I need a name for this portfolio

[dualstow]

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.

[mathjak107]

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 .

[dualstow]

@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.

[mathjak107]

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 .

[dualstow]

Sounds comfy. I hope to get there, too.

[mathjak107]

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 .

[dualstow]

I have no argument with you, if you're speaking about spending beyond the band.

[mathjak107]

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

[Tyler]

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.

[dualstow]

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.

[bedraggled]

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.

[dualstow]

Oh, gosh, there are wiser persons than myself that can better answer, 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*?

[Tyler]

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.

[bedraggled]

Dualstow and Tyler,

Thanks so much.

I am one of the lucky people with a pension and 25 years worth of savings. So...

I can set up a portfolio with Fidelity. Thanks to Barrett: T bonds and several others here, I will plunk down $65,000 for the portfolio.

Since I have the pension, I can take chances. I can easily go with 25% in gold (HBPP) or 20% gold (Golden Butterfly).

Heck, this may buck the philosophy but I could splitthe$65,000 three ways and, with cash in the bank, I don' need that "cash" position right now. And yes, this has a bit of heresy.

Finally, I can contribute a little bit each year through 2020.

Thanks for your time.

[dualstow]

Since I have the pension, I can take chances. I can easily go with 25% in gold (HBPP) or 20% gold (Golden Butterfly)..

I think either of those is great, something you can really stick with, and the sticking may prove to be more crucial than the final choice of assets. I don't see it so much as taking chances as holding on to your hard-earned money and growing it steadily.

Now, I have a feeling mathjak wants to say something different so I'll just step out of the way...

[mathjak107]

nope not at all . while i don't care for the pp , the gb since the election is in its prime time . i really like the gb for these uncertain times . while i was not happy last year with the gold and long term treasury's (which ended up a decent call) after the sell off after the election it was a good value .

i own TLT and GLD and GLD is my biggest gainer as of today .

[dualstow]

nope not at all . while i don't care for the pp , the gb since the election is in its prime time . i really like the gb for these uncertain times .

Are you running a Golden Butterfly, jak?

[mathjak107]

i have been test running one since the sell off with a substantial amount in it . these are the most uncertain times i ever remember .

the gb acts more like a growth oriented portfolio weighted for the odds markets will still be the lead horses .

[bedraggled]

BTW, I turn 62 in April.

With the pension, I can be aggressive. I do like substantial gold in case of a Black Swan. Any input is appreciated.

Thanks

[dualstow]

oh, younger than I thought then.

[bedraggled]

It' s just 'peachy' being over 60...but there is the pension.

[dualstow]

It' s just 'peachy' being over 60...

Sure beats the alternative, as they say.

I don't have a pension, but my wife and I are blessed with zero children, so that helps.

[bedraggled]

We have two adult offspring. My wife directed them to solid career paths. With there grad school loans paid and some savings they left with "Mom and Dad Savings Bank," I can now think of a portfolio.

Am I am heretic for putting aside the cash portion for now? There is some residual cash after the home sale. Things are cool.

This is a $65,000 start with a little more more in 2018, 2019 and 2020.

Thanks.

[dualstow]

Don't you want the cash portion?

[bedraggled]

I have some cash that I can call 'in the portfolio.' It is nearby. I want to jump in with both feet to start.

The Fidelity accounts are IRAs, therefore a bit restricted

And I am ok with a 4x25.

Now for your notions, please.