Joypog's regularly changing AA (originally "The Desert Looking Glass Portfolio")

[joypog]

Joypog, I can't remember if you mentioned this already, but is most of your portfolio in taxable or tax-deferred accounts?

The first decision is percent equity. I like the 50% equity allocation at your age. You could perhaps go as low as 40%, but below 40% seems too conservative for the number of years before you'll need the money. I think the house down payment should be kept primarily in cash/STT (and/or i Bonds if you have at least a year before buying). In other words, I'd separate this savings allocation from the ITT allocation that will remain a part of your portfolio after the house purchase.

If you really wanted a happy wife, you'd save cash for the down payment and invest your entire long-term portfolio in Vanguard's Wellesley fund.

At the moment it's about two-thirds in tax-deferred accounts and I would suspect that would continue for the foreseeable future. That said, we've built up enough of a cushion we won't completely drain our taxable account if we go for a 20% downpayment....though given our conservativeness, we'll most likely push hard to pay down any mortgage since that's just a guaranteed interest loss.

I agree about shooting for a minimum 50% allocation (up to 55% if I count REITS). My wife and I need to try life on the "wild" side (HA, its nothing compared to to the Bogleheads on Reddit!) and then if it's too exciting, we can always drop it down to a 40% AA. Conversely, if we're comfortable with stocks at that level we might let it slide up the AA by natural growth (and as my pension accrues years of service time).

I keep seeing people talk about Wellesley, I need to look into that. I'm certain there are a plethora of lazy / simple portfolios that would be great for us...but I'm a bit too curious to just settle on someone else's AA, even if it were to be better than anything I might home brew.

[joypog]

Made some (small) moves this morning to get some round numbers in my portfolio and need to get out of the finance research mode for a couple of weeks to clear my mind.

The sketch I made this morning created 4 quadrants, each to land at +/-15-35% by early 2023, for "Conventional / Tilt(ing at windmills)" on one axis and on the other axis "Stocks / Non-Equities"

Conventional, Non Equities . . | . . Conventional, Stocks
Short and Int Treasuries . . . . | . . World
-------------------------------------|--------------------------------
Tilt, Non equities . . . . . . . . .| . . Tilt, Stocks
LTT, Gold, iBonds, TIPS . . . . .| . . Us-SV, Intl-SV, EM, REITs

We'll see if I can stay away from my spreadsheets for a few days....this is getting to be like quitting smoking (unfortunately I'm familiar with that experience).

[boglerdude]

Get in the soup, Pog. Mathjak made one of the best posts: Its liquid, everyday you "buy again" the portfolio you're holding. Buy now tweak later.

[joypog]

Get in the soup, Pog. Mathjak made one of the best posts: Its liquid, everyday you "buy again" the portfolio you're holding. Buy now tweak later.

I'd do much faster than over the next 9 months, but I only have a 50% say over our finances....and in these turbulent times it is the only way to get my wife to up our stocks from 25% to 50%.

Which is fine.

Our 4 (four!) year long house remodel taught me that we are f'ing slow to come to an agreement, but we will eventually end up at a good solution. It was a painful process but this marriage lesson was the best thing to come out of the remodel.

It isn't perfect (lots of opportunity costs), but we generally avoid the worst mistakes.

(knock on wood)

[joypog]

One week later - I absolutely failed at avoiding spreadsheets, but given the minimal amount of change after all the gyrations over the past weekend, I think I'm settling into a good spot with my portfolio. Two minor tweaks - I dropped the extra EM fund - if I'm so risk averse to avoid credit risk with my bonds, why overweight the political risks with EM? And I decided to go international-only with the REITs which brings my international stocks even with US (I dig the symmetry of all these 50/50 splits).

Conventional, Non Equities . . | . . Conventional, Stocks
Short and Int Treasuries . . . . | . . World
-------------------------------------|--------------------------------
Tilt, Non equities . . . . . . . . .| . . Tilt, Stocks
LTT, Gold, iBonds, TIPS . . . . .| . . Us-SV, Intl-SV, intl REITs

Yesterday, I pulled out an old investor policy statement in 2009. Turns out that my inclinations 13 years ago have stayed consistent (the only major change is going heavy on SV tilt to compensate for a higher bond percentage).

Our mistake in the intervening decade has been the quixotic quest to buy a house all cash as home price inflation outpaced our savings rate. (Less judgementally you could say we never exercised our option for a real estate investment with the opportunity cost being missing out on the decade of stock market gains).

So the big decisions are in alignment between past and current me. Now we just need to execute over the next few months. After that, hopefully this will be a practice of occasional maintenance (I'd like this to settle into an annual event, around tax time).

[joypog]

Another week later, it seems that my AA has settled into a pretty steady state. Only two small tweaks
1) I moved my I-bonds and TIPS to the "non-stocks traditional" quartile,
2) This freed up room for a 5% commodities allocation.

But really everything is still mainly cash as we slowly bleed into the market every two weeks (so it can all bleed out?)

Of a slightly more substantive note, I did an exercise looking at how i could simplify this rats nests of holdings, all the way down to 2 funds, ala Hal!

[joypog]

This weekend I did some charts looking at the performance of a 70% stock portfolio versus my current 50% stock goal using the info on portfolio charts.

after 15 years, the 70% portfolio is expected to outperform the 50% portfolio even with the worse case scenarmos...but my wife looked at the 1 and 2 year volatility numbers in worst case scenarios...didn't take a second for her to tell me to stick with 50%. So there's our answer. Maybe once we get more risk tolerant as I vest more into our pension even as our horizon shrinks. Or maybe my need to optimize (greed) will decrease as I get older and I'll just stay the course.

Aside from that, still pretty much the same portfolio as before. Might push the Small Cap Value factor a little harder (bad influence from the Rational Reminder Forum), but that would be a decision well down the line as I slowly average into this lovely market.

[joypog]

This weekend I looked at where my future investments would be placed....as sold as I am on Small Cap Value, I ultimately decided that I didn't believe in the factor tilt enough to lock it into a taxable account. So I'm only going to to US TSM and xUS TSM outside of our IRA. I don't think I will ever regret purchasing MCW ETF's in taxable - and the portfolio is ever passed onto someone else, they won't have any problems with such a choice.

Ultimately it doesn't really change things, but the numbers shuffled around a bit and my quadrants land at about 25% Cash/STT/2-3year Tnotes, 25% LTTs/Gold/Inflation protected bonds, 25% US Stocks, 25% Intl Stocks with any odd tilts in our IRAs (the tilts are about 3/5ths of each of those stock allocations).

If you view Inflation protected bonds as "real assets" as Meb Faber does in his Global Asset Allocation book, this AA starts to look a lot like Tyler's pinwheel.

The good thing about slowly averaging into the market is that we are making small course corrections all along the way....on that note, I'm also thinking of a rebalancing scheme of letting stocks live between 40-60%. If so, we may well stop further contributions at 40% stocks. If equities rise, I'll let it grow all the way to 60% before rebalancing out. I suspect this slightly more conservative approach will make my wife a bit happier with this exercise - and she might be more willing to let me keep pouring money into a long bear market if our equity floor is 40% of the portfolio (instead of 50%).

[joypog]

Not a ton of change this week. I'm thinking about simplyfing everything to be just 1/n

Current N would be = 8, so basically 12.5% each.
Cash | TIPS
LTT | Gold
US-TSM | US-SCV
Intl-TSM | Intl-SCV

Still a bunch of halves as before, so this tweak is more of a numbers thing....and in the long term, if we buy a house or if I get more comfortable with my pension (either change would increase my risk tolerance), I might increase N by 1 to add another stock asset class such as REITs.

Meanwhile, I'm still buying on schedule. Feels wack to keep buying into the everything crash but with inflation as it is (and my proven horrendous ability at Market Timing)....TINA.

edit: while taking a morning walk I realized the correct way to think about it:
1) Set $$$ for "Cash" Allocation to be held as STT's, ibonds, Intermediate TIPs
2) The remainder as 1/n (in this case n=6)
Because of our potential house purchase, we're keeping the $$$ pretty high, which currently would be 25% of the portfolio if the markets stop cratering. I'm going to use July to equalize the pieces get to 1/n. From there I'll bleed out my oversized cash position into the market until Jan 2023. After that, it is in the hands of the gods.

[joypog]

I simplified things further. Looking at asset class correlations, Intl MCW runs lockstep with US MCW. Plus as a red blooded american (my wife just made apple pie last week) I didn't feel the need to overweight international stocks. As such I now have an AA that is split 6 ways.

US MCW
US SCV
Intl SCV
Short Term Bonds / I-bonds
Long Term Treasuries
Gold.

At 16% each, that leaves 4% to play around with random speculations. My wife has some oddball picks that my mother-in-law peer pressured her into buying, I'll most likely just throw my half of the play money into emerging market value ETF (AVES) until I think of something else.

As I mentioned in another thread, our taxable account will be a Golden Butterfly (for if we ever buy a house...or eventually to draw down for the kid's colleges in a decade).

The time horizon is still middle of next year to be fully vested -making purchases every couple of weeks, around my pay check. Also planning to hold rebalancing bands at 10% and 22%, (37.5% relative deviation). Which is pretty much in line with the HBPP recommendation of 40% relative bands.

[I Shrugged]

Unless it’s some kind of deep speculation, I think 5% of a portfolio is too small to mean anything.

[joypog]

Unless it’s some kind of deep speculation, I think 5% of a portfolio is too small to mean anything.

Oh yeah, for sure. It's more of a dip one's toe into a particular market fund. Fun/gambling money.

Of course that cuts both ways - if its too small to make a real positive difference ... hopefully that means its too small to cause any pain if it goes belly up.

[barrett]

For me the most interesting part of this thread is that you and your wife have both been willing to think this over/talk it out over a significant period of time. Maybe call it The Consensus Portfolio. I keep imagining an Onion piece with the title "Husband & Wife Actually Agree On Something'.

In our situation, my wife will pretend to listen for about 15 seconds and then say, "that sounds good" or something similar. It's not a bad situation necessarily, but really agreeing on investing details sure makes it easier (I would think) to stick to the plan whenever there is the inevitable rough patch. I remember dualstow posting something around March or April of 2020 where his wife asked if they were OK. He said they were fine and she was no longer interested. Hopefully I am remembering that correctly.

Anyway, good luck on whatever you ultimately decide and please keep us posted on "the damned house"!

[Jack Jones]

Unless it’s some kind of deep speculation, I think 5% of a portfolio is too small to mean anything.

Well, it depends on the upside.

I think the Variable Portfolio should sit in Treasury bills or a money market fund until an exiciting opportunity comes along -- one with a reward-risk ratio of at least 10-1, one that might produce a big change in the value of the portfolio.

I haven't always honored the 10-1 ratio, nor will I always in the future. But it provides a standard -- one that assures that I won't risk 5% to make 6%.

And under no circumstances will I act on a ratio smaller than 5-to-1.

But yeah, like you said, this is for speculations.

[joypog]

In our situation, my wife will pretend to listen for about 15 seconds and then say, "that sounds good" or something similar.

To be honest, this is our reality. She has very little patience to discuss the portfolio, so the main thing is that she's put her foot down at 50% stocks and made it clear she's fine with missed gains in the next bull market to minimize losses during this one.

Everything beyond that is my problem.

[joypog]

I think the Variable Portfolio should sit in Treasury bills or a money market fund until an exiciting opportunity comes along -- one with a reward-risk ratio of at least 10-1, one that might produce a big change in the value of the portfolio.

I haven't always honored the 10-1 ratio, nor will I always in the future. But it provides a standard -- one that assures that I won't risk 5% to make 6%.

And under no circumstances will I act on a ratio smaller than 5-to-1.

Oh interesting rule of thumb. I don't think he included this rule of thumb in his fail-safe investing book. I wonder if he moderated his position on the use of the VP over time.

I had always thought the idea of the PP as a small safe core holding with the VP as a marginally riskier holding (such as an all stock ETF...though of course it could include truly speculative items as well).

I'm more in line with viewing the Golden Butterfly as a PP with a SCV "VP", as opposed to a PP with a TSLA VP which would follow the spirit of that quote.

[Jack Jones]

I'm more in line with viewing the Golden Butterfly as a PP with a SCV "VP", as opposed to a PP with a TSLA VP which would follow the spirit of that quote.

I think Harry would consider your Golden Butterfly as your PP. It was Permanent in the sense of an unchanging strategy.

A VP where you bought and held a SCV ETF would qualify as risking 5% to make 6% to me. If 100% of your VP is always in SCV, you have no place in which to speculate, if you so choose. The VP was about setting yourself up w/ a sandbox to speculate in. Putting part of your PP there is just mental gymnastics so that you don't feel bad about veering off course of the standard 4x25. If you want to veer off course in your Permanent Portfolio, own it. Harry provided some guardrails if you wanted to do so.

[Smith1776]

If it helps at all, Browne did give his blessings in Best Laid Plans to deviate from the neutral 4x25 percentages. In that case the idea was that if the investor had strong inclinations regarding a particular economic condition that he could tilt within certain bounds.

The GB would have had Browne's approval as a PP in IMHO.