PP vs 60/40 Shares/Gold

[Hal]

Hello All,

Just listened to another great BelangP interview.

https://www.youtube.com/watch?v=zZwybWScuK4

In the comments Paul mentioned that you can construct a 60/40 Shares/Gold portfolio with less volatility than the PP.
Would anyone like to comment on the pro's and con's of each approach ?

My studies indicate that a Non-US PP "may" not be as suitable if the local currency fails.

All thoughts welcome!

[Smith1776]

Interesting idea. I'm not sure what particular data set he's talking about that would lead to that conclusion though.

Here's a prima facie glance at the proposed portfolio's (blue) results vs. the PP (red).

pp.png (231.82 KiB) Viewed 9847 times

So yeah, higher returns, but also significantly higher volatility and drawdowns. To be fair, this is U.S. data. Perhaps he's talking about some other country, or something along those lines.

[Hal]

Perhaps he defines volatility in a different way?
From his YouTube channel
https://www.youtube.com/watch?v=33TWOZ4zfaA

[mdwilson1991]

You can construct lots of allocations that have better yield over some period with less volatility than the PP.

However, the recommended 60/40 allocation doesn't contain the long bonds or cash component of the PP. So, when economic conditions favor long bonds or cash over stocks or gold, that allocation will suffer.

[Hal]

Here is Belangp's allocation vs the PP using Tylers Portfolio Charts. 60/40 US TSM/Gold.
Still cannot figure out the claim of lower volatility - maybe LT/ST returns???

[Hal]

Here is something to think on.

For Non-US PP's where the country's economy is small, try a combination of the minimum volatility mix of International Shares/Gold plus a portion in the local currency. Using the PP's limits of 15% to 35% for Gold & Cash..

[mathjak107]

using portfolio visualizer and going back to 1990 a 60/40 using the us bond index vs using gold had some interesting results ..

the us bond index goes back to 1987 so i started in 1990

from 1990 to 2020 the traditional bond index beat using gold .

but looking at 1995 ,2000, 2005,2010,2015 had 60/40 with gold win .

however using intermediate treasuries instead of the us bond index and going back to 1975 , has 1975,1980, 1985 showing bonds won .

so it is really a mixed bag .....

of course back in the early days mom and pop were not buying gold like today where buying gold through an etf is like buying a stock and pretty main stream .

the gold market is still pretty snall compared to stocks but it is way way larger than the pre etf days .

[Jack Jones]

Perhaps he defines volatility in a different way?
From his YouTube channel

This video has been blowing my mind today (among other current events). My takeaways:

[*] With a 5 year horizon, 20% stocks / 80% gold is safer than 40% stocks / 60% tbills.
[*] At a 10 year horizon, 40 % stocks / 60% gold has the same average returns as 50% stocks / 50% tbills, but had much better returns in the worst case.
[*] With a 20+ year horizon, 80% stocks / 20% gold seems like a good risk/return tradeoff for my portfolio.
[*] 50% stocks / 50% gold seems good for my 8 year old child's education account.

And yes, regarding defining volatility in a different way: one of the points in this video is that much financial advice is based on volatility over a one year time frame. Belangp also reframes volatility here as worst x year return.

[Hal]

This video has been blowing my mind today (among other current events). My takeaways:

[*] With a 5 year horizon, 20% stocks / 80% gold is safer than 40% stocks / 60% tbills.
[*] At a 10 year horizon, 40 % stocks / 60% gold has the same average returns as 50% stocks / 50% tbills, but had much better returns in the worst case.
[*] With a 20+ year horizon, 80% stocks / 20% gold seems like a good risk/return tradeoff for my portfolio.
[*] 50% stocks / 50% gold seems good for my 8 year old child's education account.

And yes, regarding defining volatility in a different way: one of the points in this video is that much financial advice is based on volatility over a one year time frame. Belangp also reframes volatility here as worst x year return.

BelangP certainly has some interesting videos. However, I think he can be a little too US-centric.
Try heading over to PortfolioCharts and compare these two portfolios for various countries

PP- Local: 25% LCB stocks, 50% 10Y Bonds, Real: 25% Gold

BelangP- Local: 60% LCB stocks, Real: 40% Gold

Here's a preview of BelangP's allocation if you lived in Japan. Sometimes there are better options than Gold to reduce volatility.