We often talk about SAA, vs DAA.
SAA, the collection of portfolio exposures designed to produce particular risk and return outcomes, given previously set objectives, and DAA, a process layer built atop SAA, designed to smooth out the investment experience (ideally, to reduce the frequency and magnitude of adverse events).
With SAA, that often means discussing the equity risk premia, and more specifically what an allocation to equities is designed to contribute, over (sufficiently) long periods of time. How equities behave, what compounding of wealth and time value of money looks like as the “lived experience”.
And the below is a pretty good demonstration.
Despite a near infinite number of things to fret about, human ingenuity and progress has resulted in the “overcoming” of every major negative we’ve ever encountered.
The above clearly looks at just the last decade, but this statement is trivially (as in factually, objectively, no analysis required) true given all-time highs for many equity markets.
From the perspective of risk, the past year (to narrow our focus a bit) has looked pretty much like a normal year, albeit at a much higher level (as in we’ve had some outside returns by magnitude, but not by Sharpe).
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Please note that past performance is not a reliable indicator of future performance.
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