Age tilting the PP

General Discussion on the Permanent Portfolio Strategy

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I Shrugged
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Age tilting the PP

Post by I Shrugged » Fri Dec 09, 2016 6:43 pm

Maybe the stock portion of the PP should be 90-(age). That seems about right to me.

I wouldn't really care how the discrepancy was made up. Could be evenly out of the other three, or not. Over time, work stock money into bonds. Commit to gold early. Cash brings up the rear. IMO.

Thoughts?
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ochotona
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Re: Age tilting the PP

Post by ochotona » Fri Dec 09, 2016 7:49 pm

I Shrugged wrote:Maybe the stock portion of the PP should be 90-(age). That seems about right to me.

I wouldn't really care how the discrepancy was made up. Could be evenly out of the other three, or not. Over time, work stock money into bonds. Commit to gold early. Cash brings up the rear. IMO.

Thoughts?
I think that's the best idea I've heard since the Golden Butterfly. Congratulations! "The Permanent Slider Portfolio" ! The best PP idea of 2016 !

Some might insist on 80-(retirement age). No matter, it's a great idea.

https://www.whitecastle.com/food/menu/S ... nal-Slider
rickb
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Re: Age tilting the PP

Post by rickb » Sat Dec 10, 2016 12:00 am

So a 26-year old would be 64-12-12-12, while a 63-year old would be 27-21-21-21? With what rebalanciing bands? This seems like a problem Tyler might be interested in attacking.

My guess is that this wins/loses vs. a traditional HBPP about 50% of the time depending on the start date. Which means unless you can objectively characterize the 50% wins, this is simply a coin toss.
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Re: Age tilting the PP

Post by barrett » Sat Dec 10, 2016 6:27 am

rickb wrote:So a 26-year old would be 64-12-12-12, while a 63-year old would be 27-21-21-21? With what rebalanciing bands? This seems like a problem Tyler might be interested in attacking.

My guess is that this wins/loses vs. a traditional HBPP about 50% of the time depending on the start date. Which means unless you can objectively characterize the 50% wins, this is simply a coin toss.
I like this idea, shrugged. I'm nitpicking here but, rickb, your 63-year old would have more like a 27-24-24-25 as his numbers still have to add up to 100. Let's see, I'm 58 so I'd be at roughly 32-23-23-22, which is probably not too far from where I am anyway due to the recent slump in both LTTs and gold. My 50-year old wife would be in sort of classic GB territory at 40-20-20-20, and our daughter's mini PP would be at about 70-10-10-10.

The mix might be stock heavy for early retirees but it deals nicely with one of the emotional issues many younger people have with the traditional PP. That is that they are not in on the big stock rallies that benefit the investors they are likely surrounded by in, say, their late 20s to early 40s or so.

Early on let's say that new money goes equally into all four assets and a rebalance occurs when stocks are up or down 6%, or the other assets are up or down by 3%? One possible downside for younger investors is that there's not much cash available to really be able to capitalize on significant market drops like stocks in 2008, or gold in 2013. But that is at least partially offset if our hypothetical PP Glider is employed and ploughing new dough into the mix.
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Kriegsspiel
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Re: Age tilting the PP

Post by Kriegsspiel » Sat Dec 10, 2016 9:09 am

It would be simpler to keep an orthodox PP and have a larger, stock-heavy VP while you are younger and you have time to make up any losses. As you get older, take some of your VP and reallocate into your PP. Maybe 90-age= maximum % in VP as a general rule of thumb.
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ochotona
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Re: Age tilting the PP

Post by ochotona » Sat Dec 10, 2016 9:40 am

Kriegsspiel wrote:It would be simpler to keep an orthodox PP and have a larger, stock-heavy VP while you are younger and you have time to make up any losses. As you get older, take some of your VP and reallocate into your PP. Maybe 90-age= maximum % in VP as a general rule of thumb.
This whole "VP" idea is out of hand. There is no VP. There are only the sum of your assets and liabilities. If you stay that young people should have a stock-heavy "VP", then you are agreeing with the original poster. Drawing a dotted line around some of the assets and calling them "PP" or "VP" doesn't change the outcome to you as an investor.

THERE IS NO VP! THERE IS NO BATHROOM!!!
https://www.youtube.com/watch?v=jRWhxgJ0gF4
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l82start
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Re: Age tilting the PP

Post by l82start » Sat Dec 10, 2016 10:10 am

the VP idea isn't meant to change the bottom line mathematical out come of your investments, its a "imaginary" circle to allow for simplifying the psychological complexities of investing, if you follow the original intent, the pp is money you wish to preserve, and the VP is money you are willing to gamble with or have different risk profiles or time lines for.. in that context a VP PP split seems easier to manage than an age tilting pp even if they are effectively the same idea...

keeping track of ones xirr for each individual imaginary circle and for the portfolio as a whole would seem to be a sensible full picture way to track/view performance....
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Re: Age tilting the PP

Post by sophie » Sat Dec 10, 2016 10:14 am

There most certainly is a VP. What would you call investing in Bitcoins, for example? A VP is for speculation, while investments are supposed to protect and modestly grow your assets. There's a huge difference between the two. Harry Browne recommended picking VP investments where the potential upside greatly exceeds the downside, as long as you accept that you may lose the whole thing, because the point is to earn more money faster than you can with a passive investment.

You obviously don't like the 25x4 PP but there's nothing wrong with that. Instead, you could opt for, say, a 100% passive stock portfolio. It's a form of investment that differs from the PP in that it is more volatile, may be subject to abrupt sharp drops in value (like ~30%), has been known to have periods up to 15 years with negative returns as well as the more recent periods with outsized returns. It may have higher returns over long time periods than the PP - although your time horizon may have to be longer than a natural lifetime to achieve that. But, it's a perfectly valid choice for an investment, and IT IS NOT A VP.

On the other hand, if you flip between investment schemes in an attempt to chase returns, then you're not really investing anymore - you're speculating, which brings you back to the world of the VP. Unfortunately, this probably isn't a good way to handle a VP, because the upsides are limited. Just ask all those active fund managers who fail to beat the performances of passive stock indexes two years out of three. But of course you can do what you like - just please try not to confuse new investors who may be reading these posts.

For more on this topic I highly recommend that you read this:

https://www.amazon.com/Best-Laid-Invest ... 0671672924

Back to the original topic...the PP is pretty darn solid on its own as a retirement portfolio, but if you want to reduce the volatility just dial up the cash portion like buddtholomew does.
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Re: Age tilting the PP

Post by I Shrugged » Sat Dec 10, 2016 3:50 pm

Sophie, it's interesting you used the term retirement portfolio.

That's what bugs me about recommending the PP to young people. I think they need more stocks than the PP provides. Okay maybe not 75%, but more than 25%.
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Re: Age tilting the PP

Post by Kriegsspiel » Sat Dec 10, 2016 4:14 pm

ochotona wrote:
Kriegsspiel wrote:It would be simpler to keep an orthodox PP and have a larger, stock-heavy VP while you are younger and you have time to make up any losses. As you get older, take some of your VP and reallocate into your PP. Maybe 90-age= maximum % in VP as a general rule of thumb.
This whole "VP" idea is out of hand. There is no VP. There are only the sum of your assets and liabilities. If you stay that young people should have a stock-heavy "VP", then you are agreeing with the original poster. Drawing a dotted line around some of the assets and calling them "PP" or "VP" doesn't change the outcome to you as an investor.
I meant it in the sense that l8 and sophie (and Browne) meant. At least for me, everything would be easier to keep track of.
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Re: Age tilting the PP

Post by Kriegsspiel » Sat Dec 10, 2016 4:30 pm

I Shrugged wrote:Sophie, it's interesting you used the term retirement portfolio.

That's what bugs me about recommending the PP to young people. I think they need more stocks than the PP provides. Okay maybe not 75%, but more than 25%.
Well, you don't have to tell them to put all their savings into a PP allocation. I'm just saying they don't have to put what's left into stocks, they could put it into rental houses, for instance. The VP concept is pretty flexible.
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Re: Age tilting the PP

Post by sophie » Sun Dec 11, 2016 10:47 am

Kriegsspiel wrote:
I Shrugged wrote:Sophie, it's interesting you used the term retirement portfolio.

That's what bugs me about recommending the PP to young people. I think they need more stocks than the PP provides. Okay maybe not 75%, but more than 25%.
Well, you don't have to tell them to put all their savings into a PP allocation. I'm just saying they don't have to put what's left into stocks, they could put it into rental houses, for instance. The VP concept is pretty flexible.
I said "retirement" because I got confused with someone asking in another thread about how to reduce volatility by increasing cash. You're thinking the opposite with the idea of adding stocks, although be aware that over time, 100% stocks may not, in fact, beat the PP. Still, you could keep a separate 100% stock portfolio (as some here do), and use the PP in place of the usual bond portion. That all falls under the realm of "investment", as long as you can keep your grubby paws off the 100% stock portfolio even when it drops 30% or more. Can you??? And can the young person in question?

I personally decided I don't have the stomach for such things. And, I wish I'd known about the PP in my 20s, when I was putting lots of money into stocks that I would later lose in the tech crash (about $80K worth if you'd like to know). I might not have been wise enough at the time to go with the PP, but in retrospect if I had, I could have gotten to my retirement goal a long time ago.
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Re: Age tilting the PP

Post by I Shrugged » Sun Dec 11, 2016 11:03 am

That's a good perspective Sophie. Thanks.

Part of my thought is based on how much I made in stocks in the 90s and how little I'm making in the PP now. So that is a definite bias on my part. No one knows the future, but I personally feel stocks are good for the long run. In fact, stock losses in 08-09 should have come back as of a few years ago, no?
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Re: Age tilting the PP

Post by I Shrugged » Sun Dec 11, 2016 11:05 am

You all might be able to tell that I'm not big on actual backtesting to fine tune things. I look at it, and I find it seductive. But I think it can be misleading or counterproductive. I'm more likely to think about what makes sense to me, and do that.
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Re: Age tilting the PP

Post by Tyler » Sun Dec 11, 2016 11:13 am

I Shrugged wrote:Sophie, it's interesting you used the term retirement portfolio.

That's what bugs me about recommending the PP to young people. I think they need more stocks than the PP provides. Okay maybe not 75%, but more than 25%.
Personally, I think the single best piece of advice in Fail Safe Investing is that your wealth comes from your career, not the markets. Save a high enough percentage of your income, and honestly market returns are mostly irrelevant. For me, the PP was perfect for taking market uncertainty out of the planning equation, and by protecting what I saved from deep market corrections it made me a more confident saver and investor. This allowed me to focus my financial independence planning solely on maximizing income and minimizing expenses. It's hard to express how much of a huge difference that change in mindset made for reaching my goals.

TL;DR : I think the PP is a great accumulation portfolio, too, and Harry's philosophy is spot-on.
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Re: Age tilting the PP

Post by eufo » Sun Dec 11, 2016 11:50 am

I'm fairly new to PP, but this idea seems to fly in the face of what the PP is supposed to be... a stable place to put your savings where you should see real returns during most economic events so you'll be financially stable. Just because someone is young doesn't mean they need more exposure to riskier assets, imo.

I've seen enough history documentaries and lived through enough tough times to realize that when you lose a bunch of money in the stock market, your life has almost always become a lot more unstable in the process... meaning income drops or is now gone because you're not the only one that lost money. Is this what we want our young people doing? They shouldn't have to learn the hard way that when everyone else is broke, it's a good time to have money.
Don't agree with me too strongly or I'm going to change my mind
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Re: Age tilting the PP

Post by Mr Vacuum » Sun Dec 11, 2016 2:12 pm

I Shrugged wrote:That's a good perspective Sophie. Thanks.

Part of my thought is based on how much I made in stocks in the 90s and how little I'm making in the PP now. So that is a definite bias on my part. No one knows the future, but I personally feel stocks are good for the long run. In fact, stock losses in 08-09 should have come back as of a few years ago, no?
Yep, that crash was bad but the drawdown didn't last too long for those who were able to hold.

I was in my twenties then and had read John Bogle's Little Red Book and was accumulating in all stocks. Luckily I wasn't paying attention and it had pretty much recovered by the time I discovered Fail Safe Investing and made the switch in 2014. I consider myself very lucky that I didn't panic and sell in the trough. Could I do it again? Maybe, maybe not.

The funny thing is the PP was the solution to the nagging feeling that I needed to take a more measured approach with less volatility than all stocks (Harry's back cover summary nailed me), but now that I'm in it I pay too much attention.
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Re: Age tilting the PP

Post by sophie » Mon Dec 12, 2016 8:00 am

I Shrugged wrote: In fact, stock losses in 08-09 should have come back as of a few years ago, no?
I find it ironic that when stocks reach "record highs", you can translate that as "only just recovered from the losses of 2008-2009". Similarly, the recent big runup should actually be viewed as "finally starting to show some decent returns after almost 10 years in the red, and almost 20 years of lackluster performance."

Tyler, your post as always is pure gold. That's absolutely my experience too: the key to accumulating wealth is to focus on earning and saving, not tweaking investments. Not to mention that it just feels less stressful and more productive. The book "The Millionaire Next Door" makes this very same point.
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