More on indices-part 2

This is a follow-up to More on indices which was posted in June2008.

The chart is the same, with new inputs at the table below.

New inputs include:
a) Sales charge (SC) of 2.5% for all the pseudo investment amounts;
b) Added "Gold" as well this time round;
c) Included RSP (a.k.a Dollar-cost averaging or "Drip in money") of $100 per month;
d) Included sharpe ratio calculation (Risk-free rate, Rf assumed at 5%)

Observations:-
1) Indian market (BSE) is the most efficient market amongst all, with a sharpe ratio of 7.89;

2) Internal Rate of Return (IRR) of the entire portfolio of 11 markets/ assets is 5.25% per annum on a "Drip in money" method, which is pretty decent since using this method reduces market timing risk. The key objective of this approach is to preserve/ grow the purchasing power of the value of money (NOW) to be on par (or better) than inflation.
(p.s: SG inflation has been 0.8% p.a annualized over past 10 years, so making 5.25% p.a using SG Dollars living in SG would have been ok.)


CONCLUSION:

Please also note the above indices do not necessarily represent an appropriate portfolio mix by any standard. To further improve the IRR, can consider using a core-satellite approach to the Dollar-cost averaging or "Drip in money" strategy.

Markets are expected to be volatile for next 24 months or so and inflation will hover around 5-6% p.a for next 24 months, and hence for people who are non-full-time-traders, i.e normal working people, the best option seems to be: Dollar-cost averaging or "Drip in money" strategy.

Please seek professional advise before you make any investment.