Rebalancing bands

[Alanw]

As I posted previously, I have a majority of my investments in the PP with the remainder in VWINX which is conservative, has an excellent track record and pays a 3% dividend. I don't really look at it as a VP because I don't consider this fund as a speculative asset.
This reduces my gold allocation to 15 - 20% of my total investments and increases slightly my total stock and bond %'s which is where I want to be.  I'm comfortable with this allocation in retirement and it truly is a no brainer to manage.

[bedraggled]

With respect for Libertarian666's thoughts, the reason I mention deflation, and loosely follow Harry Dent and company, is that DXY, the US$ ETF is up 20% since May,2011, TLT is up about the same and GLD is down approximately 36% since the gold high.  With commodities down, including oil, this has the potential to indicate deflation.

So, as I form some thoughts on a VP with TLT or individual bonds at Fidelity, I open myself to question- even ridicule.

In a year's time, if conditions continue as they presently are, possible deflation, dare I consider 10% of my total assets in a VP holding long-term Treasuries?

[barrett]

Bedraggled,

We are not able to ridicule you until you reach at least 100 posts!

Seriously, if you overload on 30-year bonds up front and we do experience deflation, you will have done well. If we get inflation, your bonds will lose in value and you'll be closer to a 4X25 balance. I think it's a useful thought experiment to think about what you might do then. Add more long bonds?

[bedraggled]

Barrett,

You kind people have convinced me of the benefits of the 25/25/25/25 PP.  I am wondering as to a % of total assets to put towards long-term Treasuries in a VP.

[rickb]

Barrett,

You kind people have convinced me of the benefits of the 25/25/25/25 PP.  I am wondering as to a % of total assets to put towards long-term Treasuries in a VP.

Whatever you like - however, the total % is simply a starting %.  Browne's rules for PP and VP are that you can transfer from VP to PP, but not vice versa - i.e. if your VP ever significantly lags you can't top it up by transferring funds from your PP.  I think many of us have found that the PP sets a pretty high goal for long term performance and have VPs that comprise an ever dwindling % of total.

[bedraggled]

rickb,

Thanks for the thought on not dipping into the PP to help VP.  I would not do that.  It debases the whole philosophy.

Thanks

[bedraggled]

TennPaGa,

When I look at GLD, TLT, DXY (the Dollar index), oil and other falling prices on commodities, I wonder about a deflation ahead.

So, 5% or 10% in TLT may be an option for a VP.  I bump heads with Harry Browne here as I can't really lose 10% of the stash but in one year there might be a better indication of conditions.  If so, so less risk.  Fear of a bad move may be my best buddy.  Time to make haste slowly.

[buddtholomew]

TennPaGa,

When I look at GLD, TLT, DXY (the Dollar index), oil and other falling prices on commodities, I wonder about a deflation ahead.

So, 5% or 10% in TLT may be an option for a VP.  I bump heads with Harry Browne here as I can't really lose 10% of the stash but in one year there might be a better indication of conditions.  If so, so less risk.  Fear of a bad move may be my best buddy.  Time to make haste slowly.

If you fear deflation is on the horizon, then I recommend investing in a VP full of GLD  When everyone is leaning one way...

[bedraggled]

buddtholomew,

Point taken.

[bedraggled]

Am I correct that PP is up 5+% YTD?

[barrett]

Am I correct that PP is up 5+% YTD?

No, it's a bit better than that but everyone's PP returns vary slightly depending on a number of factors (which bonds they hold, where they have their cash, what premium they are paying for physical gold, whether or not they start the calendar year exactly at 4X25, etc.). I started my PP sometime in January and my individual LTTs are up about 20%. S&P is up 4.26%. Gold is up less than 1%. Using these numbers, if you get even a little bit of juice from your cash portion, you are up about 6.5%. But others will have different results for the reasons mentioned above... and that list is far from complete.

[bedraggled]

barrett,

Thanks.  Nice to see it is up year to date.  myhasty calculations are in the ballpark.

[Pointedstick]

http://www.etfreplay.com/combine.aspx shows that a TLT, VTI, GLD, and SHY portfolio is currently up +7.4% YTD, which is about 5.5% real, if you factor in inflation. Not bad!

[barrett]

Thanks for posting that, PS. Just realized that I forgot to add in dividends on the S&P. TLT behaves a bit differently than my individual bonds as well.

Yeah, I would take 5.5% above inflation!

[Alanw]

A quick glance shows my PP plus VWINX portfolio up 4.2% YTD after withdrawals for living expenses, etc. (Withdrawal rate is 4 - 5% annually). I'm quite happy living off the portfolio and watching it increase slightly.

[lefuso1978]

any one looked at selling or buying options to mitigate the rebalancing effects ?

[Mark Leavy]

any one looked at selling or buying options to mitigate the rebalancing effects ?

Can you expand on your thinking here?  I've looked at this in the past - multiple different ways and I have never seen a long term advantage to hedging with options.  It seems like there should be, but under scrutiny - no.  At least for everything I've seen.

Crisis events cause large asset swings - and those swings (in the *other* assets) are what save your butt when the world is falling apart.  Options will clip the highs and lows - but leave you overall less protected.  At least that is what I come up with.  Again, I'm just responding with my own biases here and I'm curious as to where you are headed with these thoughts.