Personal Investment Notes

This chart shows the price swing for certain asset class proxies in 2008. The price swings are roughly correlated to total return or loss: the more price swing the more you can expected in total return. Even though standard deviation and beta are another approach to measuring volatility, watching the price swing is something most people do on a regular basis. After looking at these price swings no wonder people fret when thinking of investments.

Ranked by total return.

Doug

Note:

%price swing = (high – low) / low

which was taken from Vanguard’s calculation of price swing.

Stable value index and passbook rate are of 11-30-08.

Here’s a chart that shows what certain asset groups have done over the same time period in the face of nearly a 43% loss in the Dow Jones (since its peak of around 14,100 to a low of about 8,175). Dividend reinvestments are not included. Also, some of the other indices have swung more over a different period of time because they are not 100% correlated to the Dow Jones index.

The point of this chart is to think about the loss tolerance one can take. Individual stocks and bonds can lose even more than 43%. I believe most people cannot stomach the stock loss, though they like the gains.

I tried to pick broad asset classes. I left out foreign stock investing because they are more volatile than the U.S.