Investing Demystified 5 – Everything Else

Investing Demystified 5 – Everything Else

Today’s post is our fifth visit to a book that is popular with passive investors in the UK – Lars Kroijer’s Investing Demystified.

Lars Kroijer

Lars Kroijer

Lars Kroijer

Lars Kroijer’s book is increasingly popular on the UK finance subreddits.

  • He has an economics degree from Harvard and an MBA from the business school there.

Until 2008, Lars was a hedge fund manager.

  • He now works at Alliedcrowds.com, which “aggregates alternative capital into the world’s lower-income countries”.

Investing Demystified

Here’s a recap of what we’ve covered so far:

  1. Lars is a 100% passive investor, and pushes what I would call a “Lazy Portfolio” of only two funds.
    • These are are sub-optimal, particularly for investors with larger portfolios.
    • I see the appeal of lazy portfolios to novice investors, but that’s not the same as saying they are the best option.
  2. Lars thinks that markets are quite efficient, and the majority of people are not able to outperform them.
    • Truly efficient markets would not exhibit simple outperformance factors like your own benchmark that reflects the likely composition of your portfolio
  3. Lars is against home bias, and I am not.
    • He is however in favour of “Away Bias” – a large allocation to the US.
  4. Lars objects to the idea that the future will be like the past.
    • I would say that it’s the best data we have, and what is the alternative?
  5. Lars targets returns of 5% pa real from equities, which I think is a little optimistic.
    • We agree on equity volatility of around 20%.
  6. Lars notes the great losses that are possible in stock markets, with two falls by more than 50% in the Dow since 1900, and another 6 falls between 40% and 50%.
    • Recovery times for buy and hold range from 25 years for the 1929 crash to four years for the 2000 dot com bubble and the 2008 crisis.
    • Of course, the Japanese market hasn’t yet recovered from the 1990s crash.
    • Lars reiterates the importance of diversification, though he points out that it works least when you need it the most (correlations increase during crashes).
  7. Non-listed assets need to be taken into account when assigning portfolio weightings.
  8. Lars believes in lifestyling (more bonds as you age) but I think that you should stick with stocks into retirement.
  9. Lars also believes in the 4% rule, but in fact even those with a high equity allocation should not withdraw much more than 3% pa – see here.
  10. You should take a risk tolerance questionnaire, to work out what your exposure to equities might be – you can find ours here.
  11. We agree with Lars that costs matter and that taxes matter.
  12. Lars favours ETFs and index funds (a subset of OEICs) for implementing his portfolios.
    • We prefer ETFs because we like to use listed assets with real-time pricing.
  13. Lars recommends threshold rebalancing, with 10% bands.

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