Very interesting, thank you.
Impressive you only end up with 10% more over 30 years! Not much gain for far more risk. Explains why so few people invest with that much leverage.
Just eyeballing the data, −20% annual returns seem to occur about once every 20 years.
What’s the frequency of peak-trough losses of −20% though? That’s what actually matters for getting wiped out.
(And does your analysis take account of those? You’d need to be using daily data rather than annual to pick them up).
It also seems like ex ante returns should be lower than historical returns, because the last 50yr or so has in the US been unusually good for equities, and there are various reliable indicators that predict lower returns (e.g. Shiller PE).
Thanks for those caveats. :)
The full write-up is now available here. Comments are welcome. The numbers have changed somewhat since before, and I trust them more now because they generally agree with theory.
I used 5.6% as the ex ante annual expected return and included black swans in my simulation. The simulation uses daily returns.