Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies

The unfortunate mathematics of a 75% decline requires an investor to realize a 300% gain just to get back to even – the equivalent of compounding at 4.8% for 30 years!

Most individuals do not have a sufficiently long time to recover from large drawdowns from any one risky asset class.

This is one of the problems with investing in just one security, country, or asset class.

Currently, your ten-year nominal return for buying U.S. government bonds will be around 2.25% if held to maturity.

When talking about stocks for the long run, then, it must mean something

The risk-free rate is simply the return of Treasury bills. A higher Sharpe ratio is better, and a good rule of thumb is that risky asset classes have Sharpe ratios that cluster around the 0.20 to 0.30 range.

The 60/40 allocation only spends about 22% of the time at new highs, and the other 78% in some degree of drawdown. Drawdowns are physically painful, and the behavioral research demonstrates that people hate losing money much more than the joy of similar gains. To be a good (read: patient) investor you need to be able to sit through the dry spells.

Quick, what is the world’s largest financial asset class? Don’t know? Answer: Foreign ex-U.S. bonds!

A 68-year long stock underperformance is almost the same as a human’s current expected lifespan in the U.S.