Savings Plan Scenario Simulator


Definitely, you have heard a mantra from many asset managers that want your money: in the long term your investment in stocks or an index ETF will grow. Though for a one-time investment it is generally true (however, not always, recall NIKKEI), it is far away from truth for a savings plan. For instance, even if you run your savings plan for 30 years and assume annually 6% expected return and 20% volatility (very optimistic, indeed), you will make losses in ca. 15% of scenarios. And if your saving plan lasts "only" 10 years, the number of scenarios with losses will be about 30%! Additionally, they delude you showing the mean (or expected) scenario. Mean is highly influenced by a couple of extremely good outcomes: finally, your investment cannot fall below zero but there is no upper bound, at least theoretically. That's why the average scenario often looks too optimistic. It is much better to consider the median as the measure of central tendency instead. Try to simulate your savings plan yourself!

Expected mean return %
Volatility %
Annual Savings USD, EUR, YEN or whatever currency 🙂
(Immediate) One-time investment
Projection horizon years

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Market Spotlight: Pick up Commodities but be picky

Currently the stocks are expensive and the commodities are cheap (though not all of them). We conduct a lite analysis of investment opportunities and construct a mid-term commodity portfolio for a retail investor with €10000+ capital. Continue reading "Market Spotlight: Pick up Commodities but be picky"

Portfolio Simulator – estimate the expected risk and return of your investments

Our simulator allows you to simulate 100 future scenarios of your portfolios, estimate the expected risk, return and correlations, helping you to improve the diversification of your portfolios. The simulator projects the historical returns in future and is completely model-free (in particular, we don't make an unrealistic assumption of Normally-distributed returns). Though the past doesn't capture all possible future scenarios, it provides a good idea of possible outcomes.
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Schlechten Tänzer stören immer die eigenen Ho(r)den

Zum 1. April veröffentlicht letYourMoneyGrow.com eine Antwort auf das Interview "Tanzen lernen Sie auch nicht ohne Tanzlehrer" von Marcus Vitt, Vorstandssprechers des Bankhauses Donner & Reuschel. Mit lustigem Titel aber ziemlich ernstem Inhalt.
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Perfect diversification means no asset can be dropped from (rather than added to) a portfolio

A common belief: adding extra asset to a portfolio will automatically reduce the portfolio risk. We provide a counter-example resorting only to the simplest algebra and explain why this erroneous belief is so common. 

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A simple scenario simulator for Vanguard optimal portfolio

Vanguard optimal portfolio - 100 scenarios - sample simulationThere is yet another Roboadvisor from Vanguard Group. As any RoboAdvisor, its recommendations are far from perfection. However, I like it (at least more than others) because the Vanguard guys managed to make it simple. On the other hand I am quite disappointed that they do not show how a suggested portfolio may evolve (and I am quite sure that legendary John Bogle would be disappointed too). That's why I made a simple scenario simulator on my own. It is based on sample with replacement.
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The power of diversification and its limits by the example of DAX

Summary

  • Sometimes (esp. to fool inexperienced retail investors) the diversification is claimed to be a silver bullet (even in a financial crisis).  I show that in crises the diversification effect weakens significantly but still persists (esp. for "defensive" stocks).
  • I argue that in a normal (non-turbulent) market the diversification is very helpful in theory but also critically consider its applicability in practice.
  • The results that we obtained for the DAX / German stock market should be extrapolated with caution for other markets. You will also see why it is better to watch and know the market (rather than to blindly rely on quantitative analysis and common sense).

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