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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76393  
Subject: Rethinking Risk Date: 9/18/2013 6:54 PM
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I recently came across a couple of papers that discussed risk in the context of portfolios for the long-run. Which is pretty on-topic for this board when we're talking about investing FOR retirement rather than investing DURING retirement.

First: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2318961
Rethinking Risk
Summary of the Abstract:
"For long-term investors, short-term volatility is something they just have to live with and disregard as much as possible. Tail risks, however, are critical because, although rare by definition, they have a large impact on terminal wealth."

"stocks have both a higher upside potential and a more limited downside potential than bonds, even when tail risks strike. Hence, their higher volatility essentially is higher upside risk; that is, uncertainty about how much better, not how much worse, long-term investors are expected to fare with stocks rather than with bonds."

"even when tail risks do materialize, investors are more likely to have a higher terminal wealth by investing in stocks than by investing in bonds."

Also pertinent to recent discussion here: "Different investors assess risk in different ways. The return of a given asset over a given period is whatever the asset delivered; its risk instead is whatever investors perceive it to be."

Second: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2320828
Optimal Portfolios for the Long Run
David Blanchett, Michael S. Finke, Wade D. Pfau
Summary of the Abstract:
"strong historical evidence to support the notion that a higher allocation to equities is optimal for investors with longer time horizons"

"counterintuitive conclusion that risk-averse investors should demand stocks as a hedging strategy against a long-run drop in real consumption"

"[referenced study] finds that a 100% stock portfolio dominated other strategies for a retiree with a 40-year time horizon over historical rolling periods in the U.S."

"return predictability observed in U.S. data means that all but the most risk-averse investors would hold 100% equities for a 10-year or longer investment horizon"

"[There is] short-run volatility (regular swings in prices), but these prices even out over the long-run toward their long-run average."
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Author: intercst Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73054 of 76393
Subject: Re: Rethinking Risk Date: 9/18/2013 7:57 PM
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Stocks for the Long Run has been my motto for the last 30 years.

intercst

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73060 of 76393
Subject: Re: Rethinking Risk Date: 9/18/2013 9:28 PM
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From January 1966 through December 1982, the S&P 500 had a 0.0T%inflation adjusted return.

From January 2000 through December 2012, the S&P 500 had a negative .7% return.

I love stocks, too I buy some every month automatically.

Like pretty girls, sometimes they'll break your heart but I still like girls.

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73061 of 76393
Subject: Re: Rethinking Risk Date: 9/18/2013 9:29 PM
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"Different investors assess risk in different ways"

True dat

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Author: JLC Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 73083 of 76393
Subject: Re: Rethinking Risk Date: 9/19/2013 10:47 AM
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...and a more limited downside potential than bonds...

I'm not sure I agree with this part. Both stocks and bonds can go to zero. Unless I'm missing some other intent....

JLC

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