Cool Chart Commentary

General Discussion on the Permanent Portfolio Strategy

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bedraggled
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Cool Chart Commentary

Post by bedraggled » Sun Jun 28, 2015 3:15 pm

Pug,

That chart is excellent!

Thanks.
Pet Hog
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Re: Cool Chart Commentary

Post by Pet Hog » Tue Jun 30, 2015 2:37 pm

D1984 wrote:
Tyler wrote: Another favorite of mine is from Ryan Melvey (melveyr). 

Image
More info here: http://tinyurl.com/otuojkc
Good chart but it looks like it ends in 2011...any chance of an updated version out to 2014 or (so far) 2015? I know the last few years haven't been exactly stunning for the PP and I wanted to see if it was still at the trendline or below it.
No chart, but some quick calculations.

From peaktotrough.com:
PP (35/15, div reinvested) started 1/1/1971, ending 6/30/2015 (44.52 years): CAGR = 9.16%
PP (rebalance annually, div reinvested), same dates: CAGR = 8.91%

From bls.gov:
CPI December 1970: 39.8
CPI May 2015: 237.805
CAGR over 44.52 years = 4.10%

Subtracting for inflation gives PP (35/15) a real CAGR of 5.06% and PP (annual) a real CAGR of 4.81%. So, still above the line for either portfolio strategy.
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Tyler
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Re: Cool Chart Commentary

Post by Tyler » Tue Jun 30, 2015 3:13 pm

Thanks for the info, Pet Hog.  Still waiting to see your own awesome work here.  ;)

BTW, one of my favorite things about RickB's heat maps is how they help dispense of the perception that just adding bonds to stocks substantially changes the portfolio performance.  It dulls the highs and lows a bit, but the overall pattern is virtually identical.
Last edited by Tyler on Wed Dec 09, 2015 7:44 pm, edited 1 time in total.
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mathjak107
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Re: Cool Chart Commentary

Post by mathjak107 » Sat Jul 18, 2015 2:36 am

Pointedstick wrote: [cross-posted from http://gyroscopicinvesting.com/forum/pe ... #msg124921]

Most other portfolios inflate their returns by not having any cash, but in real life nobody holds no cash; they simply don't count it as part of their investment portfolio. As a result, their investment portfolios are a smaller percentage of their net worth than a PP investor would have. So an apples-to-apples comparison of two people with identical net worths, one in the PP, and the other not, would either show that the PP person should have a higher amount of their money in the portfolio, or that the other portfolio should include all that cash off to the side.

25% of total net worth being cash works out to 6.25 years living expenses, which is pretty reasonable. If we modify many conventional portfolios to have that much cash, the actual returns on the total portfolio value become much more comparable to the PP. For example, here's a standard 60/40 portfolio that's been modified to be 25% cash 75% 60/40. In other words, 25% cash, 45% stocks, 30% total bond market. PP in blue, other portfolio in red:

[img width=600]http://i.imgur.com/9mNlCGa.png[/img]

The PP wins!

So no, you don't need a separate cash emergency fund if you invest with the PP.
to be honest i have rarely seen many people running conventional portfolio's that would tie up 25% in cash  even in retirement . we keep a big cash position for our retirement model , 262k  which represents 2 years withdrawals plus a 50k emergency fund and it is 13%.  regardless of the amount the percentages most use stay in the range .

if i was collecting ss early it would be even less of a percentage.

if you visit the early retirement forum , one of the most popular forums around the median is 1-3 years .  success rates are not effected by spending down from a conventional mix of equity and bonds even with zero cash .

withdrawal wise how much cash you keep is a comfort thing not a necessity  as even spending down directly from 100% equity's has over a 90% success rate.

it makes little sense to deflate a conventional mix with 25% cash in your example as  in practice  that would just be an inefficient plan  or an ultra conservative un-typical  plan ..

the reason conventional plans do not need as much cash as the pp is conventional investing uses much higher equity positions so gains in the up cycles are much greater and they cushion the spending down of assets at a loss in the down years.

research by  pfau , kitces and blanchett all came to the same conclusion , short of getting hit very bad the first few years of retirement ( which has happened only once in 111 rolling 30 year periods )  cash buffers do not add much value financially only mentally .

the pp never develops that extra cushion in most up cycles so its strategy counts on cash to fill the gaps . it is a strategy that works well by design but one that is unique to the pp.

i could lose 50% today , 27 years later  and still be a head of the pp and that is with the below average returns the  last 15 years making up for the first 15 years  which were good .  that brings the long term average back down to just the normal range .

interesting comparison but not a financially accurate one  as it would be a  comparison of  a working strategy by design (the pp)  against an investor mistake in planning out a portfolio or an exceptionally conservative one  . 


in fact by using a single premium immediate annuity ( spia )  even less cash is needed  increasing success rates by a wide margin.

want even more guarantees with your conventional investing , spia's and permanent life insurance with  more aggressive portfolio's  have blown the doors off the typical buy term and invest almost 70% of every time frame run leaving both a higher amount of money  for heirs and a higher income.

today more and more complex numbers crunching and research is showing successful retirement planning can be a whole lot more than just put together the pp or a conventional mix and have a nice life .
investing times have been anything but conventional and that may call for unconventional insurance products in all cases to help out .

today each one of us needs a strategy unique to us. many good planners today are running complex calculations doing age banding.

meaning allowing much higher withdrawals earlier in life and less as you age or in fact tailor it to your own life's events.  maybe  college for grand kids or weddings for them are off in the future and you want to incorporate that spending in the plan.

running simple charts may give you a ball park on sustainability historically but they mean little as far as an actual road map for a lifetime of spending dynamically and most important the GUARANTEE'S YOU MAY WANT and neither conventional portfolio's or the pp can do that alone  .


that takes a combo of different insurance products plus your own investing to carry out.

yes you can have growth and comfort if you balance things right without hiding under a rock.

no one ever said do it yourself investing is going to be easy . it  requires just as much skill and knowledge  as any other skilled profession and simple answers to such complex issues are usually the wrong answers..


go to any retirement forum and you can witness the mistakes first hand as amatuers make decisons based on believing their own bull-sh%t , whether it is portfolio planning or when to take ss and all the ramifications that go with it .

and nooooo i don't work in the field nor have i ever .  i am just open to learning and follow a lot of the new  research on the subject .
Last edited by mathjak107 on Sat Jul 18, 2015 5:37 am, edited 1 time in total.
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Re: Cool Chart Commentary

Post by barrett » Sat Jul 18, 2015 8:14 am

PS is correct that some percentage of cash should be added into the 60/40 calculations. Mathjak, you are clearly an aggressive investor and even you are at 13% (albeit almost retired as well). I think the main point PS is making is that, in the real world, people hold a bunch of cash for living expenses. That should be factored into figuring the overall return on your money. We can obviously debate percentages forever.

Also, these last two posts (mine included) should be moved to another thread. Thanks in advance.
Last edited by barrett on Wed Dec 09, 2015 8:53 pm, edited 1 time in total.
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mathjak107
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Re: Cool Chart Commentary

Post by mathjak107 » Sat Jul 18, 2015 8:51 am

folks hold different amount of cash for different purposes at different times. our monthly spending cash diminishes by the month so that 13% percentage  decreases constantly over the year like most who pay bills . . we have emergency cash as well.

by years end before we refill we may be down to 1 year and an emergency fund.

even a bucket sytem will run lower and lower cash levels before hitting a refill point . you can be  age 80 and 80% equity's before refilling depending how big your buffers are  and what your refill points are ..

cash is always changing since  if you are working different amounts come in and go out at different times. certainly nothing you can count on measuring  as if it was a permanent  part of a portfolio that was re balanced and maintained ..

if you frequent the popular retirement forums you will find very few exceed 3 years withdrawals at the start of each year  and most use 2 and from that point it diminishes daily as spent over the year  . . that is how we arrived at 2  years , we looked at what most folks were doing who were well versed in retirement planning . .

folks who use  40/60 ,50/50 or  60/40 etc are not aggressive investors and those are far from aggressive mixes for sure,.

the are standard allocations used  for conservative investors outside the pp world ..

all in all figuring a  FIXED 25% cash buffer on top of a conservative portfolio i think is not going to represent much except poor portfolio construction and cash flow planning.

just trying to be realistic.  just because someone may do something and have hordes of cash it  does not mean it is smart or the correct thing to do .

many times when cash levels do get that high it is only temporary and is money waiting to deploy somewhere else .  at one time we were 25% cash for a few months as part of the insight portfolio  but that ultimately went in to a balanced fund when valuations came lower.

even if not retired cash levels are all over. just last year we made a wedding for my daughter and i needed 4 new implants to replace what i rejected.

each of us has our budget killers and expenses raising a family so cash levels are always changing .

in fact most americans have no real savings they basically spend what comes in over the year. the rest is their 401k  investments and ira's with a 1 year or less emergency fund.

once you try to bend the numbers to fit a point it rarely works out accurately , no matter what you try to illustrate . .
Last edited by mathjak107 on Sun Jul 19, 2015 3:31 am, edited 1 time in total.
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Mark Leavy
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Re: Cool Chart Commentary

Post by Mark Leavy » Sat Jul 18, 2015 11:28 am

Moderator Request.

Can we keep this thread limited to just the charts and the explanations/descriptions behind them?

I think the critiques and commentary are useful - but I really like a thread of raw, unadulterated graphical data porn.

Perhaps the commentary can be spun off?  (mine, likewise)

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Re: Cool Chart Commentary

Post by koekebakker » Thu Sep 17, 2015 1:16 pm

Are these nominal returns? Interest rates and inflation have been falling as well, so a downward slope is to be expected.
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Re: Cool Chart Commentary

Post by rocketdog » Sat Oct 31, 2015 10:33 am

Good point... possibly.  I'll have to add inflation to my table and see how the nominal returns are over time. 
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: Cool Chart Commentary

Post by ochotona » Tue Dec 08, 2015 5:51 am

Tyler... I would love it if you could implement a window where the user could cut and paste his or her own annual time series data in, and generate all of your various charts. THAT would be amazing. You could pick apart commercial products, or homebrew momentum products that aren't fixed allocations.
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Re: Cool Chart Commentary

Post by Greg » Wed Dec 09, 2015 9:47 am

To avoid cluttering up the Cool Collections Thread with information besides Graphs, we can write our comments/etc. here. I'll then post the link to this thread inside the Cool Collections Original Thread to point people to this to talk/discuss.
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Re: Cool Chart Commentary

Post by Xan » Wed Dec 09, 2015 10:11 am

Brilliant idea, Greg.  I hope one of the mods will move the non-chart comments from the other thread over here.
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