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Only a good understanding of the long-term historical risk and return
of various indexes will enable you to know how to allocate indexes
in accordance with your own unique Risk Capacity™. In this Step
we provide you data on the risk and return characteristics of both
size and value subsets of markets around the world. For some indexes,
we have data going back to 1926. This summarized data is meant to
give you a general overview.
In Step 10, we will be much more specific as to the various combinations
of these indexes to create whole portfolios of 20 different levels of risk.
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"It takes between 20 and 800 years of monitoring performance
to statistically prove that a money manager is skillful rather
than lucky - which is a lot more than most people have in mind
when they say 'long-term' [track record]." |
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Ted
Aronson, "Confessions of a Fund Pro", Money, Feb
1999, pp. 73-75. |
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"The four most dangerous words in investing are, It's different
this time." |
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Sir
John Templeton, legendary investor. Money Magazine, Fall 2002,
p. 25 |
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"Those who are ignorant of investment history are bound to repeat
it. Historical investment returns and risks of various asset
classes should be studied. Investment results for an asset over
a long enough period (greater than 20 years) are a good guide
to the future returns and risks of that asset. Further, it should
be possible to approximate the future long-term return and risk
of a portfolio consisting of such assets." |
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William
Bernstein, "The Intelligent Asset Allocator" |
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"I know of no way of judging the future but by the past."
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"The only new thing in the world is the history you don't know." |
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Harry
S. Truman |
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"Statisticians will tell you that you need 20 years worth of
data -- that's right, two full decades -- to draw statistically
meaningful conclusions. Anything less, they say, and you have
little to hang your hat on. But here's the problem for fund
investors: After 20 successful years of managing a mutual fund,
most managers are ready to retire. In fact, only 22 U.S. stock
funds have had the same manager on board for at least two decades--and
I wouldn't call all the managers in that bunch skilled." |
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Susan
Dziubinski, University editor with Morningstar.com |
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"While much has changed over the years, some things remain the
same. There is still a strong relation between risk and expected
return, and price-scaled fundamental variables (such as book-to-market)
still have explanatory power for stock returns. Some things
have stood the test of time." |
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James
L. Davis, Digging the Panama Canal |
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"If a man dwells on the past, then he robs the present; but if
a man ignores the past, he may rob the future. The seeds of
our destiny are nurtured by the roots of our past." |
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Master
Po, Kung Fu Television Series |
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"Data! Data! Data!" [Sherlock Holmes] cried impatiently. "I can't
make bricks without clay!" |
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- Sir Arthur Conan Doyle, The Adventures of Sherlock
Holmes, The Adventure of the Copper Beeches (12th in the series of 12 short stories), 1892 |
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