Oh how it hurts to see no gains

[Ad Orientem]

Asset weighted portfolios are incredibly attractive... for people with a time machine and a good knowledge of history.

1920's Buy RCA at $1.25... sell at $550.00
1930's Buy LTTS - As an asset class, bonds were a better investment than stocks until around 1951. Electric Boat Company however rose from July of '32 to 1941 by 1000%. 
1950's Buy Polaroid (PRD) +8,366%
1960's Buy Masco (MAS) +10,177%
1970's Buy Harry Browne's holy trinity - Gold Silver and Swiss Francs
1980's Buy Circuity City (CC) +8,265%
1990's Buy Dell (DELL) +55,000%

Alas for those of us without such a luxury, I prefer boring but safe.

[buddtholomew]

Wow...what an awesome day. I guess the VP has to cover losses in the PP once again...Enjoy the weekend everyone.

[notsheigetz]

Are you sure you're down 2% for the year?

As of May 1st, my PP is down 0.34% since January 1. 

My Morningstar tracking of SHY+TLT+IAU+VTI to approximate the PP is actually showing + 1.1% YTD so I don't know what y'all are looking at.

[buddtholomew]

Are you sure you're down 2% for the year?

As of May 1st, my PP is down 0.34% since January 1. 

My Morningstar tracking of SHY+TLT+IAU+VTI to approximate the PP is actually showing + 1.1% YTD so I don't know what y'all are looking at.

Your YTD returns depend on the percentages of each asset held at the beginning of the year.

[notsheigetz]

Your YTD returns depend on the percentages of each asset held at the beginning of the year.

Good point, but a portfolio re-balanced to 25-25-25-25 in January would be up 1.1% according to Morningstar.

I started out the year overweight in stocks myself so I'm sure my real YTD would be even higher.

[dragoncar]

3xpp is up 4.65% ytd.

Mine is down around 2% due to cash inflows.

Up 1.52% YoY so I guess I won't freak out TOO much. 

[GT]

Buddtholomew - Can you tell me more about the 60/40 VP portfolio?  What is the overall weighting of your VP relative to your HBPP? Do you plan on taking the current gains from this portfolio and rebalancing into the HBPP or will you keep the two portfolio’s separate? sorry for the questions.

I ask because I have been wondering if having a VP set up for growth, 60/40 - three fund portfolio, would be a way to keep me from feeling that I missed out on an opportunity? 

VP designed to capture the "good times" –  60/40 - Three Fund portfolio - Vanguard Lifestrategy
HBPP based on “when the party is over”? (stole that phrase from pointedstick)

[buddtholomew]

Buddtholomew - Can you tell me more about the 60/40 VP portfolio?  What is the overall weighting of your VP relative to your HBPP? Do you plan on taking the current gains from this portfolio and rebalancing into the HBPP or will you keep the two portfolio’s separate? sorry for the questions.

I ask because I have been wondering if having a VP set up for growth, 60/40 - three fund portfolio, would be a way to keep me from feeling that I missed out on an opportunity? 

VP designed to capture the "good times" –  60/40 - Three Fund portfolio - Vanguard Lifestrategy
HBPP based on “when the party is over”? (stole that phrase from pointedstick)

I plan to keep the PP (40% of assets) and VP (60% of assets) portfolios separate. The 60/40 VP is comprised of primarily index funds (TSM, REITs, SC, INT, INT-SC and GDX), short-term treasuries as well as a Stable Value fund. I also hold a significant portion of my taxable investments in an VG IT-Municipal Bond fund.

Looking at my investments in their entirety, I am 50/50 equities and fixed income.

Hope this helps.

[t-bear52]

Looks similar to Alex Green's Gone Fishin' portfolio

[sophie]

Are you sure you're down 2% for the year?

As of May 1st, my PP is down 0.34% since January 1. 

My Morningstar tracking of SHY+TLT+IAU+VTI to approximate the PP is actually showing + 1.1% YTD so I don't know what y'all are looking at.

That's odd.  ETFreplay shows -0.9% YTD.  Either way though, -2% seems unlikely.

[Pointedstick]

It's hilarious how we're all quibbling over basically a rounding error. Whether it's +1% or -2% probably depends on what your allocation started as and whether reinvested dividends are included. And regardless, IMHO it's damn fine performance for a portfolio that's seen one of its assets fall over 20% in a short period of time.

[buddtholomew]

It's hilarious how we're all quibbling over basically a rounding error. Whether it's +1% or -2% probably depends on what your allocation started as and whether reinvested dividends are included. And regardless, IMHO it's damn fine performance for a portfolio that's seen one of its assets fall over 20% in a short period of time.

Down 20K or up 10K is not rounding error. Thats not hilarious to me.

[notsheigetz]

And regardless, IMHO it's damn fine performance for a portfolio that's seen one of its assets fall over 20% in a short period of time.

Yeah, I've thought that too. This was the first big test of a major decline in an asset since I've been in the PP and putting it all in perspective I'd have to say it has handled it pretty well. That's the one thing that gives me pause when I consider making some tweaks to capture more stock market gains.

[OverTaxed]

Everyday, it seems to be getting worse and worse. I'm a newcomer to the PP, and I've lost upwards of 6% in gold and 3% in bonds already. The meager returns in equities aren't bridging the gap and my total portfolio is down 2% for the year. 
I wish there was some way I could stop the bleeding, because I feel like it's just going to get worse.

Don't forget that your PP has 25% in cash, so if things really take a turn for the worse you can snatch up some bargains on the way down with a portion of your cash, which lowers your cost basis.  It also puts more of your PP at risk, so just be aware of the trade-offs.

Thank you for your reply, but IAU will have to sink to record lows before I would even consider buying more of it. I'm talking $5 a share low. Time will tell if we see those prices.

[Pointedstick]

Thank you for your reply, but IAU will have to sink to record lows before I would even consider buying more of it. I'm talking $5 a share low. Time will tell if we see those prices.

Repeat after me: buy low, sell high. Gold will rise again! Don't let pessimism blind you to a great buying opportunity.

[iwealth]

It's hilarious how we're all quibbling over basically a rounding error. Whether it's +1% or -2% probably depends on what your allocation started as and whether reinvested dividends are included. And regardless, IMHO it's damn fine performance for a portfolio that's seen one of its assets fall over 20% in a short period of time.

Down 20K or up 10K is not rounding error. Thats not hilarious to me.

The 2008-2009 crash must have been pretty brutal for you with that size portfolio. Even the PP had a pretty serious drawdown during that period.

[melveyr]

Budd,

You might enjoy a copy of Zvi Bodie's book "Worry Free Investing." You might be an investor that should be 100% short-term TIPS.

[Ad Orientem]

Budd,

You might enjoy a copy of Zvi Bodie's book "Worry Free Investing." You might be an investor that should be 100% short-term TIPS.

+1

Based on his comments it sounds like Budd has a near zero risk tolerance, even in the short term. 100% T Bills / ST TIPS is the only place I can think of that fits his risk profile.

[Pointedstick]

Budd,

You might enjoy a copy of Zvi Bodie's book "Worry Free Investing." You might be an investor that should be 100% short-term TIPS.

+1

Based on his comments it sounds like Budd has a near zero risk tolerance, even in the short term. 100% T Bills / ST TIPS is the only place I can think of that fits his risk profile.

Knowing what I know about Budd from his posts here, I believe there are two things at play:
1. Near-zero downside volatility tolerance
2. Envy at not being invited to the stock party

Despite the contradictory nature of these desires, I think it's possible to find a happy medium by separating them into a PP/VP split portfolio model. So my recommendation would be as follows:

PP: 80% I-Bonds, T-bills, 2-yr treasuries, S-TIPS
VP: 20% total stock market fund

The PP part has almost no fluctuation so you don't have to worry about nominal dollar losses, while the VP part allows you to "ride the lightning" when stocks are hot, but your downside has a hard limit of 20% of your total assets. And in practice most stock crashes don't result in 100% losses.

Such a short-term-bond-heavy portfolio has historically performed a lot stronger than many may realize:

[align=center][/align]

[buddtholomew]

It's hilarious how we're all quibbling over basically a rounding error. Whether it's +1% or -2% probably depends on what your allocation started as and whether reinvested dividends are included. And regardless, IMHO it's damn fine performance for a portfolio that's seen one of its assets fall over 20% in a short period of time.

Down 20K or up 10K is not rounding error. Thats not hilarious to me.

The 2008-2009 crash must have been pretty brutal for you with that size portfolio. Even the PP had a pretty serious drawdown during that period.

My VP is for retirement and the PP for an emergency, short-term and intermediate term goals. The VP decline in 2008 was a rebalancing opportunity that served me well. I was not invested in the PP at the time, but after the decline knew that I did not want "the money I can't afford to lose" at risk to such declines. This led me to the PP. I just didn't expect negative returns during a raging bull market.

[escafandro]

Down 20K or up 10K is not rounding error. Thats not hilarious to me.

This is your lost since you started with the PP or is it a drop of the last months?

[RuralEngineer]

Knowing what I know about Budd from his posts here, I believe there are two things at play:
1. Near-zero downside volatility tolerance
2. Envy at not being invited to the stock party

I'm not convinced that investment happiness can be achieved if those two traits are both strongly present.

[GT]

My VP is for retirement and the PP for an emergency, short-term and intermediate term goals. The VP decline in 2008 was a rebalancing opportunity that served me well. I was not invested in the PP at the time, but after the decline knew that I did not want "the money I can't afford to lose" at risk to such declines. This led me to the PP. I just didn't expect negative returns during a raging bull market.

Budd - tell me if I am wrong but it sounds like you are really talking about “Neutrality”? in the portfolio.  YTD gold is down and stocks are up and as a result of this cancellation effect the HBPP portfolio has really just remained neutral (or maybe a gain or lose depending on drift of current AA). If you have Harry Brown’s book, File-Safe Investing, reference page 43 on the subject of neutrality. Below is an expert from the page I just referenced.

“It might seem that a Permanent Portfolio containing these four contradictory investments would be neutralized: As one element rose, another would fall- and nothing would be gained.
On a day-to-day basis, that can be true. But over broad periods of time, the winning investments add more value to the portfolio than the losing investments take away.
For example, during 1973-77, stocks generally lost 20%, but gold rose by 153%. During 1981-86, gold fell 34% while stocks rose 80%. During these periods, stocks and gold didn’t cancel each other out; the winner had a bigger impact on the overall outcome than the loser did.”?

My take way from reading that section was a time frame of years; or not based on short term results. 

Since this is your emergency and short term portfolio, can you give me a detailed explanation of your expectations for this style portfolio?  If you had to rank the order of importance around this portfolio’s objectives what would they be? Sorry for all the questioins.

[buddtholomew]

My VP is for retirement and the PP for an emergency, short-term and intermediate term goals. The VP decline in 2008 was a rebalancing opportunity that served me well. I was not invested in the PP at the time, but after the decline knew that I did not want "the money I can't afford to lose" at risk to such declines. This led me to the PP. I just didn't expect negative returns during a raging bull market.

Budd - tell me if I am wrong but it sounds like you are really talking about “Neutrality”? in the portfolio.  YTD gold is down and stocks are up and as a result of this cancellation effect the HBPP portfolio has really just remained neutral (or maybe a gain or lose depending on drift of current AA). If you have Harry Brown’s book, File-Safe Investing, reference page 43 on the subject of neutrality. Below is an expert from the page I just referenced.

“It might seem that a Permanent Portfolio containing these four contradictory investments would be neutralized: As one element rose, another would fall- and nothing would be gained.
On a day-to-day basis, that can be true. But over broad periods of time, the winning investments add more value to the portfolio than the losing investments take away.
For example, during 1973-77, stocks generally lost 20%, but gold rose by 153%. During 1981-86, gold fell 34% while stocks rose 80%. During these periods, stocks and gold didn’t cancel each other out; the winner had a bigger impact on the overall outcome than the loser did.”?

My take way from reading that section was a time frame of years; or not based on short term results. 

Since this is your emergency and short term portfolio, can you give me a detailed explanation of your expectations for this style portfolio?  If you had to rank the order of importance around this portfolio’s objectives what would they be? Sorry for all the questioins.

1. Capital preservation - funds available at a moment's notice in the event of a job loss.
2. Inflation adjusted returns (3-4%) - Grow investment to pace inflation and earn the risk premium for investing in the stock, bond and PM markets over time.
3. Reduced volatility - over another portfolio that would achieve the above goals
4. Tax efficiency - PP is 90% taxable
5. Regret - Success of the PP over other investment strategies (e.g. ignoring the obvious that rates can only rise, equities are up 140%+, gold is in a bear, etc)

In response to #s 1-5 above:

1. Increased allocation to cash-like investments in the taxable account (VG IT-Term TE)
2. Invested in the PP
3. Invested in the PP over a traditional BH portfolio
4. Index funds and treasuries
5. Current regret is negative returns in the PP to date when a 60/40 blend of equities and short-term treasuries is returning 7.5%+ 

[DragonJoey3]

I can say that when I decided to change my 6 month emergency fund over to be the PP instead of a savings account I did so Dec. 4 2012.  Since that time the PP has been down almost consistently.  Presently based on ETF Replay it should be down 1.5%, and based on my own tracking it's down 1.87% (because not all of it was invested at once.

That being said I don't regret the decision in the least.  I suspect the PP will still end the year in the green and more so than the measly 1% I would have gotten in a bank account.