About to convert to PP - final checkup

[D]

I'm about to commit to PP. Right now I'm around 60% in cash and 40% in equity with around 70% in VTI and 30% in IJS. I am planning to fully commit to PP at the time of the new 30 year bond offering, which is if I remember well at the very beginning of November. I am planning to go with:

20% cash (10% in a HSA and 10% directly invested in 2 yr treasuries)
20% gold
20% 30 year bonds (direct purchase at auction)
20% VTI (not sure if I should spread this over 1-2 more ETFs such as SCHX; I think HB suggested so)
10% IJS (maybe small portion of RZV instead like 8% IJS and 2% RZV)
10% VWO

So, 80% PP and 20% VP but I'm planning to manage them as a slightly tilted PP, that is, I feel I should aim for more return and Paul's PP looked interesting, but for some reason I feel better with having some large cap in and thus I came up with the above.

Backtesting (72-09) with 2 yr treasury gives:

CAGR Std.Dev Sharpe Ratio Sortino Ratio C-US C-Intl
Nominal 11.19 8.76 0.67 2.09 0.68 0.66
Real 6.44 8.29 0.67 1.36 0.72 0.71


What do you think about this allocation? Any suggestions or tips?  

[BobS]

I took several of the etf suggestions made here and setup test portfolilos with short term - month of September and slightly longer
term - 31 Dec 2009 to present.  From what I've observed in this short term -

  VSS does better than VWO, by 1% over the short term

  VXF compliments VTI and also PRF


My personal preference (where I put my money) is -

  PRF (25%), PRFZ (50%), VSS (25%)

I don't recall looking at IJS.  I may have.  I narrowed the small caps down to EES, VXF, and PRFZ and tried each one with various large
caps - VTI, PRF.  There were others, but all the reports I read and holdings I looked at led me back to those two large caps.

I did do test portfolios on ETF sector and, both VT/VSS and VTI/VSS.  They haven't performed as well over the year.

From looking at Paul's (MadMonyMachine's) portfolio and some others mentioned here,  make your small cap a larger portion of the equities.
Large caps, like VT, VTI, and PRF, will act as a damper on the portfolio movement, thus decrease the overall return (both positive and negative).
But, there's a point that increasing the small cap portion doesn't really add that much to the return.

One way to "tune" it (if your as inept at finances as I am)  is to setup a test portfolio, say from 31 Dec 2009 to present, and see what varying
the amount of each does.  I don't know if there are other tools out there, but Google Finance has been working well for setting up test portfolios.

Bob

[craigr]

I'm about to commit to PP. Right now I'm around 60% in cash and 40% in equity with around 70% in VTI and 30% in IJS. I am planning to fully commit to PP at the time of the new 30 year bond offering, which is if I remember well at the very beginning of November. I am planning to go with:

20% cash (10% in a HSA and 10% directly invested in 2 yr treasuries)
20% gold
20% 30 year bonds (direct purchase at auction)
20% VTI (not sure if I should spread this over 1-2 more ETFs such as SCHX; I think HB suggested so)
10% IJS (maybe small portion of RZV instead like 8% IJS and 2% RZV)
10% VWO

So, 80% PP and 20% VP but I'm planning to manage them as a slightly tilted PP, that is, I feel I should aim for more return and Paul's PP looked interesting, but for some reason I feel better with having some large cap in and thus I came up with the above.

Backtesting (72-09) with 2 yr treasury gives:

CAGR Std.Dev Sharpe Ratio Sortino Ratio C-US C-Intl
Nominal 11.19 8.76 0.67 2.09 0.68 0.66
Real 6.44 8.29 0.67 1.36 0.72 0.71


What do you think about this allocation? Any suggestions or tips?  

Keep in mind that backtesting is going to be very time dependent.

There is no problem over allocating to stocks if you are counting it as part of your variable portfolio. I don't think splitting up assets into little 2% slices is going to do much. So if you wanted to hold Small Value, just use the IJS ETF. It has been around longer, has more assets in it so it is less likely to be shut down by the fund company ($1.6B vs. $87Mil for RZV), it also has a lower expense ratio. As for the emerging markets, keep in mind it brings in more currency risk which could hurt or help depending on what the dollar is doing.

Overall I'd look at the 4x20% as your core Permanent Portfolio and the 20% in IJS/VWO as your speculative variable portfolio.

[Snowman9000]

I do a 5x20 plan, just as you are proposing.  The final 20 is my VP.  That fifth give you a lot of leeway to go for income or growth or doomsday or foreign (my case) or REITS or whatever.

2% allocation is just mental, ie you're kidding yourself. 
I feel anything less than 10% is not worth doing, unless you just enjoy playing or stock-picking or something.  I also don't get into backtesting and tilting and overthinking.  I think regression to the mean trumps all of that, JMO.  Show me what's done the worst over the past year or two and you'll get my attention. 

It's very easy to complicate a portfolio.  Rarely is it worth it, IMO.