Why the PP is better in accumulation than you think

General Discussion on the Permanent Portfolio Strategy

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

Post by Dmilligan » Mon Oct 26, 2015 5:38 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
The gold component in the first few years doesn't appear to drastically affect the end results. Previously, I was utilizing historical annual gold prices as set by Treasury ($35.50, $35.40, etc.). The sustainable CWR was still 4.6% (compared to 4.7% with the data MG provided) for 1996.

I'm not necessarily looking for some exact percentage to take as a set-in-stone, guaranteed-not-to-fail CWR percentage. I'm more interested in modeling 1966 as the worst year for retirement to give me some confidence that my PP will sustain me in the manner in which my family is accustomed to living.

I also wanted to satisfy my personal curiosity whether 1966 would vary dramatically from the numbers from Tyler's sustainable WR calculator. I have satisfied myself that it doesn't.

I'm feeling pretty good that using Robert Clyatt's withdrawal technique would have worked with the HPP, even in a 1966 retirement year scenario.
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Oct 26, 2015 5:44 pm

gold did  not trade here publicly with the same greed , fear and perception it might have if it was legal and traded on an exchange here  and  you making up what you think  for god knows what purpose is  just  silly .

you do not need to back test the pp anymore . all back testing did is create the math for modern day retirement planning .

thanks to the work of kitces  we can monitor any portfolio going forward and know whether it is on track  .

analyzing all those time frames before the pp even existed  showed us all the failures had failed mathematically because of one common denominator .

they all  needed to maintain a 2% real return average over the first 15 years of a 30 year period to support 4% withdrawals inflation adjusted .

so if you are 7 years in  to your retirement and are running less then a 2% real return average a red flag should wave .

unless things start trending up ,  withdrawals have to be cut back  because by 15 years all may be so badly spent down that even the best of times the next 15 years is to little to late to save the retirement from drastic pay cuts . .

all the back testing in history merely identified that simple math for us .  there is no reason to even back test the pp , you are just reinventing the wheel . .  it is all about the here and now if you are retired  and using the pp  and whether or not you are maintaining an average real return of 2% or more .

if you are not then mathematically you can't sustain 4% withdrawals inflation adjusted for 30 years . .

not that we spend like robots but that number could be your maximum budget  in the laboratory .

so while we can't accurately test the pp over  the time frames the 4% safe withdrawal rate is based on we certainly know going forward if the pp is meeting that criteria  in our own current  time frame .
Last edited by mathjak107 on Mon Oct 26, 2015 6:16 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 6:29 pm

mathjak107 wrote: thanks to the work of kitces  we can monitor any portfolio going forward and know whether it is on track  .
I'm appreciative of Kitces work.

Are you aware of any research Kitces has published that looks at 50 years or a period longer than 30 years? Everything I've seen is based around 30 years.

Did Kitces explicitly model withdrawing from a cash component? One of the functional differences I find compelling about the HBPP is that one may go for years withdrawing without touching the other three components. This seems to affect withdrawal numbers in a way not appreciated in traditional retirement research.
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Re: Why the PP is better in accumulation than you think

Post by Pointedstick » Mon Oct 26, 2015 6:33 pm

mathjak107 wrote: gold did  not trade here publicly with the same greed , fear and perception it might have if it was legal and traded on an exchange here  and  you making up what you think  for god knows what purpose is  just  silly .
That's true of everything. The entire phenomenon of the non-wealthy, non-institutional retail investor only emerged in the late 70s to 80s; before that point, most ordinary joes like you and me keeps their money in savings accounts, savings bonds, bank CDs, etc. If there had been tax-deferred investment accounts, index funds, online trading, zero-commission funds, and a culture of retail investing, then who knows how the returns of various assets might have been affected? We can't, of course. The investment returns of the 30s, 40s, 50s, and 60s, represent a vastly different era full of vastly different market actors. Maybe the existence of 401Ks, online brokerages, index funds, and a culture of stock ownership means that stocks will now behave in a predictably cyclical manner according to the career lifecycle of the retail investor classes rather than the fundamentals of the underlying businesses. It is in no way comparable to the environment that produced the historical returns that we are all familiar with.
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Re: Why the PP is better in accumulation than you think

Post by Desert » Mon Oct 26, 2015 6:33 pm

MachineGhost wrote:
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.
It was August 1971, not 1968. 

Using gold prices before 1975 in backtesting meant to support a proposed asset allocation is misleading. 
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Oct 26, 2015 6:37 pm

dmilligan , Yes i have charts going out longer.

You are describing nothing more then a standard bucket system.

You have a predetermined amount of years of cash , a bunch of years in bonds and a bucket of equity's. You spend down in order eventually  refilling both from equity's years down the road ..

All studies show spending down equally from all components maintaining  the allocation work out just the same.  kitces has lots of study's on using cash buffers . basically the large cash positions weigh down the up cycles and act as a drag so they are more mentally comforting then any different from  spending down all pieces of the pie equally in good and bad times . .

in the end spending from cash buffers is no better or worse then systematic withdrawals equally from all allocations  in good and bad times
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Mon Oct 26, 2015 6:41 pm

THESE GO 40 YEARS  . kitces ran this using not the trinity allocation to corporate bonds  but rather to  bill bengens  safemax study  using 5 year treasury's .  he took bills work the extra step and compiled it over many more allocations and years  in retirement .

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

Post by MachineGhost » Mon Oct 26, 2015 10:49 pm

Desert wrote: It was August 1971, not 1968. 

Using gold prices before 1975 in backtesting meant to support a proposed asset allocation is misleading.
You silly Americans!  Stop thinking domestically.  Gold broke free of the London Pool in 1968.

But, I'm somewhat convinced.  I will switch to silver from now on before 1975 and I don't want to hear any bitching about it.  Pre-1965 junk silver coins were perfectly legal and widely available.
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Tue Oct 27, 2015 4:32 am

as harry said silver is no proxy for gold . 2008 proved that point when silver plunged and gold was up .  if you assumed  projecting forward the gold and silver would act the same you would have been totally off base in 2008-2009

eliminating the us market on gold trading is a major difference  compared to only europe trading . just look at how we influence what happens here world wide in any financial market .

why do you insist on fudging missing data for this useless comparison .

we already know how to monitor the pp or any portfolio to see it it is on track in real time
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Tue Oct 27, 2015 7:12 am

MachineGhost wrote:
Desert wrote: It was August 1971, not 1968. 

Using gold prices before 1975 in backtesting meant to support a proposed asset allocation is misleading.
You silly Americans!  Stop thinking domestically.  Gold broke free of the London Pool in 1968.

But, I'm somewhat convinced.  I will switch to silver from now on before 1975 and I don't want to hear any bitching about it.  Pre-1965 junk silver coins were perfectly legal and widely available.
but the study  you are trying to  back test is based on all american conditions . american stock market ,american bonds ,american interest rates , American inflation  and with no american gold market  trading you are SOL .

trying to substitute what would have been with londen could be as wong as if they shut down japans stock  markets and said just  base it  on americas's markets .  we know that would be a totally different outcome and a wrong assumption . .

by the way only 3 developed country's  other than the us has survived as high as a 4% SAFE WITHDRAWAL RATE .  so using any of their data instead of our own would be once again well off base .
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Re: Why the PP is better in accumulation than you think

Post by MachineGhost » Tue Oct 27, 2015 3:35 pm

mathjak107 wrote: as harry said silver is no proxy for gold . 2008 proved that point when silver plunged and gold was up .  if you assumed  projecting forward the gold and silver would act the same you would have been totally off base in 2008-2009
The crux of the matter is...  did he say that BEFORE or did he say that AFTER 1975?

And here is a fact...  there was a raging rare coin bull market from 1971 to 1974.  Coincidence?

Also, if gold had been a US market back then, the outperformance of gold would have only overestimated portfolio returns.

So I remain unconvinced it is hallucinotary.  Given how poor the 50/50 10yr does in terms of performance relative to other portfolios with higher diversify scores, I think you are cutting the PP off at its knees.

Anyway, so the rule of thumb is a 2% real return for half of the retirement period to survive?  Does that also apply to 40, 50 or 60 years or does it need to be higher?  Because those of us a lot younger than you are going to live in "retirement" (if it still exists by that time) about the same length as getting to that age!

The PP should cover 2% real return easily but I am skeptical 2% is good enough for more than 30 years given the 4% SWR failure rates of even 100% stock at 25 years and beyond.  Is another rule of thumb half the SWR in real terms?
Last edited by MachineGhost on Tue Oct 27, 2015 4:07 pm, edited 1 time in total.
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Re: Why the PP is better in accumulation than you think

Post by mathjak107 » Tue Oct 27, 2015 4:07 pm

Can't say how long it will hold as no study was done giving us longer term results.
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