The Reason to Quit PP

[dualstow]

mathjak, you remind me of a friend who divorced his wife after six months of marriage and then devoted the rest of his life to her. 
I mean, you spent so little time in the pp and how much time rationalizing your exit so far?

[ochotona]

I do like the idea of gold as insurance against (***insert your scenario here***) but why buy it now when you can buy it later? There is no "pre-existing conditions coverage exclusion" like there used to be on health insurance. And why not buy it at prices closer to the low prices it has been at in my lifetime?

So there's a risk it might be already at the lowest prices it will be at before whatever kerfuffle hits the fan happens? Well... maybe. Maybe not! Who the hell knows? But why lock money away from growth assets before you need to?

I really don't think we're going to have a "wake up and the world is set afire" scenario. Currency collapse will be seen from afar, for those who watch attentively. You'll see it in the gold price itself. The time to react will be at least weeks or months. Buy a gold ETF in a few seconds, then swap it out for physical as you can get the physical (supply chain will be stressed at that point).

Martial arts analogy - if you try to evade a knife blade too soon, the attacker will just track you and stick you anyway.

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

I wonder if we shouldn't be talking more about gold options, in addition to gold.

[barrett]

So there's a risk it might be already at the lowest prices it will be at before whatever kerfuffle hits the fan happens?
Well... maybe. Maybe not! Who the hell knows? But why lock money away from growth assets before you need to?

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

The answer for me is that I wouldn't know where to get in. I know this about myself from past investing behavior.
So, yeah, gold might not be the best place to park 25% of my assets, but from where I stand I can't see that bonds
and stocks are clearly better options right now. Yes, they are growth assets but they don't always grow. Both could
head down X% from here.

I do like the winter coat analogy.

Ocho, how were you able to just go all short term instruments (50% cash & 50% short-term bonds)? No taxes to
worry about?

And I know you've posted roughly 1,700 and $900 as buy back in points for the S&P and gold. Do you have your
eye on a number for LTT yields as well?

[mathjak107]

so the question remains  why not wellsley and 10% gold  ?

why bet the same amount of money equally on outcomes that are anything but equal as to odds of playing out

[iwealth]

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

Interesting analogy, but let's take it a step farther. In the big scheme of things, our collective financial analysis knowledge is like that of a child compared to all of the math quants and PhD's and all of those super brilliant economists. And we all have these other things going on in our lives because we aren't investing professionals, and we're super distracted with those things.

My child is outside and the temperature drops, but he's playing with his friends and having a ton of fun. He knows where his coat is, but do I really trust him to put that coat on when the temperature deems it to be appropriate?

[koekebakker]

so the question remains  why not wellsley and 10% gold  ?

why bet the same amount of money equally on outcomes that are anything but equal as to odds of playing out

It's really simple. To be protected at all times, regardless of the odds. And by investing that way you might give up some expected return.

[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 .