Absolutely brutal - 5/5

[joypog]

I think a nice little more conservative portfolio for say 40+ in age is a 50/25/25 stocks/bonds/gold. The stock component is what matters and is your risk to reward asset (i.e. dial it up or down to taste). The second 2/3rds doesn't really matter all that much so long as you keep at least one at 10%.

Interesting, its nice to see someone a simple formula that matches fairly well with my current thinking of the day.

According to Swedroe's recent retirement book, a 50% stock allocation will land in about an overal portfolio drawdown of 30% during bad times, which should be stomachable for anyone during their accumulation phase.

(Of course if you had proposed something else, I most likely would have just kept scrolling. Confirmation bias FTW!! )

[williswine]

I'd still welcome the link from ppnewbie if the material is still out there but this discussion keeps on reminding me of the following in the "Yay PP!" thread (even as the diversified portfolio is not the PP):

I'm down a bit over 3% for the YTD. OMG what a disaster!!!! Good portfolios don't go down!!!!

But over 10 years I'm up about 87%, after allowing for the cash flows. That's a rough number: (Ending balance + net cash out - Starting balance) / Starting balance. My IRR for 10 years has been 6%. No regrets, none.

IRR of 6% is a beautiful thing. Here is a nice graphic on investor psychology from the Mutiny Fund. Admittedly, this is not a GB or a HBPP but a good illustration on why perceptions can be misleading

Do you have a link to the graphic? I can't figure out how they arrived at only +166.1%. Instead I have:

Even better for a diversified portfolio.png (49.74 KiB) Viewed 7101 times

It would be great to recreate such table for the PP, GB and perhaps a traditional 60/40 from 2000 (or earlier) to today.

[Hal]

I think a nice little more conservative portfolio for say 40+ in age is a 50/25/25 stocks/bonds/gold. The stock component is what matters and is your risk to reward asset (i.e. dial it up or down to taste). The second 2/3rds doesn't really matter all that much so long as you keep at least one at 10%.

"Over the time period studied, the optimal allocation in a balanced portfolio has actually been 20% to gold and 80% to a balanced portfolio, representing a result of roughly 50% stocks, 30% bonds, and 20% gold."

https://proactiveadvisormagazine.com/ho ... llocation/

[Kbg]

Hal,

I'd be careful on stating anything can be considered "optimal" for gold. Mathematically/historically, the start date swings "optimal" a huge amount to include you shouldn't touch the stuff. What this tells you is the asset is unstable, generally unpredictable and is susceptible to strong trends.

The only thing I'm comfortable saying is somewhere between 5 and 25...and which extreme you pick one should just fess up and say "it's because they like or can hardly stomach gold but they will tolerate a bit of it." As to how risk is normally measured, it's a pretty tough argument to make that gold buys down risk or reduces volatility. Over most start dates, gold reduces sharpe.

I'm speaking to portfolio allocation and not for other reasons one may want to hold it.

[Jack Jones]

EDIT 2: For me this probably doesn't mean dropping the Permanent Portfolio entirely but rather adjusting the PP/VP ratio in my life.

I think that's the critical aspect of the PP that doesn't get talked about enough. The whole PP is only theoretically designed to avoid (hopefully) the worst result at any given time. The VP is what's needed to avoid brutal underperformance during good times.

The psychological difficulty that that the mentality of someone who is interestd in the PP is someone is inherently conservative. So there might be a tendency to goin 100% into the PP. But that comes with the hidden risk of massive underperforamance.

So we're now back to the classic central conundrum of what percentage in stocks? Just now its what percentage in PP?

Unfortuantely the PP doesn't relieve a portfolio manager of actually making a choice. Which is why I've been so publically flailing around on this forum. What is the "actual" quantiy of cash that I "can't afford to lose"? And how much am I willing to allow the Jones out perform my AA?

BTW one of the best comments about this conundrum came from Tyler when he was wrestling with his then-new Golden Butterfly design. He mentioned that the additional money in the stock market made him root for more prosperity. Psychologically I think that is quite astute and wise. It's better to root the success of your fellow man than to miserly completely hide from it all where success is solely defined by not-failing.

(elsewhere has been discussion about the viability of Gold and LTT's to act as anticipated, but that's a seperate theory question from the one's PP/VP ration...this conversation could be reframed as a Dalio All Season..or even 100%ITT/Variable Portfolio balance question).

I’ve been thinking about this post a lot. Post of the year. Thank you.

Perhaps we can think about it in terms of yearly expenses? How many years of expenses do you need in your PP, as money you can’t afford to lose.

Alternatively, we could look at the PP as the retirement account. Stashing victories from the VP to the PP. In other words, as you reach retirement your ratio of VP/PP approaches zero.

[Hal]

Alternatively, we could look at the PP as the retirement account. Stashing victories from the VP to the PP. In other words, as you reach retirement your ratio of VP/PP approaches zero.

+1. Well said !! And if you are unfortunate enough to get ill prior to your planned retirement date, you have some funds to fall back on.

[mathjak107]

Another weeks goes by

Pp down 9.30

Wellesly down 6.41

Fidelity insight income model down 7.30

So far the pp is the laggard in the down market …not much help from the flight to safety assets

There are two changes in the insight model for Monday .

1/3 of the short term treasuries are being swapped for a more diverse slightly longer term bond fund , and high yield is being swapped for a more go anywhere bond fund ….

Kind of an arbitrage move as the others fell more and the yields are now much higher on the ones they are buying , so let’s see what that brings us.

That is actually the first change in more then a year

[glennds]

Another weeks goes by

Pp down 9.30

Wellesly down 6.41

Fidelity insight income model down 7.30

What attracted you to Wellesly? Capital preservation alternative to PP? Or distribution yield? Something else?

Being 1/3 stocks and 2/3 bonds, I would have expected it to be doing worse than it is, but on closer inspection, the stocks are large cap value which haven't been hurt as badly as growth. And the bonds are medium duration which are less price sensitive than the longs. I wouldn't declare it to be better or worse than the PP in general, just a different path to safety. Although certainly outperforming the PP YTD at this moment. Maybe a little less tax efficient due to some turnover?

Dropping the bonds and looking for an all stock answer, SCHD is a Dividend 100 ETF that is doing even better than Wellesly, YTD -3.42%. Similar distribution yield, but significantly higher returns than Wellesly over time. Might be worth a look if you are not wedded to medium term bonds and if you can live with a single asset class.

[mathjak107]

I always liked wellesly as a retirement fund but never owned it .

but when it comes to retirement funds it is extremely popular , pretty conservative and a good comparison in the conservative arena…

I use flpsx in my mix , down 3.79%

But 100% equities is hardly a conservative play by itself.

[ochotona]

I'm dropping in after a long absence. I'm taking note of the pretty severe drawdown in the HBPP, and I must say it's making me more hopeful about the model. Even though HBPP is a collection of four things, not just one thing, mean reversion is a strong force. If the portfolio is down 10% or more then there's a pretty good chance that the years following that drawdown will be good. It will have been a good time to get in. By late 2023 things should be recovered again. So we have roughly a year of "the bottom is in here somewhere". We'll never know except in hindsight.

As for me, the HBPP or Golden Butterfly I'll be using after I lose my edge in coming years. Not there yet, only 61. My daughter will run it for me.

[barrett]

I'm dropping in after a long absence. I'm taking note of the pretty severe drawdown in the HBPP, and I must say it's making me more hopeful about the model. Even though HBPP is a collection of four things, not just one thing, mean reversion is a strong force. If the portfolio is down 10% or more then there's a pretty good chance that the years following that drawdown will be good. It will have been a good time to get in. By late 2023 things should be recovered again. So we have roughly of a year of "the bottom is in here somewhere". We'll never know except in hindsight.

As for me, the HBPP or Golden Butterfly I'll be using after I lose my edge in coming years. Not there yet, only 61. My daughter will run it for me.

It's good to hear from you, ochotona. Maybe you could stick around for a few weeks. How is the oil business these days? Has the Russia/Ukraine war changed anything for you and your work? Hope you have been well!

[ochotona]

$100+ oil never hurts the oil business. Things are picking up. We expect 2023 to be exceptional for our oil & gas cloud computing and consulting company.

[barrett]

$100+ oil never hurts the oil business. Things are picking up. We expect 2023 to be exceptional for our oil & gas cloud computing and consulting company.

Thanks. Can you recommend something to read that explains the pros and cons of the Keystone XL Pipeline? I'm looking for something that doesn't have the CNN/FOX biases. I'm also trying to understand why we still send so much of our oil overseas, if Biden could really do anything in the short to medium term to lower gas & oil prices, etc. Just a general overview of what's real and what's political theater when it comes to gas & oil.

And just so I don't pull this thread too far off topic, I'd be curious (if you are willing to share) where you ended up with your investments during and after the pandemic. Didn't you go all to cash at one point?

Sorry if I am being too nosy. I don't know any oil experts and I always enjoyed your investing posts. Among other things you taught me about the SS/RMD tax torpedo several years back.

[mathjak107]

The pipeline was going to pump some of the worst quality oil there is .

It was an expensive process to use it

[Dieter]

Another weeks goes by

Pp down 9.30

Wellesly down 6.41

Fidelity insight income model down 7.30

What attracted you to Wellesly? Capital preservation alternative to PP? Or distribution yield? Something else?

Being 1/3 stocks and 2/3 bonds, I would have expected it to be doing worse than it is, but on closer inspection, the stocks are large cap value which haven't been hurt as badly as growth. And the bonds are medium duration which are less price sensitive than the longs. I wouldn't declare it to be better or worse than the PP in general, just a different path to safety. Although certainly outperforming the PP YTD at this moment. Maybe a little less tax efficient due to some turnover?

Dropping the bonds and looking for an all stock answer, SCHD is a Dividend 100 ETF that is doing even better than Wellesly, YTD -3.42%. Similar distribution yield, but significantly higher returns than Wellesly over time. Might be worth a look if you are not wedded to medium term bonds and if you can live with a single asset class.

It's complete NOT tax efficient, but I used it as a core investment in taxable that is simple, easy, conservative, but, more aggressive than cash in the bank.

Has been generally worry free and easy -- relatively small total, so not a huge yearly tax hit.

Note: I don't automatically reinvest distributions to keep tax lots simpler. Yearly or so either reinvest or put into something a little more aggressive nowadays (Total World was my next taxable investment)

[ppnewbie]

I recommended Wellesley to a friend recently, after I pointed out that his financial advisor was stealing his money in fees. At first he got mad at me then he realized I was right.

It’s fun to throw in Wellesley in HBPP backtests (for the cash portion).

Also one way to look at the HBPP is a place to preserve wealth and nothing more (keeping up with inflation plus a few percentage points measured over a time period of a few years). I only have my retirement account in the GB / PP. The other stuff is pretty exposed (I’m trying to backstop it).

I’m really looking hard at CTA funds as a non correlated asset class to put some money into. The fees are killer but it’s unique beast that usually does well in commodities super cycles.

Last comment on gold. If you look at a time period of a few years gold has performed beautifully.

[ppnewbie]

It’s also fun to try to replicate an HBPP in two components Wellesley and gold OR Wellington and gold.

[dualstow]

It’s also fun to try to replicate an HBPP in two components Wellesley and gold OR Wellington and gold.

It’s a cool portfolio, but how is that replicating the HBPP? That’s like replicating a pizza with a bowl of spaghetti and meatballs. Also a fine dish, but not the same.

[ochotona]

$100+ oil never hurts the oil business. Things are picking up. We expect 2023 to be exceptional for our oil & gas cloud computing and consulting company.

Thanks. Can you recommend something to read that explains the pros and cons of the Keystone XL Pipeline? I'm looking for something that doesn't have the CNN/FOX biases. I'm also trying to understand why we still send so much of our oil overseas, if Biden could really do anything in the short to medium term to lower gas & oil prices, etc. Just a general overview of what's real and what's political theater when it comes to gas & oil.

And just so I don't pull this thread too far off topic, I'd be curious (if you are willing to share) where you ended up with your investments during and after the pandemic. Didn't you go all to cash at one point?

Sorry if I am being too nosy. I don't know any oil experts and I always enjoyed your investing posts. Among other things you taught me about the SS/RMD tax torpedo several years back.

Oil has to flow around the world because of difference in grade and quality. We can never be self-sufficient because our crudes are mismatched to our own refineries. Our crudes must be blended to create feedstock.

I don't know much about Keystone XL. Cancelling it really hurt Alberta, though.

Oil companies are failing to drill new wells not only because of ESG but because investors don't trust them. They torched billions of capital and they have to show extreme capital discipline now. Which means return cash to investors, and don't drill new wells.

I went all cash end of Feb 2020 and was back in by June 1. My max drawdown was 3%. I got in roughly where I got out. Trendfollowing worked exceptionally well. Now I'm mostly all cash again. I just do what my chosen models tell me to do.

Another tax torpedo... that gal IRMAA !!! Google "Medicare IRMAA" !!!

[ppnewbie]

It’s also fun to try to replicate an HBPP in two components Wellesley and gold OR Wellington and gold.

It’s a cool portfolio, but how is that replicating the HBPP? That’s like replicating a pizza with a bowl of spaghetti and meatballs. Also a fine dish, but not the same.

Gold, Stock, Bonds, Short term bonds maybe act like cash.

Screen Shot 2022-06-06 at 2.40.16 PM.png (343.78 KiB) Viewed 6627 times

[dualstow]

Approximate the returns and drawdowns, maybe. I still don’t think it’s the same. It may not always be so close. And, you don’t have cash that you can withdraw.

[ppnewbie]

Approximate the returns and drawdowns, maybe. I still don’t think it’s the same. It may not always be so close. And, you don’t have cash that you can withdraw.

OK

[yankees60]

$100+ oil never hurts the oil business. Things are picking up. We expect 2023 to be exceptional for our oil & gas cloud computing and consulting company.

Thanks. Can you recommend something to read that explains the pros and cons of the Keystone XL Pipeline? I'm looking for something that doesn't have the CNN/FOX biases. I'm also trying to understand why we still send so much of our oil overseas, if Biden could really do anything in the short to medium term to lower gas & oil prices, etc. Just a general overview of what's real and what's political theater when it comes to gas & oil.

And just so I don't pull this thread too far off topic, I'd be curious (if you are willing to share) where you ended up with your investments during and after the pandemic. Didn't you go all to cash at one point?

Sorry if I am being too nosy. I don't know any oil experts and I always enjoyed your investing posts. Among other things you taught me about the SS/RMD tax torpedo several years back.

Oil has to flow around the world because of difference in grade and quality. We can never be self-sufficient because our crudes are mismatched to our own refineries. Our crudes must be blended to create feedstock.

I don't know much about Keystone XL. Cancelling it really hurt Alberta, though.

Oil companies are failing to drill new wells not only because of ESG but because investors don't trust them. They torched billions of capital and they have to show extreme capital discipline now. Which means return cash to investors, and don't drill new wells.

I went all cash end of Feb 2020 and was back in by June 1. My max drawdown was 3%. I got in roughly where I got out. Trendfollowing worked exceptionally well. Now I'm mostly all cash again. I just do what my chosen models tell me to do.

Another tax torpedo... that gal IRMAA !!! Google "Medicare IRMAA" !!!

The year before I went on Medicare I read the Medicare for Dummies book twice and learned about this. Gave me enough time to manage my income for that year (and which i have continued to do so for all subsequent years) so as to avoid paying more than the minimum for Medicare.

[ppnewbie]

Substituting Wellesley for cash in the HBPP looks great as well. Highest Sharpe, Sortino and a neutral correlation to the general market. Need to understand Wellesley better because it lowers correlations while increasing the amount of equities. Maybe the chart is a result of the timeframes which is during a bond bull market.

Screen Shot 2022-06-07 at 12.12.31 PM.png (292.7 KiB) Viewed 6527 times

[Jack Jones]

Hal,

I'd be careful on stating anything can be considered "optimal" for gold. Mathematically/historically, the start date swings "optimal" a huge amount to include you shouldn't touch the stuff. What this tells you is the asset is unstable, generally unpredictable and is susceptible to strong trends.

The only thing I'm comfortable saying is somewhere between 5 and 25...and which extreme you pick one should just fess up and say "it's because they like or can hardly stomach gold but they will tolerate a bit of it." As to how risk is normally measured, it's a pretty tough argument to make that gold buys down risk or reduces volatility. Over most start dates, gold reduces sharpe.

I'm speaking to portfolio allocation and not for other reasons one may want to hold it.

I just now saw this post, and I agree with Jack that it's a great one.

This is a good post, but to be fair, it was joypogs earlier post in the thread that I nominated for POTY. When is the award ceremony for that, again?