How I Estimate Future Investment Returns

To make informed investing decisions, I want to estimate the future expected return of my portfolio. Markets are unpredictable, and future returns will likely significantly deviate from estimates—AQR believes there’s a 50% chance that 10-year realized equity returns will differ from their predictions by more than 3% per year. Still, it’s helpful to come up with a median guess.

In this post, I explain the projections that I use for my own financial planning.

Last updated 2022-06-16.

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Can Good Writing Be Taught?

Epistemic status: Highly speculative; unburdened by any meaningful supporting evidence.

I’ve written something like 200 essays for school. Writing those essays did not teach me how to write. Writing for fun taught me how to write.

When I was in high school, I used to complain that the essays I was required to write were both boring and unhelpful, and I’d learn more by writing essays about whatever I wanted. But if my teachers had let students write whatever they wanted, I don’t think most of them would have gotten very far. I don’t think I would have gotten very far, either. There’s a big difference between

me: I have an idea! I will write about it!


teacher: Please have an idea and write about it.

me: What should I write about? I dunno, I guess I could write about X, I can probably force myself to come up with something to say about it.

Instead of writing something detached from ordinary life, like literary analysis, should high schoolers be taught to write something relevant, like emails?

In fact, I was taught how to write emails in high school (although that was only a small % of what we did), and the teaching was counterproductive. The way my teachers taught me to write emails was significantly wrong, and probably would have hindered my career if I had listened. (As a basic example, they said to always start an email with “Dear [name]”. Nobody starts emails that way in real life.) All the people with jobs who write emails somehow managed to un-learn the anti-lessons that they were taught.

But even if my teachers had taught me how to write emails correctly, it wouldn’t have mattered. If I have to slog through a purposeless assignment that I don’t care about, anything I learn from it doesn’t stick. I only learn from doing things if I’m doing them for a reason.

In conclusion, it’s impossible to force someone to learn good writing. They have to want to write.

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Existential Risk Reduction Is Naive (And That's a Good Thing)

I see many people criticize existential risk reduction as naive or arrogant. “What, you think you can save the world?”

I’m not going to dispute this. Yes, it’s naive and arrogant, and that’s a good thing.

There are countless movies about saving the world. Lots of people fantasize about saving the world (or, at least, my friends and I did when we were kids, and I still do). Ask any five-year-old child, and they can tell you that saving the world is awesome. But it takes a particularly subtle and clever mind to understand that actually, trying to save the world is a silly waste of time.

But actually, the five-year old was correct all along. Saving the world is, in fact, awesome! We should do it!

The mature, adult response is that you can’t save the world, and you should be content with contributing to society in your own small way. I could make some clever argument about scope sensitivity or universalist morality or something, but I don’t need to. You already know that saving the world is awesome. Everybody knows it, they’ve just forgotten.

Climate change is the only mainstream cause that at least has a plausible case for saving the world. And indeed some climate change activists think in those terms. Even though I believe it’s unlikely that mitigating climate change can save the world, it’s still admirable to try. I would like to see more people try. Ask yourself: What could destroy the world, and how do we stop that from happening?

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Altruistic Investors Care About Other Altruists' Portfolios

Confidence: Highly likely.

In some sense, altruists and traditional investors have the same investing goals—they want to own the portfolio with the best balance of return and risk. But self-interested people only care about their own portfolios. If you’re a philanthropist, you also care about other (value-aligned) philanthropists’ portfolios.

When the market goes up, you have more money, and you can donate more to charity. But other altruists also have more money, and they can donate more to charity, so your money isn’t as valuable. Conversely, when markets go down, you have less money to donate at the exact time when charities need funding the most.

That means you should not (necessarily) invest your money in the best overall portfolio. Instead, you should use your investments to move the pool of altruistic money in the direction of optimal.

An illustration:

Alice and Bob both donate to the Against Malaria Foundation (AMF). (For simplicity, let’s say they’re the only two donors.) AMF has diminishing marginal utility of money—once it distributes malaria nets in all the best places, the next round of nets won’t save quite as many lives. So Alice and Bob prefer to invest in a way that will earn good returns but without too much risk. Ideally, they’d both hold something like the total world stock market.

Bob lives in the United States, and he invests all his money in US stocks. Alice could simply buy the global stock portfolio, which is roughly 50% US stocks and 50% international stocks. But that would put their aggregate portfolio at 75% US stocks, 25% international stocks (assuming Alice and Bob have the same amount of money). So AMF is being funded by an investment portfolio that’s overweighted toward US stocks, which adds risk without any reward to compensate.

Alice can fix this by investing her entire portfolio in non-US stocks. Now the aggregate portfolio of AMF donors is 50% US stocks, 50% international stocks, just as it should be. It wouldn’t make sense for someone to hold 0% US stocks in their personal retirement portfolio, but this strategy works for Alice because she’s a philanthropist.

(Of course, Alice could also talk to Bob and persuade him to diversify his investments, which might be an even better idea!)

Now, I’m not trying to say that the global stock market is the best investment, or that Alice did the exact right thing in this scenario. This is just an illustration of a broader point: for an individual altruistic donor, the best investment portfolio on the margin might not be the same thing as the best overall portfolio. And altruists should pick the portfolio that’s best on the margin.

(I wrote this post to provide an easy reference for this concept. The concept is not original to me—I originally heard it from Paul Christiano’s Risk aversion and investment (for altruists).)

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Should Earners-to-Give Work at Startups Instead of Big Companies?


Confidence: Somewhat likely.

Cross-posted to the Effective Altruism Forum.

Effective altruist earners-to-give might be able to donate more money if, instead of working at big companies for high salaries, they work at startups and get paid in equity. Startups are riskier than big companies, but EAs care less about risk than most people.

Working at a startup is easier than starting one. It doesn’t pay as well, but based on my research, it looks like EA startup employees can earn more than big company employees in expectation.

Does the optimal EA investment portfolio include a significant allocation to startups? To answer that question, I estimated the expected return and risk of startups by adding up the following considerations:

  1. Find a baseline of startup performance by looking at historical data on VC firm returns.
  2. VC performance is somewhat persistent. EAs can beat the average by working at startups that the top VC firms invest in.
  3. Startup employees get worse equity terms than VCs, but they also don’t have to pay management fees, and they get meta-options. Overall, employees come out looking better than VCs.
  4. Current market conditions suggest that future performance will be worse than past performance.
  5. Startups are much riskier than publicly-traded stocks, and the startup market is moderately correlated with stocks (r=0.7).

All things considered, my best guess is that more earners-to-give should consider working at startups.

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Obvious Investing Facts

Last updated 2022-11-18.

Many investors, even professionals, are ignorant about obvious facts that they really should know. When I say a fact is “obvious”, what I mean is that you can easily observe it by looking at widely-available data using simple statistical tools.

A list of obvious but underappreciated facts:

Fact 1. A single large-cap stock is about 2x as volatile as the total stock market. A small-cap stock is about 4x as volatile. It’s common knowledge that individual stocks are risky, but most people don’t know how to quantify the risk, and I believe they tend to underestimate it. I wrote a whole essay about this because I think it’s the most important underappreciated investing fact.

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Future Funding/Talent/Capacity Constraints Matter, Too

Last updated 2021-10-20.

People who talk about talent/funding/capacity constraints mostly talk about what’s the biggest constraint right now. But it also matters what the constraints will be later.

Right now, the EA community holds a lot of wealth—more wealth than it can productively spend in the next few years, at least on smaller cause areas such as AI safety, cause prioritization research, and wild animal welfare. Those newer fields need time to scale up so they can absorb more funding.

That doesn’t mean EAs should stop earning to give. Maybe most EAs could do more good this year with their direct efforts than with their donations. But perhaps 10 years from now, the smaller causes will have scaled up a lot, and they’ll be able to deploy much more money. Earners-to-give can invest their money for a while, and then deploy it once top causes develop enough spending capacity.

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Low-Hanging (Monetary) Fruit for Wealthy EAs

Confidence: Likely.

Cross-posted to the Effective Altruism Forum.

Ordinary wealthy people don’t care as much about getting more money because they already have a lot of it. So we should expect to be able to find overlooked methods for rich people to get richer.1 Wealthy effective altruists might value their billionth dollar nearly as much as their first dollar, so they should seek out these overlooked methods.

If someone got rich doing X (where X = starting a startup, excelling at a high-paying profession, etc.), their best way of making money on the margin might not be to do more X. It might be to do something entirely different.

Some examples:

Sam Bankman-Fried increased his net worth by $10,000,000,000 in four years by founding FTX. He earned most of those zeroes by doing the hard work of starting a company, and there’s no shortcut around that. But, importantly, he managed to retain most of his original stake in FTX. For most founders, by the time their company is worth $10 billion or more, they only own maybe 10% of it. If Sam had given away a normal amount of equity to VCs, he might have only gotten $2 billion from FTX instead of $10 billion. In some sense, 80% of the money he earned from FTX came purely from retaining equity.2

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Do I Read My Own Citations?

It has often been said that scholars don’t read their own citations. Out of curiosity, I decided to go through one of my longer essays to see how many of my citations I read.

(I actually did this exercise a while ago, around the time I published the original essay. Today I was going through my personal journal and found my notes on the exercise, and I thought it might be worth sharing publicly.)

The results:

  • My essay cites a total of 37 academic papers.
  • For 9 citations, I read the entire thing top to bottom and took notes to help me remember.
  • For another 6 citations, I skimmed them but didn’t read carefully or take notes.
  • For the remaining 22, I only read the abstracts.
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Summaries Are Important

Every informative essay or research paper should include a summary at the beginning. Write your summary with the expectation that most readers will ONLY read the summary. The summary should tell most readers everything they need to know. The body of the article only exists to provide context and supporting evidence.

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