Categories

Pragmatic Capitalism

Practical Views on Money, Finance & Life

The Best Asset Price to Know Twenty Years Out

Tyler Cowen asks a fun question here:

“You are an investor with $10 million planning to cash out in 20 years. A genie appears and offers to send you the price of one but only one asset 20 years from now to inform your investment decisions (a stock, currency pair, commodity, equity index, etc.). What do you want to know? The genie also gives you 20 year cumulative inflation (or exchange rate change for non USD assets) so you won’t need to worry about price/value disentangling.

I said the price of Bitcoin but also considered the IBOVESPA or Shanghai composite index prices.”

Tyler’s answer is a little surprising to me.  Bitcoin doesn’t strike me as all that relevant and could potentially be gone in 20 years (I’d say the risk of a more viable bank operated technology is highly likely).  The Bovespa isn’t all that important in the global economy.  And the Shanghai, though important, is a notoriously unreliable index of domestic Chinese stocks that don’t usually reflect anything useful about the Chinese economy.  Anyhow…

The obvious choice to me is something like the Russell 2,000 which would give you the ability to build a leveraged position in a super high return vehicle. But that’s also a very volatile position to take and if I’ve got 10 mill in the bank I don’t need that kind of stress in the short-term. So, since this investor is in a high tax bracket I’d be tempted to know something a bit safer like the yield on a long duration muni bond index.  This would give you the ability to construct a leveraged bet on muni bonds in what would be a low fee, tax efficient way to generate a very high risk adjusted return.  Not nearly as sexy as the potential return on the Russell, but much safer and guaranteed to be more tax efficient….

Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC.Orcam is a financial services firm offering low fee asset management, private advisory, institutional consulting and educational services.Cullen is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.
Cullen Roche

Latest posts by Cullen Roche (see all)

Did you have a comment or question about this post, finance, economics or your love life? Feel free to use the discussion forum here to continue the discussion.*

*We take no responsibility for bad relationship advice.