No where to hide

[mathjak107]

I don't see much deflation protection in that portfolio. Are you sure you're not optimizing for the economic conditions of the past? That's also a lot of stocks for a retirement portfolio, without many assets capable of rising in value when stocks decline or crash.

A portfolio should not be buy and die. it should  be nudged every so often like steering a big ship to fit the big picture.

at this point in time a conservative portfolio is all the protection needed as rising rates are what is doing the damage to the pp.

perhaps at some point in time the portfolio would shift slightly if it looked like hard core deflation was on the radar.

but at this point , nah , it just does not seem to be in the cards and the bond market is generally correct at calling things and they do not see that.

when the fed was raising rates in 2007 the bond market saw that was the wrong way to go.

they actually lowered rates and we had the famous inverted yield curve .

well the bond market was right again and the financial collapse was lurking.

now the bond market is raising rates and has been for months.

[Pointedstick]

If the bond market is correct, wouldn't an interest rate increase be already baked into the price? Isn't the fact that bond prices are falling proof that the bond market's previous forecasts were incorrect?

[mathjak107]

it is priced accordingly until further news says you still have more to go . investors want to be compensated more or less based on the instantaneous news and perception of that news .


each day the news points in an up direction and eventually that becomes the trend as the news continues. no different than a stock where the outlook changes based on news and perception daily.

prices only reflect what is known up to the moment. after that the price is based on what is just learned and the collective perception of that which was just learned..

[dutchtraffic]

The entire system cannot handle higher interest rates, higher rates means the system implodes on the spot, so none of your portfolios without gold survive.

Is there really even 1 person in here that actually believes the fed, or any other cb wants to raise rates? 

[Tyler]

Pulled from an old but similar thread.

Parable of the Two Farmers

Two brothers inherited parcels of land from their father.  The land was vast and diverse, and the weather was unpredictable.  One season bountiful rain would shower one end of the fields and the other would be in drought. While the next season the conditions would sometimes switch entirely.  Both brothers decided to farm the land to feed their families.

The studious brother researched the science of farming and meteorology.  He dutifully read the weather predictions for the upcoming season, portioned his seed to the optimum allocations, and moved all of his crops to the better fields each year to maximize yield.  He worked hard every day to till the fields and tend to crops as needed. 

The lazy brother took the same amount of seed and spread it widely over the entire land.  Every year some crops would grow wildly while some would wither and die.  At the end of the season, he would take the excess seed from the successful field and spread it evenly over the land yet again.  He spent most of his time painting landscapes on a hillside.

Many years in a row the studious brother had bountiful crops.  He boasted about his farming knowledge, and chastised the lazy brother for not working harder to maximize his yield.  "Why do you cast your seed into the dry ground, allowing half your crops to die every year?  How wasteful!"

Then one year the weather predictions were wrong.  The entire crop of the studious brother withered away in drought, while the lazy brother reaped the excess seed from the successful field as he does every year and spread it evenly over the land.  Approaching the lazy brother for a loan to re-seed his land, the studious brother was upset.  "How do you always have seed to lend?  You clearly know nothing about farming!"

The lazy brother smiled and replied, "While you spend all day maximizing your crops and cursing the weather, I take what mother nature gives me and never go hungry. And then I spend my life doing what I love and trading paintings for extra seed as I need it, which honestly isn't much.  The purpose of life is not to toil in the fickle and unforgiving fields.  Why waste it attempting in vain to grow crops beyond your needs?"

[mathjak107]

with all we worry about catastrophic events , the reality is a conventional portfolio used in retirement using at least 40% equities  has withstood  over 90% of every worst case scenario in history over any 30 year period while spending down 4% inflation adjusted .

not only that but 90% of the time you died with more than you started and 2/3's of the time died with more than 2x what  you started with.

that includes time frames with the great depression , world wars , the inflationary 70' and 80's , etc.

i would say betting the ranch on much more than that past  happening  and actually investing to bet on the remote flyer ends up being not the greatest financial decision. . that insurance against very remote possibilities  can leave you a whole lot poorer as opposed to betting on what was ,what is and what stands a good chance of continuing .

if you are afraid of getting whacked early on in retirement than a rising glide path can work beautifully without resorting to huge bets on other remote outcomes.  market downturns have always been a part of investing .

since getting whacked early on before a healthy run up can harm an entire retirement time frame , if you wanted to protect against that it can be easy.

just reduce your growth portfolio down to  35-40% equities leading in to retirement and increase equities back up by 2% a year over the next 15 years up to your desired allocation.

there has never been a single failure of any retirement time frame in history doing that.

it does cut gains a bit if we don't have the remote chance of an extended downturn  just as you retire but it provided all the protection any retiree to date needed.

i tend to think going forward the pp performance will be very different from the past , particularly ince it only existed during a 40 year bull market in bonds with the exception of a few hic cups and bumps along the way.  just look at the graph of rates during the pp's existence.


how do you think the pp would perform with such heavy bets on falling rates  if the next 40 years were the reverse ?

unlike equities which tend to have relatively short market cycles , interest rates do not .

[dragoncar]

Pulled from an old but similar thread.

Parable of the Two Farmers

Two brothers inherited parcels of land from their father.  The land was vast and diverse, and the weather was unpredictable.  One season bountiful rain would shower one end of the fields and the other would be in drought. While the next season the conditions would sometimes switch entirely.  Both brothers decided to farm the land to feed their families.

The studious brother researched the science of farming and meteorology.  He dutifully read the weather predictions for the upcoming season, portioned his seed to the optimum allocations, and moved all of his crops to the better fields each year to maximize yield.  He worked hard every day to till the fields and tend to crops as needed. 

The lazy brother took the same amount of seed and spread it widely over the entire land.  Every year some crops would grow wildly while some would wither and die.  At the end of the season, he would take the excess seed from the successful field and spread it evenly over the land yet again.  He spent most of his time painting landscapes on a hillside.

Many years in a row the studious brother had bountiful crops.  He boasted about his farming knowledge, and chastised the lazy brother for not working harder to maximize his yield.  "Why do you cast your seed into the dry ground, allowing half your crops to die every year?  How wasteful!"

Then one year the weather predictions were wrong.  The entire crop of the studious brother withered away in drought, while the lazy brother reaped the excess seed from the successful field as he does every year and spread it evenly over the land.  Approaching the lazy brother for a loan to re-seed his land, the studious brother was upset.  "How do you always have seed to lend?  You clearly know nothing about farming!"

The lazy brother smiled and replied, "While you spend all day maximizing your crops and cursing the weather, I take what mother nature gives me and never go hungry. And then I spend my life doing what I love and trading paintings for extra seed as I need it, which honestly isn't much.  The purpose of life is not to toil in the fickle and unforgiving fields.  Why waste it attempting in vain to grow crops beyond your needs?"

The Third brother, often forgotten due to his aversion to social gatherings, was an engineer.  He built an irrigation system to funnel water from the heavy rain fields to the drought stricken fields.  His crop consistently beat both his brothers and he spend his wealth on video games and Pokemon.

[mathjak107]

Mathjak107,

I would like to see your model.

so the final version i decided on is a mix of active and etf .

the version as it stands now :


fidelity growth and income fund FDGRX - had this and blue chip growth for many many years.

fidelity blue chip growth FBGRX

vanguard total market index vti

vanguard veu all world index etf

vanguard vig dividend achievers etf

that is the equity side.

the bond side uses

vanguard admiral total bond fund (now only 10% of the portfolio)

fidelity floating rate high yield

vanguard bsv short term bond

vanguard vtip short term inflation proof bond etf

10% GLD GOLD ETF

10% CASH which represents 2 years of retirement withdrawals and some emergency money.

i toyed and toyed with so many different models until i came up with a mix of what i thought would cover the areas i wanted to cover with as little interest rate sensitivity as i could which is why i left reits out of the portfolio at this stage.

if inflation picks up i will swap total bond for a real return fund like fidelity strategic real return FSRRX . that carrys to much weight in areas geared for higher inflation to be used at this stage in my opinion.

the model works out to 50% in equities , 30% bonds , 10% gold 10% cash

That's exactly my mix as well (5 additional funds in addition to the PP) - 50/40/10 with 50/50 US/INT, SCV and REIT and bonds across the yield curve (AVG 5.6 duration). It boils down to the individual's comfort with gold. which from the onset has been unkind. More equities and cash and a lower gold allocation.

i think with gold in a bear market a 10% stake is fine.  but much more than that i think would be foolish unless you start to  see big changes in the dollar.

even then , last time the worlds  central banks dumped dollars weakening the dollar further they bought inflation proof treasuries instead as a hedge.

that is what happened  a few years ago when the dollar weakened.


gold was still not the best investment to have.

in fact foreign bonds would have been much smarter.

in my own portfolio i played it by swapping funds .  i switched to fidelity export and multi national which did very well.  then as the dollar strengthened i switched back to more domestic funds.

that is what i mean by nudging a portfolio to fit the big picture.


folks are looking for a simple buy and die formula for investing but to do well there is none as things shift over time to major trends.

you do not have to make major bets on things , just try different funds with different weightings .

now with the 40 year bull market in bonds possibly coming to an end bonds may  no longer be  contributing to the party but taking away from it .  that may make the old buy a stock index fund and a bond index fund  and just leave  it not the best way to invest going forward..

you may have to be more dynamic swapping out different types of  bond funds over time  to keep from being sand bagged .


just look at how even with the issues in greece the dollar has been the big winner and gold is doing nothing but falling deeper in a hole.

you have to ask yourself  what price are you willing to pay for insuring the remote possibilities of things happening , that are even worse than the worst of the past ?.


eventually it can reach a point you give up so much in gains  that even if you fell from a more conventional mix you may be way a a head.

there is zero point in time after 20-30 years of growth even 100% equities would have not  been a winner .


i really would like to see the pp succeed going forward but i think the headwinds now will be far to strong for it to flourish .

[barrett]

mathjak, Are you unwinding your PP then? Just curious. You seemed to like it a couple of weeks ago.

Have enjoyed many of your posts on here.

[barrett]

That's exactly my mix as well (5 additional funds in addition to the PP) - 50/40/10 with 50/50 US/INT, SCV and REIT and bonds across the yield curve (AVG 5.6 duration). It boils down to the individual's comfort with gold. which from the onset has been unkind. More equities and cash and a lower gold allocation.

budd, I really do get how someone could be disappointed with PP performance this year. What is less easy for me to understand is why its performance bothers you so much when your actual, real-life portfolio is something very different. Looks like you hold a bunch of stocks, lots of different kinds of bonds and a slice of gold. That should be a good portfolio if you don't tinker. Just sayin'.

[mathjak107]

mathjak, Are you unwinding your PP then? Just curious. You seemed to like it a couple of weeks ago.

Have enjoyed many of your posts on here.

yes ,  I did it today.

I made the change before I got to far behind.  I think for being as close to retirement as I am it was bad timing trying the pp.

I think pp may work and I could be wrong but I wasn't happy the way the current environment was interacting at this point in time .

to close for comfort . but I still enjoy  talking about the pp and I think I will always have a certain fondness for it.

[iwealth]

if inflation picks up i will swap total bond for a real return fund like fidelity strategic real return FSRRX . that carrys to much weight in areas geared for higher inflation to be used at this stage in my opinion.

i think with gold in a bear market a 10% stake is fine.  but much more than that i think would be foolish unless you start to  see big changes in the dollar.

in my own portfolio i played it by swapping funds .  i switched to fidelity export and multi national which did very well.  then as the dollar strengthened i switched back to more domestic funds.

that is what i mean by nudging a portfolio to fit the big picture.

you do not have to make major bets on things , just try different funds with different weightings .

you may have to be more dynamic swapping out different types of  bond funds over time  to keep from being sand bagged .

I also really enjoy your insights (I really like that scenario of using a glide path to higher equities in retirement) but I highlighted the above quotes just to point out that you advocate a lot of arbitrary market timing. By arbitrary I just mean that there's no real hard rules in place, just loose guidelines like "if inflation picks up" or "as the dollar strengthens (or strengthened)." And that's fine, it really works for some people. You've made a lot of money using your intuition.

But in a passive investing community full of investors who've tried and failed at market timing, you are bound to get a lot of funny looks because what you are proposing is really hard to successfully accomplish and statistics say the vast majority will lose money if they try.

I hope you continue to post your portfolio moves in real time. I'd love to not only track the performance but also study the market conditions that lead to your decisions.

[barrett]

mathjak, Are you unwinding your PP then? Just curious. You seemed to like it a couple of weeks ago.

Have enjoyed many of your posts on here.

yes ,  I did it today.

I made the change before I got to far behind.  I think for being as close to retirement as I am it was bad timing trying the pp.

I think pp may work and I could be wrong but I wasn't happy the way the current environment was interacting at this point in time .

to close for comfort . but I still enjoy  talking about the pp and I think I will always have a certain fondness for it.

Well, you certainly were in the PP at a down moment. It can't be easy jumping into something and then watching it go down. I guess some of us have just come to a different conclusion... that we believe the PP can protect wealth over the long haul and that retirement is a good time to be in it. But we shall see. Certainly there are many ways to configure investments that will be effective over time. Hopefully we'll all still be around in 30 years to see how it all worked out!

[Tyler]

Mathjak - you should find a new rates chart that goes back to the 70s where the PP did just as well.

In any case, may your retirement go well in whatever portfolio you choose. My hope is that everyone here can find something they can stick with through good times and bad that tranquilizes both fear and greed.

[MachineGhost]

Budd, I checked my long-term buy and hold PP portfolio last night!

I'm down -40% on gold after 4 years, -40% on stocks after 9 years and even -4% on bonds after 9 years.  It's like an extended "Tight Money" hell that never ends all due to persistent yield chasing behavior and manager screwups.  I'm only in a small net profit portfolio-wise because of being 60% cash and having alternative/private equity investments.  Waiting for the reset that never seems to come involves GARGANTUAN tracking error.  That's nearly a decade of growth pissed away because I wanted to argue with the idiots instead of going with the flow.

So please put the PP's YTD in perspective.  I do agree the PP sucks in one way, though.  It's not a growth portfolio at all, just a wealth preservation, so the amount of time wasted on worrying about it is truly useless because what can you really do other than change the strategic weights, better diversify the assets or use trend following at price of lower returns?  Better to focus on your job or the VP for growth than to squeeze blood from a rock.  I also think there are better wealth preservation portfolios than the PP with less volatility and it's something I'm revisiting soon.

But frankly, I have no faith in anything or anyone but myself anymore, including the PP.  But again, what's the alternative?

[mathjak107]

Mathjak - you should find a new rates chart that goes back to the 70s where the PP did just as well.

In any case, may your retirement go well in whatever portfolio you choose. My hope is that everyone here can find something they can stick with through good times and bad that tranquilizes both fear and greed.

yeah , you know why it did well , check out those gains in gold. nothing like todays scenario with rates rising and gold falling too.

the rising rate years of past had gold running with the ball.

[iwealth]

-40% on stocks after 9 years

Is this a typo? Quickly checked VTI and see an 8.1% CAGR since 7/3/2006 for an approximately 100% return. Your dates will vary of course but it can't be that far off. And rebalancing affects it too, but still..

[LC475]

40 years, 40 years, 40 years....

You know, every once in a while I get annoyed at people throwing out a figure or alleged fact which does not appear to be actually true.  2015-40=1975.  So tell me, Reub and Reub-clones: in what sense were long-term bonds in a bull market in 1975?

1977, maybe?

1979?

I mean, come on.

[Tyler]

yeah , you know why it did well , check out those gains in gold.

But that's exactly the point!  And for all the complaints about rising rates and falling gold today, the PP is holding strong and is performing well within historical norms.

[Tyler]

The Third brother, often forgotten due to his aversion to social gatherings, was an engineer.  He built an irrigation system to funnel water from the heavy rain fields to the drought stricken fields.  His crop consistently beat both his brothers and he spend his wealth on video games and Pokemon.

The engineering brother was so stressed about trying to escape his day job that he kept buying new plots of land and building increasingly elaborate (and fragile) farming systems and eventually flamed out and resigned himself to paper pushing.

[mathjak107]

yeah , you know why it did well , check out those gains in gold.

But that's exactly the point!  And for all the complaints about rising rates and falling gold today, the PP is holding strong and is performing well within historical norms.

I see from 1975 to 1977 bonds did well and gold sucked , then 1978 to 1980 bonds sucked and gold did well.

overall returns were very good for the pp.

but we do not have  that happening today.    bonds and gold are tanking together now.

[Tyler]

And stocks have shot through the roof recently, balancing things out.  When that rally stops we'll see action elsewhere. It's a well-balanced machine.

If you really believe this time is different, I understand nothing I say will change that. To each his own. I genuinely wish you luck continuing to tweak things in the future.

[Cortopassi]

MG,

Not following your losses either.  S&P500 single point investment 9 years ago is 86.56%

Gold is -21.75% (4 years)

Bonds 83.33% (9 years)

[MachineGhost]

The losses I've reported are accurate.  I don't feel like explaining.  It was just for Budd's benefit.

[Pointedstick]

The losses I've reported are accurate.  I don't feel like explaining.  It was just for Budd's benefit.

If your losses are accurate, it seems apparent that you did not buy and hold. to be -40% on stocks after 9 years, most of which have been fantastic for stocks, you must have done something like panic-sold in 2008.