No where to hide

[MachineGhost]

nope no pp for me in retirement just a  plain ole 50/50 mix  using less interest rate  sensitive bonds .

Why not use the PP but adjust the duration of the T-Bonds?

[buddtholomew]

nope no pp for me in retirement just a  plain ole 50/50 mix  using less interest rate  sensitive bonds .

Why not use the PP but adjust the duration of the T-Bonds?

Mentioned it twice already.

[mathjak107]

nope no pp for me in retirement just a  plain ole 50/50 mix  using less interest rate  sensitive bonds .

Why not use the PP but adjust the duration of the T-Bonds?

Mentioned it twice already.

because there is no reason to use it in any form if you are not using it  100% in its designed form  in my opinion and in fact can create a very very risky retirement mix by doing so because  as you drop equity levels  retirement success rates are  worse and worse. if you cut the fighter cover on those low amounts of equity's by shortening up the bonds you may wreak havoc on the design.

anything less than 40% equity's  has failed way way to many times over and over to be  trusted. the worst case scenario's can't survive the low equity levels since the money never develops the cushion in the good times to support the bad times .  111 rolling 30 year time frames have shown that to be the case over and over and over.

so i put my own model together which i will refine over the near term even more likely ditching all of the the do nothing gold and redistribute that  into an extended market fund and international world index fund ,  i sold half the gold off yesterday and added  VEU and VXF to the mix    ,  eventually going to the traditional 50-60% equity mix commonly used for retirement .  50/50 and 60/40 being the industry standard if you want to call it that.  it has survived the worst of the worst time frames in retirement over and over including the great depression , the world wars and the high inflation 70's and early 80's.


it works on the same concept as annuities, those that live pay to support those that die.  in this case the higher equity positions have always grown enough in the good times to support 4% safe withdrawal rates in the bad times , no exceptions unless you went out to long in bond lengths . that is when the trinity study had issues using 7-10 year bonds vs bengan's 5 year..


but in any case a 1/2 point adjustment in spending which likely happens naturally anyway through retirement  has made at least 50% equities  work 100% of the time no matter how bad things got.

even 40% held up okay but with some failures .  25% equity's has failed 14% of the time out to 30 years and 33% of the time out to 35 years making it not an option .  that is an insane failure rate to attempt as anything under 90% success rates is unacceptable.

so if 50/50 has not failed in 111 rolling 30 year time frames , including the worst ever to me trying to do anything else with a portfolio that is radically different and untested in that regard  is very risky

we are no longer preserving assets  but spending them down while sequence risk takes control and that makes things very different than just preserving. .


as far as why add the extended market fund when i already own a total market fund ? one thing you have to remember is total market funds are really not total market funds . the s&p dominate them totally and even in the biggest mid cap and small cap run ups  there is usually less than a 1% difference between an s&p 500 fund and a total market fund.

an extended market fund is all the other stocks without the s&p 500 so you can combine that with a total market fund or s&p fund and season to taste.

since i believe mid-caps and small caps will be the best place to be for a while i want more coverage in that area.



by the way , i still cannot believe how civil everyone is to someone who hasn't drank the kool-aid    ha ha ha .  you do not see civil discussions like this any where else when someone bucks the forum ideology.

but that shows everyone really is interested in learning other views which brings up an interesting point

[mathjak107]

the point is the biggest obstacle to one's financial success is THEY NEVER SLEEP WITH THE ENEMY.

most folks like bogleheads as an example only hang out with , read  and support the views that coincide with their own.

they never get in to the enemy's head to learn what they know.

the wise person does exactly the opposite.  they infiltrate that enemy camp  and learn all there is about their side.

when you can walk away and argue for or against both sides just to play devils advocate only then do you know enough to make a decision about the subject.

i always hated insurance products  like annuities and whole life.

i had no idea how useful they can be in a retirement plan and how low cost immediate annuities were .

they can improve success rates by establishing a consistent base of income allowing less  equity's to have to be sold off and less power dry in low yielding bonds to achieve the same income goals.

that is another topic i learned by sleeping with the enemy and i can't even count how many times i switched sides over the years on everything from roth vs traditional ,  when to take social security , utilizing insurance products with your own investing  and long term care options as i learned more and more from the other side.

the fact i was profiled in money magazine quite a few years ago as well as fidelity investments magazine gave me the opportunity to see the views of the top pro's vs my own .  i went head to head against their team of pros as far as my long term plans  and it opened my eyes to the fact there is a whole other side to things that we do not  realize since each of us only knows what we know and can not  reason with the things we do not know in the mix.,

they totally reversed my thinking about self insuring for that long term care we discussed in another thread here.

as always i am happy to throw out my thoughts on any of those topics but i hate to go off topic  since after all this is the permanent portfolio forum and not the retirement forum .

but i will leave that to you all to decide what you want to throw out on the table for discussion.

[MachineGhost]

because there is no reason to use it in any form if you are not using it  100% in its designed form  in my opinion and in fact can create a very very risky retirement mix by doing so because  as you drop equity levels  retirement success rates are  worse and worse. if you cut the fighter cover on those low amounts of equity's by shortening up the bonds you may wreak havoc on the design.

Lets see, 25% of a 50-year equity duration is 12.5 years.  On the run T-Bonds have a duration of 17 years, 25% of that is 4.25 years.  Looks like a huge mismatch to me!  OTOH, 40% of equity is 20 years duration which would be match nearly perfectly by 25% in T-Bonds.  60% of equity is 30 years and 40% of T-Bonds is 6.8 years.  Still a mismatch, just not as gaping.

anything less than 40% equity's  has failed way way to many times over and over to be  trusted. the worst case scenario's can't survive the low equity levels since the money never develops the cushion in the good times to support the bad times .  111 rolling 30 year time frames have shown that to be the case over and over and over.

What kind of "equity"?  Context matters here as the S&P 500 is not necessarily the best way to invest.  If all it takes is equalizing market cap exposure so you get in the nano, micro, value, growth, etc. factors without tilting speculation, then the PP may not need 40% vanilla exposure to be successful.

In other words, what is the absolute minimum bottom line that a retirement portfolio needs to have in terms of metrics to be successful?  15-year chunks always above 2% real per year?

[MachineGhost]

so i put my own model together which i will refine over the near term even more likely ditching all of the the do nothing gold and redistribute that  into an extended market fund and international world index fund ,  i sold half the gold off yesterday and added  VEU and VXF to the mix    ,  eventually going to the traditional 50-60% equity mix commonly used for retirement .  50/50 and 60/40 being the industry standard if you want to call it that.  it has survived the worst of the worst time frames in retirement over and over including the great depression , the world wars and the high inflation 70's and early 80's.

How do you feel about 60/40 being killed in the economically bullish GoGo era?  And this is using strict LT T-Bonds, not a sloppy bond intermediate term mixture with growth exposure as is commonly used.

Code: Select all

 Rolling 15-Year Real Returns 		
1928	1942	4.86%
1929	1943	3.82%
1930	1944	4.82%
1931	1945	6.74%
1932	1946	6.28%
1933	1947	5.42%
1934	1948	3.27%
1935	1949	4.22%
1936	1950	3.12%
1937	1951	2.25%
1938	1952	4.45%
1939	1953	2.92%
1940	1954	5.15%
1941	1955	6.76%
1942	1956	7.88%
1943	1957	7.19%
1944	1958	7.88%
1945	1959	7.51%
1946	1960	6.19%
1947	1961	8.80%
1948	1962	8.94%
1949	1963	9.68%
1950	1964	9.35%
1951	1965	8.89%
1952	1966	7.81%
1953	1967	7.72%
1954	1968	7.96%
1955	1969	4.76%
1956	1970	3.67%
1957	1971	4.28%
1958	1972	5.47%
1959	1973	2.56%
1960	1974	0.43%
1961	1975	1.38%
1962	1976	1.42%
1963	1977	1.02%
1964	1978	-0.17%
1965	1979	-1.07%
1966	1980	-1.13%
1967	1981	-1.32%
1968	1982	-0.23%
1969	1983	0.20%
1970	1984	1.45%
1971	1985	3.22%
1972	1986	4.09%
1973	1987	3.13%
1974	1988	5.08%
1975	1989	8.41%
1976	1990	6.86%
1977	1991	7.25%
1978	1992	8.24%
1979	1993	9.41%
1980	1994	9.18%
1981	1995	11.12%
1982	1996	12.51%
1983	1997	12.46%
1984	1998	13.37%
1985	1999	13.31%
1986	2000	11.38%
1987	2001	9.47%
1988	2002	8.88%
1989	2003	9.40%
1990	2004	8.33%
1991	2005	8.88%
1992	2006	7.90%
1993	2007	7.83%
1994	2008	6.65%
1995	2009	7.17%
1996	2010	5.68%
1997	2011	5.84%
1998	2012	4.75%
1999	2013	4.02%
2000	2014	4.94%
2001	2015	2.17%
2002	2016	2.22%
2003	2017	2.41%
2004	2018	2.56%
2005	2019	2.68%
2006	2020	2.93%
2007	2021	3.22%
2008	2022	3.32%
2009	2023	3.57%
2010	2024	3.68%
2011	2025	3.81%
2012	2026	3.75%
2013	2027	3.96%
2014	2028	4.07%

[Cortopassi]

You guys are all in one way or another making the case for 25% in each.

You can tweak this a million different ways and depending on the timeframe some will perform better than others.  And everyone has their own personalities and biases to bring as well.  Some don't like gold, and want less or no exposure.  I'm not that person.  Some want more stocks.  I'm not that person either.

I can safely say the next 30 years are not going to be like the last 30, or any set of 30 years in any past timeframe.  Historical analysis is useless most of the time in my opinion.  It would seem an even split across different asset classes has just as decent of a chance of coming out a winner as does any other tweak to that setup.

[mathjak107]

because there is no reason to use it in any form if you are not using it  100% in its designed form  in my opinion and in fact can create a very very risky retirement mix by doing so because  as you drop equity levels  retirement success rates are  worse and worse. if you cut the fighter cover on those low amounts of equity's by shortening up the bonds you may wreak havoc on the design.

Lets see, 25% of a 50-year equity duration is 12.5 years.  On the run T-Bonds have a duration of 17 years, 25% of that is 4.25 years.  Looks like a huge mismatch to me!  OTOH, 40% of equity is 20 years duration which would be match nearly perfectly by 25% in T-Bonds.

anything less than 40% equity's  has failed way way to many times over and over to be  trusted. the worst case scenario's can't survive the low equity levels since the money never develops the cushion in the good times to support the bad times .  111 rolling 30 year time frames have shown that to be the case over and over and over.

What kind of "equity"?  Context matters here as the S&P 500 is not necessarily the best way to invest.  If all it takes is equalizing market cap exposure so you get in the nano, micro, value, growth, etc. factors without tilting speculation, then the PP may not need 40% vanilla exposure to be successful.

In other words, what is the absolute minimum bottom line that a retirement portfolio needs to have in terms of metrics to be successful?  15-year chunks always above 2% real per year?

yes to hold at least 4% inflation adjusted withdrawals  you need  a min of 2% real return averages over the first 15 years.

anything better than that adds to the pile of money left at the  end  if you do not increase spending .

of course just getting that 2 % means if you live longer than 30 years you may be broke as well as have zero for heirs. 


but 2% real returns are the min for the income stream to not have to be adjusted .


if you eliminated the two worst time frames ever then a 60/40 mix would actually have sustained a 6.50% swr.

as far as what kind of equity ?  the s&p 500 was figured . a mix of mid caps and small caps would have improved performance .


in practice more than 90% of the time a 60/40 mix left you with more than you started with at the end and 67% of the time left you with more than 2x what you started with.


could the pp do that ?  we just don't know since we can't run it through the worst cases .

[MachineGhost]

And BTW, if you're saying that reducing duration of T-Bonds is bad for fight cover for just 25% of equity in the PP, then how do you explain the traditionally reduced sloppy duration of 40% for a whopping 60% of equity exposure?

[mathjak107]

because the reduced equity's need to make a lot of money in the down markets to keep up their average. 60% equities and even cash would be fine because of the added growth in the up markets..

[Pointedstick]

You guys are all in one way or another making the case for 25% in each.

You can tweak this a million different ways and depending on the timeframe some will perform better than others.  And everyone has their own personalities and biases to bring as well.  Some don't like gold, and want less or no exposure.  I'm not that person.  Some want more stocks.  I'm not that person either.

I can safely say the next 30 years are not going to be like the last 30, or any set of 30 years in any past timeframe.  Historical analysis is useless most of the time in my opinion.  It would seem an even split across different asset classes has just as decent of a chance of coming out a winner as does any other tweak to that setup.

Well the problem is that the even split isn't really agnostic either, since it implicitly assumes that each economic condition is equally likely. Historically, prosperity has been more common than inflation, deflation, or tight-money recession in advanced countries like our own. Will this continue into the future? I have no idea. But an equal split is an implicit bearish bet on the USA. Maybe that's justified; we have lots of problems. But you're still trying to predict the future. Really, I think it's actually sort of impossible to build an asset allocation without predicting the future to a certain extent.

[mathjak107]

yep , you have to make some assumption about the future.

historically you would have been quite poorer following the pp over most time frames  if you made the assumption things would be worse

if you bet on the fact we are historically up 2/3's of the time  you would have assumed correctly.

will the future be the same ?  if only we knew. 

who knows,  the pp could be the big champ going forward  but in either case assumptions have to be made.

[MachineGhost]

Well the problem is that the even split isn't really agnostic either, since it implicitly assumes that each economic condition is equally likely. Historically, prosperity has been more common than inflation, deflation, or tight-money recession in advanced countries like our own. Will this continue into the future? I have no idea. But an equal split is an implicit bearish bet on the USA. Maybe that's justified; we have lots of problems. But you're still trying to predict the future. Really, I think it's actually sort of impossible to build an asset allocation without predicting the future to a certain extent.

I really don't think its that hard.  Making the PP work better while still retaining the four assets will blow any other portfolio out of the water for robustness.  Just be smarter about the 25% equity allocation than using turd market cap index funds.  Prosperity is still the primary driver of any portfolio.  Here's the real return PP with market cap neutral performance vs market cap weighted:

Code: Select all

Start	End	MC EW	MC W
1928	1942	5.49%	2.96%
1929	1943	5.53%	2.34%
1930	1944	6.85%	2.90%
1931	1945	9.47%	4.85%
1932	1946	8.63%	4.00%
1933	1947	7.06%	2.88%
1934	1948	3.08%	0.54%
1935	1949	2.99%	0.73%
1936	1950	2.29%	0.15%
1937	1951	1.78%	0.11%
1938	1952	2.80%	1.09%
1939	1953	1.98%	0.41%
1940	1954	3.28%	1.71%
1941	1955	3.79%	2.48%
1942	1956	4.47%	3.24%
1943	1957	3.66%	2.76%
1944	1958	3.63%	3.11%
1945	1959	3.23%	3.02%
1946	1960	1.34%	1.62%
1947	1961	3.05%	3.27%
1948	1962	4.01%	4.20%
1949	1963	4.70%	4.82%
1950	1964	4.36%	4.51%
1951	1965	4.42%	4.37%
1952	1966	4.16%	3.92%
1953	1967	5.90%	4.90%
1954	1968	6.53%	5.15%
1955	1969	4.38%	3.28%
1956	1970	3.97%	2.84%
1957	1971	4.69%	3.46%
1958	1972	5.89%	4.79%
1959	1973	5.06%	4.53%
1960	1974	4.88%	4.43%
1961	1975	5.01%	4.20%
1962	1976	4.98%	3.92%
1963	1977	5.09%	3.65%
1964	1978	5.05%	3.37%
1965	1979	6.73%	4.79%
1966	1980	6.36%	4.65%
1967	1981	5.81%	4.03%
1968	1982	5.25%	4.04%
1969	1983	4.70%	3.73%
1970	1984	5.49%	4.47%
1971	1985	6.56%	5.37%
1972	1986	7.01%	6.02%
1973	1987	6.17%	5.14%
1974	1988	6.14%	4.73%
1975	1989	6.60%	5.38%
1976	1990	5.84%	5.15%
1977	1991	5.97%	5.32%
1978	1992	6.01%	5.44%
1979	1993	6.50%	5.96%
1980	1994	4.07%	3.87%
1981	1995	5.04%	5.00%
1982	1996	5.88%	6.05%
1983	1997	4.93%	5.29%
1984	1998	5.18%	6.07%
1985	1999	5.52%	6.19%
1986	2000	4.40%	5.08%
1987	2001	3.67%	3.81%
1988	2002	3.73%	3.66%
1989	2003	4.95%	4.50%
1990	2004	4.82%	4.04%
1991	2005	5.65%	4.60%
1992	2006	5.40%	4.63%
1993	2007	5.66%	5.21%
1994	2008	4.92%	4.70%
1995	2009	6.04%	5.28%
1996	2010	5.97%	4.90%
1997	2011	6.40%	5.37%
1998	2012	6.40%	5.21%
1999	2013	5.96%	4.18%
2000	2014	6.37%	4.78%
	Total	369.58%	291.15%

You'd have a nominal $575K starting with $10K in 1987 with the MC EW vs $511K for the vanilla.  $700K for a risk parity MC EW.  And anyone can double to triple those gains if they want to put in more effort.

35% into T-Bonds isn't all that bad vs the old standy of 40% sloppy intermediate.  The net duration of the FI is only about 6.075 years as budd keeps trying to point out.

Knowing that, it still doesn't make me want to take on the 1-2 year increase in the duration risk.  When forthcoming losses are avoidable, it seems stupid to intentionally take them on.  But I am a very risk averse investor, probably the most risk averse of the entire forum.

[Pointedstick]

I think I've asked this before, MG, but I can't remember your answer. Are there any funds or ETFs out there that you would recommend for your preferred weighting?

It seems to me that if prosperity is the driver, then if we only have 25% of our money in that asset class, we'd better choose really really high-peforming prosperity assets. Like a value tilt and emerging markets.

[ochotona]

There was an article recently on SeekingAlpha that pointed out that the emerging market indices are composed of lots of junk; state owned enterprises and whatnot. Emerging indices and therefore ETFs have been a disappointment since 2011. Maybe you could play with a exclusive, boutique proprietary fund. Sounds costly.

I think I've asked this before, MG, but I can't remember your answer. Are there any funds or ETFs out there that you would recommend for your preferred weighting?

It seems to me that if prosperity is the driver, then if we only have 25% of our money in that asset class, we'd better choose really really high-peforming prosperity assets. Like a value tilt and emerging markets.

[mathjak107]

I can't say I have any ideas for dealing with an allocation of only 25% other than just what the pp does

[MachineGhost]

I think I've asked this before, MG, but I can't remember your answer. Are there any funds or ETFs out there that you would recommend for your preferred weighting?

It seems to me that if prosperity is the driver, then if we only have 25% of our money in that asset class, we'd better choose really really high-peforming prosperity assets. Like a value tilt and emerging markets.

Did you miss this thread?  http://gyroscopicinvesting.com/forum/st ... #msg116914

I'm very wary of tilting.  As for small and emerging, I've described the flaws with that elsewhere.  You have to be careful to identify the exact conditions of the past to be assured of such outperformance in the future.  What worked then will not work now because the effect has been arbitraged away.  If you buy stuff like Vanguard Small Cap value you're really buying stuff after it has long outperformed (assuming it was even investable which is debateable).  A stupid simple indexing and weighting scheme that worked in the the past does not work today, i.e. market cap weighted low P/B.

Said another way, size hasn't stood up to the rigors of not being a data mined artifact; they're just sloppy proxies for value and growth.  And value only works when its more complex than a simplistic shotgun approach of buying all cheap trash after a Great Depression.

BTW, just as value and growth should not be constrained by market cap or weighting, neither should it be constrained by country.  I don't know if you can yet do the latter properly though.  There's always fund/index limitations.  So you'd probably need direct exposure to frontier markets to get any exposure at all.  The $64K question is what is the least amount to have an effect on the portfolio?

[mathjak107]

I agree `100% , the pp is as perfect as you can get it as is. do not mess with it. you either accept it for what it is or do something else.

[buddtholomew]

Same old story...eh, what's the point...

[Lowe]

I am starting to think long bonds are too volatile for this portfolio.

[mathjak107]

i agree . after the equal of a 350 point drop yesterday ,i see TLT is getting pounded again  with am equal of another 285 points as it falls 1.65% on top of the 2% yesterday.

that is a lot of pain to an asset  regardless of what it is

[Cortopassi]

Isn't one of the points of the PP to hold non-correlated volatile assets?

TLT getting pounded, but VTI nearly making up for it?

Over time with rebalancing, is the magic??

[buddtholomew]

Isn't one of the points of the PP to hold non-correlated volatile assets?

TLT getting pounded, but VTI nearly making up for it?

Over time with rebalancing, is the magic??

Keep holding onto that pipe dream...another down day. What's the opposite of the PP? Now that portfolio is a winner.

USD down 1% and Gold down too...

I really think we are starting to fool ourselves here.

[mathjak107]

i track my permanent portfolio i bought two weeks ago . it is down  23k  .

the new model i bought the same day before the big drop is only down 6800.00 on the same amount.

my VEU went from down 5% two days ago to down .78% this morning.  insane come back.

[LC475]

I am starting to think long bonds are too volatile for this portfolio.

  My goodness.  Did no one read the prospectus?  Wow, all it takes is three years of ho-hum and everyone is shouting "abandon ship" and leaping off the deck.

Ahh well, more deck chairs for me to rearrange.