How much do you allocate to VP and what are your expected returns?

[Wonk]

I'm curious what other folks have as a split between PP assets and VP assets in percentage terms.  For instance, do you allocate 80% to PP and 20% to VP?  90/10?  50/50?

Also, what returns do you expect from your VP?  If we assume roughly 5% real return for PP assets, do you expect 7% real from VP assets? 10%?  20%?

[Lone Wolf]

I stay as close to 0% VP as possible, only using the Variable Portfolio when I am forced to do so.  My wife's 401(k) doesn't offer very appropriate fund choices, so I consider its contents to be VP until it can be rolled into an IRA.

It also appears that our 529 will have to be a part of my Variable Portfolio.  I have still not come up with an effective way to integrate it with the Permanent Portfolio (though I am still looking.)  It just seems too restrictive to do much else with it.

Back of the envelope, the split works out to roughly 85/15.  I'd prefer 100/0 but I can't make it happen.

[Wonk]

It's interesting, I guess not too many people have VPs.  The primary purpose of this thread was to see how others felt about the return they expect to earn from their VP vs. PP and how much risk they will take to earn that return.  For instance, if we can roughly assume 4-5% real returns from the PP, we have to assume that we will position ourselves to earn higher returns from our VPs, right?  It also leads me into what might be a controversial post.  I'll start a new thread for that.

[Jan Van]

30%PP, 70%VP
Like KevD, I'm slowly easing into the PP. The hope is my VP keeps growing and I'll be able to siphon off all the excessive profits I'll manage to make with my expert stock and etf picks...

[MeDebtFree]

When I adopted the PP, I put 80% of my net worth in it, leaving 20% for a VP.  I accepted that 20% as money I "could afford to lose" (not really but I don't believe that I will ever lose the entire 20%, but if I do then so be it).  Per HB's advice, I have not nor will I ever add new money to my VP.

As far as expected returns, no particular target.  If/when I am fortunate enough to have a 15-20% gain in my VP (which has already happened once), I will siphon off that extra $ and move it to my PP (so over time, my VP as a percentage of my net worth gets smaller).

This method feeds my thirst for speculating while generally keeping me out of trouble.

[pplooker]

50/50

While I have no idea what it will return, if I had to consider everything I've read and how people seem to make these determinations, I'd guess 6% maybe 7%.

It's worth remarking however my "variable" portfolio is a TSM index, the MSCI EAFE index, a US bond index, TIPS, and just a little cash.  While this seems "safe" and "orthodox" (if somehow flawed) to people who like to learn about investing, it's really very, very contrarian to the way most people seem to invest money.  I don't buy individual stocks or bonds (except treasuries).  The way I look at it, I take all my "risk" with my decisions to work in X career at Y job and I seem to be very bad at choosing careers, so why dare chance things more?

[Wonk]

Interesting.  I would have thought there would be more stringent demands on the expected rate of return.  For instance, we can reasonably assume that the orthodox PP should yield between 3-5% real if it is performing properly.  For our VP, I would think we should be seeking a bare minimum of 6% real to compensate for the added risk.

[pplooker]

Interesting.  I would have thought there would be more stringent demands on the expected rate of return.  For instance, we can reasonably assume that the orthodox PP should yield between 3-5% real if it is performing properly.  For our VP, I would think we should be seeking a bare minimum of 6% real to compensate for the added risk.

Cursory reading over the subject of investing, my own experience, and conversations with wealthy people have taught me that rates above a certain point are generally unsustainable, and that's taking into account some very aggressive investors, er, speculators.

Anything that shoots for 2% or better real return in what a reasonable person would anticipate is sustainable is fine by me.  My wealth, laughable as it is at times,  :D, does not come from investing and likely never will.  Investing is merely a way for me to take the surplus I generate for myself and send it into the future for a time I may not be able to sustain myself any other way.

It's really hard for me to wrap my head around investing concepts sometimes.  I like nice buttoned down numbers.  I have very good analytical skills, but understanding investing is hard for me because there's so many assumptions made at all points, so many different models, etc.  It took a lot of work to understand it as an art.

[dualstow]

I think that the most significant aspect of the VP is that for most of us, it probably existed before the PP. It can be difficult to let go of psychologically, and it can be tricky to unload it immediately without a tax bomb. Still, I'm aware that craigr just "got it over with" practically all at once.

So, I'm not expecting my VP to necessarily outperform the PP every year because I picked such great stocks. I just like the growing dividends.

New money will go to the PP.

[Wonk]

Clive,

Thanks for sharing your perspective.  I'd be reluctant to use data beyond 1972 as IMO it's just not going to give us a reliable data set.  Silver went in and out of monetization so I don't think it's necessarily a good proxy for gold.  You do make a good point that nothing is guaranteed--such as the 3-5% real that the PP has produced for 40ish years.  For instance, if the world would ever decide to go back to some sort of gold standard, it would alter the landscape for investors--especially in the permanent portfolio group.

[fnord123]

I'm at about a 20%/80% split between VP and PP.  Pretty much my entire VP is foreign stocks (35% VEU, 50% MSCI EAFE index, 10% MSCI EM Index) with the remaining 5% in a few high dividend American stocks that I keep around just because I like getting a few bucks in dividends here and there. 

My reasoning is that the PP is 75% tied to the American economy, with gold being the only part that is truly independent.  Having almost 20% of my total portfolio be in international stocks gives me additional exposure outside the US economy, providing additional diversification.

I have not closely tracked my VP, my estimate is that it has given me about 9% CAGR, while the PP over the same time period has yielded about 10.5%.

[Pkg Man]

I'm at about a 20%/80% split between VP and PP.  Pretty much my entire VP is foreign stocks (35% VEU, 50% MSCI EAFE index, 10% MSCI EM Index) with the remaining 5% in a few high dividend American stocks that I keep around just because I like getting a few bucks in dividends here and there.   

My reasoning is that the PP is 75% tied to the American economy, with gold being the only part that is truly independent.  Having almost 20% of my total portfolio be in international stocks gives me additional exposure outside the US economy, providing additional diversification.

I have not closely tracked my VP, my estimate is that it has given me about 9% CAGR, while the PP over the same time period has yielded about 10.5%.

I too like the idea of using the VP for international exposure.  I'm perfectly content to have a domestic-only PP but like to use the VP mostly for international, plus silver and the company stock I held on to.