Technical FAQ: Evidence-Based Investing
Direct answers to complex financial questions, backed by data and peer-reviewed research.
Why is the 60/40 portfolio considered dead? ▼
For decades, bonds provided a hedge against stock market drawdowns. However, in an inflationary environment, stocks and bonds often correlate positively. When interest rates rise, bond prices fall, failing to protect the portfolio. We advocate for a "Dragon Portfolio" or "All-Weather" approach that includes commodities and trend-following strategies to handle inflationary regimes.
What is the "Volatility Drag" mathematical formula? ▼
The relationship between the arithmetic mean (A) and the geometric mean (G) is approximately: G ≈ A - (σ² / 2), where σ is the standard deviation (volatility). This shows that as volatility increases, the compound return decreases, even if the average remains the same. This is why risk management is the most important factor in long-term wealth.
How do I verify your "92% of managers fail" claim? ▼
You can consult the S&P Indices Versus Active (SPIVA) scorecard, published twice a year. It tracks the performance of active fund managers globally. Over 15-year periods, consistently across almost all equity categories, over 90% of managers fail to beat their benchmark after fees.