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I am also a passive investor trying to capture full market returns. However, just investing in stocks exposes one to too much risk with no more return than if y

I am also a passive investor trying to capture full market returns. However, just investing in stocks exposes one to too much risk with no more return than if you spread your money across many asset classes that move in different directions at any given time. The Benefits of Low Correlation is a good summary: http://www.indexuniverse.com/component/content/article/6/3220.html?issue=121&magazineID=2&Itemid=11 http://www.indexuniverse.com/component/content/article/6/322... And here is a summary of the summary: http://articles.moneycentral.msn.com/RetirementandWills/RetireInStyle/BuildAStableRetirementPortfolio.aspx http://articles.moneycentral.msn.com/RetirementandWills/Reti... And here is the highlight of the summary of the summary: His two-asset portfolio -- 50-50 U.S. large- and small-cap stocks -- produced an annualized internal rate of return of 10.74%. But it lost a deadly 30.8% in its worst year. His seven-asset portfolio -- equal portions of U.S. large- and small-cap stocks, international stocks, U.S. intermediate fixed-income investments, cash, REITs and commodities -- provided an 11.25% return. But the worst-year loss was only 10.2%.

Xichekolas 19y ago
Thanks for the good links. I was just wondering, what does the worst one year loss matter if you are investing over 30 years? The annualized rates given were positive, and the better one happened to have a smaller worst year number, but it shouldn't really matter. If a fund returns 13% annualized but had one year where it lost 90% of value (hypothetical here), I'd still choose it for the 13%. I can see how this would matter if you are actively drawing on the funds... then a high volatility portfolio could be stressful and possibly dangerous, but if you are looking at a 30 year timeline, it doesn't matter.
- epi0Bauqu 19y ago
  It matters for two reasons. First, it gives some people (including myself) peace of mind that without it might otherwise prevent investment in some of these vehicles. Second, you will probably draw down (or switch into less volatile investments) eventually, and so it ups the probability that when you do you so all will be OK. Of course, it also yields higher returns on average, so it is a win-win really.

Xichekolas 19y ago

Thanks for the good links. I was just wondering, what does the worst one year loss matter if you are investing over 30 years? The annualized rates given were positive, and the better one happened to have a smaller worst year number, but it shouldn't really matter. If a fund returns 13% annualized but had one year where it lost 90% of value (hypothetical here), I'd still choose it for the 13%. I can see how this would matter if you are actively drawing on the funds... then a high volatility portfolio could be stressful and possibly dangerous, but if you are looking at a 30 year timeline, it doesn't matter.

epi0Bauqu 19y ago
It matters for two reasons. First, it gives some people (including myself) peace of mind that without it might otherwise prevent investment in some of these vehicles. Second, you will probably draw down (or switch into less volatile investments) eventually, and so it ups the probability that when you do you so all will be OK. Of course, it also yields higher returns on average, so it is a win-win really.