Golden Butterfly Portfolio

A place to talk about speculative investing ideas for the optional Variable Portfolio

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vnatale
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Re: Golden Butterfly Portfolio

Post by vnatale » Fri Mar 20, 2020 8:12 pm

Kevin K. wrote:
Thu Jul 28, 2016 1:02 pm
I agree. They are evidence based but you can debate about how strong the evidence is.
I even believe in Small/Value having a higher expected return than a cap-weighted index. I also believe however, that the level of out-performance of small/value in all those backtest-tools is not likely to be repeated. The difference in CAGR between TSM and SCV is almost 3% a year from 1972-2015! I think it's fair to warn people not to get too excited by all those nice backtested graphs...
Bernstein himself expects the value premium to be much, much lower going forward.
Yes. Getting excited about backtesting at the expense of tactical asset allocation is something that Mr. Browne, Craig R and many others here have truly cured me from - at least most days!

I've posted the link below in another context but I think it might bear re-posting here for a couple of reasons. The author is the principal at one of the most savvy advisory firms through whom one can access DFA funds on a fixed fee rather than % of assets basis. There's a lot of great info on their web site, including the best explanation I've seen on the decisive differences between the DFA funds (which are not index funds) and their counterparts in the retail investing world. The points of interest in this particular article, it seems to me, are looking at how truly diversified equity allocations have performed during market crises, and (further on in the piece) a robust defense of gold that ought to be required reading for a lot of folks over on Bogleheads ;) .

http://www.evansonasset.com/?Page=18
I just clicked on the provided link. Then went to their home page.

They really don't seem to have anything there to entice a non-client. They seem to be more oriented towards existing clients. From going to various other pages on the web site it seems like almost all of them are a year older or more. The last analysis only goes through December 2018. I was fully expecting the home page to be directly addressing what is now going on. You writing that they offer a fixed fee is what made me go there in the first place. But for me to recommend to someone to use them (a someone who does not want to go Permanent Portfolio) I'd need to see right upfront their thoughts on today, more current writings, who they are, in other words far more effort / information / sell to turn a non-client into a client.

Vinny
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Re: Golden Butterfly Portfolio

Post by Tyler » Fri Mar 20, 2020 8:29 pm

vnatale wrote:
Fri Mar 20, 2020 6:49 pm
Stocks HAVE now done as you describe above. What is the feeling today after all we have been through? From reading what you've recently written I'm going to guess the feeling is that you still are feeling the love for the Permanent Portfolio?
Yep. :)

There's no hiding from the turmoil right now, but it's really hard to find something better suited to weather the storm than the Permanent Portfolio. And I've also gained a renewed appreciation for the role of cash in a portfolio when everything else is struggling.
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Re: Golden Butterfly Portfolio

Post by vnatale » Fri Mar 20, 2020 8:58 pm

Tyler wrote:
Fri Mar 20, 2020 8:29 pm
vnatale wrote:
Fri Mar 20, 2020 6:49 pm
Stocks HAVE now done as you describe above. What is the feeling today after all we have been through? From reading what you've recently written I'm going to guess the feeling is that you still are feeling the love for the Permanent Portfolio?
Yep. :)

There's no hiding from the turmoil right now, but it's really hard to find something better suited to weather the storm than the Permanent Portfolio. And I've also gained a renewed appreciation for the role of cash in a portfolio when everything else is struggling.
I was going to go stronger in my statement above but I did not want to put you too much on the spot.

But now after you have responded I can now fully say...."And, I'd fully expect no other answer from Resolute Tyler!"

You are one of the ones here who keep me on my path towards Permanent Portfolio (which I WILL achieve some day!).



Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Fri Mar 20, 2020 9:01 pm

vnatale wrote:
Fri Mar 20, 2020 8:58 pm
Tyler wrote:
Fri Mar 20, 2020 8:29 pm
vnatale wrote:
Fri Mar 20, 2020 6:49 pm
Stocks HAVE now done as you describe above. What is the feeling today after all we have been through? From reading what you've recently written I'm going to guess the feeling is that you still are feeling the love for the Permanent Portfolio?
Yep. :)

There's no hiding from the turmoil right now, but it's really hard to find something better suited to weather the storm than the Permanent Portfolio. And I've also gained a renewed appreciation for the role of cash in a portfolio when everything else is struggling.
I was going to go stronger in my statement above but I did not want to put you too much on the spot.

But now after you have responded I can now fully say...."And, I'd fully expect no other answer from Resolute Tyler!"

You are one of the ones here who keep me on my path towards Permanent Portfolio (which I WILL achieve some day!).



Vinny
I also want to add that early on in this Topic you were lamenting that you thought your Topic had been hijacked. However, here we are nearly five years later and with 40 pages of posts dedicated to it. I think you created a winner in more ways than one!

Vinny
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Re: Golden Butterfly Portfolio

Post by pmward » Fri Mar 20, 2020 9:25 pm

I actually like Ray Dalio's 4 environments as a correlary to HB's. They are both really saying the same thing but where HB names each, Dalio describes the underlying trends. Basically Dalio says that in any period of time inflation is either increasing or decreasing, and growth is either increasing or decreasing. So right now both inflation and growth are decreasing. This translates to what HB would call a deflation. Also, oil is plummeting, US dollar is running like it stole something, there are rampant liquidity issues causing turmoil in the markets, ETF's are basically broken right now (I mean BND, one of the largest and most liquid ETF's in the world, was tradings at a 6% discount to NAV this week!). These are all other hints that we are in a deflation.
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Re: Golden Butterfly Portfolio

Post by sophie » Sat Mar 21, 2020 10:17 am

Vinny - let me suggest a simple exercise. Go to the etfreplay site and click on "backtest" for free. Backtest the different PP components during mid 2008 to end 2009.

What you'll see is that gold and bonds did indeed react after the stock market tanked, but those three events occurred MONTHS apart. Now imagine yourself going through that time, with no knowledge of what was about to happen. You'd be tying yourself up in knots just like you are now, probably.

If I were you I'd focus on more important things right now, and just hang back and wait. Rebalancing as per your set bands is probably your best move.
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Re: Golden Butterfly Portfolio

Post by LittleDinghy » Sat Mar 21, 2020 3:30 pm

I"m sharing below our GB allocation percentages; it would be interesting to compare with others' GB (and PP) portfolios.

I had gotten into the habit of checking our allocation percentages at the end of every month, and Jan 31 was our highest total portfolio value since starting the GB last June with 20% in each asset. So these are our results since Jan 31, checked on 1/31, 2/29, 3/12, 3/16 and today 3/21. I also show the re-balance bands we have tentatively decided to use; we haven't yet reached them.
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Re: Golden Butterfly Portfolio

Post by Kevin K. » Sat Mar 21, 2020 4:25 pm

Nice charts!

I’m curious about why you choose different rebalancing bands for stocks.
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Re: Golden Butterfly Portfolio

Post by LittleDinghy » Sat Mar 21, 2020 5:52 pm

Kevin K. wrote:
Sat Mar 21, 2020 4:25 pm
I’m curious about why you choose different rebalancing bands for stocks.
Since the GB basically "tilts the [PP] portfolio slightly towards Prosperity" ( https://portfoliocharts.com/2016/04/18/ ... butterfly/), our thought is that the re-balancing band for stocks should reflect the combined stock allocation. For the lower limit we decided to just keep it equivalent to the PP, that is, 15/25 = 24/40, yielding the lower limit value of 24%. For the upper limit we just decided we'd never want our stock percentage to be greater than half our portfolio.

Would love others' thoughts on our reasoning.
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Re: Golden Butterfly Portfolio

Post by Kevin K. » Sat Mar 21, 2020 7:22 pm

I'd saved this from earlier in this now epically-long thread:

"Per the quote below, and others from the thread,Sophie recommends 30% re-balancing bands [20% plus or minus 30% of 20% (=6%), meaning a range of 14% - 26%]. You might wonder, as I did, why she did not recommend a 40% re-balancing band, such as used with the PP (meaning a range of 15%-35% for the PP and 12%-28% for the GB). My current understanding of her reasoning is that she does not want the percentage of any asset to go significantly below the lower limit for the PP's 40% re-balancing band, which equals 15%. 14% is only 1% below 15% and conforms to a nice round number of a 30% rebalancing band. My sense at this point is that this is her reasoning."

Earlier still Tyler himself suggested a simple 10/30% rebalancing trigger for the GB.

I must admit I'm tempted to permit myself a further tweak which I guess you could call the Tortoise Pulling His Head Into His Shell rebalance. Since the GB tilts to prosperity and we're going through what surely seems like a prolonged period where such sunny skies aren't in the forecast I've thought about just treating the GB as a PP and reverting to the 4 x 25% stock:gold:bond:cash targets.
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Re: Golden Butterfly Portfolio

Post by ppnewbie » Sat Mar 21, 2020 7:50 pm

Interesting Kevin. I’ve thought about rebalancing closer to the HBPP as well, instead of doubling down on stocks at this moment.
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Re: Golden Butterfly Portfolio

Post by LittleDinghy » Sat Mar 21, 2020 8:25 pm

Kevin K. wrote:
Sat Mar 21, 2020 7:22 pm

"Per the quote below, and others from the thread,Sophie recommends 30% re-balancing bands [20% plus or minus 30% of 20% (=6%), meaning a range of 14% - 26%]. You might wonder, as I did, why she did not recommend a 40% re-balancing band, such as used with the PP (meaning a range of 15%-35% for the PP and 12%-28% for the GB). My current understanding of her reasoning is that she does not want the percentage of any asset to go significantly below the lower limit for the PP's 40% re-balancing band, which equals 15%. 14% is only 1% below 15% and conforms to a nice round number of a 30% rebalancing band. My sense at this point is that this is her reasoning."

Earlier still Tyler himself suggested a simple 10/30% rebalancing trigger for the GB.

I must admit I'm tempted to permit myself a further tweak which I guess you could call the Tortoise Pulling His Head Into His Shell rebalance. Since the GB tilts to prosperity and we're going through what surely seems like a prolonged period where such sunny skies aren't in the forecast I've thought about just treating the GB as a PP and reverting to the 4 x 25% stock:gold:bond:cash targets.
Yeah, I'm pretty sure I wrote that explanation of my understanding of Sophie's thinking. That was when my wife and I were less sure what bands to use. Another way of thinking about the GB that has been mentioned is as "a PP with a VP of small cap value stocks" (quote from memory). Re-balance limits for the PP portion would then be 15% and 35% for each portion, which in terms of the whole portfolio, would be 12% and 28%. And one would want to keep the VP portion aligned, so might as well use 12% and 28% for that too. But then, I think somewhere on gyroscopic investing, someone mentioned that HB thought no one asset should ever comprise less than 15% of one's PP, which makes sense to me. So maybe the lower bounds of 12% should be raised to 15%. Then the lower bands for each of the five assets would be 15% and the upper band for each would be 28%. However, this allows for the possibility of the stock portion to get up to almost 56%. If one wanted to limit the total stock percentage to less than 50%, one could set limits on each stock portion to 25%. Or, alternatively, just limit the sum of the two stock portions to 50%. Thus, one arrives again at the limits we are using, with the exception that our lower limit for stocks is not 30%, but rather 24%. We arrived at 24% because, in alignment with the statement that the GB "tilts the [PP] slightly towards prosperity" (https://portfoliocharts.com/2016/04/18/ ... butterfly/) we use 24% for our lower limit for the full 40% stock portion because 24/40 = 15/25.
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Re: Golden Butterfly Portfolio

Post by sophie » Sun Mar 22, 2020 11:40 am

Yes, that was my thinking: I didn't want percentages to drop too far below the PP's safety zone, which is an asset comprising less than 15% of the portfolio. The GB is really a PP in which stocks are kept at the upper end of their "safety" range and the other assets at the lower end.

There was a discussion at some point about the 10% gold that the Desert Porfolio uses. While this is OK under most conditions and certainly was better than no gold in the 1970s, backtests during that period shows that 10% is inadequate and you needed at least 15% - which coincidentally is what Harry Browne determined for the PP. He said as much on an episode of his radio show - a caller said he had less than 15% in one of the assets, I think gold, and Harry Browne told him he didn't have a PP anymore.

There's nothing wrong with using 12-28% bands, it's just that for bonds and gold especially I don't want them dropping below 15%. I guess I'm still not entirely sold on the GB, but I was convinced that it makes sense to overweight stocks because we expect prosperity to dominate over the other economic conditions over long periods of time.
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Re: Golden Butterfly Portfolio

Post by vnatale » Sun Mar 22, 2020 8:16 pm

dualstow wrote:
Wed May 31, 2017 10:26 am
You and barrett drinking a lot of covfefe today, eh?
Anyway, I continue to be curious why people want to discount the gold runups of the 1970s and late 2000's
Well, you're so right, Sophie.
I would start by saying that I don't think Harry Browne made an error. There are smart people who like gold and smart people who don't like it. When you're playing with your own money, it leads to a lot more hand-wringing than merely reading a book and thinking, hmm, gold looks neat.

And while it's true that you could say the same about other assets, I suppose this has something to do with herd mentality. It's hard to shake the feeling that 10,000 Bogle fans can't be wrong. All those 60/40 portfolios that completely avoid gold and seem to be fine. (Yes, they might experience some pain in the future. One never knows). How many people have the converse, have gold and neither stocks nor bonds? Well, there's our Libertarian666. (sound of crickets)...and...a handful of people who aren't on the internet.

Let's say I did somebody wrong and my punishment is to sell everything and start a portfolio of pure treasuries. No problem. I could do that today, even knowing that inflation would probably ruin my plans. Same scenario, all stocks: hmm, a little bit harder, but I'd probably thank whoever's forcing me to do this in the long run. Like that movie in which Bette Midler's character thanks her captors for kidnapping her, because she finally lost weight exercising while chained up in their basement. All gold: yikes. I don't know.

(Could you answer my t-bill question now? :-)
Never mind, Tyler got it.)
Might?


Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Sun Mar 22, 2020 8:23 pm

Tyler wrote:
Wed May 31, 2017 4:29 pm
Desert wrote: Note: If one backtests starting in 1970, the conclusion will be that gold improves the portfolio significantly. If the backtesting starts in 1980, the opposite conclusion would be reached.
The way I look at it, you can always find a better or worse choice over a specific timeframe but gold improves the consistency of a portfolio across all economic environments.
A Tyler "gem" that deserves to be brought back to the forefront.


Vinny
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Re: Golden Butterfly Portfolio

Post by vnatale » Sun Mar 22, 2020 9:38 pm

sophie wrote:
Tue Jun 06, 2017 7:05 am
Kbg wrote:
sophie wrote:Why couldn't there have been fundamental reasons?

In 1978, US inflation (December -> December CPI) was 9% (average 7.6%). The 3 month Treasury bill was paying 6-7%. In 1979, inflation went up to 13% by CPI (average 11%). The 3 month Treasury bill in that year spent most of the year at 9%, and went up to 12% by the end of the year. At the time, several European countries had much lower inflation rates.

That sounds to me like the exact scenario (rising inflation to > 10% with cash interest slow to catch up) that would cause investors to switch from buying Treasuries to gold. You're forgetting also that while gold may have been controlled in the US earlier in the decade, it was not in many other countries, and they collectively have a lot of power to influence the gold price with investment choices. The US was big at the time, but most certainly not the only player in the world gold market.
Seriously...you don't think 1978-Jan 1980 wasn't a speculative bubble? I may give you 1978, but no way after that. Pretty much the definition of a bubble is up 400% in a year (79) and down by half the following year (80). Going near vertical in 2 months on a price chart is a pretty good tell as well.
Nope. Why would a bubble be defined purely from price movements, ignoring the conditions that may have triggered it? And still less, why do you attribute the gold gains in this period to something that happened almost a decade earlier? There was a lot going on in 1980 that I don't have time to research at the moment - maybe you should?

Gold and treasuries rose after the 2008 financial shock as well. Treasuries rose ~30% in a very short time in 2008. Was that a "speculative bubble", or a logical result of what was going on in the markets at the time? Regardless of the term you use, those events are precisely why you hold gold and treasuries. People holding PP's in 2008 were calmly rebalancing and reaping the gains from these drastic price movements, while everyone else was in shock at watching their retirement account balances almost cut in half. I'm HAPPY to know that gold can move that fast in the right conditions. That's the whole point of owning it as part of a balanced portfolio.


In 2029 I wonder what people will be writing about what Permanent Portfolio holders did in 2020 and what gold did during the year....

Vinny
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Re: Golden Butterfly Portfolio

Post by PP67 » Mon Mar 23, 2020 10:15 am

My simplistic way of potentially dealing with rebalancing a GB (which is just a HBPP + 20% VB for me) was to track the HBPP portion separately and when the HBPP portion hits a 15%/35% limit on any of the HBPP assets I would rebalance everything back to a GB allocation (20% in all 5 assets). My rational is that whatever environment caused one of the HBPP components to trigger a rebalance would probably hold true for a GB allocation as well.

I currently have 18.4% VTI, 27.2% TLT, 21.9% GLD and 32.5% "cash" in my HBPP portion which is getting close to the 35% limit. My GB allocation currently works out to be 16.7% VTI, 9% VB, 24.7% TLT, 20% GLD and 29.6% "cash". If my HBPP "cash" portion hits 35%, I would try to rebalance everything back to 20% each in a GB allocation (or as reasonably close).

Am I missing something or Is that too simplistic?

Appreciate any input!

Thanks!
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Re: Golden Butterfly Portfolio

Post by LittleDinghy » Sat Apr 04, 2020 7:33 pm

PP67 wrote:
Mon Mar 23, 2020 10:15 am
My simplistic way of potentially dealing with rebalancing a GB (which is just a HBPP + 20% VB for me) was to track the HBPP portion separately and when the HBPP portion hits a 15%/35% limit on any of the HBPP assets I would rebalance everything back to a GB allocation (20% in all 5 assets). My rational is that whatever environment caused one of the HBPP components to trigger a rebalance would probably hold true for a GB allocation as well.
...
Am I missing something or Is that too simplistic?
Thank you! I really like how your rebalancing approach aligns so nicely with the HBPP rebalancing approach. It is so rational and simple. My wife and I will probably adopt it. I'm wondering what others on this thread think of your approach.

Below are our portfolio dynamics since Jan 31 (the peak value it has had when I have checked it). GB allocation percentages are top left and HBPP portion percentages are top right. We haven't yet hit a rebalancing limit in either case.
20200331e_GldnBttrflyDynmcs.png
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Re: Golden Butterfly Portfolio

Post by frugal » Sat Apr 11, 2020 4:09 am

Hello !

The annual % profit on GBis bigger and the drawdowns are lower than PP

... how is this possible?

Please let me know your thoughts.

???

:o
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Re: Golden Butterfly Portfolio

Post by ppnewbie » Fri Apr 24, 2020 12:45 am

Here is a post from Tyler regarding recent drawdowns if the GB and HBPP.

https://portfoliocharts.com/2020/03/23/ ... ful-month/

My Modified GB went down around 9%.
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Re: Golden Butterfly Portfolio

Post by vnatale » Fri Apr 24, 2020 4:24 pm

mathjak107 wrote:
Thu Nov 19, 2015 8:56 am
no one knows what to expect this  time around . these are uncharted times with things right now so i would trust nothing but real time monitoring .

could we have a decade of rising rates back to the historic norms ?  could stocks be dead another 15 years and could gold go no where but down with rising rates ?

all very possible so any spending down plan needs a plan B .  WHICH MEANS Access to another level of just slightly more volatile assets once cash runs low . .

i wouldn't want plan b to have to decide whether to take a beating on gold , stocks or those long term volatile treasury's .

more and more i like what i see when running simulations with the various types of income annuty's as a base . but we are still a bit to young and rates to low for laddering them .

the new fidelity retirement planner has simulations you can add with various annuity types .

if someone is not retiring today or in the short term , this may all go away and resolve . but with the first 5 years of ones retirement being especially crucial  before the cushion of a run up there are no do overs if things do not go as planned  .

i had a very comprehensive consultation with my team at fidelity on monday and gave them lots of homework .  they are running all kinds of simulations for me with various social security points , pulling from  different  types of accounts and using various annuity products . 

we were supposed to meet again  on monday but they needed more time so i will report back .
1) Do you agree with what I once read that an insurance company annuity is not different than buying a bond from that insurance company. If you agree, would buy a direct bond offering from any insurance company?

2) I don't believe that you ever reported back.

Vinny
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Re: Golden Butterfly Portfolio

Post by Tortoise » Fri Apr 24, 2020 4:48 pm

I'd just like to take this opportunity to say I'm thankful that you're not an IRS agent, Vinny. If you were assigned to audit all of my old tax returns, I'd be in a world of pain. ;)
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Re: Golden Butterfly Portfolio

Post by vnatale » Fri Apr 24, 2020 4:56 pm

Tortoise wrote:
Fri Apr 24, 2020 4:48 pm
I'd just like to take this opportunity to say I'm thankful that you're not an IRS agent, Vinny. If you were assigned to audit all of my old tax returns, I'd be in a world of pain. ;)
A business for which I was its financial person underwent an IRS audit. The person they sent was with us for three days. At the end of the three days, he issued a "No Findings" report and told me that he could on his first day there that he was not going to find anything.

Vinny
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Re: Golden Butterfly Portfolio

Post by Tortoise » Fri Apr 24, 2020 5:36 pm

vnatale wrote:
Fri Apr 24, 2020 4:56 pm
A business for which I was its financial person underwent an IRS audit. The person they sent was with us for three days. At the end of the three days, he issued a "No Findings" report and told me that he could on his first day there that he was not going to find anything.
CEO: "Yo Vinny, we got ourselves a bit of a problem here. Some inquisitive IRS agent has been sniffin' around, and I don't like it. Why don't you make the problem, you know... go away?"

Vinny: "I'm on it, boss. You just rest easy."
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Re: Golden Butterfly Portfolio

Post by vnatale » Fri May 01, 2020 6:18 pm

mathjak107 wrote:
Thu Nov 19, 2015 5:43 am
that is the issue spending down from the pp.

all well and good you have 25% cash but now that you spent it down  below your rebalance point you have to rebalance and refill selling volatile assets . it may be  no different from leaving the cash and spending it down equally from the  other parts  right from the get go ..

in a typical bucket system you exhaust the cash , then refill from short and  intermediate term bonds which are no where near as volatile as stocks would be like long term bonds are. finally many years later sell equity's to refill bonds and cash

so instead of refilling from short and intermediate term  bonds which may be down a little you are selling long term bonds which are  something as volatile as the stocks  or selling stocks or gold which run an equal chance of being down as much you are trying to avoid selling at a bad time .

with the pp you do not really have a non volatile 2nd line of defense to draw from if rates rise . .

i think anyone spending down from the pp has to examine this and find away to provide a secondary source for spending without selling assets as volatile as stocks are .

perhaps an income annuity may add time to allow other assets to  at least recover before they are needed  and prolong rebalancing to cash .

i don't know , how it would shake out as i never looked at the pp in that regard .
Follow all you say here....however the part of "later sell equity's"....why "many years later"?

What if the cash bucket has depleted and there is also not much left in the next bucket and you have to sell equities? Are you not in the same position as regarding your criticism of the Permanent Portfolio System.

My understanding of the bucket system is that you have 3 years worth of spending in the cash bucket, 5 years in the next bucket, with the remainder in equities. And, as each year goes by you have to shift from the higher bucket to the lower bucket. Therefore, isn't the bucket system even worse in that it's guaranteed selling of equities each year while the Permanent Portfolio system is, on the average, once every two years?

Vinny
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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