Introduction
It is my personal finance research. I have to push myself to read 44 page report written by Vanguard. I like to build some thinking power, as an investor, over 50 years old, how to think as a problem solver.
One graph a time
I like to read the article and be able to understand every graph in the article.
Here is the link.
Page 40
low rate
compressed equity risk premiums
investment strategy
global fixed income
global equity
portfolio returns
volatility
a lower orbit
asset-centric portfolio tilts
high return or yield
risk-tolerance levels
investors with an appropriate level of discipline, diversification, and patience
long-term focus
disciplined asset allocation
periodic portfolio rebalancing
saving more, working longer, spending less, and controlling investment costs
Portfolio construction strategies:
Time-tested principles apply
Contrary to suggestions that an environment of low rates and compressed equity risk premiums warrants some radically new investment strategy, Figure II-5 (on page 37) reveals that the diversification benefits of global fixed income and global equity are particularly compelling, given the simulated ranges of portfolio returns and volatility.
The market’s efficient frontier of expected returns for a unit of portfolio risk is in a lower orbit. More important, common asset-return-centric portfolio tilts, seeking higher return or yield, are unlikely to escape the strong gravity of low-return forces in play, as they ignore the benefits of diversification. Modestly outperforming asset-return-centric tilts requires a portfolio-centric approach that leverages the benefits of diversification by weighing risk, return, and correlation simultaneously.
Our prior research shows that investment success is within the control of long-term investors (Aliaga-Díaz, et al., 2016). Factors within a long-term investor’s control—such as saving more, working longer, spending less, and controlling investment costs—far outweigh the less reliable benefits of ad hoc asset-return-seeking tilts. Thus, decisions around saving more, spending less, and controlling costs will be much more important than portfolio tilts.
Investment objectives based either on fixed spending requirements or on fixed portfolio return targets may require investors to consciously weigh their options in conjunction with their risk-tolerance levels. Ultimately, our global market outlook suggests a somewhat more challenging environment ahead, yet one in which investors with an appropriate level of discipline, diversification, and patience are likely to be rewarded over the long term. Adhering to investment principles such as long-term focus, disciplined asset allocation, and periodic portfolio rebalancing will be more crucial than ever before.
No comments:
Post a Comment