This article is about risk analysis of AGG. First, I will build an app that will randomly generate investment start date and end date given an investment span. The user has the freedom to set a tax rate on dividends.
With this app, I am looking for given an investment span, what is the chance that AGG's return is negative, and if it is, what is the expected loss. This will help me decide how much cash or its equivalent I need to keep when retired.
The data range is from 2003-09-29 to 2022-07-22 and each year is assumed to have 252 trading days.
APP
Truncated Data:
Start Date:
End Date:
Tax Rate on Dividends: %Start Date:
End Date:
Investment Span: days.
Investing in AGG for 252 days:
Total Distribution
TImes when Lost are greater than 5%
| Start Date | End Date | Span | Return(%) |
|---|
Conclusion
- The longer you invest in AGG, the lower the chance it gives you a negative return. When you had invested longer than 12 years, your chance of getting a negative return would have been 0%.
- The longer you invest in AGG, the lower the expected loss giving it gives a negative return.
- The mean return of AGG grows linearly with time, but the standard deviation. When stock prices follow log-normal distribution, the standard deviation of the return is linear to the squared root of time. This may imply it is worth investing long-term, since the risk does not grow as fast as average return with time.
Expected Loss
Mean Return and Return Standard Deviation
Mean Return Divided by Return Standard Deviation
Results Reference
Investing in AGG for 1 year
Investing in AGG for 2 year
Investing in AGG for 3 year
Investing in AGG for 4 year
Investing in AGG for 5 year
Investing in AGG for 6 year
Investing in AGG for 7 year
Investing in AGG for 8 year
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