The Efficient Frontier is a Beautiful Lie: Why 'Optimal' Portfolios Fail in Real Markets
- Fabio Capela
- Portfolio theory , Quantitative finance , Modern portfolio theory , Risk management , Mathematical finance , Investment mathematics , Portfolio construction , Academic finance
If you’ve ever opened up an investing textbook, you’ve seen the chart. A smooth, upward-curving line — the efficient frontier — showing a perfect relationship between risk and return. All you need to do is plug in your estimates for expected returns, volatilities, and correlations, and voilà: the optimal portfolio is right there in front of you.
Read MoreThe One Number That Changed How I Think About Investment Risk
- Fabio Capela
- Risk management , Sharpe ratio , Risk adjusted returns , Portfolio analysis , Investment metrics , Systematic investing , Performance measurement , Quantitative finance
For years, I focused on the wrong metric when evaluating my investment performance. Like most investors, I obsessed over returns. How much did I make this month? How much did I make this year? How did my portfolio compare to the S&P 500?
Read MoreHow I Built an Investment Strategy That Beat the S&P 500 by 8% Annually for 8 Years
- Fabio Capela
- Systematic investing , Portfolio management , Investment performance , Market outperformance , Risk management , Asset allocation , Quantitative finance , Financial strategy
Eight years ago, I was frustrated. Like most investors, I was putting money into index funds and watching my portfolio swing wildly with every market tantrum. The conventional wisdom said I should just “buy and hold” the S&P 500, but watching 20% drawdowns every few years while barely beating inflation didn’t feel like a winning strategy.
Read MoreWhy Index Funds Are Sabotaging Your FIRE Timeline: The Systematic Solution
- Fabio Capela
- Fire , Systematic investing , Portfolio management , Financial independence , Investment strategies , Retirement planning , Asset allocation , Quantitative finance
Most FIRE investors are unknowingly adding 5+ years to their retirement timeline by sticking with “safe” index funds. While the investment world preaches the gospel of passive investing, a growing number of sophisticated investors are achieving Financial Independence faster through systematic strategies.
Read MoreWhy Most DIY Investors Underperform (and How to Fix It)
- Fabio Capela
- Finance , Investing strategies , Portfolio management , Risk management , Behavioral finance , Diy investing , Asset allocation , Passive investing
The promise of DIY investing is appealing: take control of your financial future, avoid advisor fees, and potentially beat the market. Yet research consistently shows that self-directed investors typically underperform major market indices by a significant margin.
Read MoreTrend Following Strategies: What 137 Years of Research Reveals (2024 Guide)
- Fabio Capela
- Finance , Investing strategies , Portfolio management , Risk management , Trend following , Systematic trading , Market momentum , Volatility targeting , Machine learning , Reinforcement learning , Alternative data
Trend following has long been a cornerstone strategy for traders and investors. By systematically riding market momentum, trend following strategies have historically delivered strong risk-adjusted returns across various asset classes. But how does the strategy hold up in different environments, and what does academic research say about its efficacy? Let’s explore the key insights from a wealth of scientific literature on trend following.
Read More9 Proven Strategies to Reduce Portfolio Drawdowns in 2024 (Expert Guide)
In 2024, investors are more conscious than ever of the impact of market downturns on their portfolios. With global economic uncertainty and volatile market dynamics,reducing drawdowns - the peak-to-trough declines portfolio value - has become a key focus. By employing the right strategies, investors can protect their wealth and reduce the anxiety associated with significant losses. Below, we explore several actionable strategies to reduce portfolio drawdowns, helping you maintain steadier returns over the long term.
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