Enjoy the Lasting Value of Organized Insights

Updates

Over the past week you may have noticed a few changes here at Portfolio Charts. The most significant is how the articles are sorted, as the old Discussion section has given way to the new Insights page with a fancy new look. There’s a lot more going on behind the scenes beyond a pretty new interface, so let’s talk briefly about how it works and what it means for the future.

High Profits at Low Rates : The Benefits of Bond Convexity

Advanced

In the world of investing, it seems most people’s energy is focused squarely on stocks. Massive amounts of research goes into stock investing every day and even casual investors have an incredible amount of information at their fingertips. Combine that wealth of data with a long term growth pattern in the stock market since 2009 that means anyone who has been in the market less than ten years has no recollection of a single meaningful bear market, and stocks are so ingrained on our collective investing consciousness that many people don’t give other assets a second thought.

As a result, while bonds were once staples of any self-respecting asset allocation lots of investors just aren’t into them like they used to be. Some of it is definitely recency bias, and I think another factor is that many people don’t truly understand how bonds work, but I’ll concede that the bond market is also different than it was more than a decade ago and I can understand why people might think twice about relying too much on historical data. After all, bonds sound like awesome choices when they paid 10% interest, but consistent declining rates over time surely boosted any backtested numbers while depressing yields today to something a lot less desirable. So it’s no surprise that I see questions along this line all the time:

With record low interest rates today that are even negative in some situations, what’s the point of having bonds in a portfolio at all?

That’s a very good question. And the full answer is kinda complicated and includes some advanced finance mechanics that fly under the radar even for very experienced investors. But explaining complicated concepts is kinda my thing, so let’s talk about a little thing called bond convexity.

New Approach, New Destinations

Updates

Innovation and progress often come in waves, and for whatever reason the stars have aligned the past few months and it has been an incredible time for new ideas. Between the necessity of a few design problems, the learning process of my own experiments, and the inspiration of an assortment of well-timed serendipitous feedback, things have really escalated quickly and I have some exciting new updates to share.

A Wise Chef Knows Her Ingredients

Updates

It has been a hectic week at Portfolio Charts, and if you haven’t visited recently you’ll find a pretty significant update that should keep you busy for a while. Portfolios are what we’re all here for, but any good chef knows that even the best recipe won’t get you very far if you don’t understand how to select the right ingredients. So who wants to learn more about assets?

Smart Retirement Planning Is About More Than Just Avoiding Failure

Retirement

I’ve always been a big fan of road trips. Some of my fondest memories involve cruising through unknown roads soaking in beautiful scenes with the music turned up on the radio. Of course the best road adventures also involve a bit of concentration, as the most magnificent mountain vistas often come hand-in-hand with challenging hairpin turns. So even though road trips are a blast, you still have to be careful to avoid dangerous situations like taking a cliff-side turn with too much speed.

As a responsible driver acting in an abundance of caution, imagine for a moment planning your route ahead of time and deciding to set your cruise control for the entire trip to the minimum speed required to safely navigate the most dangerous turn. So even with miles of straight highways with no other cars in sight, you choose to never exceed 10mph. Sure, it will take you ages to get to your destination. And it might seem like not only an extremely inefficient way to travel but also a complete waste of the engine under the hood, but at least you won’t have to worry. Is it worth it?

I assume most people will find that idea completely silly and unrealistic, as dynamically adjusting your speed to the conditions of the road is a natural part of any intelligent driving experience. So why do so many people take this over-cautious approach with their retirement planning?

The Parable of the Lazy Brother

Psychology

Three brothers inherited equal parcels of land from their father.  The land was vast and diverse, and the weather was unpredictable.  One season bountiful rain would shower one end of the fields and the other would be in drought, while the next season the conditions would sometimes switch entirely.  Each brother was eternally grateful for the inheritance, and they sought to make the most of their good fortune. 

Every Portfolio Has a Tradeoff, but It’s Not as Clear-Cut as You Think

Tools

Back in college my favorite engineering professor liked to repeat an adage that I bet everyone has heard at some point:

There’s no such thing as a free lunch

I believe the first time I heard that phrase it was in reference to a literal gathering where they were enticing students with free pizza, and my professor astutely noted that, make no mistake, you were going to pay for it in some way. Nothing is ever truly free, and there was bound to be a call for your time or money as part of the deal. Of course he was right, as the string attached to that pizza was an eye-rolling sales pitch I really could have done without.

When Aiming for a Target Consider the Accuracy of the Weapon

Featured, Goals, Tools

When discussing investing options, the single most common referenced metric has got to be the average return. Reams of books and blogs have been written on individual asset classes and composite portfolios with the highest average returns looking both backward and forward, and amateur and professional investors alike spend more time than they probably want to admit thinking about how to maximize their own average return. Long-term averages are both set on a pedestal and also taken for granted, as many people idolize the average to the point where they’re willing to ignore very real risks under the belief that superior performance is inevitable if they only wait long enough.

But what happens when the long-term average return never manifests in your own portfolio even over extended timeframes? Was the data wrong? Did the markets change?

In reality, it’s most likely none of the above.

Let’s Get This Portfolio Party Started

Updates

The New Year may already be a few weeks old, but from my perspective 2019 is just getting started. It’s new data time! And this year I have an extra surprise, as not only do I have another year of portfolio results to share but I’ve also designed a much improved way to navigate all the different asset options. So let’s all raise a glass to portfolio returns of years past and get this party started.

A Meeting, a Book, a Portfolio, and a Better Life

Featured, Goals, Portfolios

As I blindly swung my arm to swat at the tedious drone of the alarm on the night stand, it was pretty much a morning like any other. I labored out of bed, trudged my way through the early routine on autopilot, and set out on my long morning commute down highway 280 towards San Jose. I always found that stretch of road to be an interesting experience in dual realities, as the stunning views of the bay and surreal scene of clouds pouring over the mountaintops were all too often completely hidden by relentless inner thoughts of important job tasks needing immediate attention.  Silicon Valley attracts a certain type of always-on engineer and actively feeds their obsessions, and my blossoming career as a successful product designer at a job I loved had long since shaped me into eager, if anxious, submission.