The Reason to Quit PP

[mathjak107]

protect against what ?  for as long as gold has been able to be owned by the public has any generation in this  country needed gold to protect them  over the long term ?  not that i can think of , any generation would have come out ahead in anything other than gold . in fact take any rolling 30 year period the last 40 years and has gold been better at protecting that time frame than had you not owned it and just owned stocks and bonds over your investing time frame  ?

you  now what , it is like a pp'er trying to convince someone happy with bank cd's  that there is a better way to let your money work for you and while more volatile it may not  be risky .

you will likly never convince them of that fact .

well trying to tell a pp'er that they are leaving way to much in gains on the table just for the sake of a little more volatility  with something like wellesly and 10% gold  is the same thing ..

once you start with the "what if visions " in your head  as to things playing out different this time and you need all that gold and the heavy interest rate risk ,  as  john  templeton said " this time is different can be the most costly words in the english  language . .

[Xan]

in fact take any rolling 30 year period the last 40 years and has gold been better at protecting that time frame than had you not owned it and just owned stocks and bonds ?

You realize there are only ten such periods, right?

[mathjak107]

yep 40 years 10 periods .  has any played out at the end in favor of gold vs  equity's or bonds despite the events in that time frame ?

[Xan]

You realize they all overlap, right?  This is an EXTREMELY small sample.

[mathjak107]

it is still 40 years of all kinds of events from the great recession to high inflation , from low rates to very high rates .

at the end of the day we never needed such heavy allocations to gold .

only reason i stopped at 40 years is we can't track gold accuretly prior in the usa .

so does it really make as much sense to bet as much on the favorite as the all time laggard , thinking this time is different .

perhaps to some it does but i think that is a question you really need to ask yourself  without the visions in your head .

because no one wants to spend tens if not hundreds of  thousands of dollars insuring  as much against the common things that could happen in life as they would the things that seem far more remote, it just would not make sense when you really think about it . .


the amounts given up compared to other conservative models over pretty much every 30 year retirement or 30 year accumulation stage to have that remote coverage is a lot .  just compare the long time frames between conservative wellesley  and the pp. i bet it cost tens of thousands of dollars to insure against nothing that wasn't bested by equity's and bonds . .

what did wellesley do vs the pp going back as far as you can  and then rolling a head as many years as you can get . not sure how far back wellesley goes off hand .

[barrett]

To get really meaningful numbers on these periods, it's important to agree on what percent of assets are in cash as well. For example, if you just look at 1/1/1975 to 1/1/2015, a 45% stocks/45% 10-year bonds/10% cash portfolio tramples a 4X25 PP by about 44%. If you go with 38% stocks/38% 10-year bonds/24% cash, that advantage drops to about 15%.

[mathjak107]

well i run 8% cash so call it 10% but the fact is it is variable . it ranges from 4-8%  as it gets spent down since it used for bills as well as some sits for  emergency's .  don't forget dividends and interest are floweing all year so the need for cash to spend is not that great .

[Tyler]

in fact take any rolling 30 year period the last 40 years and has gold been better at protecting that time frame than had you not owned it and just owned stocks and bonds ?

Looking at a 60/40 stock/bond portfolio vs a 50/30/20 stocks/bonds/gold portfolio since 1972, the one with gold finished with more (inflation-adjusted) money in 7 out of 14 rolling 30-year periods.  Basically, any period starting in the 70's.  More to the point, the PP also beat the 60/40 portfolio in 7 of 14 periods even with the 25% short term treasuries as well. 

[mathjak107]

run wellesly as a 60/40 mix with only large cap stocks is going to be very different from a diversified stock portfolio , same thing with the bond side .  so being wellsley is the closet conservative fund at 40% equity's it would be a good choice .  i still would not go 20% gold either in the comparison . in fact run it with no gold  just even steven  pp vs wellesley ..  it  looks like wellesley goes back to the 1970's .

loets see if you went with a conservative alternative what did that insurance cost you .

post the comparison .

[mukramesh]

Why bother donning a winter coat in summer, just because we know winter is coming? Enjoy the summer, but know where the coat is.

Maybe one can find a good deal on a winter coat in the summer because no one else is buying?

[mathjak107]

maybe if they live in the bahamas they shouldn't be buying a winter coat before they actually see signs of winter in the bahamas

[Tyler]

run wellesly as a 60/40 mix with only large cap stocks is going to be very different from a diversified stock portfolio , same thing with the bond side .  so being wellsley is the closet conservative fund at 40% equity's it would be a good choice .  i still would not go 20% gold either in the comparison . in fact run it with no gold  just even steven  pp vs wellesley ..  it  looks like wellesley goes back to the 1970's .

post the comparison .

A 60/30/10 portfolio also beat 60/40 7 out of 14 30-year periods.  Just 10% gold makes a difference.  The PP beat Wellesley 8 out of 14.

[mathjak107]

post the wellesly results  , i want to see that

[Tyler]

Versus 60/40 (14 total 30-year periods):
60/30/10 won 7 times
PP won 7 times
Wellesley won 8 times.

PP beat Wellesley 8 times. 

[mathjak107]

Can you chart  Wellesley vs pp and post it?

[Tyler]

This is all I can offer for now.  I'm in the process of working on a portfolio comparison tool to take the labor out of it.

[img width=200]http://s12.postimg.org/6jex6t099/PPvs_VWINX.jpg[/img]

FWIW, I've always felt adding a little gold to VWINX is a pretty attractive portfolio option.  It's like coloring in the red spots with green.  Wellesley is a nice fund, and I have nothing against it at all. 

[mathjak107]

so this looks at 10 year time frames then .  what would be nice is to be able to see growth in dollars .  if they beat each other at different times but one was 100k more at the end of 30 years than the other there is a big difference  between just pass / fail .  there are lots more dark greens in wellesley meaning that a lot more money was grown in the up years then lost in the down .

eye balling it to me it looks like no contest with wellesley growing a whole lot more money then the pp overall . just the 1970's were a problem for it .

i tend to think if we could do rolling 30 year time frames  the amount of money difference between wellesley vs the pp would be very substantial over most of them . .


of course the biggest issue would be the pp didn't exist yet in the 1970's so it wasn't something that ould have been done . it wasn't until harry brought it to light in the 1980's that it was a viable portfolio anyone could follow .

[Tyler]

Short story -- please disregard my previous win counts.  I think I made a mistake somewhere.  It's why I'm working on an automated tool for this kinda thing, and I'll report back when I can provide good data.

Back to MJ's previous question, swapping 10% bonds for gold in a 60/40 portfolio improved the results in (I believe) two out of 14 30-year runs.  So yes, there are long periods where gold helps.  That really shouldn't be surprising. 

MJ -- why are you now trying to prove that Wellesley is better than the PP when you personally invest in neither?  If you like, I can point you to portfolios that beat both handily (and also your own) and we'll all look silly. 

[mathjak107]

yeah , i agree , just looking at the results it didn't sound right , not with all that dark green on wellesley .


why the interest in wellesly ? because to me if someone was gun shy and wanted a conservative portfolio my feeling is they will do and would have done financially  a whole lot better than the pp  without taking on very much risk .

so even though i don't use it , for those that are not happy with their pp results i think it is an excellent alternative  and more efficient in what it does .


i think wellesley and 5 to 10% gold would be a very nice portfolio for those who want to hold some gold  as well as not take on heavy interest rate risk at this stage .

[Tyler]

why the interest in wellesly ? because to me if someone was gun shy and wanted a conservative portfolio my feeling is they will do and would have done financially  a whole lot better than the pp  without taking on very much risk .

Maybe true.  And on the spectrum of options, they also could have done a helluva lot worse.  Investing isn't all about "winning", and constantly arguing against a perfectly good conservative portfolio option (that clearly works great for many people) does a disservice to other investors and IMHO is a waste of your experience and talents.  If you want to take it upon yourself to fight bad investment ideas, there are many more worthy adversaries than the PP. 

[mathjak107]

i would never say the pp is a bad investment idea . but i do think  that with no one steering the ship to nudge it back on course  if needed we don't know if harry would have fine tuned it better . especially after the gold he so loved  was bested by the lowly t-bill  over the last 40 years .

remember , those who hang out and support each others views will never see all the flaws in what they are doing .


from the  e-mails i get from folks here , they thank me for presenting a whole other side of facts that made them stop and think and most important , question things .

i never hear the end results so i don't know what they did but if it made them just think and re-evaluate whether to keep doing this  then what ever they decide is fine .


as i said earlier you don't want to be the guy buying the winter coat during the summer if you live in the Bahamas whether it is on sale or not  .  but looking over the events of 40 years there are very rarely any long term time frames like that 30 year retirement period or 30 year accumulation stage  i can see where owning gold paid off as opposed to just stocks and bonds  which produced a whole lot more and using wellesley as an example not much risk . .
.

[Cortopassi]

why the interest in wellesly ? because to me if someone was gun shy and wanted a conservative portfolio my feeling is they will do and would have done financially  a whole lot better than the pp  without taking on very much risk .

Maybe true.  And on the spectrum of options, they also could have done a helluva lot worse.  Investing isn't all about "winning", and constantly arguing against a perfectly good conservative portfolio option (that clearly works great for many people) does a disservice to other investors and IMHO is a waste of your experience and talents.  If you want to take it upon yourself to fight bad investment ideas, there are many more worthy adversaries than the PP.

+1 on the bold.  MJ I do like reading all viewpoints (you'll have to trust me on this) but the continual pounding on the PP with sometimes really long answers is stuff I force myself to read to make sure I'm not missing something, but has gotten painful and time consuming.

I still don't think I am missing anything.  Most everyone here came to this point because they are conservative by nature and gold plays into that.  Or used to.  Yeah, it just never can seem to get a bid lately.  I can literally feel the grinding of this process.  And it doesn't help that stocks have been getting smoked lately as well.  It just sucks for most everyone here who are simply trying to save for retirement in the least stressful way possible.  The past few months have not been good for that.

The world is NOT the same as it was even 5-10 years ago.  Everything is on an accelerated timeframe. Every country out there is in some level of competitive devaluation of their currencies, and it is laughable to see the US charge countries like China with currency manipulation.  We are the king of manipulation.  The 25% gold protects against unforeseen circumstances, and if you believe in this, then you don't care too much whether it affects CAGR some percentage.

I don't believe you can reasonably look back historically and gauge how things will go forward.  We have been at 0% fed funds rate for 6.5 years or so.  It has created massive distortions everywhere.  We have HFT trading that can crash the market 1000 points in a minute and flip it back just as fast.  We have valuations going higher because of debt funded stock buybacks.  A growing aging population relying on fewer workers paying into SS and Medicare to support them.

Maybe these have been issues forever and I've just hit that age where they concern me more...but these issues and more are the reasons I am comfortable at 25% and have little interest in trying to time entries and exits into and out of different vehicles based off my read of the world.

[mathjak107]

i  wish  i was still in the accumulation stage . i actually retired the day china devalued the yaun and it has been one long slide ever since i retired .

but with 2 years cash and many years of bonds to get us through i am not worried .

in fact it isn't even the steepness of the drops when you first retire  that are dangerous . it is the length of time the recovery takes . even moderate drops can be quite damaging if the recovery takes to long .

which was one of my concerns with the pp.  if it as going to be equity's that pull us out i wanted nothing holding them back as they tried to run with the ball . i need to have the recovery happen as fast as it can at this stage .

the unlucky retiree that retired in 2008 is on par with any other retiree in history under average conditions this mny years in .

the y2k retiree is a little worse off but still okay and is on par with the retiree in 1929  who also made it through but with not a whole lot left over .

my plan b would be just to take social security rather than spend down excessive amounts from investments .


how do you get those cool symbols under your name ?  i don't have one , i am envious

[Tyler]

Quick update, and testing a new chart:

[img width=300]http://s17.postimg.org/ps89yctbj/PPvs6040.jpg[/img]

Playing with the start date, it's true that there are no 30-year periods where the PP beat the 60-40 portfolio.  With a 20-year chunk of historic stock returns right in the middle of a data set of 43 years, that's not too surprising (almost every 30-year run gets the benefit of those 20 great stock years).  What is certainly interesting, however, is how the PP eventually caught and surpassed the 60-40 at the 37 year mark after that run wore off.  So over longer (or shorter) periods it's not so straightforward.   

Also of note is the "Favorable Years" count.  If an envious investor can't handle another portfolio doing better than his own, then someone comparing the PP to the 60-40 would be changing their mind a lot.  The last few bars on the right probably explain most of the current PP angst just like the tall one in 2008 had people running to the PP.  At some point we all need to find something we're comfortable with and just let it do its thing or we'll drive ourselves crazy and broke with kneejerk trading impulses.

[mathjak107]

you are the best with those charts . 

but actually if we had more time the 37th year would be in the next rolling 30 year time frame so likely once again the 60/40 would have won . but that is a huge difference in volatility for a conservative investor . that is one of the reasons wellesly at 40/60 would be a very interesting comparison , because for someone gun shy who does not believe financial Armageddon is coming ,  that is a good alternative .