Backtesting for the Optimum HBPP Allocations

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Thomas Hoog
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Re: Backtesting for the Optimum HBPP Allocations

Post by Thomas Hoog » Tue Feb 26, 2013 9:34 am

You could plan your financial life with it. The changeover is rather smooth.

Age     Invest period           Style         Cash LT Bonds   Gold     Stocks
20 - 50 > 30 years           aggressive   10       30           20       40
50 - 70 10 / 30 years       equable         10       40           20       30
70 - ~ less then 10 years   relax           15       35           15       35

Age       Invest period     CAGR   StD   MAXDD   Sharpe   SharpeMDD
20 - 50 > 30 years           19%   57%   31%       2%           4%
50 - 70 10 / 30 years       23%   37%   32%       0%           7%
70 - ~ less then 10 years 35%   32%   19%       2%           1%
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rocketdog
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Re: Backtesting for the Optimum HBPP Allocations

Post by rocketdog » Tue Feb 26, 2013 9:59 am

Thomas Hoog wrote: Age       Invest period     CAGR   StD   MAXDD   Sharpe   SharpeMDD
20 - 50 > 30 years           19%   57%   31%       2%           4%
50 - 70 10 / 30 years       23%   37%   32%       0%           7%
70 - ~ less then 10 years 35%   32%   19%       2%           1%
That seems weird, that CAGR increases as you approach retirement.  Are you sure that's right?  I would want a high CAGR early in my life and more safety as I age. 

On a related note, I've decided that I'm going to put the same % of my investments into the PP as my current age.  Then each year when I rebalance, I'll add another 1% to one of my PP holdings, thus keeping my PP % equal to my age. 

That seems like a fair compromise to me, increasing my PP while simultaneously decreasing my VP as retirement approaches. 
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.
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Thomas Hoog
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Re: Backtesting for the Optimum HBPP Allocations

Post by Thomas Hoog » Wed Feb 27, 2013 6:44 am

sorry, misinterpretation
I have used your "rangorder", so 19 % CAGR means it belongs to the top 19% on CAGR. The actual CAGR is stated somewhere in earlier posts.
The objective is  a decrease in CAGR en increase in safety (in terms of StD en MAXDD).

Your strategy on  ratio VP and PP seems to me a bit weird. VP is some strange invention to satisfy your emotional behaviour. If your behaviour is related to your age, it make sense. But I doubt that.
For me, I don't use a VP. I really have no idea what the future brings.
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rocketdog
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Re: Backtesting for the Optimum HBPP Allocations

Post by rocketdog » Wed Feb 27, 2013 2:55 pm

Thomas Hoog wrote:Your strategy on  ratio VP and PP seems to me a bit weird. VP is some strange invention to satisfy your emotional behaviour. If your behaviour is related to your age, it make sense. But I doubt that.
For me, I don't use a VP. I really have no idea what the future brings.
Well, I consider the PP to be a somewhat conservative allocation portfolio.  I have a long investing time horizon, so I'm willing to take higher risks with some of my portfolio (the VP portion).  Since the longer the time horizon you have the more risk you can afford to take, it stands to reason that when I'm young my VP should be larger than my PP, and as I approach retirement I should shift funds from my VP to my PP. 

I'm not recommending that everyone do that, mind you.  It's just the approach I've come up with that fits my investing style.  If my PP repeatedly outperforms my VP over the next 5-10 years, I may reconsider this tactic and start shifting my VP funds into my PP at a faster rate. 
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.
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Kriegsspiel
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Re: Backtesting for the Optimum HBPP Allocations

Post by Kriegsspiel » Wed Feb 27, 2013 6:27 pm

I was thinking about skewing the ratios for whatever reason, but it hurt my brain too much.  I just "increased" the size of my non-PP holdings. 
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Re: Backtesting for the Optimum HBPP Allocations

Post by Reub » Fri Mar 01, 2013 4:29 pm

"On a related note, I've decided that I'm going to put the same % of my investments into the PP as my current age.  Then each year when I rebalance, I'll add another 1% to one of my PP holdings, thus keeping my PP % equal to my age."

I like that. Age in PP. The rest split in a Boglehead portfolio. That makes a lot of sense.
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rocketdog
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Re: Backtesting for the Optimum HBPP Allocations

Post by rocketdog » Sun Mar 03, 2013 4:39 pm

Reub wrote: "On a related note, I've decided that I'm going to put the same % of my investments into the PP as my current age.  Then each year when I rebalance, I'll add another 1% to one of my PP holdings, thus keeping my PP % equal to my age."

I like that. Age in PP. The rest split in a Boglehead portfolio. That makes a lot of sense.
That's pretty much my approach.  And I have absolutely no evidence that it will perform any better than a pure PP.  But it makes me feel like I'm hedging my bets, so I guess that counts for something (even if it's only illusory).
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.
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Re: Backtesting for the Optimum HBPP Allocations

Post by BearBones » Sun Mar 03, 2013 5:48 pm

Reub wrote: I like that. Age in PP. The rest split in a Boglehead portfolio. That makes a lot of sense.
Resonates with me too, since I'm nearing 100 (and yes, the longevity's from eating lard). Mind if I ask what's in your BH portfolio?
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rocketdog
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Re: Backtesting for the Optimum HBPP Allocations

Post by rocketdog » Mon Mar 04, 2013 11:36 am

BearBones wrote:
Reub wrote: I like that. Age in PP. The rest split in a Boglehead portfolio. That makes a lot of sense.
Resonates with me too, since I'm nearing 100 (and yes, the longevity's from eating lard). Mind if I ask what's in your BH portfolio?
Not sure if you're asking me or Reub (or maybe both)?  For me, I'm simply taking a little extra risk in my VP (or BH if you want to call it that).  I have some emerging markets bonds and stocks, some dividend and value stocks, some REITs, and some commodities.  All are in the form of ETFs.
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.
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rocketdog
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Re: Backtesting for the Optimum HBPP Allocations

Post by rocketdog » Wed Mar 06, 2013 12:45 pm

Reub wrote: "On a related note, I've decided that I'm going to put the same % of my investments into the PP as my current age.  Then each year when I rebalance, I'll add another 1% to one of my PP holdings, thus keeping my PP % equal to my age."

I like that. Age in PP. The rest split in a Boglehead portfolio. That makes a lot of sense.
I should add that I'm what many would consider "middle-aged", so it's very nearly an even 50/50 split for me between PP and VP.  If I were in my early 20s, I would probably put a somewhat larger percentage of my investments on the PP side (that is, larger than my age). 

For example, maybe a 25-year-old should consider putting more than 25% in their PP, in order to protect more of their savings.  They might even split it 50/50 until they hit 50 years old. at which point they could start keeping their PP equal to their age by shifting funds out of the VP each time they rebalance. 

These are just suggestions, so take them for what they're worth.
The whole aim of practical politics is to keep the populace alarmed (and hence clamorous to be led to safety) by menacing it with an endless series of hobgoblins, all of them imaginary.
- H. L. Mencken
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Re: Backtesting for the Optimum HBPP Allocations

Post by Grinners » Fri Mar 08, 2013 10:03 pm

First Post :)

I can't help but feel that the whole idea behind the Permanent Portfolio (and gyroscopic investing in general) would suggest that one should do exactly the opposite of what has best performed over the past 40 years.

IE: If the best allocation was 10, 10, 40, 40 then one for the next 40 years would likely do better investing 40, 40, 10, 10.

I am, of course, only referring to CAGR here.
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Re: Backtesting for the Optimum HBPP Allocations

Post by Grinners » Fri Mar 08, 2013 11:18 pm

For what it's worth, this below is my iteration of choice:

Index  Cash Bonds  Gold  Shares  CAGR
122145 33 0   33     34 9.0078 7.8794 22.89 0.4189
122146 33 0   34     33 9.0133 7.9359 22.69 0.4166


:) 50% allocation of 'fiat' or 'fiat' derivatives was far too high for my liking.

And locking myself in to long term paper (when the average fiat currency has a lifespan of <40 years was of no interest to me). So bonds were dropped and split amongst the other classes.

I acknowledge that my portfolio will hurt during ordinary deflation as compared to HBPP, but feel it will excel during chaotic deflation (currency collapse).

25% 4 ways of course was

102401 25 25 25 25 9.5689 6.8106 18.4 0.567
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