Interesting comparison (of pp) to 60/40

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mathjak107
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Interesting comparison (of pp) to 60/40

Post by mathjak107 » Sun Jan 22, 2023 3:34 am

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Re: Interesting comparison (of pp) to 60/40

Post by seajay » Tue Jan 24, 2023 11:52 am

Money used to be gold/silver, coins worth their weight. The British Pound was originally (in the 700's) a Saxon pound weight of silver. Nowadays not even copper penny coins are copper any more, but instead are copper plated steel. Prior to 1931 UK, 1933 US and 'investors' were more often content to lend their money (gold/silver coins) to the King/State in return for interest, as inflation tended to broadly average 0% (finite gold/silver) and interest was like a real rate of return. That all ended in the 1930's, fiat money was born, where the US agreed internationally for others to adopt the USD instead of gold, on the promise that it would peg the USD to gold. But as with all fiat currencies the urge to print/spend new notes occurred and since the 1930's we've predominately seen just inflation (devaluation).

The PP prior to the 1930's might be considered as fundamentally a 25/75 stock/bond asset allocation, was daft to hold gold/money when you could earn interest. With the ending of gold/silver as money, holding some gold made sense, so the PP might be considered as having evolved into 25/50/25 stock/bond/gold.

Nowadays the state no longer needs to borrow, it can simply print/spend money. Even banks are no longer bothered with matching lenders/borrowers as they also can just create money (when you borrow from a bank, they just create the money, when you deposit with a bank they consider it as their money plus a IOU). So much so that the state and banks are less inclined to even seek out lenders anymore, are quite content to inflate/tax such lenders to negative real yield levels (inflation is just another form of taxation).

Benjamin Graham suggested 25/75 through 75/25 stock/bonds, no less than 25% stock, no more than 75%, advising that most would be content with 50/50. In the bad cases of 30 year SWR there's little difference between 25% stock or 50% or 75% stock, mostly the lower stock just reduces shorter term (1 year) volatility, but also tends to end 30 years with less than stock-heavier weightings.

This is data for the UK, yearly nominal gains (left/blue scale), accumulation real gains (right/red scale) for 25% stock and 75% interest (short term interest rate) up to 1931, and with 25% gold added in from 1932

Image

With a 3% 30 year SWR the tendency was to end 30 years with around 50% or more of the inflation adjusted start date portfolio value still remaining. Scale that up to 50/50 and the tendency was to end with 100% or more (based on 25/75 stock/interest to 1931, 25/50/25 stock/interest/gold from 1932 for the PP-like, and 50/50 stock/interest to 1931, stock/gold from 1932 for the more aggressive 50/50 comparison).

Fundamentally you might say the PP is a 25/75 type choice. Will tend to sustain a OK SWR, whilst tending to endure low yearly volatility, but is inclined to leave less at the end of 30 years than other 'more aggressive' asset allocations.

Thanks for that link mathjak107, but history since 2007 is quite short, and its a 25/75 versus 60/40 type comparison, so its only reasonable to assume that the PP would have a better ulcer index, lower yearly volatility, lower drawdowns ...etc. A more like for like comparison might be to compare the PP against the likes of a Larry Portfolio type choice of 25/75 SCV/bonds PV that since 1972 (I used 50% in 10 year treasury instead of a STT/LTT barbell in order to get the PV data to extend back further) were broadly similar in overall risk/reward.

That said, the PP with some gold incorporates potential optionality benefits/rewards, the option to move all of gold into stocks at times. If you start with 50/50 stock/gold and stocks halve to 25, gold doubles to 100 then moving gold into stocks at that time buys 4 times more stock shares than what you already hold, and where after such stock declines the tendency is that stocks are inclined to yield above average subsequent rewards. The factors that drive such deep stock declines are typically a faltering currency or loss of faith in the currency, when inflation and interest rates rise, and investors flock to gold for safety. All fiat currencies falter at times as policy makers strive to balance things but periodically make bad decisions, often due to political pressures. The prospects of such a deep-down stock event during a typical 60 year individual investors investment lifetime are quite high (30 years of accumulation, 30 years of drawdown). But that does require patience, and the character to buy stocks at times when they are deeply down and fear is high - many/most fail in such decisions, are more often inclined to be selling stocks rather than buying more during/after such declines.
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Re: Interesting comparison (of pp) to 60/40

Post by mathjak107 » Tue Jan 24, 2023 3:42 pm

As a retiree I no longer care about history …

All that matters is what happens during my time frame while drawing my income .


So far I am retired 7-1/2 years , drawing 6 figures a year at about a 4% draw and even today I am higher than I was the day I retired .

But I didn’t do it on the pp
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Re: Interesting comparison (of pp) to 60/40

Post by johnnywitt » Thu Feb 02, 2023 2:21 pm

mathjak107 wrote:
Tue Jan 24, 2023 3:42 pm
As a retiree I no longer care about history …

All that matters is what happens during my time frame while drawing my income .


So far I am retired 7-1/2 years , drawing 6 figures a year at about a 4% draw and even today I am higher than I was the day I retired .

But I didn’t do it on the pp
That's pretty impressive Dude! What was your Portfolio and what was the contribution rate?
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Re: Interesting comparison (of pp) to 60/40

Post by mathjak107 » Fri Feb 03, 2023 2:40 am

I used a mix of 3 fidelity insight portfolios ….they averaged about 40% equities …each portfolio was optimized for a certain time frame .

Meaning shorter term money used a 25% equity model , a growth and income model for intermediate term money used 60 to 65% equines and 35-40 % bonds and a long term 100% equity model
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Re: Interesting comparison (of pp) to 60/40

Post by johnnywitt » Sun Feb 05, 2023 4:59 pm

mathjak107 wrote:
Fri Feb 03, 2023 2:40 am
I used a mix of 3 fidelity insight portfolios ….they averaged about 40% equities …each portfolio was optimized for a certain time frame .

Meaning shorter term money used a 25% equity model , a growth and income model for intermediate term money used 60 to 65% equines and 35-40 % bonds and a long term 100% equity model
Cool! I run 3 portfolios as well. HBPP is my Core Portfolio in my IRA.
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Re: Interesting comparison (of pp) to 60/40

Post by mathjak107 » Mon Feb 06, 2023 2:47 am

Although at the end of the day it is all one big portfolio I find it easier to track and optimize by time frame
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Re: Interesting comparison (of pp) to 60/40

Post by johnnywitt » Tue Feb 07, 2023 4:55 pm

mathjak107 wrote:
Mon Feb 06, 2023 2:47 am
Although at the end of the day it is all one big portfolio I find it easier to track and optimize by time frame
Yeah, its all really one big portfolio in the end.
I run my Wife's TSP & my VP and also my Son's Coverdells with all having different objectives and timeframe expectations.
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