Monevator passive investing ideas
Will that specific bet produce better risk-adjusted returns than a broad market index tracker after costs? How correlated is that asset to the broad market? Will it behave differently? If you have an informational edge then it may be worth betting against the market.
Re: megatrends. Everyone else has the same information. The market has determined the value of the companies operating in those areas today. Investing in a Clean Energy ETF will deliver outperformance if those companies are currently undervalued relative to future profits. But Clean Energy will underperform if investors have overpaid for those future profits today. In the megatrends piece, the graph shows that investors in airlines consistently overvalued the potential of those firms.
Everyone knew in the s that this industry was going to be important in the future. But the succeeding decades proved it less profitable than predicted, despite its growth. The internet in , railways and canals are all famous examples of industries where investors got burned because they overestimated future profits. Much the same sentiment about the future helped fuel the speculation that led to the Wall St Crash. Hydrogen will hopefully be a productive part of our economy for decades to come.
Imagine you buy into hydrogen today. Hydrogen company share prices inevitably drop because its role in plugging renewable energy intermittency is diminished. A good reason to invest in particular sectors was supplied by ZXSpectrum48k. ZX tilted his portfolio towards the tech sector in case the onward march of tech eliminated his line of work.
Mark T — I think your situation depends on your income needs. Lawrence — long bonds would replace intermediate bonds. The other assets still offer diversification potential e. But linkers are the best asset to guard against this risk. The idea with index funds is that other market participants are equally aware of these trends and have allocated their capital with this knowledge. So the index weights already have these trends factored in.
TA — thanks for a great series…although it may mean I have to work longer to make up the shortfall against my plan! My current portfolio is outlined below. Any suggestions and information would be appreciated. Yes, I agree with the thoughts. The internet was a megatrend with a huge great bubble that blew-up in I remember it well. Market crashes are not fun, was quite something. Japan has never regained the high of My approach has been to build diversity.
It seemed like a good idea. The recommendation to significantly concentrate on passive over active could well be right. Would reduce ongoing costs. Plus simplify things. Also — what fortitude to admit that he made a silly choice. And the realisation that he is able to have that he needs to fit that in even on return to work. The underlying insight is even stronger: you need to do the exercise and life a healthy life and I include sleep and eating with all the well-being together with exercise, and reading.
Arguably balance-sheet management is one of those things, too. Anyway no time for writing more — must go to the gym. PS — anyone else utterly terrified by valuations yet? Mainly because I have no formal financial qualifications. However, there are some aspects of investing, which tracker funds do not currently do well. Climate change and gun control are good examples. Business conglomerates further complicate the situation. In short, ethical investing requires active management.
Therefore I do think that there will always be a place for active funds in this specialty area, even after passive investment becomes the default mainstream choice. Not a regular read of mine and well done on finding this and digging out some genuinely new analysis on this debate. The author fails to mention discount rates, which is odd in a conversation about valuation, but the bond PE is an implicit substitute for that.
So if CAPE scares you, then bond prices should really scare you. Stick it all in Gol… oh no — look at the price of the useless yellow stuff now! Even without active funds investors can keep markets efficient. Seriously though I doubt there will be much sympathy for them. My wife stays at home to look after ours, and we manage ok on less than they all earn. Why does anyone see it as a merit? Similarly when a year bond yield moves from 4. I suspect a large proportion of property and equity capital gains in the last five years can be put down to this.
The problem is that if long-dated rates ever rise, this PVing effect will unwind, risking large capital losses. We can hope the driver of the rise in long-dated yields say higher growth or productivity would somewhat offset that. In such an unwind, all asset classes bonds, equities and property could be positively correlated and any diversification impact will be lost. Globalization and years of central bank policy action risk leading to higher cross-country and cross-asset correlations.
Cash has zero duration risk. Elegantly describing the terrifying conclusion. How do you unwind low discount rates without affecting all assets that have any future income streams? Cash and gold? Or rely on increasing equity fundamentals — errr. Or is it just that interest rates are so extreme right now that this effect is dominant? Dunno about that DM article. I sometimes think of returning to the UK as there are some interesting jobs, until I see the salary info and start thinking about the living costs.
Not surprised that people struggle. So a halving of long interest rates does not have as proportionately large effect on long risk assets such as property as it does on bonds. As far as I am concerned the sooner the At the moment it is more like a casino! I love the little reviews you do of the weekend reading links, too! Deleting really is rare, for all my hot air. Living aside obvious spam, in normal times I can easily go a week or three without deleting anything.
And the first bar is stupid three-line Telegraph comments style snidery that you vault over without breaking stride. Now here is the BUT. In retirement we tilt to yield, since dividends come along on a regular calendar basis, whilst capital gains do not nevertheless very welcome when CGs do arrive. For most here, the younger long- term investors, this would not of course be a sensible approach. Sometimes the ITs do well, sometimes the Trackers, but our main focus in retirement is on the steadily growing income.
Our one venture into ETF yield focused funds semi-passive? Maybe the answer to such objections is that The Market is The Market, so who cares? Investors must press on regardless. Very good. Possibly for the subtle FIRE parallels? I agree that the bringing forward of returns is a real cause for concern though.
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