I need a name for this portfolio

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dualstow
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Re: I need a name for this portfolio

Post by dualstow » Tue Jan 10, 2017 12:55 pm

The strange thing, Sophie, is that I feel more stocks equals more cash on the way in the form of 2% dividends. Meanwhile, more cash equals mere future cents on the way. Of course, that is likely to change in coming years.
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Re: I need a name for this portfolio

Post by mathjak107 » Tue Jan 10, 2017 1:42 pm

the jury is still out as to whether cash buckets do a thing as opposed to just drawing equally from the pie of invested assets whether up or down .

most study's from those i consider the best sources found cash buffers give you no additional value.

the cash acts as a weight in bull markets and drags you down enough that there are equally as many times you would be better off just selling in a down market to raise cash and you would have still been ahead ..

i even found that to be true . prior to retiring we raised 2 years cash levels . i gave up so much in gains not having that money invested as we accumulated it that having the cash buffers actually has me behind where i would have been had i just drew equally from all parts of my portfolio for cash and kept that money invested .

keep in mind that is referring to money that is not part of a portfolio strategy such as the pp or gb . the cash plays an important role in those models and is not general spending cash , or at least it shouldn't be in my opinion .

the only exception would be getting hammered day 1 of retirement in a prolonged down turn before your first run up ..

while i use a cash buffer with 2 years withdrawals in it i do it more because it makes me more comfortable mentally . it likely has no practical reason though .
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Re: I need a name for this portfolio

Post by sophie » Tue Jan 10, 2017 5:26 pm

So where does "spending cash" come from then?

Assuming that you are dependent on the portfolio to provide at least part of your living expenses. If it's sort of a side hobby and you live on other sources, then I guess that's different.
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Re: I need a name for this portfolio

Post by mathjak107 » Tue Jan 10, 2017 5:37 pm

you just sell a piece from each part preserving your original allocation . there really is no data that suggests having a cash bucket to spend from in down markets really does much .

you develop a bigger cushion in the up markets that covers selling anything in a down market . here is what michael kitces had found

https://www.kitces.com/blog/research-re ... ket-timer/
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Re: I need a name for this portfolio

Post by mathjak107 » Wed Jan 11, 2017 4:31 am

interesting enough even spending down from 100% equity's in retirement has not been an issue . not many of us would ever do it but if you had done it you did okay even through the worst of times .

the bigger cushions on the way up make the drops less of an issue . heck ,had i stayed in cd's my entire life i could lose half my portfolio today and be way ahead .

the only bump in the road is getting hammered before your first run up .

our first year in retirement came in up about 1% in 2015 while spending 3.50% . with the start of year two last year we thought we would be the poster child for getting hit right out of the gate with poor sequencing but we did okay by years end clocking in at almost 8% with a 40/60 model .

but there are ways of protecting the early years using a rising glide path or an spia base . but once you have a run up spending down directly is no problem . we just fear it but financially it has never been a problem . 75% and 50% equity's did a bit better thanks to a 35 year bull market in bonds with a few speed bumps along the way but 100% equity's spending was right in the area . .

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Re: I need a name for this portfolio

Post by dualstow » Wed Jan 11, 2017 5:19 am

Besides work, I guess spending cash comes from interest & dividends. Whatis not spent is reinvested.
( I do hold the pp, with the full 25% in short term notes).
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Re: I need a name for this portfolio

Post by mathjak107 » Wed Jan 11, 2017 6:25 am

we prefer to reinvest dividends and let them grow and keep each years spending in cash ready to go . our distributions can range from 29k to 69k or so from our funds so they can vary yearly . it is to much effort to scramble in real time selling and trying to fill short falls . so by starting out full we have a safe ,secure and consistent income stream for the year .

we just found this works for us. all the stuff coming in like dividends and interest go towards filling future budgets .

like i mentioned above any portfolio cash used for a purpose in the portfolio or short term bonds are separate and have nothing to do with our spending needs . the same amount of cash for spending needs would be held whether the portfolio utilizes cash like the pp or gb or a more conventional cash free model .

whatever the portfolio strategy is and whether it requires a cash position is totally separate from our bank account needs . the portfolio return stands on it's own as intended based on the allocations the model calls for .

what i don't do is try to use the cash or short term bond portion in the portfolio as a substitute for what we need in a bank account for spending yearly.

you may get away with that with an emergency fund but in my opinion the portfolio should be kept as a unit with all parts functioning in their intended roll. .
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Re: I need a name for this portfolio

Post by dualstow » Tue Feb 07, 2017 9:04 am

After rereading Tyler's new Larry Portfolio entry at portfoliocharts, I started playing around and ended up with:

Code: Select all

50% smallcap blend // this is in fact the largest portion of my pp's equity portion
50% short-term treasuries 
I call it Short & Sweet'
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Re: I need a name for this portfolio

Post by sophie » Tue Feb 07, 2017 11:21 am

You mean for the non-PP portion of your investments?

Interesting. What did you compare to and what were the results? Like, compared to a standard 3 fund portfolio (US total market, international stocks, total bond).
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Re: I need a name for this portfolio

Post by dualstow » Tue Feb 07, 2017 11:26 am

Every portfolio in this thread is just a virtual one. Go to portfolio charts and replace the default 60/40 with the two holdings mentioned above. Pretty cool.

I do own a smallcap blend fund (VSMAX) and that is a sizable part of my pp, but I don't plan to really implement the Short & Sweet portfolio. I just like playing with Tyler's calculator.

Why isn't the pp pure S&P500 or total stock market?
Ans.: I owned the smallcap blend before I discovered the pp and I think it's fine for the equity portion. It's doing great. I did add some S&P fund some time ago when I needed to buy more stock for the pp.
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Re: I need a name for this portfolio

Post by dualstow » Tue Feb 07, 2017 12:09 pm

Desert wrote:dualstow, I just took a quick look at your Short & Sweet, and it looks very similar in past performance to a 60/40 3-fund portfolio. Identical Sharpe ratio, in fact.
Interesting!
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Re: I need a name for this portfolio

Post by tarentola » Wed Feb 08, 2017 8:23 am

On the subject of keeping cash in the portfolio: one of the arguments for cash is to provide a spending reserve, so that in the event of a long bear market you will not have to sell any investments at a loss. You can live off your cash reserve and wait for better times.

If you are willing to do that, why not set up your risk investments for maximum gain, even at the risk of short-term loss? On Seeking Alpha, Eric of Servo Investments has written a series of articles in which he makes the point that total returns over time are maximized by investing in globally diversified equity types (see list below), and each year taking income from the winners, or from your short-term bond investments if there are not enough equity gains.

He makes the point that in most years, some stock types will gain even if the benchmark US Large Caps lose. I have summarized his example list of investments below. He keeps a PP-like 20 % in cash-like investments. For details see the link.

He also defends his thesis (successfully, in my view) against the numerous advocates of high-yield stock investing on Seeking Alpha. I don’t think I could stand the volatility, which is why I have a PP, but I think this is a great idea for a VP.

Eric gives a detailed example here:
http://seekingalpha.com/article/4012097 ... retirement

He gives the example of an 80-20% stock-bond portolio:
Stocks 80%, of which
  • USA large cap 20%, large value 20, small cap 10, small value 10, REIT 10, total 70%
    International of which large value 10 %, small cap 5, small value 5, total 20%
    Emerging Markets of which EM 3 %, EM value 3, EM small cap 4, total 10%
Bonds 20% of which: 1y fixed income 5%, 2y global 5, short term govt 5, 5y global 5%
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Re: I need a name for this portfolio

Post by dualstow » Wed Feb 08, 2017 9:00 am

tarentola wrote:On Seeking Alpha, Eric of Servo Investments has written a series of articles in which he makes the point that total returns over time are maximized by investing in globally diversified equity types (see list below), and each year taking income from the winners, or from your short-term bond investments if there are not enough equity gains.
That seems to be the majority opinion at bogleheads- well, opinion supported by stats- that although it is psychologically pleasing to want to live off dividends, it is total return that counts. And yes, you can always sell shares for income.

It's a point that Larry Swedroe (of the "larry" portfolio) drives home often.
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Re: I need a name for this portfolio

Post by mathjak107 » Wed Feb 08, 2017 9:03 am

the problem with using the cash in the pp for spending is that cash serves two purposes . it creates the barbell for the long term bonds balancing out the duration . the cash also acts as stock options to buy stocks at lower prices but with no expiration .

that cash is an integral part of the portfolio and in my opinion should not be used for spending cash .

if anything maintain the balance of the pp or gb and spend equally from the pie . there is no real advantage to using the cash in down markets . spending the cash just makes it simply not there to buy stocks when they are down hurting you in reverse as well as adding higher risk of interest rate rises since now your bonds barbell is unbalanced . .

cash is an integral part of the portfolio and should not replace the money in your account you live on or use to cover unexpected emergency's .
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Re: I need a name for this portfolio

Post by dualstow » Wed Feb 08, 2017 9:11 am

@mathjak, of course you're not supposed to spend the whole cash portion. If that happens, the pp is probably too large in the first place.
If you don't have income from work and your interest & dividends are not enough, you need to have the right size portfolio that allows for some spending.

I could be misquoting, but I believe Craig wrote that it's fine to spend from cash, portion and if it dips below your rebalancing band, you sell the other assets to return to equilibrium.

Which is not *that* different from what you wrote-
spend equally from the pie
except that you would start out by (conveniently) spending what's in cash first before converting other assets to cash by potentially tax-generating sales. Hopefully, spending won't bring you down below the band in the first place.
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Re: I need a name for this portfolio

Post by mathjak107 » Wed Feb 08, 2017 9:13 am

i am retired and all our spending cash for the year is isolated and separate from what goes in to the portfolio . we just allocate less to what could be in the portfolio but we have a safe ,secure consistent income stream that is not dependent on the whims of markets , rates and dividend cuts .

the portfolio is just that , a cohesive unit that needs all it's parts in full to function .

it is no different than me spending the short term bond section in my conventional portfolio to live . it destroys the cohesiveness of the portfolio balance .

i don't really see the point of spending the short term bond portion or cash when i would have to sell the other assets in a down turn anyway to rebalance if i spent the cash down . sure you could wait but wait for what and how long ? in the mean time the portfolio is exposed and unbalanced and you don't have the cash to buy stocks in that down turn .
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Re: I need a name for this portfolio

Post by dualstow » Wed Feb 08, 2017 9:17 am

Sounds comfy. I hope to get there, too.
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Re: I need a name for this portfolio

Post by mathjak107 » Wed Feb 08, 2017 9:21 am

think about it , you are spending down the very cash in a down turn that is supposed to be buying more equity's . you are doing the reverse damage.

a portfolio strategy is just that . some use cash for specific reasons , some don't . but the ones that do have that cash as an integral piece of the plan should not be a proxy for a bank account or checking account or even your emergency money in my opinion . if the cash wasn't needed in its entirety it wouldn't be there

it is like fighting a war and pulling from one front to sure up another front wins a battle but can lose the war . each thing we need money for has a dedicated job to to do , again in my opinion .
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Re: I need a name for this portfolio

Post by dualstow » Wed Feb 08, 2017 9:32 am

I have no argument with you, if you're speaking about spending beyond the band.
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Re: I need a name for this portfolio

Post by mathjak107 » Wed Feb 08, 2017 9:47 am

really i mean any un-necessary spending of cash since every dollar spent is a dollar less of cash that can buy equity's in a down market as example , without selling off potentially more productive assets. you are spending your stock options portion of your portfolio ..

i think having a plan that keeps your hands off the portfolio is worth doing . it should not end up a proxy for your spending accounts .

in fact we find our dividends and distributions can range from 29k to 69k in any given year so we reinvest the dividends where they can grow over time and don't make them part of current year spending . if things fall short you first have to scramble to sell things to fill the gap .

we find we are better off putting everything that comes in towards next years spending not current , but that is just our own method of doing things . we find that gives us the most consistent cash flow with the least amount of scrambling because of shortfalls
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Re: I need a name for this portfolio

Post by Tyler » Thu Feb 09, 2017 11:39 am

dualstow wrote:After rereading Tyler's new Larry Portfolio entry at portfoliocharts, I started playing around and ended up with:

Code: Select all

50% smallcap blend // this is in fact the largest portion of my pp's equity portion
50% short-term treasuries 
I call it Short & Sweet'
I like it. It's surprisingly efficient for how simple it is. I could see something like that as a particularly nice portfolio in a 401k with limited fund options.
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Re: I need a name for this portfolio

Post by dualstow » Thu Feb 09, 2017 12:23 pm

Tyler wrote:
dualstow wrote:After rereading Tyler's new Larry Portfolio entry at portfoliocharts, I started playing around and ended up with:

Code: Select all

50% smallcap blend // this is in fact the largest portion of my pp's equity portion
50% short-term treasuries 
I call it Short & Sweet'
I like it. It's surprisingly efficient for how simple it is. I could see something like that as a particularly nice portfolio in a 401k with limited fund options.
I finally starting using portfolio visualizer, as it's so popular, and what really gets my attention is how different portfolios react to contributions. Usual disclaimer about data mining, backtesting, yadda yadda, but wow. It often works toward evening the score with wildly different portfolios. And I'm talking about a modest annual contribution, like $8,000 a year over the course of one's career.
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Re: I need a name for this portfolio

Post by bedraggled » Thu Feb 09, 2017 12:34 pm

Dualstow,

Based on your thoughts re small annual contributions making a difference in a portfolio, what are your favorite portfolio(s)?

I am just setting up mine this month. Things take time.

Thanks.
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Re: I need a name for this portfolio

Post by dualstow » Thu Feb 09, 2017 12:40 pm

Oh, gosh, there are wiser persons than myself that can better answer, O0 but I would recommend looking at portfoliocharts and portfolio-visualizer and paying attention to those portfolios that contain a significant amount of short term treasuries vs very stock heavy portfolios. (Some of this is common sense, as we all know stocks take time, often decades, to capture the gain that you're looking for). This includes the pp.

Then, do the same while paying attention to gold.

You're an older fellow if I remember right. I am torn between the above and articles that say you should invest like you're going to live forever, and that means plenty of stocks.

When you say you are just setting your portfolio up, do you mean variable portfolio (vp) or...? You're resetting *everything*?
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Re: I need a name for this portfolio

Post by Tyler » Thu Feb 09, 2017 12:47 pm

dualstow wrote: what really gets my attention is how different portfolios react to contributions. Usual disclaimer about data mining, backtesting, yadda yadda, but wow. It often works toward evening the score with wildly different portfolios. And I'm talking about a modest annual contribution, like $8,000 a year over the course of one's career.
Very true.

Imagine you have about $100k saved up and decide you really need to get serious about investing. So you research a dozen different portfolio options and agonize over a few basis points of expense ratios here and maybe even a full percent in average returns there. Well after all that, finding a way to save $8k a year (~$300/paycheck) will juice returns by a full 8% blowing your other efforts out of the water.

People really underrate the saving side of the investing equation.
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