1Mo
You want to build your core with a portfolio concept and optimize it using backtests, right?
Two thoughts on this:
1. for backtesting, it is essential to define what your goal is. Only then will you be able to search for an optimal allocation. What is your goal? Max CAGR, max Sharpe ratio, min max drawdown etc? But not every target is suitable for a core, because its function is stability, right? You would also have to define this and possibly even quantify it in order to make a meaningful search.
2. meaningful backtests are work! Such a backtest should go back AT LEAST the time you plan to invest in the future. So it has to be up to 2000 if you want to invest for another 25 years. Anything else gives you no relevant information and is blatantly subject to recency bias. The fact that the current ETFs have only been in existence for 3 years does not prevent the backtest. Portfoliovisualizer is a powerful tool and I don't know how deep you have dived into it. For example, you can search the Fund Screener for funds with comparable assets that are older. Or you can rebuild the respective strategy of an ETF manually and then test it. For example, you can easily test the Efficient Core ETF as a portfolio backtest 60% S&P500 + 40% US bonds with 50% leverage against a simple S&P500. You can put together your own MSCIWorld portfolio from various funds. As I said: a lot is possible, but it's work 😉
Two thoughts on this:
1. for backtesting, it is essential to define what your goal is. Only then will you be able to search for an optimal allocation. What is your goal? Max CAGR, max Sharpe ratio, min max drawdown etc? But not every target is suitable for a core, because its function is stability, right? You would also have to define this and possibly even quantify it in order to make a meaningful search.
2. meaningful backtests are work! Such a backtest should go back AT LEAST the time you plan to invest in the future. So it has to be up to 2000 if you want to invest for another 25 years. Anything else gives you no relevant information and is blatantly subject to recency bias. The fact that the current ETFs have only been in existence for 3 years does not prevent the backtest. Portfoliovisualizer is a powerful tool and I don't know how deep you have dived into it. For example, you can search the Fund Screener for funds with comparable assets that are older. Or you can rebuild the respective strategy of an ETF manually and then test it. For example, you can easily test the Efficient Core ETF as a portfolio backtest 60% S&P500 + 40% US bonds with 50% leverage against a simple S&P500. You can put together your own MSCIWorld portfolio from various funds. As I said: a lot is possible, but it's work 😉
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@Epi I keep realizing: your knowledge is very great, mine is too small. I must try to close this gap. Can you recommend a book? Not about philosophy, but about investing, ETFs/equity strategies, markets and the economy?
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1Mo
@Iwanowitsch How can you understand the markets without philosophy? Basically, you can only imitate what others have come up with.
It might be interesting to get you started:
https://mebfaber.com/wp-content/uploads/2016/04/GAA-Book-1.pdf
It might be interesting to get you started:
https://mebfaber.com/wp-content/uploads/2016/04/GAA-Book-1.pdf
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•@Epi I try to live stoically, to be stoic :D
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1Mo
@Iwanowitsch Living stoically certainly helps with the stock market - but it's not much fun either. 😅
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