Cortopassi wrote:
Ochotona,
Yes, please tell me what balance of assets will grow! And you should start your own fund if you know the answer...
In 2008, in my 40s, two girls at home, I seriously thought it was the end and bailed on everything, near the lows. Of course that was stupid, but I would imagine it was relatively typical -- my retired father couldn't deal with it and as well sold everything near the lows fearing the worst.
The time since then, up until 2014 I spent mostly in gold and miners. Another freaking stupid all eggs in one basket move and rollercoaster.
Go ahead and try to predict what you should and shouldn't be in, what percentage changes fit your style better, etc. My 25 years of trading experience tells me I always lose when I try that. If the PP doesn't get an annual rate of return as good as some other vehicles, that's fine with me. I certainly know it will get a better return than if I try to monkey with it or trade on my own. And it should be relatively immune to huge drawdowns that have scared me out at exactly the wrong times before.
Why you failed and had to recover through the use of the PP is very clear in your use of the words "predict" and "trading" above (and you are right, no one can really do that), and you didn't stick to a strategic plan when we all experienced the 2008 valley of death, and you overconcentrated risk in a single asset class at certain times (gold miners). I mean no disrespect, but these three types of mistakes are extremely common and well known and somewhat avoidable. Everyone learns by mistakes, but please don't call everything non-PP unsuitable. It's unsuitable for you.
I don't try to trade or really predict much, except with my 5% of my portfolio "mad money", but I am cognizant of the concept of a glidepath and age-appropriate asset allocations. There are many glidepath formulations out there,
but you have to pick one that you like a stick to it. Until I found PP, I was using a simple one, equity exposure = 120 - AGE, 10% cash, rest fixed income. 25% of equity non-US... pretty darned hot allocation at that. So then I learned that PP can give you quite good returns, much less volatility, which in my 50s starts to be important because I am planning for retirement, so sequence-of-returns risk comes to the forefront. So then, why be so hot in the allocation? It's much more risk for not a lot more return.
I was happy to convert ~60% of my retirement to PP, my global retirement allocation is now about 50% equity, so you could say that my glidepath formula changed from 120 - AGE to 105 - AGE, but with bigger slices of gold and cash than ever before. In another ten years... 100% PP, or very close to it. Age 70, no way will I not be 100% PP (except for Roths, below).
Why only ~60% PP now, not 100%? I did some scenario testing and worst-case 10 year rolling period CAGR thinking, and for me PP covers me in terms of living expenses until age 70, and if we have a bad event affecting the other portfolio, it will have "healed" by age 70 (15+ years from now), so there is a seamlessness to how the two parts hand-off. It's "buckets of money" thinking applied to PP vs. Conventional. But my family is very long-lived, either my wife or I are likely to reach age 100, so my total planning horizon reaches 45 years into the future. I don't think PP runs hot enough for that, which is why I'm ~40% Conventional at this time.
Also, we want to give our Roth IRAs to my heirs and my Church, so I never plan on eating those, their time horizon is when my kids are retired, which is a long time off considering one is still in High School, so our Roths can be "balls to the wall" risky, swing for the fences. My kids might live until the 2090s. Amazing to think of that.
Yes, I do run an investment fund... it's called my family. We have all kinds of assets, tax and other liabilities, insurance arrangements, present and future obligations. Not all of them have anything to do with PP, nor should they. They all interact in subtle ways that 99% of people don't understand, and PP is not the magic bullet to solve all the challenges we face. It's a tool, but you have to be educated, and have the right mindset most of all.