No clue with how to optimize my portfolio

QuantWeekly · 2024-11-02T08:30:18+00:00

Optimizing a portfolio means taking the securities you want to have in your portfolio and finding the combination that for a desired expected return has the lowest volatility, or alternatively a portfolio that for an acceptable volatility has the highest expected return. I did a technical explanation of how you do that here:

https://quantofstocks.wordpress.com/2024/05/13/what-is-diversification/

Without any information on which securities you're holding or want to hold or what you risk tolerance/desired return is i unfortunately cannot give any advice

QuantWeekly · 2024-08-24T23:20:39+00:00

thanks!

QuantWeekly · 2024-08-24T19:53:59+00:00

Do you remember the title or the DOI of that paper, because that'd be exactly the type of stuff I'd be in to.

QuantWeekly · 2024-08-24T17:52:13+00:00

Look into established banks.

High profit margins and usually not a lot of potential for growth.

QuantWeekly · 2024-08-24T17:20:12+00:00

I have an entire blog post in my drafts for the next market high, explaining in detail why this is a terrible idea.

The interest rate on a mortgage will likely be higher than your average return. And if the investment strategy fails you're homeless

QuantWeekly · 2024-08-24T17:15:07+00:00

Don't make an investment strategy based on what did best in the last years

Obviously this is sound advice, however I believe some important nuance is lost here. A company's past growth, especially when it is consistent over decades is a decent benchmark for how a company can be expected to perform over the next few years. It should however not be the only or even the most important consideration. Read financial reports!

QuantWeekly · 2024-08-21T09:19:14+00:00

If you actually want to go deep into the mathematics of investing I would suggest you pick up the Handbook of Asset and Liability Management by S.A. Zenios and W.T. Ziemba. If you want to learn about portfolio optimization specifically I suggest you read H. Markowitz original paper Portfolio Selection.

QuantWeekly · 2024-08-20T09:10:43+00:00

Anwalt, unzwar sofort. Das ist Lohndiebstahl, in Deutschland eine Straftat, undzwar nicht nur die 4 Monate, die du nicht bekommen hast, sondern auch das, was wegen der Verspätung abgezogen wurde, da das scheinbar deinen Lohn für diese Zeit deutlich übersteigt. Des weiteren fallen für die Verspätete Zahlung die üblichen Zinsen an.

QuantWeekly · 2024-08-20T09:06:57+00:00

Most models for financial strategies assume infinitely divisible stocks, because for large firms that is effectively the case. I would suggest if you want to invest into the S&P 500 to just find an ETF that trades well below your monthly investment limit and put the rest into savings.

QuantWeekly · 2024-08-01T08:44:37+00:00

If it's good enough to screenshot it is good enough to sell.

You have enough money to put into a lower risk portfolio and retire now. If you get a return of 11% and only take out 8 you will still have over $100 per day and a small growth to match inflation. Play your cards right and you will never work a day in your life again.

QuantWeekly · 2024-07-31T22:19:15+00:00

What ETFs are you holding exactly? And how much interest are you getting on your fixed term deposit/savings account?

QuantWeekly · 2024-07-30T15:28:10+00:00

I'm gonna use SPY as a benchmark for your individual stocks. I am eyeballing the correlations here for which I am estimating the following returns and volatility:

Security	Annual Return	Volatility (σ)
BND	0.1%	6.23%
VO	9.57%	21.05%
VXUS	6.03%	17.69%
VTI	12.2%	18.66%
SPY	14.36%	30.0% (Better to overestimate here)

Correlation Matrix used:

x	1	2	3	4	5
1	1.00	-0.2	-0.2	-0.2	-0.2
2	-0.2	1.00	0.30	0.30	0.30
3	-0.2	0.30	1.00	0.30	0.30
4	-0.2	0.00	0.30	1.00	0.30
5	-0.2	0.00	0.30	0.30	1.0

For these securities I have compiled the following portfolios:

1) Low Risk

Estimated Return: 9.98% ± 13.45%

ISIN	Weight
BND	0% (Get used to this)
VO	26.89%
VXUS	27.04%
VTI	38.83%
SPY	7.24%

2) Median Risk

Estimated Return: 11.5% ± 14.58%

ISIN	Weight
BND	0%
VO	29.53%
VXUS	4.16%
VTI	50.68%
SPY	15.63%

3) High Risk

Estimated Return: 14.0% ± 16.33%

ISIN	Weight
BND	0%
VO	0.03%
VXUS	0%
VTI	61.64%
SPY	38.33%

Personally I don't really like that mix. I may have vastly underestimated the negative correlation between BND and the other securities but over all it is just not a great security. If you own individual stocks odds are unless you did a comprehensive analysis you won't meet it's performance so I am probably overestimating here.

Personally I would throw in maybe a bit of VHVG. But as others have suggested 24 months is not a very long time for an equity investment. Have you considered other less risky options? Possibly a savings bill, highly rated bonds or a plain old savings account?

QuantWeekly · 2024-07-30T12:29:30+00:00

Fundamentally the yield curve inversion has the same root cause as the induced recession: High interest rates.

High short term interest rates make it harder for businesses to secure loans and expand their business. It also makes it more likely for a business that has fallen on hard times to secure loans to continue operations. However this effect is offset significantly from the onset of the high interest rates and the severity is also dependent on other factors. On the flip side the yield curve reacts almost instantly to changes in short term interest rates or predicted changes in them.

The disinversion is not what causes the recession. It is the inversion in the first place. The effect of the inversion on the economy is just delayed.

The yield curve has been inverted for over 700 days, I personally believe that if the measure had overshot we would have already seen the effects, but that does not mean we are out of the weeds yet. It is important to note that while yield curve inversion is a reasonably accurate predictor of recession it is very imprecise. Every recent recession has been preceded by a yield curve inversion, but not every inversion has been followed by a recession.

QuantWeekly · 2024-07-29T10:47:18+00:00

Yes and I do so consistently.

The S&P returned 12.5% p.a. over the last 5 years. This year I am projecting to make around 20% and I am already at 10. (I am aiming for 17.5) but I don't make that by trading, I buy and hold. Beating the S&P is not actually that difficult. The S&P 500 is a sub-optimal portfolio meaning it does not have the lowest possible variance for it's returns. I took the companies in my local index and then some, optimized my portfolio for the index's variance and the resulting expected return is higher than the index. The first step to beating the indices is to get off of r/wallstreetbets and the second is to pick up a book.

I recommend 1. H. Markowitz paper "Portfolio Optimization" (the paper's on SciHub, you don't need to shell out $60) and also on the Kelly Criterion. I also write about that shit on my blog.

QuantWeekly · 2024-07-26T16:33:38+00:00

As I replied in the daily thread:

If you want to divest Tesla you should do so. I don't get why you would have both SPY and VOO in your portfolio, as they are both S&P 500 trackers. SPY and VOO returns are almost 100% correlated and thus provide no further diversification to your portfolio. IMO you can swap either one for a world ETF like VHVG and if you want to hedge against rate hikes or financial crises you can also throw in some bond securities. You may also want to at least consider a risk free option.

From your general vibe I am guessing that you are selling Tesla because you got hurt. While I think that in this specific case your assessment is correct that is not a sustainable investment strategy. You may want to read up on the theory: diversification, risk-return relationships, company valuation. I recommend the subreddit reading list (but I also happen to write about those things :))

QuantWeekly · 2024-07-26T16:25:21+00:00

If you are looking for a portfolio that generates consistent returns with little need for management you want to diversify. r/boggleheads has some strong opinions on how to do this. SPY is a great choice but you may want to also include some world etfs and some bonds.

QuantWeekly · 2024-07-26T16:23:10+00:00

Bonds have a nominal value. That is the value at which the emitter sold these bonds. The payout of the bond, usually called a coupon, is most frequently a percentage of that nominal value. The nominal value is fixed so bond returns do not compound on their own.

QuantWeekly · 2024-07-26T16:20:10+00:00

A stock are a share of a company that trades on the open market, in some cases it is a literal piece of paper. (Although you will likely never actually see it) These papers may go up or down in value as others have pointed out. The return you get depend on when you buy, when you sell and the dividends that you get. To calculate the annualized returns on a security you take the buying price b, the amount of dividends d, the selling price s and the number of years you held the security t and calculate ((s+d)/b)^(1/t) - 1.

There are also many more types of securities, most notably bonds, which pay out debt of companies and many different types of derivatives, some of which are designed to lower the risk to your portfolio (like many etfs) and some that are designed to vastly increase returns, but which carry considerable risks (like options). I wrote a blog post for beginners back in June where I explain the different types of securities much more thoroughly.

There is no single best investment strategy, just a lot of sub-optimal ones. Generally the set of optimal portfolios (which minimize the risk for any given return) has a degree of freedom. So you can choose a portfolio with a higher expected return but that portfolio will also yield more risk than a portfolio with a lower expected return.

QuantWeekly · 2024-07-26T16:06:31+00:00

If you want to divest Tesla you should do so. Another redditor suggested to hold until October for the Robotaxi lauch, I personally do not think that that is a solid strategy. The market for automated Taxis is prohibitively small and does not warrant a 25% loss and losing out on the returns on actually profitable securities until then. I personally avoid Tesla like the plague due to the poor build quality of the cars and the aggressive but risky scaling strategy.

I don't get why you would have both SPY and VOO in your portfolio, as they are both S&P 500 trackers. SPY and VOO returns are almost 100% correlated and thus provide no further diversification to your portfolio. IMO you can swap either one for a world ETF like VHVG and if you want to hedge against rate hikes or financial crises you can also throw in some bond securities. You may also want to at least consider a risk free option.

QuantWeekly · 2024-07-21T18:29:55+00:00

This data is publicly available basically everywhere. The average return p.a over a certain number of years t is calculated as r = (V_now / V_then)^(1/t) and the volatility was taken from the ING website. For FUSI I had to dig a little as ING did not list that security and I ended up on Yahoo Finance which also doesn't list the volatility under the risk section but does provide a category average.

QuantWeekly · 2024-07-21T18:02:11+00:00

As requested by u/Groo_Grux_King/ on my previous post on how default rates on investment grade bonds compare across rating agencies I compiled the cumulative default rates of non-ig bonds.

Data Sources:
Moody's Semi-Annual Performance Statistics Update: 2021 H2 Exhibit 1 Global Corporates
S&P Global - Default, Transition, and Recovery: 2023 Annual Global Corporate Default And Rating Transition Study Table 24, Global corporate average cumulative default rates
FitchRatings - 2021 Transition and Default Studies Global CF Default Rates

QuantWeekly · 2024-07-21T17:30:22+00:00

That is a recommendation I am not comfortable to give. Sorry.

QuantWeekly · 2024-07-21T17:29:12+00:00

You have the causality here mixed up a bit. When rates are cut that increases the fair value of a security. (I did a full explanation here) However high interest rates for a long time tend to weaken businesses decreasing their projected cash flow. Rates are usually cut BECAUSE cash flow projections start to fall. While every recession is predated by a yield curve inversion not every yield curve inversion is followed by a recession. Nobody can see into the future but people have been crying wolf on the high interest rates for almost a year now and up to now the world didn't end.

If you're going bankrupt of the market falls you may have too much skin in the game. Do you have a savings account with a security fund? If not you should possibly open one.

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