Fun! There's also an interesting property of compound interest that starting with more money is the same as waiting more years. Because of this, the risk of an investment can be viewed either as losing money, OR as slipping back in time -- but high-risk investments are also known as "high-volatility", which means you can also view them as randomly gaining money (or acting like you'd held the average investment for a longer time).
This is why investment experts say you should choose low-volatility investments if you're going to HAVE to withdraw after a short holding period. You don't want to be stuck withdrawing from a temporarily depleted asset! But this suggests a new way of looking at things. For each dollar invested, vary the timespan to find the longest amount of time it takes to receive the average gain (i.e., the amount of gain you think the investment's worth). You could also invent a risk horizon -- for example, find the amount of time such that there's only a 1% chance that the investment would be below your desired end value. -Wm On Tue, Jan 5, 2016 at 11:04 AM Joe Bogner <[email protected]> wrote: > I am thinking of rebalancing my investment portfolio and I've become > increasingly interested in evaluating life as a range of possibilities > (distribution) instead of a fixed number (average). > > I'm not a professional investor and I've yet to find a professional > for guidance that seems to think in these terms - so I'm thinking of > tinkering around with it myself. I don't want to be active, I'd like > to buy and hold some strategy for a fairly long period of time as a > long term investment. > > A popular view is: assume an investment of 10K on X date, what would > the terminal value be on Y date. > > My concerns with this are: > 1. What is the right X date? > 2. What is the right Y date? > 3. Why do I have any reason to believe that the future will be like > the span between those dates? > > > I'm thinking of running a series of simulations that will create a > distribution of potential gains and then I can compare the > distributions across the different strategies. > > Example simulations: > > 1. Evaluate the performance over a 5 year horizon. Pick a rolling > start date between X and Y for each 5 year interval and calculate the > returns. (e.g. 1/1/2010->1/1/2015, 1/2/2010->1/2/2015, > 1/3/2000->1/3/2015). > > 2. Repeat for each 5 year span possible (e.g. 1/1/2000->1/1/2005, > 1/1/2010->1/1/2015... and all in between ) > > 3. Repeat for 3, 5, 10, 15 year spans > > 4. Instead of shifting the dates, sample with replacement from the > spans for each of the above (e.g. between 1/1/2010 and 1/1/2015, the > dates could be 1/1/2010, 1/2/2010, 1/1/2010) > > If these different simulations were plotted on a histogram, I am > thinking something might pop out. > > Questions: > 1. Has anyone done anything like this in J? > 2. Are there any investors (armchair or professional) that would care > to opine on the usefulness of this analysis? > > Thanks, > Joe > ---------------------------------------------------------------------- > For information about J forums see http://www.jsoftware.com/forums.htm > ---------------------------------------------------------------------- For information about J forums see http://www.jsoftware.com/forums.htm
