20% annual returns over 40 years...interested?

[Kbg]

Let's crank that max DD up to 13.39% since year start. -4.03% YTD.

[Kbg]

Through 3/20 performance

3xPP: 4.21/-13.38dd
1xPP: 1.83/-4.56dd

3x w/ XIV Twist: 5.13/-11.18dd

Realized leverage 2.3x/2.9x dd...not a whole lot of good trending going on

XIV is finally adding some value again

[dragoncar]

Through 3/20 performance

3xPP: 4.21/-13.38dd
1xPP: 1.83/-4.56dd

3x w/ XIV Twist: 5.13/-11.18dd

Realized leverage 2.3x/2.9x dd...not a whole lot of good trending going on

XIV is finally adding some value again

How convenient you didn't post last week :-P

[Kbg]

Through 3/20 performance

3xPP: 4.21/-13.38dd
1xPP: 1.83/-4.56dd

3x w/ XIV Twist: 5.13/-11.18dd

Realized leverage 2.3x/2.9x dd...not a whole lot of good trending going on

XIV is finally adding some value again

How convenient you didn't post last week :-P

It's all in the drawdown figures buddy!

Interesting thing about DD figures though. They are measured in such a way as to make you feel the worst you possibly can. 13.38% is a pretty harry DD for about a month and a halfish. Measured from the beginning of the year...a little over 3% DD. Watch out for that anchoring stuff though. It can make you do stupid things if you aren't careful.

[internationalcanuck]

I have read this whole thread it has been fascinating, and a wonderful education.  As I have just taken up stock investing this year, learning about the HBPP has been great in its simplicity and clarity of having a well-rounded portfolio, however as a younger investor with time on my side, I like the idea of leveraged ETF to take advantage of time, but still having that rounded portfolio, without actually trading on margin.
I have other investments in my superannuation retirement fund, and a separate long-time investment account, and today have shifted my "variable" money portfolio to this leveraged PP portfolio, however I made some changes, and welcome any thoughts on the concept:

33% SPXL (3x S&P 500)
33% TMF (3x Long term bonds)
33% DGP (2x Gold) instead of UGLD (3x Gold)
(keeping cash in a separate account/rainy day fund, so not including it in the analysis)

I didn't see anyone try portfolio yet like this of 3x 3x 2x leverage, as all ETFs were equally leveraged.
My reason for the 2x Gold instead of 3x gold leverage, is that 2x DGP seems to have a standard deviation closer to the 3x SPXL and 3x TMF etfs.  My reasoning is that a similar standard deviation would be a more stable overall portfolio with less decay.  I will post updates on the performance as it comes through.

Let me know your thoughts on the idea of using 2x gold leverage instead of 3x gold leverage mixed with 3x leverage of the other ETFs, I'm a newbie at this, so be kind 

[MachineGhost]

Let me know your thoughts on the idea of using 2x gold leverage instead of 3x gold leverage mixed with 3x leverage of the other ETFs, I'm a newbie at this, so be kind 

Your notional exposure is 264%, not counting cash!  You'll experience a de facto wipeout.

Standard deviation is only a function of the trailing measurement period.  If you don't have enough data and omit outliers, it will not be an accurate representation.  To make it work, the measurement period should be as long, but no longer, as your rebalancing period interval.

Right now, I have SPXL as 58.78%, TMF as 47.49% and DGP as 42.48% / UGLD as 54.05%.

You should probably read these threads:

http://gyroscopicinvesting.com/forum/pe ... #msg110588

http://gyroscopicinvesting.com/forum/pe ... #msg116285

[internationalcanuck]

Thanks for you quick response, will read those posts.
I do understand that it is a function of trailing period, which is why I looked at various time periods. 
Where are you getting those values from?  I have looked at 1-year standard deviation on portfolio visualizer, and 200-day volatility on etfdb.com.  My UGLD values are far higher than SPXL/TMF, DGP is much closer.  It's not exact, but it appears to trend to a similar volatility as SPXL/TMF more so than UGLD.

As for experiencing a wipeout, it's possible, which is why this is my "play money". Others have been using a leveraged ETF PP in this forum and it appears stable. Higher volatility than the unleveraged, obviously, but not outrageous volatility relative to the market.

Your notional exposure is 264%, not counting cash!  You'll experience a de facto wipeout.

Standard deviation is only a function of the trailing measurement period.  If you don't have enough data and omit outliers, it will not be an accurate representation.  To make it work, the measurement period should be as long, but no longer, as your rebalancing period interval.

Right now, I have SPXL as 58.78%, TMF as 47.49% and DGP as 42.48% / UGLD as 54.05%.

You should probably read these threads:

http://gyroscopicinvesting.com/forum/pe ... #msg110588

http://gyroscopicinvesting.com/forum/pe ... #msg116285

[MachineGhost]

Not following your logic either, MG. According to other posts you have made, the relative volatility to equalize stock / LTT / gold is about 33/52/15, so what ICanuck says kinda makes sense.

I give up.  I'm taking a break from the forum for awhile.

[ozzy]

internationalcanuck,

Suggestion – Instead of replacing the 3x gold ETF with a 2x, why not just reduce the 3x gold allocation?  For example, my backtesting shows this has been a good mix for long-term stability:

38% UPRO
38% TMF
24% UGLD

What I do is dollar-cost-average in every month.  This smooths it out.  So instead of fearing the volatility (draw-downs), I'm catching the dips along the way.

[Kbg]

IC,

You post a tough question...I won't answer it I will just lay out some things to think about.

1. How big a percent is this going to be as part of your overall portfolio? I personally think this is question #1 that should considered and should be the key to the cash question

2. Using 1x ETFs since 2005 with annual rebalancing the return has been 7.71% CAGR/-20.79% DD, so let's keep the math simple and say you are going to be 3x these two figures
-- For my mental math I always assume I'm getting the full 3x DD for planning purposes

3. Figure out if you are staying true to the philosophy of PP or not (are you trying to predict the future or not)
-- If you are staying true, don't mess with the percentages
-- Gold normally outperforms when stocks are doing poorly...so you have to ask yourself, do I want the gold to be juiced when stocks are going down or not...now a great debate is does the time when gold helps out outweigh the rest of the time when it is an utter sandbag. Think carefully through this question in light of this entire thread.

And now some numbers Jan 2012 to today using just stocks, LTTs and gold.

3x at 33.33% 16.96% CAGR/-26.70%DD
3x at 11.11% 5.93% CAGR/-9.68%DD
1x at 33.33% 3.80% CAGR/-11.62%DD
DGP & 3x 20.47% CAGR/-19.91%DD

And my normal performance post...Through 3/31 performance

3xPP: 2.14%/-13.38%DD (25% SHY)
1xPP: 1.14%/-4.56%DD (25% SHY)

3x w/ XIV Twist: 3.8%/-11.18%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

[Kbg]

Can you have your cake and eat it too?

I was reading the value of cash and retirement withdrawal rates as well as the cash is useless thread this weekend and got thinking...hmmm, maybe we can have both. Left side is 33.33% each and zero cash. Right side is 11.11% each of the 3x ETF equivalents and 66.67% cash. Less than half the max drawdown and check out the monthly average row. Quite interesting that the 3x version is actually less volatile as well, don't you think?

[Mark Leavy]

I recently had a chunk of cash to invest.  This is what I decided to do.

1) I'm a big fan of the PP and investing in economic diversity.
2) I think Shannon's daemon makes a whole lot of sense.
3) XIV (thank you kbg) is a highly volatile, revert to the mean ETN.
4) LT USA Bonds and physical gold are an excellent proxy for world cash.
5) This is crazy.  I have 3 assets with virtually zero nominal returns.  Bonds with 2.7% yield.  (is that better than inflation?).  Gold (equal to inflation).  XIV (by definition, mean reverting and less than inflation).  Yet... due to Shannon's daemon, it appears that better than risk free returns are possible).  And the Sharpe ratio isn't so bad either...

20% CAGR - without leverage
20% Maximum 10 year draw down.
50% of Net Worth in 30 year T-Bonds.
35% of Net Worth in physical gold.
15% of Net Worth in XIV (inverse volatility).

Really... what's the worst that could happen?  You have 85% of your assets in bonds and gold.  That's pretty much the definition of cash.

Wild economic swings only serve to trigger rebalances, pumping your assets up with each swing.

Well... at least that's my theory...

[img width=600]http://i57.tinypic.com/2wc46xs.png[/img]

Same chart with a log scale...
[img width=600]http://i57.tinypic.com/nb3qxs.png[/img]

[Kbg]

Mark...consider taking profits regularly on the XIV position.

[ozzy]

FYI - a relevent article to this discussion:  A Different View of Double-Leveraged ETFs.

"The authors go on to note that if a hypothetical double-leveraged broad market U.S. equity was held from 1951 through 2014, that make believe ETF would have generated returns 1.67 times better than its non-levered equivalent."

http://www.etftrends.com/2015/04/a-diff ... aged-etfs/

[Kbg]

Through 4/30 performance

3xPP: -.26%/-13.40%DD (25% SHY)
1xPP: .39%/-4.56%DD (25% SHY)

3x w/ XIV Twist: 5.31%/-11.18%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

XIV is totally carrying the port this year.

And just for fun

66.67% SHY and 11.11% 3x ETF equivalents: .17/-6.46

[Kbg]

Through 5/22 performance

3xPP: -1.14%/-13.54%DD (25% SHY)
1xPP: .76%/-4.56%DD (25% SHY)

3x w/ XIV Twist: 9.16%/-11.18%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

XIV continues carrying the port this year...a go nowhere market is simply awesome for XIV/SVXY performance.

And just for fun

66.67% SHY and 11.11% 3x ETF equivalents: .09/-6.46

[Kbg]

This year has been chop chop city so I thought I'd do a quick YTD for the big three and their associated 3x ETFs to see how we are doing on decay.

SPY: 1.87/3.47
TLT: .63/-1.00
GLD: -.1/-3.82

This hasn't been a super fun year for this port, but nothing out of expectations either. In my version...thank heavens for XIV. Crappy year for everything else, perfect year for XIV.

[Kbg]

Through May 2015 performance

3xPP: -.95%/-13.54%DD (25% SHY)
1xPP: .22%/-4.56%DD (25% SHY)

3x w/ XIV Twist: 8.18%/-11.18%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

And just for fun

66.67% SHY and 11.11% 3x ETF equivalents: -.13/-6.46

[Kbg]

1/2 year complete

3xPP: -6.63%/-16.77%DD (25% SHY)
1xPP: -1.84%/-5.64%DD (25% SHY)

3x w/ XIV Twist: .69%/-11.18%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

And just for fun

66.67% SHY and 11.11% 3x ETF equivalents: -2.64/-7.83

[dragoncar]

1/2 year complete

3xPP: -6.63%/-16.77%DD (25% SHY)
1xPP: -1.84%/-5.64%DD (25% SHY)

3x w/ XIV Twist: .69%/-11.18%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

And just for fun

66.67% SHY and 11.11% 3x ETF equivalents: -2.64/-7.83

I knew this would happen.  Do these numbers include any rebalancing yet?

[Kbg]

No. In my personal version I had an XIV rebalance.

[Kbg]

As of 7/31

3xPP: -6.94%/-18.49%DD (25% SHY)
1xPP: -1.90%/-6.24%DD (25% SHY)

3x w/ XIV Twist: 5.27%/-11.18%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

And just for fun

66.67% SHY and 11.11% 3x ETF equivalents: -2.78/-8.65

[dragoncar]

So I've been doing this for half a year now.  Haven't hit any traditional rebalance bands ("exposure" corrected).  Time to rebalance?

[Kbg]

As of 8/31

3xPP: -10.65%/-21.66%DD (25% SHY)
1xPP: -2.84%/-7.2%DD (25% SHY)

3x w/ XIV Twist: -12.24%/-20.85%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

And just for fun

66.67% SHY and 11.11% 3x ETF equivalents: -4.43%/-10.09%

Commentary...if I'm still posting this and for those who are paying attention the 3x ETFs are doing exactly they should mathematically. Notice the DD is pretty much in line with a perfect long term hold. We can expect volatility drag to get worse if the volatility of late should continue. However, in a perverse sort of way our draw down will get progressively/comparatively less as the market continues to sell off and there is less for the 3x to compound into the dust. :-)  If you actually did this with your hard earned savings, don't forget to rebalance based on whatever plan you decided to do. PP is my "give it up to the mkt gods and don't think about it" part of my portfolio so I shall rebalance at the first of the year. If you have a magic devining rod for bottoms, do it when you think you are there as missing the early part of a recovery is very not good for your investing health (stocks).

I try to stay out of the hand wringing in the normal PP parts of the board but I will comment on a couple of things.  If someone put a gun to my head and said pick gold or LTTs for the next 20 years. My first question would be can I time with my choice? If the answer was yes, I'd ask for the gold behind door 1. LTTs are mathematical. Your expectation should be the current interest rate of the duration you have. Full stop. It is highly likely the PP bond port isn't going to help much going forward (except to reduce some volatility when stocks tube). Stocks; is anyone surprised at a correction after a six year run? If you are, you are either not paying attention to market history or perhaps challenged in the mental faculties department. Just stick with your rebalance plan and you will do fine over the long haul. You should have sold off some last year and like going to the grocery store it is always good to buy when the prices are cheaper. Gold...I truly have no idea about this one cuz I don't know the future. However, if we continue to hang in this low interest rate enviro, gold ain't going anywhere nor should anyone expect it to. With my "THIS IS EDUCATIONAL NOT INVESTMENT ADVICE CONSULT A RIA FOR THAT" hat on. If I were older, I'd probably leave gold at the 25% standard PP. If I were building wealth I'd dial it down a bit to say 10-20% where you are going to get most of the benefit but not the associated drag over the long-term. The fact that the Fed is taking us back to normal should tell you that at least in the US deflation has eased off.

Best investment advice education I can give...figure out something you can stick with and do that.

[dragoncar]

As of 8/31

3xPP: -10.65%/-21.66%DD (25% SHY)
1xPP: -2.84%/-7.2%DD (25% SHY)

3x w/ XIV Twist: -12.24%/-20.85%DD (20% to SPXL, TMF, UGLD, XIV, SHY)

And just for fun

66.67% SHY and 11.11% 3x ETF equivalents: -4.43%/-10.09%

Commentary...if I'm still posting this and for those who are paying attention the 3x ETFs are doing exactly they should mathematically. Notice the DD is pretty much in line with a perfect long term hold. We can expect volatility drag to get worse if the volatility of late should continue. However, in a perverse sort of way our draw down will get progressively/comparatively less as the market continues to sell off and there is less for the 3x to compound into the dust. :-)  If you actually did this with your hard earned savings, don't forget to rebalance based on whatever plan you decided to do. PP is my "give it up to the mkt gods and don't think about it" part of my portfolio so I shall rebalance at the first of the year. If you have a magic devining rod for bottoms, do it when you think you are there as missing the early part of a recovery is very not good for your investing health (stocks).

I try to stay out of the hand wringing in the normal PP parts of the board but I will comment on a couple of things.  If someone put a gun to my head and said pick gold or LTTs for the next 20 years. My first question would be can I time with my choice? If the answer was yes, I'd ask for the gold behind door 1. LTTs are mathematical. Your expectation should be the current interest rate of the duration you have. Full stop. It is highly likely the PP bond port isn't going to help much going forward (except to reduce some volatility when stocks tube). Stocks; is anyone surprised at a correction after a six year run? If you are, you are either not paying attention to market history or perhaps challenged in the mental faculties department. Just stick with your rebalance plan and you will do fine over the long haul. You should have sold off some last year and like going to the grocery store it is always good to buy when the prices are cheaper. Gold...I truly have no idea about this one cuz I don't know the future. However, if we continue to hang in this low interest rate enviro, gold ain't going anywhere nor should anyone expect it to. With my "THIS IS EDUCATIONAL NOT INVESTMENT ADVICE CONSULT A RIA FOR THAT" hat on. If I were older, I'd probably leave gold at the 25% standard PP. If I were building wealth I'd dial it down a bit to say 10-20% where you are going to get most of the benefit but not the associated drag over the long-term. The fact that the Fed is taking us back to normal should tell you that at least in the US deflation has eased off.

Best investment advice education I can give...figure out something you can stick with and do that.

Cool, I was wondering if all this daily volatility was killing me with decay but hadn't calculated it out.  Unless I hit a normal rebalance band I'll probably rebalance in January which would be a year