FrankM

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    • Wed Jul 9th 12:37 PM | Rating: 0 0
      Commented on:
      Choosing Your Portfolio Risk Tolerance
      I have read most of your articles, they have answered all of my questions but these:

      How about leverage, or lack of leverage - cash. If we have a risk free return on the Y axis, we can reduce risk in an efficient way by combining cash and something close to a P75 portfolio in a linear fashion; on a line from the risk free return on the y axis tangent to the efficient frontier. Like wise the line would extend to the right, above the frontier, allowing higher returns with less risk by using leverage. So shouldn't we be concerned with finding the portfolio that provides the steepest line (Sharpe ratio?) and then adjusting our risk/return with leverage or cash? Of course its not that simple, our loan rate would not be the risk free rate and leverage might not be good for a long range strategy, but how about options or levered ETFs? Also if the left side of the efficient frontier was high enough we could combine a risky portfolio with cash, no need for leverage. We also have the problem of what to use for cash, a MM or maybe short bonds, if they are held to maturity and not marked to market.

      You optimize the asset mix by hand, using experience. How about using Monte Carlo to do the optimization, try many random combinations (0%-100%) and pick among the winners? Might take a while, but my computer is not used while I sleep!
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    • Sat Jul 5th 22:49 PM | Rating: 0 0
      Commented on:
      Choosing Your Portfolio Risk Tolerance
      Thanks, now if seeking alpha would just add a preview feature to this comment system I could see and the correct spelling errors!!
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    • Sat Jun 28th 13:59 PM | Rating: 0 0
      Commented on:
      Choosing Your Portfolio Risk Tolerance
      Thanks for the reply.
      While thinking over the pros and cons of monte carlo simulation this occured to me: In the types of portfolios being discussed, even though there might be a low corrolation between components, there is still some corrolation, somtimes over 50%. That means that independant random draws cannot be used for each component but that that each draw needs to be adjusted to refect the corrolations. Does QPP do this, and does the order of the draws matter? (The first can be used, but susequent draws for each component must be adjusted according to the required corrolations, as each component is assigned a value the problem becomes more complex because each component has corrolations to all others)
      I find this tool (QPP) quit interesting and the results you present amazing, too bad I just found it, I could have used something like this about 30 yrs ago!
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    • Thu Jun 26th 20:42 PM | Rating: 0 0
      Commented on:
      Choosing Your Portfolio Risk Tolerance
      the correlation between bonds and stocks may change depending on the inflation rate and the feds willingness to fight inflation. Does the optimizer take this into consideration. Since you use TIPs it seems you are aware of this and TIPS are a way out. however we are interested in real returns not nominal and TIPS might not provide good real returns. Have you tested real return portfolios (or the real retun of your portfolios) such as the one(s) that PIMCO has?
      View article »
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