StockTrak Performance

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by eric kocourek1 view·Updated Dec 18, 2020
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  1. Hello. Welcome to my stop track presentation for F I
  2. nd 615 investments with Dr Bruce Ray for the October
  3. 2020 term.
  4. And we riddle Aeronautical University first thing Anytime we talk
  5. about on investment, the most important thing to know is
  6. that there are no outside with times without outside risk,
  7. Uh, or time the return of any investment.
  8. Even if perhaps that's start really high.
  9. Attend Thio, return to the mean much.
  10. In the case of equities investing, we kind of consider
  11. the S and P 500 million.
  12. So over time in general, investing in equities, that can
  13. be your expected return.
  14. Whatever the S and P 500 terms.
  15. Uh, I used stock track simulation as an exercise to
  16. see. Perhaps is it possible to outperform the S and
  17. P 500?
  18. We had a hypothetical investor who wishes to retire early
  19. with $1.8 million which will allow him according to a
  20. Trinity study that says he can allow even withdraw 4%
  21. of your assets per year.
  22. I will give him $6000 a month to retire on
  23. indefinitely. So to do that into 1.7% return for months,
  24. and that will give him 20% per year, which are
  25. around retired six years from now.
  26. Assuming he started the $500,000 that stop, Trump gave us
  27. to start the simulation so we can see that over
  28. the two months that we were doing, the Stock Trek
  29. simulation returned much more than what was required to turn
  30. almost 15% in two months, rather than roughly 4% that
  31. was required in the hypothetical situation.
  32. So this brings into mind questions at risk, obviously is
  33. very two months is a short sample size of time
  34. in the market, and we were in a all market
  35. in the time.
  36. Uh, you know, returns probably exceeded almost anyone's expectations in
  37. this period.
  38. I certainly would not have expected even the S and
  39. P 500 to perform this well as well as it
  40. did. And then I used risky investments without hedging toe
  41. increase my returns in the stock situation stock track simulation.
  42. Now we'll talk more about risk assessment and adjustment basically
  43. are Bell Curve tells us that 99.7% of situations in
  44. this case we're talking about investment returns are gonna be
  45. within three standard deviations of the moon.
  46. As I said early, we can't the mean We count
  47. that as the return to the S and P 500.
  48. Now, the limitations of this, uh, when it returns, fall
  49. outside that third standard deviation from the mean.
  50. Historically, it has been kind of what they call a
  51. black swan event.
  52. So it 2000 this session in 2007.
  53. Recession? Uh huh.
  54. We'll talk more about that on the next slide.
  55. So think about if our hypothetical investor had been younger
  56. and he saved up his 1.8 million made good returns
  57. in the market on October 2000 and seven.
  58. Like that's it.
  59. I'm done working.
  60. Uh, well, then, obviously recession happens is really quit.
  61. His job is to start drawing down the retirement account
  62. to pay his bills.
  63. Now, just for have you been invested in just the
  64. S and P 500 Grew would have taken six years
  65. for his account to return to the value was in
  66. October 2007.
  67. So that would be, in my opinion, outlier Just because
  68. at that exact time, uh, is basically the timing of
  69. his retirement had he retired a little later or a
  70. little earlier, he would have been better off.
  71. He could kept working longer, kept contributing.
  72. Even though you know the value of your accounts decreased
  73. by 50% over a couple of years, so was now.
  74. The question is, was that recession in 2000 and seven?
  75. Was that not part of the 99.7% of within three?
  76. Standard deviations of the mean investment returns are, we don't
  77. know, but that's a risk you take when you invest
  78. in equities.
  79. So you know, traditional portfolio theory tells us that as
  80. you march towards retirement, you sell off your equities and
  81. buy bonds because it will be less affected by a
  82. recession. And you probably don't need the extra returns that
  83. you're gonna get from extra risk of being invested in
  84. equities. So the conclusion is goes right back to risk.
  85. This is reward.
  86. If you're not comfortable with potentially drawing down your retirement
  87. accounts over the course of six years in the event
  88. of another recession like 2007, you would put it into
  89. other investments such as bonds away from equities and thank
  90. you, Dr Frei for an excellent course.
  91. I enjoyed it, and I learned a lot from your
  92. comments in the discussions