Why the PP is better in accumulation than you think

General Discussion on the Permanent Portfolio Strategy

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iwealth
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Re: Why the PP is better in accumulation than you think

Post by iwealth » Wed Oct 21, 2015 4:03 pm

dutchtraffic wrote:
ochotona wrote:
dutchtraffic wrote: Simply following a 200 day MA will get you stopped out all over the place.
One key point is to only check 1x per month, same day of the month. It will cause some excess trades, for sure. Small price to pay for potential benefits. But it's not a lazy portfolio.
Once a month will be very risky, and just randomly looking at some charts, that creates some MAJOR losses.
Do you have backtesting data to back this up or is this just an assumption?
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Re: Why the PP is better in accumulation than you think

Post by lordmetroid » Wed Oct 21, 2015 4:06 pm

Great tool, I used it and decided to trash my cash and buy Small Cap Stocks instead. I know, I know, I said I would not tinker but according to these simulations the Small Cap Stocks wouldn't necessarily do any harm to the volatility. How that is possible, I have no idea.
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Re: Why the PP is better in accumulation than you think

Post by dutchtraffic » Wed Oct 21, 2015 4:06 pm

iwealth wrote:
dutchtraffic wrote:
ochotona wrote: One key point is to only check 1x per month, same day of the month. It will cause some excess trades, for sure. Small price to pay for potential benefits. But it's not a lazy portfolio.
Once a month will be very risky, and just randomly looking at some charts, that creates some MAJOR losses.
Do you have backtesting data to back this up or is this just an assumption?
Not backtested at all, just looking at some random indices and seeing 10-20% drops if using that strategy.
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Re: Why the PP is better in accumulation than you think

Post by Tyler » Wed Oct 21, 2015 4:24 pm

MachineGhost wrote: This is my formula to calculate the running balance:

=SUM($W13:$AQ13)/(1+SUM($AV13,$AW13))

Where W:AQ are the weighted asset returns, AV is yoy inflation rate and AW is the WR.
It appears you're never actually reaching zero because you're using a WR that is a percentage of the remaining portfolio instead of only the first year.  Most classic SWR studies (and my own calculations) assume that expenses are fixed in year one and adjusted up for inflation every year independent of portfolio value along the way.  That's why volatility particularly hurts the SWR -- the portfolio may drop, but the retirement expenses do not!  You need to subtract expenses, not divide them.

I suggest using a systematic approach.  Take an initial portfolio value, and calculate the annual retirement expenses from the initial SWR.  Subtract that from the portfolio value (that assumes expenses are set aside at the beginning of the year).  Then adjust the balance by the real return of the portfolio for that year.  Rinse and repeat, always using the same fixed expenses from year one (By using real returns, you keep the expenses in constant dollars.  If you use nominal returns, be sure to increase the expenses at the rate of inflation).  Once you have a final portfolio value after a certain number of years, you can use that to tinker with the initial WR percentage to level the end point wherever you like (zero for SafeWR, or initial principal for SustWR).  Make sense?
Last edited by Tyler on Wed Oct 21, 2015 6:01 pm, edited 1 time in total.
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Re: Why the PP is better in accumulation than you think

Post by MachineGhost » Wed Oct 21, 2015 6:40 pm

Tyler wrote: It appears you're never actually reaching zero because you're using a WR that is a percentage of the remaining portfolio instead of only the first year.  Most classic SWR studies (and my own calculations) assume that expenses are fixed in year one and adjusted up for inflation every year independent of portfolio value along the way.  That's why volatility particularly hurts the SWR -- the portfolio may drop, but the retirement expenses do not!  You need to subtract expenses, not divide them.

I suggest using a systematic approach.  Take an initial portfolio value, and calculate the annual retirement expenses from the initial SWR.  Subtract that from the portfolio value (that assumes expenses are set aside at the beginning of the year).  Then adjust the balance by the real return of the portfolio for that year.  Rinse and repeat, always using the same fixed expenses from year one (By using real returns, you keep the expenses in constant dollars.  If you use nominal returns, be sure to increase the expenses at the rate of inflation).  Once you have a final portfolio value after a certain number of years, you can use that to tinker with the initial WR percentage to level the end point wherever you like (zero for SafeWR, or initial principal for SustWR).  Make sense?
Thanks!  Here's the new results:

100% Stocks: SafeWR for 88 years (1928) is 3.41%; SustainWR is 3.20%.
50%/50% 10yr: SafeWR for 88 years (1928) is 2.25%; SustainWR is 1.70%.

100% Stocks: SafeWR for 49 years (1965) is 1.52%; SustainWR is 0.74%.
50%/50% 10yr: SafeWR for 49 years (1965) is 1.22%; SustainWR is 0.20%.
Browne PP: SafeWR for 49 years (1965) is 1.64%; SustainWR is 0.26%.

Browne PP: SafeWR for 46 years (1968) is 1.63%; SustainWR is 0.18%.

Browne PP: SafeWR for 42 years (1972) is 2.08%; SustainWR is 0.53%.

If its still not right, I give up for now.
Last edited by MachineGhost on Wed Oct 21, 2015 7:58 pm, edited 1 time in total.
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Re: Why the PP is better in accumulation than you think

Post by Dmilligan » Mon Oct 26, 2015 3:30 pm

I utilized MG's data for 1965-1971 and the Craig/Simba's data for 1972+. I took withdrawals from cash and rebalanced at the 15/35 bands. Here are the results that I get:

For a retirement in 1966:

Portfolio: $3M
Constant WR: 4.7%
1966 withdrawal from cash: $141,000
2014 withdrawal from cash: $1,090,762
1966 inflation-adjusted amount: $1,066,922

No. of individual years outpacing inflation: 14.29%

If 50% of years outpacing inflation, CWR is 4.4%
If 75% of years outpacing inflation, CWR is 3.7%

For a retirement in 1965:

Portfolio: $3M
Constant WR: 4.9%
1965 withdrawal from cash: $147,000
2014 withdrawal from cash: $1,134,909
1965 inflation-adjusted amount: $1,095,766

No. of individual years outpacing inflation: 40.00%

If 50% of years outpacing inflation, CWR is 4.6%
If 75% of years outpacing inflation, CWR is 4.2%

[EDIT] I completely forgot to mention that--in addition to withdrawing out of the cash component--these results are computed utilizing a Robert Clyatt withdrawal method where at least 95% of the previous year is utilized, even if it exceeds the initial CWR.
Last edited by Dmilligan on Mon Oct 26, 2015 5:42 pm, edited 1 time in total.
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Oct 26, 2015 4:02 pm

i will only state it one last time , you have zero accurate reference for gold going back to anytime  pre 1975 .  .. you can guess and assume all you want but you have no accurate data to utilize that asset class  in a meaningful way if back testing it for a comparable safe withdrawal rate against what the  standards mean . ..
Last edited by mathjak107 on Mon Oct 26, 2015 4:04 pm, edited 1 time in total.
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Re: Why the PP is better in accumulation than you think

Post by MachineGhost » Mon Oct 26, 2015 4:57 pm

mathjak107 wrote: i will only state it one last time , you have zero accurate reference for gold going back to anytime  pre 1975 .  .. you can guess and assume all you want but you have no accurate data to utilize that asset class  in a meaningful way if back testing it for a comparable safe withdrawal rate against what the  standards mean . ..
You do realize gold broke free of its fix in 1968, right?  The legality of not buying it domestically in the USA is irrelevant to the gold price being available.  It's just a simulation so we can see what might happen.  Path dependency for putting a portfolio together is an illusion.  It's not hard to be conservative with the WR with these caveats in mind.
Last edited by MachineGhost on Mon Oct 26, 2015 4:59 pm, edited 1 time in total.
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Oct 26, 2015 5:00 pm

it was not publicly owned until 1975  so it is not really fair trying to utilize an asset before it could be legally owned unless you were a coin collector .

you can't possibly want to do this comparison to the point of bringing  in data that is just DIS-INGENIOUS
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Re: Why the PP is better in accumulation than you think

Post by MachineGhost » Mon Oct 26, 2015 5:06 pm

mathjak107 wrote: it was not publicly owned until 1975  so it is not really fair trying to utilize an asset before it could be legally owned unless you were a coin collector .

you can't possibly want to do this comparison to the point of bringing  in data that is just DIS-INGENIOUS
We're just going to have to agree to disagree.  You want the mirage of exactness, I want fuzzy logic.
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Oct 26, 2015 5:08 pm

that is well beyond fuzzy logic my friend    .  counting what is not legal to own nor trades publicly in this country  because it makes the numbers look better is not the right thing to do . the right thing to do is just accept the fact you can not make a comparison in that time frame .  you trying to fill in the missing  data is as i said dis-ingenious at best .
Last edited by mathjak107 on Mon Oct 26, 2015 5:10 pm, edited 1 time in total.
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Re: Why the PP is better in accumulation than you think

Post by MachineGhost » Mon Oct 26, 2015 5:09 pm

mathjak107 wrote: that is well beyond fuzzy logic my friend    .  counting what isnot legal to own so it makes the numbers look better is not the right thing to do . the right thing to do is just accept the fact you cn not make a comparison in that time frame .
1) It wasn't enforced.
1a) It sure as hell wasn't going to be enforced overseas.
2) There was junk silver.

The only reason it even became legal again in 1975 was because of Ron Paul.  No one cared otherwise.  Do today's PPers strike you as being sheep led to the slaughter or would they have found a way to protect their ASSets back then?  After all, Browne figured this out in time to write a book about it in 1970.  Did the illegality stop him?
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
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