I need a name for this portfolio

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

Moderator: Global Moderator

User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

I need a name for this portfolio

Post by dualstow » Fri Dec 23, 2016 10:49 am

25% Total Stock Market
25% Small Cap Value Equities
40% Long Term Treasuries
10% Gold

https://portfoliocharts.com/portfolio/heat-map/
Sam Bankman-Fried sentenced to 25 years
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: I need a name for this portfolio

Post by sophie » Fri Dec 23, 2016 12:26 pm

Desert on steroids?
User avatar
I Shrugged
Executive Member
Executive Member
Posts: 2062
Joined: Tue Dec 18, 2012 6:35 pm

Re: I need a name for this portfolio

Post by I Shrugged » Fri Dec 23, 2016 8:57 pm

The Golden Barbell.
barrett
Executive Member
Executive Member
Posts: 1982
Joined: Sat Jan 04, 2014 2:54 pm

Re: I need a name for this portfolio

Post by barrett » Sat Dec 24, 2016 7:36 am

Backtester's Delight? The Kashless Kickass?

On a more serious note, I do think that any asset mix should include at least, say, 10% cash for practical reasons. Although that really only holds true up to a certain point. If you have 10 million bucks and live a modest lifestyle, you probably don't need a million dollars in cash sitting around.

Ray Dalio had 40% long bonds in the simplified version of his All Weather Portfolio, but I heard him talking a few months ago about how there was an "asymmetrical downside risk" in long bonds. I'm curious if he's still saying that with the post-election bond correction and the continued rise is stock prices.

The Double Dualstow also works (twice the long bond exposure of the the other leading asset mixes) . Kinda like a Triple Lutz.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: I need a name for this portfolio

Post by dualstow » Sat Dec 24, 2016 8:42 am

Interesting suggestions.

Yeah, it's fun to see how portfolios without cash do, hypothetically. Or have done.
Sam Bankman-Fried sentenced to 25 years
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: I need a name for this portfolio

Post by ochotona » Sat Jan 07, 2017 9:55 am

dualstow wrote:25% Total Stock Market
25% Small Cap Value Equities
40% Long Term Treasuries
10% Gold

https://portfoliocharts.com/portfolio/heat-map/
I've been thinking about something with Small Cap Values as a retirement account also.

30% Small Cap Value Equities
35% 10 year Treasuries
15% Cash
20% Gold
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: I need a name for this portfolio

Post by sophie » Sat Jan 07, 2017 10:42 am

dualstow wrote:Interesting suggestions.

Yeah, it's fun to see how portfolios without cash do, hypothetically. Or have done.
It is, but a portfolio without cash is really like playing a shell game. You need cash for lots of very good reasons, so you either hold it inside or outside your portfolio - but you hold it either way. It's not particularly useful to compare performance of a portfolio that includes your cash with one that counts your cash separately.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: I need a name for this portfolio

Post by mathjak107 » Sat Jan 07, 2017 11:19 am

the cash or short term bonds if used really should not be used for general spending in my opinion . that position forms the barbel for the long term bonds . it is an active part of the strategy and portfolio .

the cash is also like owning stock options for stocks at lower prices but with no expiration date .

that cash is an integral part of the portfolio and should not be a substitute for a bank account or emergency fund .

instead of 50% of the bond budget in long term bonds and 50% in cash or short term bonds if you had a 100% in an intermediate bond fund would you count 1/2 that intermediate term bond fund as cash ? of course not .

so that cash is not "spending cash " it represents 1/2 your bond fund budget and it serves a very definite purpose

it is no different than the short term bond positions in my conventional portfolio . it is all part of the investment strategy . i count no part of that as spendable cash unless i was forced to .

if i used the pp and spent down from it being retired it would always be in a state of unbalance with the cash not performing its roll very well .. i would always keep the spending cash separate and the investment portfolio strategy exactly what it is and not a replacement for my bank account .

what ever my investment strategy is , is my strategy . if it happens to include cash or short term bonds , then that is all part of the deal .
if you bought a mutual fund that did the same strategy would you subtract out the cash from your bank account ? of course not , the investment is what it is and any cash holdings are separate from the portfolio strategy .

if i used the pp i would still keep my 4% spending cash in cash and the portfolio , it's returns and strategy is separate .
Last edited by mathjak107 on Sun Jan 08, 2017 9:19 am, edited 4 times in total.
immelman
Junior Member
Junior Member
Posts: 1
Joined: Sun Jan 08, 2017 4:28 pm

Re: I need a name for this portfolio

Post by immelman » Sun Jan 08, 2017 4:44 pm

Hi all,

Today is my first visit to this forum and I'm happy for reading this thread. I've started investing one year ago and I had two portfolios: one PP and another Boglehead (80/20).
However, I was not comfortable dealing with both portfolios so I thought about designing something in the middle.
Therefore, after some weeks thinking about it, I designed a portfolio quite similar to the one proposed here:

50% stocks (25% EMU, 25% Intl)
30% bonds LT
10% gold
10% cash

It is tilted to prosperity because I'm young and I'd like to follow Bogle/Bernstein advice about having stocks if you are far from retirement. Besides, as other collegues have said, I think that in this kind of portfolio Cash is a must and it shouldn't be used as emergency fund or something similar. Its goal is providing stability and acting as "dry powder" to be used in a bear market.

Cheers!
User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: I need a name for this portfolio

Post by dualstow » Sun Jan 08, 2017 5:23 pm

Welcome!

Just to be clear, I only started the thread for fun! I'm a big believer in the pp, although I do tilt to stocks in my completely separate variable portfolio. Is dealing with two portfolios so terrible? O0

Hope you stick around, immelman.
Sam Bankman-Fried sentenced to 25 years
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

Re: I need a name for this portfolio

Post by sophie » Tue Jan 10, 2017 8:05 am

Desert wrote:One year of normal expenses in cash feels like a good ceiling.
Interesting topic for debate but bottom line is I don't think this is enough. Dualstow, do not regret starting this thread!!!!

One year is good for emergency expenses for most people (not all), but to cushion a retirement portfolio and allow you to avoid locking in losses by selling assets during a market dive, you need much more. I would guess 3-4 years at least, given that the PP and its related portfolios can be flat or losing for up to this amount of time. Of course, if you have a standard stock-heavy portfolio, your potential string of losing years is a lot longer than that (~10-15 years), but that's an impossible amount of cash to keep.

You might also be thinking that in the accumulation phase you don't need more than a year or two of expenses in cash. That might be, but the problem is...when are you going to transition from accumulation to retirement? It could happen at any time, e.g you could lose your job or become disabled tomorrow. The history of investing is rife with stories of people who lost their jobs during market downtowns and ended up wiping out their 401Ks. There's a great Frontline episode "The Retirement Gamble" that talks about this, although doesn't propose the obvious solution of holding a proper amount of cash.

I honestly think this is one of the best features of the PP. I started out like all of you, thinking that the cash allocation was a total waste in an era of near zero interest rates, but I've turned around 180 degrees once I figured out the above. It totally mystifies me that platoons of investment advisors have somehow managed to miss this point.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: I need a name for this portfolio

Post by mathjak107 » Tue Jan 10, 2017 10:05 am

we are retired . we have the current year in cash , one year back up in laddered cd's . then we have the short term bond funds and all the other bond funds we use as part of our portfolio after that if need be
User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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.
Sam Bankman-Fried sentenced to 25 years
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

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 .
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

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.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

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/
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

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 . .

Image
User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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).
Sam Bankman-Fried sentenced to 25 years
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

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. .
User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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'
Sam Bankman-Fried sentenced to 25 years
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

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).
User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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.
Sam Bankman-Fried sentenced to 25 years
User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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!
Sam Bankman-Fried sentenced to 25 years
tarentola
Senior Member
Senior Member
Posts: 100
Joined: Wed Aug 17, 2011 6:55 am

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%
User avatar
dualstow
Executive Member
Executive Member
Posts: 14234
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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.
Sam Bankman-Fried sentenced to 25 years
Post Reply