I admit, the ETF part of my portfolio I’m still not 100% about, I might just do 100% VOO, or perhaps 75-25 VOO/QQQ. I can find the source, but IIRC nasdaq outperforms the sp500 even if we go back several decades, but in backtests like this the starting date changes a lot, so we could say it’s recency bias, or maybe the current society/market conditions just favors tech more, we can’t tell.
And well, the 2. and if I will have then 3. pillar will be either VT or similar products, so that is the more diversified part of my portfolio, that’s why I would go more aggressive in my own accounts.
I mean, using a 10% leverage ratio for example would require a market drawdown of about 97% to be margin called, which never happened before for SP500/QQQ. With IBKR rates being low it’s not that risky to increase gains.
If you meant the leveraged ETF part of my post, then I agree, but that’s the ‘gamble’ part of my porftolio which I would reduce if I perform badly.
My initial savings are around 45k a year + 8k in 2. pillar. But I just started working so I assume this could average 70-80k throughout the 15 years if I increase my salary.
Okay, so your point is that past performance is not relevant, which is fair, but then what makes you say being more diversified is better? Maybe ex-US markets go to 0, and US doubles each year? What metric do you use if you ignore past performance?
Assuming you mean what’s the argument for global diversification. The argument is not about outperformance. The argument is about market performance.
If US have 100% returns and Ex-US has -100%. And you invested 60 CHF in US and 40 CHF in ex-US. This means global average return would be approx 20% (as US is 60% of market)
But if it was other way around, global portfolio would be done -20% while 100% US portfolio would be -100%
If you seek to outperform the market, you need to do something different. That’s what is called generating alpha. But how exactly to generate alpha? Not easy.
Thus non-professional investors need to be happy with market performance. Generating alpha needs a lot of hard work or lot of good luck.
I don’t think anyone is ignoring past performance. It’s real fact. What people are trying to explain is that there is not much correlation between past and future.
Future performance starts from moment you buy the stock. At that point your story starts and someone else’s story ends who sold you the stock. You need to calculate future earnings growth and possible PE multiple at time of your exit to calculate your returns. Because if you ask for ridiculous price at time of end of your story with the stock, no one will buy it from you.
So in order to estimate future returns a lot more math is needed and that’s what needs more analysis of future cash flows, growths, multiple expansion or compression etc.
Having said all of the above. I really don’t think there is anything wrong with 100% US investment portfolio. It’s just a way to experience US market returns and that’s it. People on the forum are trying to experience global market returns. Thus they tend to use global funds.
Because when you don’t know who will drive the majority of the gains of the market, it’s best to own all of the market ….otherwise people should simply own NVDA and MSFT and forget about S&P 500
Mind the volatility as well. You could get +200% during the first 3 years followed by -50% over the next 7y
(sorry I’m slightly annoyed when people quote equity return as +7% average, I’m afraid it makes people think it’s somehow guaranteed while there’s a lot of volatility/sequence risk, esp. since most people who started investing in last 10y have only experience the quick drop+rebound from covid and no prolonged downturn)
Last 10 years look good. Before you notice the performance since end of 2000.
I would not expect anything above 4% nominal in CHF terms over next 20-25 years. Call me pessimistic, but I would rather be surprised on the upside than downside.
I think the table is for the MSCI index (price) and not cumulative returns. I was wondering if it includes dividends.
Looking at Gross returns index MSCI world USD, the numbers in USD terms are different. I couldn’t find the same table in CHF but I reduce 1.5 to 2.0% per year due to loss of currency , I think you will get a 6.5 to 7.0% nominal return in CHF since Dec 1987
Thanks for pointing it out. I did some quick calculations and the gross index return indeed comes out to be ~7+% in CHF (with no fund expense or dividend taxation).
I see a bit different number as per webpage for VT ETF. Total returns table.
VT was launched in June 2008
Since then, the annualised return is 7.52%
I am not sure why your data suggests 13%. 13% is quite high to be honest for a global all cap world index. Could it be just a matter of timestamp as you said 15 years and the fund was launched 16 years back?
I think returns of VT are subdued versus MSCI World due to underperforming small caps and EM markets.
The reason I posted is because it felt like the thread was getting stuck in the trees of stock allocation opinions whilst the basic maths were not clear
I did not mean that variation should be ignored. Once you have a basic plan - and it seems likely to be the case here - then of course OP needs to consider the range of outcomes.
Note for US equities and a 15 year investment period Portolio Visualizer gives a 50th percentile time weighted rate of return 10.69% nominal based on 50 years’ data (6.51% real return)
I think the best way is to not just to plot the average return, but plot the cone of potential values based on the volatility. This way you can see visually where in the cone of probabilities you future NW could be.
This also makes very intuitive the ability to narrow the cone through the use of bonds and other assets.
the current 3.2% dividend yield is actually very good and this is not counting in any underlying appreciation.
any downside to add this for a regular income stream compared to a real estate fund?
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