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New Version 0.5 of the FI Simulator released

Today there is a small “intermediate release” of the FI Simulator. Here is a list of the (few) new features:

  1. in this version I have included a time series of an equally weighted Commmodity Index starting in 1877(!) based on the article Commodities for the Long Run by Levine, Ooi, Richardson and Sasseville. The associated monthly time series is thankfully provided by AQR here. Why am I interested in commodity data in the context of FI at all? An Equal-Weighted Commodity Index combines two characteristics not found in any other asset: Such an index performs particularly well in times of (unexpected) rising inflation and thus represents a real inflation hedge. Moreover, the data show that the index has generated an inflation-adjusted return of just over 4% per year since 1877. Even though equities are widely regarded as a hedge against inflation, this is only due to their expected long-term positive real return. In the short term, stocks as well as bonds usually suffer from rising inflation, as we experienced in the 1970s and again recently in 2022. However, a commodity index by definition tracks price increases in commodities, which are usually a core driver of inflation. Besides commodities, only gold is considered as the other possible inflation hedge, but due to its peg to the U.S. dollar, gold prices can only be used from 1973 onwards, and the very long-term data for gold also indicates a long-term real return of just around 0% per year. Whenever you think of adding Gold into your portfolio you therefore might want to look at complementing or even supplementing this with Commodities. Commodities can play an extremely interesting role in a risk-adjusted portfolio.

  2. As promised in the introduction of version 0.4, I have finally found a way to get rid of the ugly dropdown box for selecting assets for optimization. Instead, you can now use a normal checkbox on the left side of the asset allocation table. Until now, the selection was also saved and reloaded in the json file, this is no longer possible in the new version. I probably could have implemented this again with some effort, but the benefit to do this simply seemed too small.

I hope you will like the new features and I look forward to hearing about interesting results you have found with the new data. If you want to be notified about new posts, please use your favorite RSS reader and subscribe to this blog using the RSS link in the main navigation bar or through this link.