How bad, historically, has the last 2 1/2 years been for the PP?

[jason]

Hello,
I started doing the PP in June of 2013 and here I am, a full 2 1/2 years later, and I am only up a total of about 3.4% since I started.  I am averaging around a 1.4% annual yield.  Is this the worst 2 1/2 year period in the history of the PP?  If not, is it one of the worst?  How does it stack up with other less-than-stellar 2 1/2 year periods of the PP?
Thanks!
Jason

[Mark Leavy]

Jason,

If you haven't visited Tyler's "Portfolio Charts" yet, you should really spend some time on his site.

The answer to your question is in the leftmost 2nd and 3rd columns of the chart at this link:
http://portfoliocharts.com/portfolio/pe ... portfolio/

[jason]

Jason,

If you haven't visited Tyler's "Portfolio Charts" yet, you should really spend some time on his site.

The answer to your question is in the leftmost 2nd and 3rd columns of the chart at this link:
http://portfoliocharts.com/portfolio/pe ... portfolio/

Wow, thanks Mark!  I actually think I saw this chart a while back but I didn't understand it until now.  Based on that chart, the PP is not doing as bad as I thought.  I just counted 12 previous 3-calendar-year holding periods with a real CAGR of 0%.

I love the withdrawal rate chart.  It looks like the PP has performed consistently enough to pretty much always support a 4% withdrawal rate without significantly dipping into principal.

I really hope the PP comes through for me (and everyone else doing it).  As frustrated as I am right now, I can't find anything safe enough to switch to.  All other strategies just seem too risky.

[ochotona]

I was looking at the PP component-by-component performance 1972-2015, for my own momentum studies. I wanted to see how many of the PP components earned more than inflation in any given year (the answer is 2.34).

But... lo and behold... 2015 was the ONLY year out of 44 when NONE of the PP component earned more than inflation!

No wonder many of us newbies flipped out. I'm not saying we could've done better elsewhere, but it was a bad year all the way around. 

[lordmetroid]

I didn't suffer heavy losses in 2015 thanks to the permanent portfolio. However, it was still a difficult year of investment for me.

I am still afraid to get started with my investments again. So far, I have only bought gold and bonds because the stock market has been bearish in Europe and Sweden since may. I simply can not make myself buy stocks when I know they are loosing value.

[ZedThou]

I didn't suffer heavy losses in 2015 thanks to the permanent portfolio. However, it was still a difficult year of investment for me.

I am still afraid to get started with my investments again. So far, I have only bought gold and bonds because the stock market has been bearish in Europe and Sweden since may. I simply can not make myself buy stocks when I know they are loosing value.

I certainly know how this feels. My portfolio has gone nowhere since mid-2015 despite heavy contributions in the meantime. Still, I continue to make biweekly investments in the stock market and government treasuries, as well as the occasional precious metal purchase to keep that allocation up.

There's just no other way I know to do this.

[jason]

I didn't suffer heavy losses in 2015 thanks to the permanent portfolio. However, it was still a difficult year of investment for me.

I am still afraid to get started with my investments again. So far, I have only bought gold and bonds because the stock market has been bearish in Europe and Sweden since may. I simply can not make myself buy stocks when I know they are loosing value.

You may think you are reducing your risk by not buying stocks, but you may be increasing it.  That's what the PP is all about - nobody knows the future and it's impossible to predict which direction any asset class is going to go.  When I bought my Treasuries in 2013 the broker on the phone at Fidelity said to me, "Are you sure you want to buy Treasuries? Yields are at historic lows, so there is essentially no upside with a huge downside."  What he said made perfect sense to me, but I bought them anyway, and they have performed very well - they are up around 18%.  If I had listened to my gut, I would have lost out on a lot of money.

[dualstow]

You may think you are reducing your risk by not buying stocks, but you may be increasing it.

So true. The pp philosophy is not anti-stock, and often its gains are from the stock portion (while having a much smoother ride than an all-equity portfolio). As surely as Swedes spell "lose" with two O's*, you have to own some stock.

*The tongue-in-cheek theory on that is that young Swedes learn their English from a game called Age of Empires 2.
Full disclosure: I don't know what Age of Empires is.

[buddtholomew]

Gold and treasuries...now that's suicide!
Hold enough gold, treasuries and cash to dampen stock volatility.
S&P500 up 2.5% today. When will you get back in?

[ochotona]

It could be a sucker rally today.

[Cortopassi]

This to me is the problem with trend following or momentum strategies.  It might be a sucker rally, or might not.  The 10 month average has you in cash for stocks at least, right?  So for the S&P trend following, you got hit in the Jan swoon, and sell out on Feb 1 because the signal flipped.  While I am unsure if the VTI was invested on Jan 1 or in cash, the signal is to be in cash for the month of Feb and was invested for the month of Jan. 

I can see the case where by end of Feb the market has trended back up, and you will watch in agony as you are then buying back in Mar 1 at higher prices than you sold out at.  Certainly I understand for long term up and downtrends, the MA has much more value.

I am personally much more comfortable with the PP bands.  Just my opinion.

[buddtholomew]

It could be a sucker rally today.

It could be the start of a new bull market AKA the bottom is in.
Tinker around the edges if you must, but holding all of the assets within 15/35 bands makes sense to those who know that they don't know.
Might as well be optimistic but plan for the days when others are pessimistic.

[dragoncar]

It could be the start of a new bull market AKA the bottom is in.
Tinker around the edges if you must, but holding all of the assets within 15/35 bands makes sense to those who know that they don't know.
Might as well be optimistic but plan for the days when others are pessimistic.

Are users getting to the edges of the rebalancing bands due to the equities decline? Stocks haven't gone down by 1 - 15/25 = 40%. I know it will be different for everyone.

It just seems like a waste to not try to optimize at least the timing of the rebalance event. Given that the choice of how and when to rebalance is left to the artistic license of the user... once a year, once a quarter, 20/30, 15/35, whatever you choose, it seems arbitrary to then say, "well, but THAT kind of rule for rebalancing isn't allowed, because it smacks of timing naughtiness".

My rule-based suggestion is... rebalance when equities cross back over their 200 day moving average, not before. I've got two big bags of cash, with the names "gold" and "equities" written on them, waiting for the respective 200 day MA crossovers. I have cash and bonds already.

If I wasn't contributing to the lagging asset, I would have rebalanced out of stocks and into gold about 6 months ago

[Mark Leavy]

My approach is to always buy low and sell high.
I do this whenever my asset allocation gets out of whack.

Some people call this "rebalancing".

I call it "buy low, sell high"

[Dieter]

Stocks peak on Feb 4th. Heard it here first....

Although days like today where everything goes up gets me a little concerned that everything is going to go down together (I know, I know, uncorrelated, not negatively correlated....)

[dualstow]

It just seems like a waste to not try to optimize at least the timing of the rebalance event. Given that the choice of how and when to rebalance is left to the artistic license of the user... once a year, once a quarter, 20/30, 15/35, whatever you choose, it seems arbitrary to then say, "well, but THAT kind of rule for rebalancing isn't allowed, because it smacks of timing naughtiness".

My rule-based suggestion is... rebalance when equities cross back over their 200 day moving average
...

If you stick to once a year, or once a quarter, etc., that is not "artistic license", and is very different from playing with moving averages.

[DragonJoey3]

It just seems like a waste to not try to optimize at least the timing of the rebalance event. Given that the choice of how and when to rebalance is left to the artistic license of the user... once a year, once a quarter, 20/30, 15/35, whatever you choose, it seems arbitrary to then say, "well, but THAT kind of rule for rebalancing isn't allowed, because it smacks of timing naughtiness".

I usually just re-balance every year on Columbus Day.  It's the one day I know I'll be off work and the markets are still open.

[jafs]

There was a Vanguard study that compared different re-balancing methods, and if I remember right, the optimal risk/return one was annual re-balancing, but only if the percentages had gone out of whack by a certain amount.

They compared time-based methods, like every six months or a year, band methods like if things go out of proportion by a certain percentage, and the time-band combination method.

[dualstow]

If you stick to once a year, or once a quarter, etc., that is not "artistic license", and is very different from playing with moving averages.

How to rebalance is still an arbitrary decision. There are no objective criteria. What you call "playing" with moving averages is also rule-based, non-emotional, objective, kind of lazy (trades about once a year, maybe twice), once you make the investment policy decision for the portfolio, this still seems compatible with the PP to me. Prove to me that one is more or less arbitrary than the other. There are no criteria... so you can't prove it. It's all opinion.

You could could call any kind of technical or quant analysis rule-based. You could go by fibonacci numbers or black cats crossing your path and call it rule-based, because you followed the rule set. Obviously, you are free to do whatever you want, and there is no end to creativity when it comes to one's own personal choices.

What worries me is that you continually try to introduce market timing into the discussions about the pp, while failing to recognize that it's *not* pp. I get it: you think for yourself. You don't blindly follow Harry's books. Harry's dead and this time it's different. I don't rebalance at exactly 35% either. I've never been able to wait that long. That's all well and good except when a new investor comes along and wants to set up and rebalance a new pp.

When someone comes along and sees

It just seems like a waste to not try to optimize at least the timing of the rebalance event

do they know that this has utterly nothing to do with the permanent portfolio? I hope so.

Having said all that, obviously there's nothing harmful* about a couple rebalances a year, total. As long as new investors don't get it in their heads that moving averages have anything to do with the permanent portfolio.

ADDED: *It's more of a hamster wheel (watching the averages) than a wrench in the works.

[Dieter]

There was a Vanguard study that compared different re-balancing methods, and if I remember right, the optimal risk/return one was annual re-balancing, but only if the percentages had gone out of whack by a certain amount.

They compared time-based methods, like every six months or a year, band methods like if things go out of proportion by a certain percentage, and the time-band combination method.

This one? https://personal.vanguard.com/pdf/flgprtp.pdf

I think overall summary is that it doesn't make a huge difference, and depends on the market environment. Slightly different consideration for taxable (reallocate distributions to trailing asset / use contributions....)

Pick something to control risk and stick with it.

  (yet I still think about optimizing; can lead a horse to water....)

More on the subject at https://www.bogleheads.org/wiki/Rebalancing

[lordmetroid]

I didn't suffer heavy losses in 2015 thanks to the permanent portfolio. However, it was still a difficult year of investment for me.

I am still afraid to get started with my investments again. So far, I have only bought gold and bonds because the stock market has been bearish in Europe and Sweden since may. I simply can not make myself buy stocks when I know they are loosing value.

You may think you are reducing your risk by not buying stocks, but you may be increasing it.  That's what the PP is all about - nobody knows the future and it's impossible to predict which direction any asset class is going to go.  When I bought my Treasuries in 2013 the broker on the phone at Fidelity said to me, "Are you sure you want to buy Treasuries? Yields are at historic lows, so there is essentially no upside with a huge downside."  What he said made perfect sense to me, but I bought them anyway, and they have performed very well - they are up around 18%.  If I had listened to my gut, I would have lost out on a lot of money.

Very good point, I am now all in with a Swedish Permanent Portfolio.
So what if stocks crashes another 50% that is a mere 12,5% of the total portfolio value given that no other asset moves(highly unlikely).

I decided to do a Permanent Portfolio local to the Swedish economy instead of a global variant. I figured that I am better of with a portfolio that would react to the Swedish economy and any local crisis there might be because I live in Sweden. If I had a global portfolio or some US/Swedish hybrid, who knows what might happen if there is a local Swedish crisis.

With Cash and Stocks being free of charge, Bonds costing me 0,1% and Gold 0,25% I have a total cost of portfolio at 0,0875% in management fees total per year.