ahhrunforthehills wrote: ↑
Thu May 31, 2018 10:55 pm
The question was whether or not a HBPP or GB should theoretically have a different weighting (primarily in its cash component) as it scales due to its underlying principles since a very wealthy person would be at less risk of liquidating lagging assets to make ends meet during a recession.
No, according to PP principles the 4x25 weights stay the same regardless of the size of the portfolio. The four assets are weighted equally so that any one asset can buffer losses in up to three other classes.
The cash component, coupled with the rebalance band policy, ensures that the portfolio will "buy low" when volatile assets crash. A PP that is underweight in cash has less ability to buy-low, hurting long term growth, and that is true regardless of the size of the portfolio.
(One exception might be a new 401k saver who is contributing >10% to the portfolio each year in cash wages. They might be able to get away with underweighting cash since their cash contributions do the "buy low" part. But that's not true for the $20M scenario.)
I have daydreamed about how I would live off the interest of a multimillion windfall, and what I settled on is:
(1) Conventional 4x25 PP for "money I can't afford to lose," meaning more than enough to buy a sensible house and support a bourgeois lifestyle indefinitely, in the event of strife. Let's say $4 million so each asset is an even $1 million. Barring some kind of cataclysm this is never actually drawn down.
(2) The remainder in a Variable Portfolio of a tax-efficient, dividend-paying, global stock index such as VT. In the $20M scenario this is $16 million, which at VT's current 2.26% yield, pays $362k/year of qualified dividends. That's more than I can envision spending, but if it's not enough for you, blend in a high-dividend fund.
(1) is there so you can sleep at night through downturns, or to bail you out in a black swan scenario. Sitting on $1M each of gold bullion and T-bills should be plenty of sleep-at-night insurance. (2) provides sustainable and tax-efficient income and most likely will grow to a substantial legacy.