MadMoneyMachine wrote:
But yes, I do invest in the "Paul Boyer Permanent Portfolio" because I believe that I want extra risk for my equities. I believe Fama and French when they say small cap value has more risk.... I think I can stomach the non-correlation with S&P 500.
I think that this summarizes the issue very well. Fama and French demonstrated a premium on SCV and EM returns
over time. Furthermore, it's reasonable to believe that SCV and the general US stock market will correlate.
However, EM will not necessarily correlate with the US stock market. This could mean funny behavior during "prosperity" in the US, likely proportional to the amount of EM held in the stock portion of the portfolio.
This means that replacing a portion of the stock allocation with Emerging Markets could yield greater overall Portfolio volatility. While there may be other consequences as well, either positive or negative, this greater expected level of volatility seems like an intuitive one to expect.
None of this means that an SCV\EM mix is "bad". On the contrary, anyone that has paid attention to the Paul Boyer Portfolio has noticed that it has done damn well over time. I predict that it will continue to do well but will see more volatility than 4x25. I think that this volatility will be caused by the EM holding. Time will tell.