I’ve always had a particular love for stained glass. Not only are the colors incredibly vibrant, but the medium is also truly dynamic and the lighting can transform the same window throughout the day. One moment it’s dark and rich, and the next it’s bright and lively. With light activating glass and glass transforming light, stained glass is a special symbiosis of art and nature that allows you to look at the same objects totally differently.
In the investment world, the portfolios are the glass and the data is the light. Too often people study portfolios through a single fixed spotlight of US-centric data, but that does the observant investor quite the disservice. Certain investing biases become unfairly engraved as immutable truths based simply on the favorable lighting, while alternative ideas that may actually be much more attractive outside of the gallery setting get lost in the shuffle. But study the same portfolios through the lens of an investor who does not live in the United States, and things get a lot more interesting. The glass lights up in a different way, and new features rise to the top.
I’m always thinking about ways to make the site helpful for more people, and lately I’ve been working on ways to improve the tools for investors outside of the US. Building a site like this is kinda like building a house over time — it’s an ongoing project requiring incremental steps, and sometimes you have to eliminate a key barrier to make room for the next addition.
One roadblock to expanding the portfolio analysis to other countries has been how to handle REITs, as eight portfolios on the site utilize them while the available data applies only to the US market. Well, after a bit of research I’ve determined that the data is actually a lot more useful than I previously realized, and I’ve decided to unlock REITs as an option for other countries in the calculators. Here’s how it works.
I went shoe shopping today for the first time in a while, and I forgot just how frustrating it can be. Finding a nice pair of shoes seems like it should be a pretty simple task these days, but the number of options makes it much more difficult than you’d think! It’s kinda surreal to walk through aisles and aisles of shoes and immediately dislike about 90% of them for one reason or another, and even the ones you like may not be that comfortable once you try them on. Buying shoes can be a real pain.
Well if you think about it, finding a good portfolio is a similar experience — there are lots of good options but very few easy answers. I do my best to curate some of the best options to avoid the cheap knockoffs likely to wear a hole in the sole on the first walk, but just like there’s no one pair of shoes for every person there’a also no single best portfolio for every investor. So you’ve gotta try them on for yourself.
Most people intuitively understand that time is a critical component of investing. Whether it’s the time it takes to work and save a portion of every paycheck or the miracle of compound interest that gets better and better as you go, the importance of time is a central part of any detailed investing discussion. But the human brain is sometimes ill-equipped to comprehend things that are far away, and that can lead to some mental over-simplifications that obscure the reality of future uncertainty. For example, let’s talk a bit about a question I see come up pretty often:
Do stocks get less risky the longer you invest?
Perhaps because of the proliferation of personal finance websites focusing on early retirement, I’ve noticed a lot of talk lately about safe withdrawal rates. I think this is absolutely terrific, as financial independence is one of the single most empowering life goals one can pursue! But greater exposure also has its downsides, as core assumptions such as the portfolio options, withdrawal method, and retirement length don’t always scale the way you might think and misconceptions can quickly propagate.
Withdrawal rates are an intellectual passion of mine, and I’m always looking for opportunities to contribute to the conversation. And with the recent boon in global portfolio data, I’m finally able to address one of the biggest questions that I’m starting to see more frequently these days.
Does the 4% rule apply outside of the United States?
You never quite know what the reception will be like when you post data into the internet void, but I wanted to thank everybody that has taken the time to contact me regarding the latest global site update. Your feedback and encouragement are valuable and extremely appreciated!
Judging from the number of Merriman fans I’ve heard from in the last few weeks, it’s clear that a few assets like international small and value are quite a bit more popular than perhaps I previously understood. I definitely got the message, and while it took a bit longer to assemble the right type of data that I can personally vouch for, I’m happy to report that the Merriman Ultimate is back. And it marks the return of several assets as well — World Small and World Value.
Investors have a real knack for over-thinking things. There are those who imagine themselves as master traders controlling hundreds of variables at once like rocket scientists or professional sound mixers and squeezing out every last decimal of performance. And of course there are inexperienced types who also imagine investing works like that but who lack the confidence to even start learning. Personally I believe this complexity myth is disruptive to the well-being of both sets of people, and nowhere do I see this more than in the simplest of investing topics — cash.
I remember my mom used to say that she knew that my brother was up to something not when he was loud, but when he was silent. I guess somewhere along the line I must have picked up that family characteristic, as my recent bout of less-frequent posting has been masking a crazy amount of activity behind the scenes.
Ever since I first launched Portfolio Charts I’ve been critically aware of the distinctive United States focus of the site and, to be honest, of most investing discussions in general. The single most common request I’ve received is to add tools for investors around the world, and considering the glaring hole in international investing data out there I totally understand the desire. But that absence of data is both an opportunity and a roadblock, and making good on my goal to be more than just a US resource has been a daunting task.
Well I’m pretty persistent when I set my mind to something, and I’ve been completely immersed in this project for the last few months. New data sources, entire new fund models, portfolio updates, asset juggling, calculator modifications — it seems that every time I thought I had it all figured out I found a new project that opened up. Today I’m happy to announce that the long hours have finally paid off, and I’m really excited to share the results.
Bring out your loonies and shake your pounds — Portfolio Charts is going global!
If you’ve ever built a motorcycle from scratch, you can appreciate how the process is nothing like an IKEA instruction manual. Getting the final product just the way you like it is a journey that takes time and often requires seeking out new information and components at various steps along the way. But the reward of squeezing out those extra few horsepower or getting the ride just the way you like it is very high, and well worth the extra effort over simply buying the easy option off the dealer lot.
While mechanical engineering is my background, these days I spend a lot more time playing with financial data than nuts and bolts. But the fundamental thought process is still the same. I like to think of the site and all of the underlying calculations as my own intellectual garage where I can try out new ideas, and I’m always looking for opportunities for improvement.
I’m always on the lookout for ways to improve the tools on Portfolio Charts, and Siamond really came through with his latest update to the Simba spreadsheet. Buried in the heaps of interesting returns data is something really cool — direct calculations for safe and perpetual spending rates for a given investing period. Based on an equation from a Morningstar white paper, they are particularly elegant compared to my old method and allow me to significantly improve the speed and stability of the Withdrawal Rates calculator. And by doing so they open up a great deal of additional data that was previously too laborious to manage.
Well I’m a sucker for new data, and in the process of updating the calculator mechanics behind the scenes I took the opportunity to revisit an old question I’ve been wrestling with for a while.
How do you calculate a 40-year withdrawal rate when the worst start date for a particular portfolio was less than 40 years ago?