I work for an RIA managing assets and helping clients w/ financial planning AMAA>bought gold at $1900>IBIT in my retirement accounts>catastrophe bonds are my favorite asset class
>>62366943i'm going DCA on 80% VTI 20% XSD until cows come home, and then exiting XSD entirely if the semiconductor sector goes completely tits-up how does this risk profile compare to the recommended amount, assuming that i'm already tolerant of short-term drawdowns in favor of long term growth?
>>62366984Depends on your time horizon, I'll assume you're young (<30) so a typical advisor would tell you that's an appropriate risk tolerance (100% us equity with an industry tilt). Most target date funds for a 2060 retirement are 90%+ equity right now.The "rule of thumb" is 100 or 120 minus your age = how much % stocks you are overall.Also, if you look into something called the "efficient frontier" the basic idea is the units of risk you take on per unit of return past 85% stocks is dog.I'm worried about regime changes though, in which case stocks could have a decade+ of awful returns
>>62367052>Also, if you look into something called the "efficient frontier" the basic idea is the units of risk you take on per unit of return past 85% stocks is dog.5-15% bond ETF into the mix then? there's not much i can diversify into since my net worth is trash. >I'm worried about regime changes though, in which case stocks could have a decade+ of awful returnswhat would be the damage mitigation strategy for pure ETF portfolios? sell some (or all) and dip into bond ETFs?
>>62367065>5-15% bond ETF into the mix then? there's not much i can diversify into since my net worth is trash.Traditionally the asset class would be an investment grade bond fund, if ETF that's BND or BSV for US. BND if you don't care about interest rate risk, appropriate for retirement accountsBSV if in a taxableNontraditionally I think there are asset classes that have done way better in real returns than investment grade bonds and are not as correlated as we saw in 2022. Gold, cat bonds, EM bonds, managed futures to name a few. There's ETFS for all of those and they tend to give 6%-8% a year return on average and don't move in the same direction of equities.>what would be the damage mitigation strategy for pure ETF portfolios? sell some (or all) and dip into bond ETFs?Market timing is hard or impossible to do effectively. I'd figure out a portfolio allocation "built for it" and rebalance alone the way.That's why lots of my accounts have managed futures, gold, and cat bonds.
>>62366984What manga is this? I think an adaptation was announced
My question might be a little too low level for you.I'm an artist working tech support and my wife's parents bought us a house. We have two daughters but no mortgage.I make less than average wage right now, and I know that there are no royal roads to geometry, but what are some financial concepts that'd be a good idea for someone like me to learn to work against my financial illiteracy?
>>62367096i see, thanks. btw how much weight should i give to portfolios generated using efficiency frontier calculators? i plugged in VGT to see what kind of portfolio i'd get, and it came up with something unexpected like 11% VTI and 75% VGT plus some bonds for sharpe ratio maximized portfolio. this seems incredibly risky to me.
>>62367052Regime change is right, and gold to $20k+ and your clients will probably be itching to sue or worse that a rock ass stomped equities as equities enter a lost decade.
>>62367123Actually the question I get almost weekly, most people are financially illiterate and only some realize it and try to change that. Good on ya.Concepts to understand (off the top of my head in rough order of importance)>ESTATE PLANNING SINCE YOU HAVE KIDS (do you have a trust/will?)>Time value of money (how compounding returns get out of control over a long enough time span)>Index funds and how few people beat the market (aka buy VT/VOO and BND and drool on yourself to beat 85% of asset managers)>Interest (what interest rates actually mean and what the risk free rate is)>Budgeting/Cash Flows (how much are you saving and how much can you increase that through "offense" and "defense">Account tax types (IRA, 401k, normal brokerage, Roths, etc)>4% safe withdrawal rate rule>Why 10% (or higher) savings rate is importantThe Simple Path to Wealth by JL Collins is a GREAT read if you have the time. Can be found online for free in PDF.
>>62367153Many thanks for your time
>>62367144Gold is real money, fiat is fiat.Most people don't understand how our current system works and would be HORRIFIED if they know the shit that got pulled on them with SVB bank or that we print M2 into existence.I made so much goddamn money when I saw them turn the printers on and bought GLD a few years ago.>>62367141That is incredibly risky, I'd ignore those calculators. Without seeing the data I can tell you they aren't looking back far enough for their calcs (30+ years, preferably 50). Maybe consider something that has these classes represented by ETF, example %s that I'd do:60% VT20% VGT10% GLDM10% BSV or ILS if you're spicyThis gives you both ex-US and US exposure with a heavy but prudent tech tilt on top of non-correlated assets to rebalance through volatility (gold and cat bonds). Cat bonds don't move with anything, they are truly uncorrelated. Gold goes up when equities go down usually, they like inflation and fear.>>62367130When do you plan to use the $?
>>62367173I owe it to anon, this is my penance
>>62367213HYSA isn't bad if you don't know horizon. 3% risk free is great.> I have just been saving for shit like that, unexpected expensesThis is literally what insurance is for bro, 2% deductible and they buy you a new roof. I just went through that for hail damage.How much does it cost a month all-in to exist?
>>62367052>units of risk you take on per unit of returnOne thing I've never understood from asset managers, everyone always says learn risk analysis, manage risk vs. reward, etc. I get it. ButHOW DO YOU MEASURE UNITS OF RISK AND RETURN????Just give me some typical examples so I know what to look into. No one ever explains this.
>>62367184>Maybe consider something that has these classes represented by ETF, example %s that I'd do:thanks for the insight. >ILS what is this and why does the graph sawtooth like that?
>>62367266It's actually super easy, return is real return before taxes and "risk" is volatility aka standard deviation.>>62367247Bummer for that experience, but it could have been bad luck and it was a long time ago - regulations have grown stricter for insurance since then. Consider that your lived experience could be making you biased.That being said, having a phat AF emergency fund can help you sleep at night, but 6 months is good and 12 months is phat and over 12 months is inefficient. Leads to why I asked about spending rate.$1950/month x 130% because margin of safety and most people spend a little more on maintenance and shit than they think (property taxes?) = $~2,500/m so $30k a year living expenses.You have over 4 years in what most would consider an efund man. It's pretty inefficient.Think about meeting halfway and keeping $60k in the HYSA imo. The rest can go into a taxable or even a Roth IRA if you AGI isn't over the MAGI threshold. Roths are VERY flexible on taking out contributions (any time, any reason) and give great tax advantages to the growth if you make it to 60.The other option is a taxable brokerage (max flexibility, but no tax advantage). You could get over 3% pretty easily with minimal risk taken on.50% VT, 20% BSV, 20% JPST, 10% ILS would give you such a nicer return with a hilariously low max drawdown. You could backtest it on portfolio visualizer to see, but would have to replace the ILS with BSV to get a decent backtest.
>>62367326ILS is a catastrophe bond ETF. They buy all kinds of catastrophe bonds from around the world for different natural disasters. Catastrophe bonds are floating rate (no interest rate risk) bonds that only pay principal back if the named disaster doesn't occur. Example: You can buy a Louisiana catastrophe bond from State Farm insurance and you don't get your principal back if a hurricane hits the state and it might pay something like 10% a year in interest. The insurance company is letting you "buy the risk".ILS buys all kinds of cat bonds so is diversified enough that you don't get fucked. It's an investment category that as a result has NO CORRELATION to any other asset class. It doesn't move with anything which is amazing for portfolio building.>why does the graph sawtooth like that?That's the NAV going down proportionally to the fat af 1% a month dividend payments.
>>62367445amazing. thanks for your insight and explanation.
>>62367457Catastrophe bonds are a seriously unknown asset class for most people and absolutely incredible. Near equity returns with no correlation is insanity for fixed income. In 10 years or so they will be mainstream but until they the premium is nice to collect.CBYYX for mutual funds and ILS for ETFs are what I target. https://47598668.hs-sites.com/hubfs/ILS%20ETF%20Fund%20Documents/ILS%20ETF%20Fact%20Sheet.pdf?hsCtaAttrib=189598987686
>>62366943I also work as an advisor for an RIA. Does your firm act as a 3(38) fiduciary?>I bought silver at $17.50 and sold at $103
>>62367586>Does your firm act as a 3(38) fiduciary?We don't, but we do give general recommendations for 401k accounts outside of our management.
>>62367364>It's actually super easy, return is real return before taxes and "risk" is volatility aka standard deviation.So you're saying for a stock to hit X price, the return = X - current price and risk is measured as number of standard deviations from current price to X?
>>62367445>buy the riskSo it's like a bet. Isn't it exactly what crashed housing market in 2008?
>>62367655Risk is defined as the uncertainty of future returns. It can be measure by volatility, or how wide the returns are historically. The statistical measure of this is standard deviation.Ignore real returns for this, it account for inflation. Return is just (ending total return - beginning total return)/beginning total return. The S&P 500 for example gives 8%-10% a year usually, depends on the time period you look at. It includes dividends/interest AND price appreciation.The S&P 500 also has a great deal of risk. The worst returns are -40% per year and the best returns are +50% per year. That's a wide range of returns so a very wide standard deviation relative to most other asset classes.Investors expect a high long-term return as compensation for the variability in yearly returns which is why stonks do so well as an asset class if you zoom out far enough. Real question is should you/could you stomach the volatility?
>>62367658All investments take on risk except for HYSA, 3 month US treasuries, and money market funds in theory. Those are the "risk free" rate of return.With catastrophe bonds you're betting on a lot of different natural disasters not happening in a lot of different places at once.If you buy regular investment grade bonds you're betting on the US government or big corporations paying you back and not getting fucked by inflation while you wait (reinvestment risk, interest rate risk, default risk).If you buy stocks you're betting on those companies being profitable in the future (a bajillion different risks).If you buy real estate you're betting on inflation and low interest rates.Every investment has inherent risk. The more risk you take on the higher your expected long-term return is since risk = return.2008 crashed because the Clinton administration coerced banks into giving loans to people that couldn't pay them back. It took a few years to come due but then everyone defaulted on the mortgages they should have never been approved for in the first place and the whole system almost collapsed.
>>62367683I appreciate that you're trying to help but why are you people always so vague? Can't you just tell me the formula as I asked here >>62367655 or can you just give me one example of the exact return and risk values of something? I see you started to do that with S&P but >8-10%>great deal of risk>wide range of returnsyou sound like you're just eyeballing this in every case. Do you have some exact set of steps you follow to calculate these? Are your "units of risk and return" actually defined???>Risk is defined as the uncertainty of future returns. It can be measure by volatility, or how wide the returns are historically. The statistical measure of this is standard deviation.>Investors expect a high long-term return as compensation for the variability in yearly returns which is why stonks do so well as an asset class if you zoom out far enough. Real question is should you/could you stomach the volatility?I know... This is 101 and doesn't address my questions at all.
>>62367729Not trying to frustrate you man, just wasn't sure what you were exactly asking for. Attached is actual standard deviation calcs I ran on last 26 years of data for different asset classes. These will change depending on time period you look at.SHARPE ratio is what you want. This measures return per unit of risk. Here's the formula: https://en.wikipedia.org/wiki/Sharpe_ratioYou can probably see why I didn't just post the gibberish formula.You can calculate standard deviation on your own in excel with the STDEV formula on a data set. The reason it changes is because the standard deviation will change depending on the time period you look at. >you sound like you're just eyeballing this in every case. Do you have some exact set of steps you follow to calculate these? Are your "units of risk and return" actually defined???I am note. I pull historical returns and calculate historical standard deviation and return then use those to calculate sharpe ratio. You can do it in excel if you get the data.
>>62367729im an economist and everything he says there is common knowledge. dyor a bit. he makes good threads by biz standards
>>62367855Thanks again. I've seen Sharpe ratio before just never had anyone explain when/how it's actually applied. I'm an amateur mathematician and CSfag so exact algorithm and I/O is what I was looking for and you got it. How do you decide the timeframe when calculating stddev? Do you just go with other historical periods with similar conditions to present? Do you compare multiple cases like typical years vs. a repeat of 2008 or something? Anything else?>>62367865Guess no one in this thread can read. I literally said in that post what he said.is all 101.
>>62368104>I've seen Sharpe ratio before just never had anyone explain when/how it's actually applied.etc is all part of the 101 which is why i said what I said. Its just encouragement to (e.g.) read the book he shared. anon may not be around for your next set of Q's.
>>62368104choosing timeframe is an art/science thing but i wont speak for OP
>>62368125Work on your ego, brother.
>>62368140i think you should word on your reading skills if you tyhought that was arrogant. i have RSI iwas typing an answer for you but forget it then
>>62368104>How do you decide the timeframe when calculating stddev?I go as far back as I can as long as the data is reliable with 1972 as a hard stop start year. 1972 because the Nixon shock was '71, which started our current financial system.As far back as I can go because it captures all the different regimes. Inflation/interest rates mostly. We have been in a low interest rate, low inflation regime for awhile which is NOT normal, it'll change (or already has) soon.Shorter, near term history is useful too. SOx Act, Dodd-Frank, etc are all relatively recent and changed the regulatory environment. It's a balance of what happened in the past in other regimes way back, what happened recently under current regime/regulation, and then trying to predict what happens next. So>1972-present>trailing 30 years>trailing 10 yearsThose are the most useful for me.>Do you just go with other historical periods with similar conditions to presentRelated, I actually want time periods w/ different conditions. I want to know what asset classes did great during the fucked up periods in the 80s when mortgages were 18% and when we had stagflation last (very relevant soon probably). Stocks did balls during that.>Do you compare multiple cases like typical years vs. a repeat of 2008 or something? Anything else?Yes, a "typical" year will be 1 standard deviation since inception to measure risk, that's where it gets super useful. You can show a client how much the S&P 500 has gone up & down 1 STD (2/3 of all years) in a given time period and see how much risk they can stomach. We also show them the worst case years for different portfolios, which are all 2008 or 2022 this regime. Helps them figure out how much drawdown they can take on before vomiting.
lil nigger asking basics too good to read the fuknig manual
>>62368133That's a really good way to put it imo, trying to use history to predict the future is the best we have but there's nuance to selecting timeframe. That's why I pick multiple.
>>62368159Awesome, thanks m80
>>62366943Anon, are you still here? Can you explain why some ETFs offer insane dividends?https://stockanalysis.com/etf/mstw/dividend/
>>62366943>>catastrophe bonds are my favorite asset classLet me introduce you to my buddy lucly larry...he needs some building insurance.
>>62366943>MDD 82%. Is that even allowed? i thought that any drawdown higher than 30% was taboo. If i was your customer and seen one asset going down 82% i would skin you alive.
>>62370694Because they pay you back your own money and the nav decreases. If you give me 100 bucks and its based on as asset that grows 10% a year, I can pay you 20% but now you only have 90% of what you started with. Completely disregard anyone selling you this shit. There is nothing that pays weekly that is a good investment, and most shit paying monthly i trash. Anything yielding more than 5% is unlikely to keep up with inflation. You could have asked google btw...ngmi
