buddtholomew wrote: ↑Mon Nov 12, 2018 6:57 pm
Tortoise wrote: ↑Mon Nov 12, 2018 6:52 pm
YTD performance:
PP: -2.9% return with 4.9% volatility
All-world 60/40 benchmark: -3.1% return with 7.7% volatility
So YTD, compared to a 60/40 portfolio, the PP has provided about the same return (slightly higher, actually) with 36% less volatility.
Tortoise, thank you for that.
Problem is the PP under-performed a 60/40 allocation over last 10 years (at least for me)...
Budd,
If you are so concerned with what the 60/40 portfolio is doing then I don't understand why you don't use the 60/40 portfolio? If you aren't using a 60/40 allocation then my question is why did you change? Was it 2002? 2008? The volatility?
There is a really great podcast episode that came out last week by J. David Stein on his podcast "Money for the rest of us" in which he points out that investing really shouldn't be about getting the maximum return, it's about having the minimum regret. (I forget how exactly he worded it, but I recommend that epsiode which you can find
here.)
Obviously if there were a portfolio that returned as much as 100% stocks with the risk of 100% bonds any of us would take it, but we have to decide where we want to be on the risk spectrum. If you have 50x your annual expenses in your account you can afford to just put the money into US Treasuries and live out your life in comfort. But will you suffer more regret not having put the money at risk than if you risked it and lost?
If you can only console yourself with a portfolio that beats or meets the 60/40 consistently then invest in the 60/40. If you want to beat it consistently then just go 100% stocks which would have CRUSHED the 60/40 over the last 10 years (it's been longer than 10 years since the crash now).
Just using Tylers site the 60/40 would have got you 9.02% annualized from 2009 to 2017, vs the total stock market getting you over 13% in the same time-frame. If you have the stomach for just throwing it all in VTSAX then do it, but if not then you shouldn't really complain if someone willing to take more risk than you got more reward, that was the risk they chose to take.
One of the things I've come to realize is that in the wake of 2008 there was a resurgence in "safe" portfolios. People learned quickly that they didn't have the risk-tolerance they thought they did, but I wonder where all those people were invested in 2007? Just look at this year for example. I was lamenting a few weeks ago how stocks were up nearly 10% this year while the PP was basically flat. Then in 1 week my YTD return was better than stocks, and I was reminded that I just don't have the stomach to tolerate that.
Investing is
NOT ALL ABOUT THE NUMBERS it is
ALWAYS ABOUT BEHAVIOR! The vast majority of investors under-perform their own asset allocations because they can't help but tinker, or change, or think "this time is different." Asset allocation is a way to help get the investors behavior in line with the numbers they want to see.
So I invest to minimize the risk of regret. The regret of being under-invested and missing out (I have my VP heavily invested in stocks), and the risk of being over-invested and feeling like I took too much risk (I have the bulk of my assets in the PP). Ultimately my Portfolio this year is down 4.5% which is pretty lousy, but ultimately I can console myself in knowing that I have more years to accumulate, and that performance is in line with what I would expect from my portfolio. In context:
(lost my tracking data from pre-2016)
2016: +12.205%
2017: +11.065%
2018: (- 4.053%) YTD (annulized)
Overall: +5.081%
So although 2018 hasn't been the best, I'm still well on track and +5.081% is good enough for me. I can hit all my long-term goals, and I don't feel like I have taken too much risk or left too much money on the table.
You need to decide where the minimal amount of regret is for you.
~DragonJoey3