Too late to shop it before I buy it, because I bought it during the original
enrollment period in order not to have to take the health check. I had bought

LTC insurance on my own prior to it being added to our available benefits
at work, but either I didn't shop well enough (quite possible) or the
insurance
company didn't like what they saw on my health questionnnaire (also quite
possible) because the policy available through my benefits at work was much
better coverage. I originally looked into it because at the time I was work-
ing outdoors doing land surveying, and there was a reasonable likelihood
I might have gotten injured on the job and need home assistance during
recovery/rehab, as well as the possibility that I might need it when I am
old.
I'm working indoors now but there's still the old age aspect to be thought
of,
but I think I'm glad I got signed up when still healthy, even if I might have

paid less elsewhere. At least I've got that decision out of the way. I sup-
pose I can always shop around later and switch carriers if I want to.

Karen

Elizabeth Richardson wrote:

- quote -

Karen Younge <karenyounge[at]earthlink.net> writes:

- quote -

Mean-Value Optimizer.

A piece of software that is handed the average returns of and
correlations between a set of asset classes and grinds out the
efficient frontier for that asset class set. By definition, the
"efficient frontier" is the combination of assets which for a given
return has minimum risk (as measured by standard deviation of return)
or for given risk has maximum return.

And I should have mentioned this site before -- check out
http://www.efficientfrontier.com

Given what you've said, I think you'll find it interesting.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

- quote -

Before you purchase Long-Term Care Insurance through your pension
department, you should consider shopping it. The agent from whom I have
purchased was able to beat what is available from our pension source, and
says he can beat the cost of those from most pension sources. Also, it is
cheaper the younger you buy, so you might be interested in getting it now,
before you retire.

Elizabeth Richardson

Rich Carreiro wrote:

- quote -

Thank you so much for your detailed reply. I am 'way over my head mathe-
matically here. It's been a *very* long time since I took statistics back in
college
and I didn't understand it all that well then. I remember what the mean and
standard deviation are but not how to regress the series against each other (if
I ever knew).

My spreadsheet capabilities are (at the moment) rather limited as well--Claris
works version 4 on my trusty ol' Power Mac G3. If I know the equation I
can often cook up a spreadsheet formula to crunch the numbers...but it takes
me a long time so I guess I better continue to hunt for the tables.

- quote -

Can you suggest some specific sites, or the name of a book. I can go to
one of the local university libraries and look up the values I want if the pub-
lic library doesn't have the title). I tried Googling but got a lot of irrele-
vant hits without finding what I wanted. I think I'm probably not using
the right combination of search terms to get the desired result.

- quote -

What's an MVO? I haven't got all the acronyms memorized yet :^)

- quote -

Whew! I am going to have to sit and stare at that one for a while.

- quote -

EEK!

- quote -

So, is the correlation between gold and the 50/50 portfolio the mean of the
results of the two above calculations?

- quote -

It's a personal decision. I don't say "all investors in weapons or in
nuclear power are wicked evil people"... I do say, "I personally don't
want to make money from those industries", and it seems like using
SRI funds is a more straightforward way of accomplishing that goal
than trying to do all the research myself on individual stocks or trying
to keep tabs on the changing contents of an unscreened mutual fund...
"oh, they just bought stock in a company that produces cigarettes, so
I want to sell---ooops, now they got rid of the cigarette stock and bought
a company that produces solar panels--so I want to buy it back again".
I don't want to need to put that much time into monitoring my invest-
ments (not to mention that all that trading would really eat into my
returns and at the conservative level I plan to be working at I need to
avoid that as much as possible). I don't find investment fascinating in
itself & prefer to devote my time to other uses--so I am trying to get
as close as I can to a "set and forget" investment plan that only needs
to be checked a few times a year to make sure the percentages of the
portfolio in each asset class are close to the target level.

I haven't yet implemented my plan to go to SRI. I have more reading
to do, and more thinking about what I do and don't want to generate
income from....I have thought more about my negative screens than
about what I want to promote, and maybe the positive aspect of it can
wait until later...I haven't stopped my payroll savings purchases of
Savings Bonds (yet) even though I find some of the things our gov't
does with the money highly objectionable. When I figure out some
equivalent asset class that I don't find objectionable, then I guess I
will cash in the bonds and switch that part of my portfolio over as
well. But I'm realizing I don't have a unified plan of what I want
to do and how I want to do it and the number of possible choices is
so huge I am almost overwhelmed by it. I am not the most decisive
person in the world to start off with so the multiplicity of alternatives
has nearly paralyzed me. But I have three years to think about it and
come up with something, at least a start.

- quote -

Well it certainly sounds like that would be close enough for a first
estimate.

- quote -

For first estimates I should plan on the lower end of "realistic" then--6%
or 6.5% overall rate of return--because I'm not an aggressive investor.
I'm much too risk-averse, and I'll be 49 the beginning of next year so I
don't have time (if I retire from the City as planned at age 52) to recover
from having the rug pulled out from under me by a drastic drop in the
market as happened to so many other investors during the last few years...
If I bungle it with that house money I will be just flat out of luck with
regard to early retirement and maybe not be able to retire at all ever, since
I have little else saved up and doubt that Social Security + pension alone
will be adequate especially in the face of inflation. And I can't draw
Social Security until I'm 62 (or whatever) anyway.

I would rather have a portfolio that hardly ever goes down and then goes
backward only a little bit, than one that sometimes makes huge gains but
at other times suffers great losses--even if the overall return on the more
volatile portfolio is considerably larger than on the one I end up choos-
ing. If I cannot create a livable total income at a conservative level like
that I will just have to revise my planned retirement date from the City,
or plan on continuing to work longer after leaving the City than I now
have in mind. I am single so I need to get this straight in my mind and
understand it and be able to deal with it and not be intimidated by it---
there's nobody to do it for me, but me, and I don't want to end up one
of those sad stories of a little old lady that got swindled out of her life
savings by some unscrupulous so-called investment advisor because
she didn't understand what was going on.

Thank you again.
Karen

www.riskgrades.com/


On Sun, 21 Nov 2004 19:09:39 CST, Karen Younge
<karenyounge[at]earthlink.net> wrote:

- quote -


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding.

Karen Younge <karenyounge[at]earthlink.net> writes:

- quote -

How is actually procedurally simple:
1) Find annual total return series for all the asset classes in question.
2) Compute the mean and standard deviation of each series.
3) Regress each series against every other one to find the
correlations between all pairs of assets.

Once you have the data, (2) and (3) can be done by a decent spreadsheet.

Of course, since many of the entities that generate such returns
data like to sell it to financial institutions, getting the data
(for free, anyways) might be a bit tricky :-)

You may well have better luck trying to find tables of average
returns of asset classes and correlations between asset classes.

I don't know where you've looked, but be it online or in
dead-tree locations, consider looking more at places geared
at advisors, financial institutions, and academia.

Also, I believe there are even places that sell poor man's MVOs (with
a more limited set of asset classes and probably not as much returns
history as the very expensive stuff sold to the big boys). But if you
plan to go the MVO route, I recommend you crack a stats book and
understand the mathematical underpinning of MVO (it's actually not
that hard to understand the basics). I'm a firm believer in
understanding what a tool does before using the tool.

- quote -

You pull out a computer and have it do the dirty work :-)

For example, the second simplest portfolio there can be -- just
two assets -- results in the following:
* Return of the portfolio = f*Ra + (1 - f)*Rb
* Std dev of the return = sqrt[f^2 * Sa^2 + (1-f)^2 * Sb^2 + 2*f*(1-f)*Sa*Sb*C]
[where Ra, Rb are the average total returns of assets A and B
where Sa, Sb are the standard deviations of the returns of A and B
where C is the correlation between the returns of A and B
where f is the fraction of the portfolio invested in A
and therefore (1-f) is the fraction invested in B]

Now imagine a portfolio with 10 assets in it....

- quote -

You can compute that from the correlation between gold and the index
fund and the correlation between gold and the bonds.

- quote -

Return is easy enough -- it's just the weighted average of the returns
of the assets in the portfolio.

But it is standard deviations of portfolio returns and correlations
between portfolios that gets complicated (and hard to do without a
computer).

- quote -

While I'm not sure what's so "socially irresponsible" about companies
who manufacture products vitally important to the survival of our
society, such as weapons, and those would will vastly reduce
greenhouse gases if widely accepted, such as nuclear power, yes,
excluding them will change the numbers. My guess, though, is not it
won't change them by much and you could just use the asset class's
numbers in your decisions. If you're concerned, you could compare the
annual total return numbers (year-by-year, not just multi-year average
numbers) of an SR fund with those of an index fund in the same asset
class (you don't want to compare just to the index itself, since the
published indexes are price-only indexes, not total-return indexes).
By comparing the annual total return series of the SR fund to the
index fund, you can compute the correlation of the SR fund to the
index. If the SR fund highly correlates to the index fund, then you
can just use the index's numbers in calculations. If not, you'll have
to roll your own correlation numbers.

- quote -

Well, you can make some reasonable guesses without having to go
through any of this. For example, given that 10-year T-bonds are
running around 4.2%, you can be guaranteed of doing no worse than a
4.2% return (assuming you're not forced into selling before the bonds
mature!). On the high side, you wouldn't be wise to count on anything
over 10% (8% is probably more realistic). So if you can't get your
plan to work with an 8-10% return, there's not too much point in doing
all the grindy stuff, since the grindy stuff isn't going to give you
anything that significantly beats that. But if you discover that you
only need a 6.5% return to make things work, then you can use the
grindy stuff to see (a) what's the least risk you can get that 6.5%
with and (b) what asset class combinations are needed to implement
the plan.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

Hi,
I'm new to the group. Over the last several months I've been doing a
lot of reading about investing and last week was introduced to the
concepts of asset allocation and Modern Portfolio Theory.

The reason for all this reading is that I'll be eligible to retire from
my job
with local government in a little over three years, and expect to
realize
about one year's income from sale of my house, after purchase of a new
residence. (Housing prices are much lower where I intend to move to than

they are where I live now). I won't be eligible for enough of a pension
to
cover all my living expenses, so I'll need another source of income for
the
next 15 or 20 years, until "full" retirement. (Part time job or
temporary
assignments come to mind). I have so many questions! I'm working on
educating myself, to be prepared to make the most of that extra money
from the house (and probably no capital gains tax due on it
either--hurray!)

I plan to use the pension money for the bills that *absolutely must* be
paid--medical and long-term care insurance, property taxes, etc. If
there's
any left over I hope to be able to invest that to cover future increases
in
those costs. The part time job or other income source will be for
ordinary
expenses like gas, groceries, and so on.

What I would like to know is, how/where to find out the correlation
between various sorts of investments. The book I read had a few tables
of values in it but did not include all the kinds of investments I want
to
investigate (didn't have municipal bonds, precious metals, or REITs).
Is correlation information available online anywhere? Or can someone
suggest a book with a set of tables that include more different kinds of

investments? How does one take multiple kinds of investments into
account when looking at correlations? How do I tell the correlation be-
tween (for example) gold bouillon and a portfolio with 50% in a stock
index fund and 50% in medium term Treasury bonds?

Also, I need to know how to calculate the overall return for a portfolio

from the expected returns of its various components.

Also, I intend to use "socially responsible" funds for most if not all
my
stock based investments (I might buy a few individual stocks, or maybe
not). It seems to me that SRI funds might have a different correlation
value than an index fund that invests in about the same size companies
and with the same objectives, because the SRI fund will include less
of some kinds of stocks (e.g. tobacco, nuclear power, or weapons)
but more of other kinds (e.g. alternative energy). Wouldn't this cause
the SRI fund to have at least a somewhat different correlation with
other
investments than an equivalent non-SRI fund?

I am trying to figure out about what sort of rate of return I can
generate
on the house proceeds, in order to figure out how much other income I
will need up til whenever I am able to shed jobs altogether. I think
that,
and the actual amount of pension I have coming plus the actual figures
for what the medical and long-term insurance will cost (which I have
requested from the retirement department) are the first things I need to

know in order to make any kind of plan.

Karen