PP YTD performance - was it the worst ever?

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PP YTD performance - was it the worst ever?

Post by jason » Tue Sep 06, 2022 2:12 pm

I was just wondering if the performance of the PP year-to-date is the worst it has ever performed, or has it had a period(s) in the past where it actually performed worse? I've been doing the PP for 9 years and my returns are anemic. My CAGR is around 5%. Because I am retired and living off of my investments, I'm looking at the possibility of having to move into riskier investments or else having to slash my lifestyle/living expenses, which my wife probably will not want to tolerate. She'd rather take more risk than do that. Are many people here still optimistic about it bouncing back?
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Re: PP YTD performance - was it the worst ever?

Post by dockinGA » Tue Sep 06, 2022 2:35 pm

jason wrote:
Tue Sep 06, 2022 2:12 pm
I was just wondering if the performance of the PP year-to-date is the worst it has ever performed, or has it had a period(s) in the past where it actually performed worse? I've been doing the PP for 9 years and my returns are anemic. My CAGR is around 5%. Because I am retired and living off of my investments, I'm looking at the possibility of having to move into riskier investments or else having to slash my lifestyle/living expenses, which my wife probably will not want to tolerate. She'd rather take more risk than do that. Are many people here still optimistic about it bouncing back?
I'm not particularly optimistic on it 'bouncing back' (meaning that it suddenly bounces back to having stellar returns). But I'm also of the opinion that by the time the dust settles, there's a good chance that the PP ends up being the 'best looking horse in the glue factory' as someone recently put it.

Just this morning, I looked at what would happen if Shiller CAPE for the S&P 500 returned to 15, roughly historic norms. That would represent a further 50% drop from where we are now. That would also mean that, since January 1 2000, the S&P would've returned a paltry 1.3% annually, nominal, excluding dividends. Will that happen, probably not. But it seems like there's still the potential for lots more bad news to come in that could really hammer the markets further, so I can't say it's out of the realm of possibility. How would the PP fare in a scenario like that? Probably not great. But it probably wouldn't be the worst performer either.
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Re: PP YTD performance - was it the worst ever?

Post by Kbg » Tue Sep 06, 2022 2:48 pm

While interest rates are rising and the stock market is going down, doing nothing is likely a very good move. If one wanted to try their hand at timing moving LTTs to < 1 year treasuries or short term TIPS would probably be a move that wouldn't do too much damage and would likely to help IF rates continue to go up...but then you are predicting and market timing.

If things stabilize and begin to go up again...I'd definitely dump the gold to "catch up"

Doing nothing is good as well.
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Re: PP YTD performance - was it the worst ever?

Post by barrett » Wed Sep 07, 2022 5:43 am

Jason,

Many of us feel your pain. Back testing has its limitations but you really should run some different portfolios through portfoliovisualizer.com to get an idea of what different asset allocations have and have not done in the past. Maybe try comparing the PP to a 60/40 allocation. Because you are retired and living off your investments, though, I think a fairer comparison would be a 60/20/20 allocation with 20% in intermediate treasuries and 20% in short-term treasuries.

Anyway, on Portfolio Visualizer try different start dates and use the "adjusted for inflation" option. One of the things that is obvious when running different asset allocations is that pretty much every asset mix has done poorly so far in 2022. Obviously quickly rising rates (like we have now) are bad for both stocks and long duration bonds in the short term but we may just be going through something of a reset where 2022 is lousy but coming years are better.

There's nothing wrong with questioning the PP and making changes but doing so when most assets have already taken a hit might not be the best time.

Gold's performance has obviously been disappointing in 2022 because we've had high inflation and negative real interest rates. But the US$ being so strong seems to be the only thing that really matters (maybe).

Anyway, no real answers from me but as forum member Desert stated in a post not long ago, sometimes our investments get plastered and all we can really do it suck it up and deal with it. I'm paraphrasing what Desert wrote but there just haven't been a lot of great options in 2022.

And good luck with whatever you decide.
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Re: PP YTD performance - was it the worst ever?

Post by jason » Wed Sep 07, 2022 8:04 am

I think the one bright spot has been real estate. Low-end residential real estate such as apartment buildings tend to be somewhat recession-proof. At this point I’m regretting having not gotten into that. There are many passive investing options for this.
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Re: PP YTD performance - was it the worst ever?

Post by dockinGA » Wed Sep 07, 2022 8:37 am

Jason, if you don't mind me asking, what was your portfolio withdrawal rate expected to be when you retired?
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Re: PP YTD performance - was it the worst ever?

Post by jason » Wed Sep 07, 2022 8:49 am

dockinGA wrote:
Wed Sep 07, 2022 8:37 am
Jason, if you don't mind me asking, what was your portfolio withdrawal rate expected to be when you retired?
4% withdrawal rate. And that was tight - no real wiggle room. My PP is down 15%. It was a bit heavy on stocks and bonds and light on cash - I was overdue to rebalance. If I had rebalanced at the beginning of the year, which was where my portfolio peaked, I would be down 12% instead of 15%.
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Re: PP YTD performance - was it the worst ever?

Post by ozzy » Wed Sep 07, 2022 10:52 am

The PP is definitely having its worst draw-down since year 2008. But so is the 60/40 Boglehead portfolio. And so is just about every other portfolio. There's nowhere to hide.

This current era reminds me of the old saying "May you live in interesting times". ;)
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Re: PP YTD performance - was it the worst ever?

Post by jason » Wed Sep 07, 2022 10:57 am

ozzy wrote:
Wed Sep 07, 2022 10:52 am
The PP is definitely having its worst draw-down since year 2008. But so is the 60/40 Boglehead portfolio. And so is just about every other portfolio. There's nowhere to hide.

This current era reminds me of the old saying "May you live in interesting times". ;)
How much was the draw-down in 2008? Is there a list of the worst PP draw-downs ever?
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Re: PP YTD performance - was it the worst ever?

Post by barrett » Wed Sep 07, 2022 11:53 am

jason wrote:
Wed Sep 07, 2022 10:57 am
ozzy wrote:
Wed Sep 07, 2022 10:52 am
The PP is definitely having its worst draw-down since year 2008. But so is the 60/40 Boglehead portfolio. And so is just about every other portfolio. There's nowhere to hide.

This current era reminds me of the old saying "May you live in interesting times". ;)
How much was the draw-down in 2008? Is there a list of the worst PP draw-downs ever?
The draw down in 2008 was short lived because long bonds rallied so strongly. For the year the portfolio was flat. Did you try fiddling around with Portfolio Visualizer? You can also go to Tyler's amazing site here:

https://portfoliocharts.com/portfolio/p ... portfolio/

Just scroll down and look at the "Heat Map" for the PP. The column all the way to the left is the annual return. So down 13% for 1981 in REAL terms. I think that year was off about 6% nominally plus another 7% for inflation, give or take a bit. Tyler has gone to a lot of effort to present his data in inflation adjusted terms.
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Re: PP YTD performance - was it the worst ever?

Post by ozzy » Wed Sep 07, 2022 11:53 am

Here's the PV link to the vanilla PP Annual Returns going back to 1978. You'll see 2022 is the worst year (so far YTD). If you click on the "Drawdowns" tab, you'll see 2022 is the worst drawdown since 2008.

https://www.portfoliovisualizer.com/bac ... tion4_1=25
Last edited by ozzy on Thu Sep 08, 2022 2:27 pm, edited 1 time in total.
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Re: PP YTD performance - was it the worst ever?

Post by jason » Wed Sep 07, 2022 1:50 pm

Thanks! I can see that 2008 was a little bit worse. There were also some bad draw-downs in the early 80s. Gives me hope!
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Re: PP YTD performance - was it the worst ever?

Post by seajay » Fri Sep 09, 2022 4:23 am

Nominal drawdowns are misleading. Adjusting for inflation and relative to the end of 2020 the PP as of end of August 2022 was down deeper than -20% real (after inflation). And of course deeper if you're also drawing a income.

British PP, yearly granularity of drawdowns

Image

Image

Some deep and extended-downs in real terms historically, but where it preserved your money i.e. 3.33% 30 year SWR 'return of money' success rate, and more often leaving a reasonable inflation adjusted residual amount after having 'returned your (inflation adjusted) money'
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Re: PP YTD performance - was it the worst ever?

Post by seajay » Fri Sep 09, 2022 9:25 am

Digging out some data involved limited TLT history availability so I opted to use a monthly continual rolling 10 year ladder (not marked to market) instead of a STT/LTT barbell for pre 2003 data

On that measure the recent dip isn't as deep as the deepest dip since 1972, but is getting close.

Image

More critical to those in drawdown is the duration of the dip, a extended deep dip combined with withdrawals - isn't good. Prolonged declines deeper than perhaps 15% being 'worrying'. In that regard the PP was good (deeper than -15% real down were brief in duration).
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Re: PP YTD performance - was it the worst ever?

Post by jason » Fri Sep 09, 2022 10:44 am

Thanks! Let's hope this ends up being a short one (bounces back soon). When is gold going to come to the rescue?!?
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Re: PP YTD performance - was it the worst ever?

Post by johnnywitt » Fri Sep 09, 2022 6:44 pm

jason wrote:
Tue Sep 06, 2022 2:12 pm
I was just wondering if the performance of the PP year-to-date is the worst it has ever performed, or has it had a period(s) in the past where it actually performed worse? I've been doing the PP for 9 years and my returns are anemic. My CAGR is around 5%. Because I am retired and living off of my investments, I'm looking at the possibility of having to move into riskier investments or else having to slash my lifestyle/living expenses, which my wife probably will not want to tolerate. She'd rather take more risk than do that. Are many people here still optimistic about it bouncing back?
Harry Browne's LONG TERM INVESTING STRATEGY.
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Re: PP YTD performance - was it the worst ever?

Post by johnnywitt » Fri Sep 09, 2022 6:50 pm

barrett wrote:
Wed Sep 07, 2022 5:43 am
Jason,

Many of us feel your pain. Back testing has its limitations but you really should run some different portfolios through portfoliovisualizer.com to get an idea of what different asset allocations have and have not done in the past. Maybe try comparing the PP to a 60/40 allocation. Because you are retired and living off your investments, though, I think a fairer comparison would be a 60/20/20 allocation with 20% in intermediate treasuries and 20% in short-term treasuries.

Anyway, on Portfolio Visualizer try different start dates and use the "adjusted for inflation" option. One of the things that is obvious when running different asset allocations is that pretty much every asset mix has done poorly so far in 2022. Obviously quickly rising rates (like we have now) are bad for both stocks and long duration bonds in the short term but we may just be going through something of a reset where 2022 is lousy but coming years are better.

There's nothing wrong with questioning the PP and making changes but doing so when most assets have already taken a hit might not be the best time.

Gold's performance has obviously been disappointing in 2022 because we've had high inflation and negative real interest rates. But the US$ being so strong seems to be the only thing that really matters (maybe).

Anyway, no real answers from me but as forum member Desert stated in a post not long ago, sometimes our investments get plastered and all we can really do it suck it up and deal with it. I'm paraphrasing what Desert wrote but there just haven't been a lot of great options in 2022.

And good luck with whatever you decide.
And F#CKING BITCOIN. I think that a lot of money that would've gone into GOLD went into BITCOIN instead. I also think that is why the .gov has let this BITCOIN thing run as far as they have. They've done everything to stifle GOLD. I believe it will still have it's time to 'shine'. We'll see.
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Re: PP YTD performance - was it the worst ever?

Post by seajay » Sat Sep 10, 2022 5:41 am

Looks like marginally worse than YTD October 2008
PV

Code: Select all

3 Month	Year To Date	1 year	3 year	5 year	10 year	Full	3 year	5 year
-11.30%	-11.11%	-10.04%	5.19%	5.91%	5.48%	8.55%	7.50%	6.53%
Trailing return and volatility are as of last full calendar month ending October 2008
PV

Code: Select all

3 Month	Year To Date	1 year	3 year	5 year	10 year	Full	3 year	5 year
-3.33%	-11.50%	-10.30%	2.60%	4.48%	3.95%	7.92%	7.79%	6.90%
Trailing return and volatility are as of last full calendar month ending August 2022
By year end 2008 the PP was up +0.74%
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Re: PP YTD performance - was it the worst ever?

Post by seajay » Sat Sep 10, 2022 6:54 am

johnnywitt wrote:
Fri Sep 09, 2022 6:44 pm
jason wrote:
Tue Sep 06, 2022 2:12 pm
I was just wondering if the performance of the PP year-to-date is the worst it has ever performed, or has it had a period(s) in the past where it actually performed worse? I've been doing the PP for 9 years and my returns are anemic. My CAGR is around 5%. Because I am retired and living off of my investments, I'm looking at the possibility of having to move into riskier investments or else having to slash my lifestyle/living expenses, which my wife probably will not want to tolerate. She'd rather take more risk than do that. Are many people here still optimistic about it bouncing back?
Harry Browne's LONG TERM INVESTING STRATEGY.
British (UK) Permanent Portfolio data since start of 1896 to end of 2021, calendar yearly granularity. Hard PP (cash in T-Bills, UK stock index, gold, 20 year treasury), with the exception of pre 1932 where it was assumed T-Bills were held instead of gold - when gold/money were convertible at a fixed rate it made more sense to hold T-Bills for their interest - as that was like the state paying you for it to securely store your gold. That convertibility ended in 1931 (US followed that lead in 1933), after gold reserves were running low due to mass conversion of money into gold. Unlike the US, UK investors could still trade gold since then.

Looking at 'risk' from a perspective of return OF money : 3% SWR i.e. 3% of the start date portfolio value drawn at the start, and where a inflation adjusted identical amount is drawn at the start of subsequent years, and for 30 year timeframes (so 90% of your inflation adjusted capital returned in instalments over 30 years), and at the end of those 30 years there was just one case (1937 start of WW1) where there was nothing left - you only got back 90% of your (inflation adjusted) money.

In other cases, in inflation adjusted terms, at the end of 30 years (these figures include that 1937 start year) ...

3% SWR. 100% success rate
6% chance < 10% of the inflation adjusted start date portfolio value left at the end of 30 years
60% chance of more than 50% left
42% chance of having the same or more
7% chance > 200% left
Median case 81% left (average 89%)

So a relatively low 6% chance of not getting all your money back, but nearly all of it.

In the median (indicator of the most common) case after 30 years of 3% (so 90% of your money back) you ended with a portfolio value of 81% of the inflation adjusted start date portfolio value.

Pretty good odds (low LONGER TERM risk)

And a reasonably comfortable ride along the way. Few years ended in negative nominal and when they did occur they were relatively mild down-years
Image
But within that, finer granularity than yearly, and there were times of deeper down's, which are only troubling if you watch the portfolio value every minute/hour/day/week/month.

The UK over those years was a more mid-stream/average case, pretty much reflective of 'global'. Excepting the earlier part (WW1) when it transitioned from being the primary reserve currency, handing that over to the US. The US was more of a right-tail good/great case outcome, such that its PP would reflect above average outcomes. There would be other cases with bad case outcomes, Germany, Russia ...etc. As ever, there are no guarantees. No guaranteed 'better' alternatives. If for instance you applied the same 3% SWR to T-Bills then for a 1935 start date year you'd have had no money remaining after 21 years, you got back just 63% of your money. If you started in 1973 with all stock and seen 9.2% inflation -28% stock total return decline that year, followed by 16% inflation in 1974 when stocks declined -50%, I suspect you'd be kicking yourself for having gone for 'ending with a higher amount remaining at the end' objective/target, and like as many did in those years capitulated to 'save what little remained'.

Fundamentally a PP is a reasonably safe choice for "money you can't afford to lose" (over the longer (30 year) term) as Harry put it, but where that's not 100% true in all-cases, more of a guideline than a rule. Where any surplus capital above and beyond that might be invested in more speculative ventures (Variable Portfolio). Should you adjust the PP because 20 year treasury yields are low/negative-real, or when stock PE's are at extreme highs, or the Dow/Gold ratio is down at 1.0 type levels? Generally no, as that otherwise then becomes a Variable Portfolio, you're timing the market - which may add to rewards, might detract from rewards. Overall you'll deviate either side of the PP's line in a random manner. Even when PE's are extreme highs they could go higher, even at low Dow/Gold ratio they could go lower, even at low 20 year treasury yields they could go lower. The market generally levels prices to reflect 50/50 odds of either gains/losses, or soon revises prices towards those odds as/when such 'better odds' appear.

The biggest risk with the PP as I see it is that of regret at the end of 30 years when you might look back and see how much more you might have had at that time if only you'd gone with 100% stock. But that involves having taken on more risk that you might have endured the 1974/75 type example case outcome above. And for many the size of the final pot value may not even be a issue, especially for those that don't live another 30 years. Large wealth left as a legacy is often just wasted away such that having taken on additional personal risk resulted in little overall actual reward/benefit to you, or others.
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Re: PP YTD performance - was it the worst ever?

Post by dockinGA » Sat Sep 10, 2022 7:33 am

seajay wrote:
Sat Sep 10, 2022 6:54 am

British (UK) Permanent Portfolio data since start of 1896 to end of 2021, calendar yearly granularity. Hard PP (cash in T-Bills, UK stock index, gold, 20 year treasury), with the exception of pre 1932 where it was assumed T-Bills were held instead of gold - when gold/money were convertible at a fixed rate it made more sense to hold T-Bills for their interest - as that was like the state paying you for it to securely store your gold. That convertibility ended in 1931 (US followed that lead in 1933), after gold reserves were running low due to mass conversion of money into gold. Unlike the US, UK investors could still trade gold since then.

In this case, with 20 year treasuries instead of 30 year treasuries available in the US, should the percentage of LTT's be dialed up and T-bills dialed down to account for duration differences? Would this help increase the return of the overall portfolio for UK historical?
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Re: PP YTD performance - was it the worst ever?

Post by johnnywitt » Sat Sep 10, 2022 2:43 pm

No Portfolio is perfect, but for me, having a disciplined mechanistic investment strategy for my Core Retirement Funds that is automatic (15/35) bands works better than most other portfolio strategies. I'm a big gambler otherwise. Looks like I just lost my ass by owning Russian Equities, but my HBPP is still there! A decade, or so, ago, I lost my ass on BTU stock betting on Coal. So, for me, having a PP is a much needed safety net. Maybe I need to change my username to something with Wallenda in it. ;D
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Re: PP YTD performance - was it the worst ever?

Post by Kevin K. » Thu Sep 15, 2022 9:38 am

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Re: PP YTD performance - was it the worst ever?

Post by jason » Thu Sep 15, 2022 9:51 am

Kevin K. wrote:
Thu Sep 15, 2022 9:38 am
If it's any consolation:

https://portfolioslab.com/lazy-portfolios
Makes me feel better until I look at the 10 year returns, where the PP is third to last :(
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Re: PP YTD performance - was it the worst ever?

Post by Kbg » Thu Sep 15, 2022 10:52 am

jason wrote:
Thu Sep 15, 2022 9:51 am
Kevin K. wrote:
Thu Sep 15, 2022 9:38 am
If it's any consolation:

https://portfolioslab.com/lazy-portfolios
Makes me feel better until I look at the 10 year returns, where the PP is third to last :(
There should be no surprise there if you did your homework before investing. Things "may" equalize if the bear stock market is bad enough but it will be temporary. The PP is stereotypical of any portfolio...you get better performance or better stability, you don't get both.
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Re: PP YTD performance - was it the worst ever?

Post by dockinGA » Thu Sep 15, 2022 10:53 am

jason wrote:
Thu Sep 15, 2022 9:51 am
Kevin K. wrote:
Thu Sep 15, 2022 9:38 am
If it's any consolation:

https://portfolioslab.com/lazy-portfolios
Makes me feel better until I look at the 10 year returns, where the PP is third to last :(
There's still a long way to go in this saga. Everyone needs to be patient. Otherwise, it's a recipe for personal mental anguish of the sort budd gets himself into on a daily basis. Posting fretful comments about a portfolio he bashes constantly and claims to not even be invested in. Sounds like a truly miserable excuse for a human being to me.
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