The Investment Scientist

Archive for April 2016


e61c4cba-818c-4330-98e4-f83600ebfa53.jpegRecently, I took a one-week trip to China, primarily to thank my English teacher. Since late last year, it had dawned on me that I had been so busy chasing my own success that I had forgotten to properly thank those people who made my success possible in the first place. So my new year’s resolution was to identify those people who had the most positive impact on my life and go thank them personally.

Teacher Huang is one such person. He started the first ever English immersion program in China, and he poured his heart into teaching us English. Without him, I wouldn’t have the language skills to accomplish what I have now

He lives in Guangzhou, China though, which takes nearly 24 hours of travel to get there. No matter, I made up my mind to do that. I wrote him a thank you letter, carried it with me, and I read it out loud in front of him and his family. We both were choked up in tears. This is a picture of me with my English teacher.

  1. I learned that Teacher Huang has kept me in his memory for all these years. He filled me in with many details of my middle school years that I had forgotten.
  2. Seeing his white hair, I felt like I had been an ungrateful student who took 30 years to come thank my teacher. But seeing how happy he was, I also felt like I’d made amends. Read the rest of this entry »

US_Dept_of_Labor.jpgRecently Department of Labor issued a fiduciary rule that requires that financial advisors who manage retirement accounts must act in clients’ best interests.

Here is the quote from a Wall Street Journal report …

About $14 trillion in retirement savings could be affected by the rule, which requires stockbrokers providing retirement advice to act as “fiduciaries” who will serve their clients’ “best interest.” That is stricter than the current standard, which only says they need to offer “suitable” recommendations, a standard that critics say has encouraged some advisers to charge excessive fees or favor investments that offer hidden commissions.

Still, reflecting intense lobbying from the financial industry, which has fought the regulation since it was first proposed six years ago, the final version includes a number of modifications.

This might come as a surprise to many people that financial advisors do not need to act in clients’ best interests up until this day.

Alas, as I explained in this article, there are really two types of financial advisors: Read the rest of this entry »

60 40 portfolio.jpgThe 60/40 portfolio, one that consists of 60% equity and 40% bond, is very common. Most of my clients use a variation of this portfolio. Because of this, I want to understand how this portfolio performed in the past.

For this study, I use the S&P 500 for the equity portion and the 10 year treasury bond for the bond portion. The market data I use is from 1928 to 2015. Note that this period includes the Great Depression.

The portfolio is rebalanced every year to maintain the 60/40 allocation. Then I examine five return intervals: 1 year, 2 years, 5 years, 10 years and 20 years. For each return interval, I calculate the average return, best return and worst return.

Here are the results I get. Note all numbers are annualized returns without the % sign.
Interval 1 year 2 years 5 years 10 years 20 years
Average 8.55 8.55 8.55 8.55 8.55
Best 32.85 25.75 20.15 16.04 14.78
Worst -27.55 -20.6 -5.37 1.8 3.48
What can I learn from these results?
  1. The 60/40 portfolio can still be quite risky in the short term. Note that the worst returns for the 1 year and 2 year intervals are -27.55% and -20.6% respectively. These are steep losses nobody likes. Read the rest of this entry »


Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.


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