33,3 + 33,3 +33,3 = USPP

[frugal]

Dear friends,

Hope you are totally healthy and away from pandemic.

I would like to know your opinion about this transformation of portfolio in US-PP.

Having only:
1/3 GOLD
+
1/3 LTB
+
1/3 STOCKS

It is a new portfolio to me and I want to add NEW fresh money every year to it, so I don't think I need to have 1/4 of CASH.

Please let me know your comments.

Have a nice weekend!

[mathjak107]

The cash actually serves to damper the interest rate sensitivity in the long term bonds ...they make a barbel

[I Shrugged]

Dear friends,

Hope you are totally healthy and away from pandemic.

I would like to know your opinion about this transformation of portfolio in US-PP.

Having only:
1/3 GOLD
+
1/3 LTB
+
1/3 STOCKS

It is a new portfolio to me and I want to add NEW fresh money every year to it, so I don't think I need to have 1/4 of CASH.

Please let me know your comments.

Have a nice weekend!

I wonder if tight money is ever coming back. If it doesn’t, then you don’t need much cash in the PP.

[ppnewbie]

That allocation may be painful during times of prosperity. And LTB’s losses may outpace your gains if interest rates rise due to inflation. I’m curious on how it back tests.

Sorry read your post wrong - I thought it was .33 cash not stocks.

[ppnewbie]

You can plug this allocation Tyler’s site - portfoliocharts.com and get a good idea of how it is going to perform long term. Also portfoliovisualizer.com is good for backtesting. I did a quick check and it looks pretty good. There was a 17% drawdown but I think the lowest year was a -4 percent return. Not too bad.

[mathjak107]

Regardless of how it backtests , I would never want to increase long term treasuries as a percentage anymore then they are with rates this low and the fed saying they are in favor of inflation increasing more than it is..fighting the fed can be a poor idea

[frugal]

Hello PPeers,

in fact since I have EU-PP I added new savings for rebalancing.

Cash is there doing nothing, only a safe amount of money I believe.

Short term bonds in several years stayed the same.

Maybe I have to read again about PP to remember the importance of CASH. I work and my income is increasing so the new fresh money and savings are higher and I can make the rebalancing adjustments with that new money.

Please continue to clarify me.

Thank you.

Happy sunday!

[mathjak107]

If you had a 100 dollars in the bond / cash budget and put all 100 dollars in long term treasuries, your volatility in bonds and interest rate sensitivity is going to be very different than 50 in long term bonds and 50 in short term t-bills..

It is Not just about cash is there for safety ...the entire interest rate risk and volatility changes...you are making a far bigger bet on lower rates.

You are basically speculating a lot on lower rates with 100% of the bond budget in long term treasuries...not something I would do .

Especially fighting the fed who wants higher inflation and is okay with higher bond rates

[Kriegsspiel]

Cash is there doing nothing, only a safe amount of money I believe.

In addition to being half of a bond barbell, if you think about cash like, say, Warren Buffet, the current opportunity cost you are paying for that capital to sit on the bench is the cost to buy an option on an unspecified deal in the future.

[mathjak107]

As Buffett found out though waiting for that opportunity to actually happen can leave you behind had you not had that cash .

Berkshire lagged pretty far behind for the 2,000’s ...he made his claim to fame in the 1980’s and 1990’s

[EdwardjK]

frugal,

I think it is a good idea. With interest rates near zero, having 25% of your portfolio earning nothing is foolish. But I would not allocate evenly across the three remaining assets.

A while back I posted the results of a backtest using VTI, TLT, and GLD only, using an allocation methodology based upon the prior 63-days returns. The backtest started from 01/01/2006 to 12/31/2016. The results were superior to the standards HBPP. I updated it through there end of 2020 and the results are still superior.

Here is a link to my post:

viewtopic.php?t=8913

Let me know if you have any questions or would like to me to share my Excel file.

Ed

[Kbg]

It's a fine portfolio. Has the exact same Sharpe Ratio as the PP and gives you about 1.2% CAGR points a year more.

However, an even better portfolio is 50 stock and 25 each to LTTs and gold.

[frugal]

It's a fine portfolio. Has the exact same Sharpe Ratio as the PP and gives you about 1.2% CAGR points a year more.

However, an even better portfolio is 50 stock and 25 each to LTTs and gold.

Hi,

what about MAX. DD ?

[InsuranceGuy]

It's a fine portfolio. Has the exact same Sharpe Ratio as the PP and gives you about 1.2% CAGR points a year more.

However, an even better portfolio is 50 stock and 25 each to LTTs and gold.

Hi,

what about MAX. DD ?

1970-2020 results using 10% rebalance bands:

Base HBPP has 9.4% CAGR and -21.3% Max DD (daily)

33/33/33 has 10.3% CAGR and -25.3% Max DD (daily)
50/25/25 has 10.6% CAGR and -24.4% Max DD (daily)

[mathjak107]

all irrelevant for the most part ..... no one knows what we will see going foraward in this new normal

[InsuranceGuy]

all irrelevant for the most part ..... no one knows what we will see going foraward in this new normal

It is merely hyperbole to say historical data is all irrelevant. While the past may not perfectly predict the future, it is at a minimum likely to be representative of possible future outcomes.

Interestingly, while the 33/33/33 had it's max drawdown in the same time as the HBPP in 1980-1982 the 50/25/25 had it's max drawdown in 2008-2009.

[tomfoolery]

Dear friends,

Hope you are totally healthy and away from pandemic.

I would like to know your opinion about this transformation of portfolio in US-PP.

Having only:
1/3 GOLD
+
1/3 LTB
+
1/3 STOCKS

It is a new portfolio to me and I want to add NEW fresh money every year to it, so I don't think I need to have 1/4 of CASH.

Please let me know your comments.

Have a nice weekend!

Since Gold and LTB are currently both moving down in tandem with rising rates, and since we’re still at historically low rates, I’d be far more inclined to do:

1/3 cash
1/3 gold
1/3 stocks

Because if rates continue to rise, gold goes down but the cash goes up, and stocks don’t like high rates but the fed will only let rates rise as long as the stock market is doing good.

If rates fall, stocks will do great, due to cheaper money, gold will do fantastic due to inflation, and cash does nothing really.

If rates drop below zero then cash becomes a concern. And LTBs would protect against that since they would be doing gang busters if the 30 year drops to -1%

So maybe we do 4 way split of LTB, cash, gold, stocks. Not sure if anyone has thought of that before but it seems like it would protect against any scenario, whether it be rising rates, lowering rates, prosperity, depression.

25% of each part should do nicely.

[tomfoolery]

all irrelevant for the most part ..... no one knows what we will see going foraward in this new normal

This time will be different.

[mathjak107]

Portfolios are only related to the past if the economic outcomes relate to the past play out in the same manner ..so far where we are has not ever happened this way in modern investing times and yes the last 20 years or so has changed a lot .

In 2008 those in balanced portfolios like 60/40 who relied on past data were blown away by the drops they saw ..many never would have signed on for that kind of fall if they only knew the historical data was not going to pan out .

The insight growth and income model fell 38% .

So dwelling on draw downs and events in a world that is no longer the same really is just trying to make ones hope a bit better than reality may be today ....

The way markets react instantaneous , the fact gold has become main stream and easily traded through etfs and shorted , near zero rates , high frequency trading which is not based on economic principals create a world that did not work the same way today nor assets correlate the same under potentially the same economic outcomes

Which is why I can’t emphasize enough , all I care about is my own investing time frame and my rolling balance as days turn in to months and months turn in to years...if what I am doing is good it’s good and if it’s not then it’s not good ....each day is its own story and it’s own benchmark.

Further more what counts the most is markets when you have the most money being acted on ...the average return may look great , but if the biggest moves happened before you had full fuel tanks then meh ...

A mere 7% drop today represents more that a decade of maxing out my 401k at catch up ...in the early years that same drop may. Have been a few months worth .....however average returns are the same , drawdowns are the same but your outcome is going to be very different if the good times were early on and bad times later .

So looking in the rear view mirror while driving may not be much of a guide as we roll day to day and month to month into those years.

I am a show me kind of guy ..I don’t care what the past shows my returns should average or my draw downs should be ...I want to see in real time how things unfold as that invested balance rolls on daily with time

[Kbg]

Well that's the crux of it, isn't it? Too bad we can't see into the future. If we could all this would be easy.

So mathjak gets up in the morning and says today my allocation will be...what?

How about tomorrow and the next day and the XsubN days after that?

What do you base it on, a random number generator?

[mathjak107]

Well that's the crux of it, isn't it? Too bad we can't see into the future. If we could all this would be easy.

So mathjak gets up in the morning and says today my allocation will be...what?

How about tomorrow and the next day and the XsubN days after that?

What do you base it on, a random number generator?

I don’t know why you think I trade portfolios frequently ..I dont...the fact I traded Gld and tlt had nothing to do with the models I have used since 1987 ....

Yeah we may swap out one of 5 or 6 funds in a year in insight portfolios for a better choice but the portfolio stays the portfolio . This is the first time I ditched them for the pp. ...the pp just got money that wasn’t in those models and was ear marked for fun trading

The only reason I cut back on their growth model which I used for decades which is 100% equities and used their income model too is I retired and did not want 100% equities...so I used a mix ....but the insight portfolios have been a staple since I started investing in 1987 up until 2021 and they grew a lot of money for me ...far more than a total market fund or s&p fund would have


So your thinking is wrong ...so far in comparison I shot myself in the foot for making the change..but I will stay committed to my decions for now

[Kbg]

Sorry, my question was really, if not history what do you base your overall allocation on?

Perhaps I misread your earlier post.

[mathjak107]

Goals and needs determine what I do .so here is some history

I have always liked trading so trading is my fun and has nothing to do with my core . I always had an interest in the pp and fiddled with it but growth did not meet my goals as a sole portfolio ever .

So I have always used the fidelity insight news letter since 1987 ..... they had good , well matched portfolios that had very good performance so I stuck with them ....

I used the 100% equities growth portfolio right up to preretirement .....

Pre retirement I moved into their growth and income model ....

2008 showed us that investing has changed and the volatility of a 60/40 model proved a lot more volatile than history suggested as it was down 38% .

So I decided to bring that down a bit by using both it and the income model .

That tempered it nicely ...


So that made for a nice retirement mix .

Well here comes the big drop in March and the fact the growth and income model and income model had a few over lapping holdings , that drop made sense to me to Increase the income model , however season to taste with the 100% equity model to taste instead of a growth and income model


So the portfolio was about 2/3s income model and one third the growth model .

So just so you follow fidelity insight puts together a few different portfolios..they use 5 to 6 funds and as better choices make sense funds will be occasionally swapped . Usually once or twice in a year .

So they have a 100% equity growth model and 100% equity sector portfolio...they also have a 60-70% equity growth and income model and a 25% equity income model .

2020 had great returns and we are actually so far ahead of the day we retired despite spending down 6 figures a year to live for almost 6 years that I wanted to take some chips off the table end of this year .

So the thinking was to run with the pp as a sole portfolio ....but that turned out to be very poor timing as rates took off far more than anyone expected ...

In the mean time the models I left are up ytd while I am down about 100k in the pp since switching.. just looked 107k

[vincent_c]

Dear friends,

Hope you are totally healthy and away from pandemic.

I would like to know your opinion about this transformation of portfolio in US-PP.

Having only:
1/3 GOLD
+
1/3 LTB
+
1/3 STOCKS

It is a new portfolio to me and I want to add NEW fresh money every year to it, so I don't think I need to have 1/4 of CASH.

Please let me know your comments.

Have a nice weekend!

Since Gold and LTB are currently both moving down in tandem with rising rates, and since we’re still at historically low rates, I’d be far more inclined to do:

1/3 cash
1/3 gold
1/3 stocks

Because if rates continue to rise, gold goes down but the cash goes up, and stocks don’t like high rates but the fed will only let rates rise as long as the stock market is doing good.

If rates fall, stocks will do great, due to cheaper money, gold will do fantastic due to inflation, and cash does nothing really.

If rates drop below zero then cash becomes a concern. And LTBs would protect against that since they would be doing gang busters if the 30 year drops to -1%

So maybe we do 4 way split of LTB, cash, gold, stocks. Not sure if anyone has thought of that before but it seems like it would protect against any scenario, whether it be rising rates, lowering rates, prosperity, depression.

25% of each part should do nicely.

What do you do if short term interest rates go to -1% but 30 year yields rise?

[Kbg]

mj...gotcha, thanks for the reply.