Suppose you have 1 million yuan in capital at the beginning. First, look at the return. When the return reaches 100%, the assets will jump to 2 million yuan. But if you lose 50% next, the assets will instantly return to the starting point of 1 million yuan. Obviously, losing 50% is much easier than earning 100%.
Looking at the fluctuation, if there is 1 million yuan, the assets will become 1.1 million yuan after a 10% increase on the first day, but the assets will only be 990,000 yuan after a 10% decrease on the second day, and vice versa. This clearly shows that the fluctuation is not a simple linear relationship.
Speaking of volatility, taking 1 million yuan as an example, you make 40% in the first year and lose 20% in the second year, and so on. After six years, the remaining assets are 1.405 million yuan. The annualized rate of return over six years is only 5.83%, which is even lower than the face value interest rate of 5-year bearer treasury bonds. It can be seen that the impact of volatility on long-term returns cannot be underestimated.
Regarding the 1% daily return, if you have 1 million yuan, and you leave the market after earning 1% every day, then after 250 days, your assets will reach 12.032 million yuan, and after 500 days, your assets will reach 145 million yuan. But this is undoubtedly an ideal state.
If you pursue a 200% return every year, starting with 1 million yuan, and achieve such a high rate of return for 5 consecutive years, your assets will reach 243 million yuan after 5 years. However, such high returns are often difficult to sustain.
For the goal of increasing 10 times in ten years, if you have 1 million yuan and hope to reach 10 million yuan in ten years, 100 million yuan in twenty years, and 1 billion yuan in thirty years, then the annualized rate of return must reach 25.89%.
In terms of covering a position, assuming that you buy 10,000 yuan of a certain currency at 10 yuan, and then buy another 10,000 yuan when it drops to 5 yuan. At this time, the cost of holding the currency is not 7.5 yuan as imagined, but can be reduced to 6.67 yuan.
Regarding holding costs, if you have 1 million yuan and invest in a certain currency and make a profit of 10%, when you decide to sell, if you leave chips worth 100,000 yuan, the holding cost will be zero, and you can hold it for a long time without any pressure. If you are extremely optimistic about this currency and leave chips worth 200,000 yuan, the profit will increase from 10% to 100%, but you can't get carried away, because if the currency falls by 50% later, you may still lose money.
In terms of asset portfolio, there are risk-free asset A (annualized return of 5%) and risky asset B (return between -20% and 40%). If you have 1 million yuan and invest 800,000 yuan in risk-free asset A and 200,000 yuan in risky asset B, then the worst return for the whole year is zero, and the best return may be 12%. This is the prototype of CPPI technology applied to capital preservation funds.
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