse portfolio that had no gold exposure will be severely depleted. Most markets show values below levels from 5 years back. I calculate that most who have been in equites from that time are barely treading water. 

The question of how to diversify has been a staple of these threads since I first came on MSE.  Our much ridiculed gold holding has served Digger Mansions well..._

bigadaj

DiggerUK said:

A  diverse portfolio that had no gold exposure will be severely depleted. Most markets show values below levels from 5 years back. I calculate that most who have been in equites from that time are barely treading water. 

The question of how to diversify has been a staple of these threads since I first came on MSE.  Our much ridiculed gold holding has served Digger Mansions well..._

Where do you get your numbers from as they look ridiculous to me. looking at my investment portfolio then i was down around 17% from peak at the recent low point, currently down around 5% on this time last year. According to trustnet i am up around 30% over the last five years, which is a slight underestimate as not all my funds are accumulation and i do have investment trusts and a few individual shares so dividends are missing. an outlier is the fidelity tech trust, an invetsment around 3-4 years ago is currently up 150% ie total value now 2.5x original investment. 
if you can be objective enough to post similar details on gold it might be helpful and informative for you at least.  

Thrugelmir

port_of_spain said:

Thrugelmir said:

port_of_spain said:

What is Lars' key theory? I thought it was that most people don't have an "edge" in investing. Is anybody expecting that to be disproved?

The MSCI world index has been around many decades. The ability for an investor to invest it hasn't. As a consequence there's no historic data to base assertions on. 

How does the non-availability of global tracker funds before a certain date in the past make it more likely that most investors have "edge" now? :puzzled:

I haven't mentioned investors having an edge though. In selecting any single index to follow one is making an active decision though. 

kinger101

DiggerUK said:

A  diverse portfolio that had no gold exposure will be severely depleted. Most markets show values below levels from 5 years back. I calculate that most who have been in equites from that time are barely treading water. 

The question of how to diversify has been a staple of these threads since I first came on MSE.  Our much ridiculed gold holding has served Digger Mansions well..._

Actually, most accumulation funds are way above levels five years ago.  HSBC World Index is around where it was at one year ago.  S&P 500 based indices are around where they were the early part of last summer.  It's perfectly possible to have a balanced porfolio with no gold.  One might be looking at some recent gains, but that has to be counterbalanced by that for most of the last decade, gold exposure would have seriously reduced ones returns.  

It is certainly not something OP needs in their mix right now - you've just dumped a rock into already muddied waters.

Prism

DiggerUK said:

A  diverse portfolio that had no gold exposure will be severely depleted. Most markets show values below levels from 5 years back. I calculate that most who have been in equites from that time are barely treading water. 

The question of how to diversify has been a staple of these threads since I first came on MSE.  Our much ridiculed gold holding has served Digger Mansions well..._

Hmm that's not quite right (at least for me). I am still around 70% up over the last 5 years  ith a pretty diverse equity portfolio and I have never held gold. Not that gold hasn't been a good place to be too, but its not been the only way. 

Linton

port_of_spain said:

Linton said:

port_of_spain said:

Linton said:

port_of_spain said:

What is Lars' key theory? I thought it was that most people don't have an "edge" in investing. Is anybody expecting that to be disproved?

My view is not that the theory is disproved, but rather that it may not be relevent. The "edge" being talked about is in long term returns.  Maximum long term returns may well not be the primary objective of the investor, the main exception being relatively young people with sufficient income to cover day to day needs using contributions from that income to build up a pot that wont be touched until retirement.

Well, the theory is not only relevant to maximizing returns. If an investor's medium- or low-risk portfolio is better than a comparable edgeless medium- or low-risk portfolio — "better", in the sense that: it has higher returns for the same risk level, or the same returns for a lower risk level — then the investor has "edge".

Now, you may say that so-called "risk" levels don't adequately describe the aims of an investor in deccumulation (in plain english: somebody living off their money). It certainly doesn't feel adequate to me. But I'm not convinced there's any better way to guide one's portfolio.

I would certainly say that, which is why I question the approach that implies the only investment decision one needs to make is the value of xx in VLSxx.  The approach that enables me to sleep at night is to identify the basic objectives and focus on achieving them in a way that can easily be controlled by reallocating particular investments.

OK. My next question is: how do you achieve any control, when you are using risk assets (assets that can go down in value)?

1) Some guaranteed Income

2) Separate highly focussed portfolios:

 - Wealth Preservation: Cash to cover both basic and significant discretional expenditure for perhaps 3 years+wealth preservation funds & ITs for another 7 years at least. Aim inflation matching return.

 - Income: generating regular dividend and interest income.  This should be a lot more stable, barring global plagues and invasion of the zombies, than equity prices. Aim: steady income

 - Growth: - focussed on significantly exceeding long term inflation over 5-10 years.

The control comes from rebalancing between the  portfolios.

Thrugelmir

Prism said:

DiggerUK said:

A  diverse portfolio that had no gold exposure will be severely depleted. Most markets show values below levels from 5 years back. I calculate that most who have been in equites from that time are barely treading water. 

The question of how to diversify has been a staple of these threads since I first came on MSE.  Our much ridiculed gold holding has served Digger Mansions well..._

Hmm that's not quite right (at least for me). I am still around 70% up over the last 5 years  ith a pretty diverse equity portfolio and I have never held gold. Not that gold hasn't been a good place to be too, but its not been the only way. 

5 years in a bull market coupled with the impact of a depreciating £ isn't representative of a lifetime of investing.  

itwasntme001

Prism said:

DiggerUK said:

A  diverse portfolio that had no gold exposure will be severely depleted. Most markets show values below levels from 5 years back. I calculate that most who have been in equites from that time are barely treading water. 

The question of how to diversify has been a staple of these threads since I first came on MSE.  Our much ridiculed gold holding has served Digger Mansions well..._

Hmm that's not quite right (at least for me). I am still around 70% up over the last 5 years  ith a pretty diverse equity portfolio and I have never held gold. Not that gold hasn't been a good place to be too, but its not been the only way. 

The 70% return based on just the money you invested 5 years ago or based on the total money invested to date?  If the former then that is hardly surprising but if the latter and investments have been regular and similar sized then I would love to know which investments you used to generate a 70% return even after this recent crash?

Prism

Thrugelmir said:

Prism said:

DiggerUK said:

A  diverse portfolio that had no gold exposure will be severely depleted. Most markets show values below levels from 5 years back. I calculate that most who have been in equites from that time are barely treading water. 

The question of how to diversify has been a staple of these threads since I first came on MSE.  Our much ridiculed gold holding has served Digger Mansions well..._

Hmm that's not quite right (at least for me). I am still around 70% up over the last 5 years  ith a pretty diverse equity portfolio and I have never held gold. Not that gold hasn't been a good place to be too, but its not been the only way. 

5 years in a bull market coupled with the impact of a depreciating £ isn't representative of a lifetime of investing.  

Yup, just responding to Diggers reference to 5 years. Over a longer term of 23 years my pension has returned around 6% annualised. That figure was 7.2% at the beginning of this year.