I think it was actually closer to 17% by the end of last year, but mostly unrealized and this is a very rough estimate.
Good point though. Why not hold 100% SPY? Serious question! That is actually not an unreasonable long-term strategy.
But are you adjusting for risk? Stocks outperform most other liquid asset classes. The exception right now seems to be crypto. Why not YOLO 100% Bitcoin? Again, a serious question. I’m less confident that is a reasonable strategy, but people do it! Does that seem reckless? It kind of does to me. Bitcoin had an 82% (!) drawdown around 2018. Yet Bitcoin absolutely dwarfed returns from SPY in 2017. It’s really off the chart. 1500%. Seriously. SPY was up like 22%, which is pretty good for SPY, but it doesn’t even compare. A fluke? Well, even as recently as 2020, Bitcoin was up 290% compared to SPY’s 18%.
SPY isn’t all that conservative either. It has had a 50% drawdown before, and over its lifetime, its compound annual growth rate is only 9%. Its Sharpe ratio is 0.6. It’s not hard to do better than that in a backtest.
For example, 75% SPY and 75% TLT (borrowing the −50% cash) has both higher returns and lower volatility than 100% SPY, with a Sharpe ratio of 1.0. Its worst drawdown was only 27%. To be fair, TLT is not quite as old as SPY, which had a slightly better Sharpe of 0.7 over TLT’s lifetime. The 75⁄75 portfolio clearly would have been a better choice overall. But some years it underperformed SPY by a significant margin. 2021 happened to be one of those years.
I think it was actually closer to 17% by the end of last year, but mostly unrealized and this is a very rough estimate.
Good point though. Why not hold 100% SPY? Serious question! That is actually not an unreasonable long-term strategy.
But are you adjusting for risk? Stocks outperform most other liquid asset classes. The exception right now seems to be crypto. Why not YOLO 100% Bitcoin? Again, a serious question. I’m less confident that is a reasonable strategy, but people do it! Does that seem reckless? It kind of does to me. Bitcoin had an 82% (!) drawdown around 2018. Yet Bitcoin absolutely dwarfed returns from SPY in 2017. It’s really off the chart. 1500%. Seriously. SPY was up like 22%, which is pretty good for SPY, but it doesn’t even compare. A fluke? Well, even as recently as 2020, Bitcoin was up 290% compared to SPY’s 18%.
SPY isn’t all that conservative either. It has had a 50% drawdown before, and over its lifetime, its compound annual growth rate is only 9%. Its Sharpe ratio is 0.6. It’s not hard to do better than that in a backtest.
For example, 75% SPY and 75% TLT (borrowing the −50% cash) has both higher returns and lower volatility than 100% SPY, with a Sharpe ratio of 1.0. Its worst drawdown was only 27%. To be fair, TLT is not quite as old as SPY, which had a slightly better Sharpe of 0.7 over TLT’s lifetime. The 75⁄75 portfolio clearly would have been a better choice overall. But some years it underperformed SPY by a significant margin. 2021 happened to be one of those years.
My portfolio is performing within expectations.