MDY vs VTI?

Discussion of the Stock portion of the Permanent Portfolio

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upside
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Re: MDY vs VTI?

Post by upside » Mon May 09, 2011 3:28 pm

Drewskers wrote: I don't know what HB's last words were.
Listen to the radio show archives then.
Drewskers wrote: If these things have changed since 1999, then as far as I am concerned, it's not much of a "permanent" portfolio.
Wow, what a zinger. Things did change. Reread MT's last post.
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Re: MDY vs VTI?

Post by Drewskers » Mon May 09, 2011 3:32 pm

Page 108 of FSI again: "Use three funds, rather than one, so you're protected against mistakes any individual fund might make."

Page 110: "I haven't changed any of my fund recommendations in ten years".

Here's his list of funds on page 156 (followed by issuing companies, where he listed them):

Aggressive Growth Portfolio / Permanent Portfolio Family of Funds

American Century Growth Fund

Columbia Growth Fund

Evergreen Fund / Evergreen Keystone Service

Manhattan Fund / Neuberger & Berman

Morgan Growth Fund / Vanguard

Scudder Large Company Value Fund

Tudor Fund / Weiss, Peck, Greer
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Re: MDY vs VTI?

Post by moda0306 » Mon May 09, 2011 3:37 pm

I know we discuss Value vs Growth stocks, but I have to imagine that eliminating dividend paying stocks has to result in a more volatile portfolio... though this probably has been discussed and disproven and I'm just behind the curve here.

It just seems like if you could get a VTI without the large-cap dividend stocks (people (used to) often view these much like bonds) you could get the higher volatility you want out of your stock portion... and it'd be more tax-efficient too.
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Re: MDY vs VTI?

Post by MediumTex » Mon May 09, 2011 3:40 pm

Almost any stock market exposure is going to give you roughly acceptable results in a PP setting, whether it's small cap, mid cap, or total market, although an all large cap probably wouldn't give you the volatility you need.

I think we are talking about what might work best under all market conditions.  Given that small cap, mid cap and large cap all seem to have their day in the sun, I think HB came to believe that buying the whole market was the best approach.

On page 73 of my 2003 version of "Fail Safe Investing" HB wrote: "The most appropriate mutual funds are the S&P index funds."

I believe that HB spoke on his radio shows about his rationale for revising his earlier views and just buying the market rather than trying to pick which part of the market was going to provide the additional volatility that the PP is looking for in each asset class.
Last edited by MediumTex on Mon May 09, 2011 3:43 pm, edited 1 time in total.
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Re: MDY vs VTI?

Post by l82start » Mon May 09, 2011 3:46 pm

i thought at one point he even updated from recommending the s&p 500 to suggesting a total stock market index, but i could be wrong on that, and i don't know where to look to try to confirm it.
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Re: MDY vs VTI?

Post by moda0306 » Mon May 09, 2011 3:48 pm

So MT,

Regardless of MC, LC, SC, if you could get a VTI sans high-dividend stocks would you?  

l82,

I think this was a tweek made by Craig.  I could be wrong, as well.  Overall, I like VTI a lot, but I don't like that there are high-dividend paying stocks in what I want to be my volatile stock piece.
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Re: MDY vs VTI?

Post by MediumTex » Mon May 09, 2011 3:51 pm

I would still want the dividend payers, because I know crazy things like the Nifty 50 can occur (where in the middle of a bear market big blue chips can see their P/Es run up to the 60s and 70s against a backdrop of falling or stagnant equity values in the rest of the market).
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Re: MDY vs VTI?

Post by dualstow » Mon May 09, 2011 5:17 pm

MediumTex wrote: On page 73 of my 2003 version of "Fail Safe Investing" HB wrote: "The most appropriate mutual funds are the S&P index funds."

I believe that HB spoke on his radio shows about his rationale for revising his earlier views and just buying the market rather than trying to pick which part of the market was going to provide the additional volatility that the PP is looking for in each asset class.
I hold VTI and Vanguard's 500 Index fund, but I've often wondered about this. In 'Best Laid Plans..' (1987), Harry does stress volatility, and I see a list of funds much like those in Drewskers' post. (Hardcover, page 340).  In 'Fail Safe' S&P. In the radio shows, S&P. But, I never did find a show or book in which he commented on the change.
Last edited by dualstow on Mon May 09, 2011 5:19 pm, edited 1 time in total.
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Re: MDY vs VTI?

Post by Jan Van » Tue May 10, 2011 5:01 pm

Was think along the same lines as dualstow, also because I just read 'Best Laid Plans...'. If I went for midcap I'd probably go for the Vanguard ETF, VO. Expense ratio 0.12%. Or maybe for the extended market ETF, VXF. But then again, in the long run it probably won't matter that much, vti, vo, vxf... So why bother, except to satisfy that ever present tinker-itch?
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Re: MDY vs VTI?

Post by Drewskers » Tue May 10, 2011 10:24 pm

There is a free ETF portfolio back-test at ETFReplay:

http://www.etfreplay.com/combine.aspx

Using that site, I back-tested a portfolio of 25% each GLD, TLT, SHY, and VTI from January 3, 2006 to May 10, 2011. (The time frame was as long as I could make it given the date of inception for the youngest ETF).

Over that period of time there was a total return of 63.7%, volatility of 9.0%, Sharpe Ratio 0.65 and CAGR 9.7%.

The same back-test substituting VO for VTI gave a 66.4% return, volatility 9.3%, Sharpe Ratio 0.66 and CAGR 10.0%.

This seems under-whelming, but VO gained 35.6% over that time period, while VTI only gained 24.8%. Both are absolutely swamped by GLD, which gained 174.8%. If GLD had not been so strong (not to omit from mention, both long and short treasuries were also very strong at 29.2% and 22.4%, respectively), the beneficial effect of using VO rather than VTI would be more evident.

Of course, that is an extremely limited back-test period, and probably a very unique period at that!
Last edited by Drewskers on Tue May 10, 2011 10:40 pm, edited 1 time in total.
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