Saxo Bank's Balanced Portfolio

[craigr]

Just saw some links coming in from a new asset allocation strategy from Saxo Bank called the "Balanced Portfolio." They are taking Browne's and Dalio's ideas and present the allocation they are going to use. I blogged about it here:

https://web.archive.org/web/20160324133 ... portfolio/

Basically, it uses Browne's concepts with Dalio's All Weather Portfolio slices. Pretty similar concept though and could give some food for thought.

[dualstow]

Nice to see they give a little credit where credit is due.

[smurff]

I watched the video of Ray Dalio on the link above.  I couldn't help but notice that whenever he mentioned the need for owning gold, there was laughter in the audience.  This happened even when he pointed out that those who didn't see the need for gold in a portfolio did not know history.  It was like hearing the laugh track for a sitcom whenever gold was mentioned.

It's great that he pointed out that every generation there's likely to be a wealth-destroying period of time.  I had to stop and remember that a generation lasts 15 to 35 years, averaging around 20, and these days people can reasonably expect to live into their 80s and 90s--almost a century.  So that's four to five wealth destroying periods over a lifetime.  Any individual will be responsible for their own portfolio management during three to four if you consider that with a few exceptions, people younger than age 20 are clueless about money, finance, and economics, and people older than 85 have a variety of issues that can cause much of their portfolio management to be in the hands of others.

in the past 25 or so years, there have been these major wealth destroyers in the USA (common swindlers like Madoff, Corzine, etc. and individual stock frauds, like Tyco, MCI, Enron, etc.  are not on this list list as they tend to revealed as part of the overall wealth destroying event):

1987 into early 1990s-- stock crash followed by bank (savings and loan) crisis
1998--Long Term Capital (a hedge fund) and global financial meltdown
2000--Internet stock bubble bursts
2001--Attack on WTC, markets shut down, many major contracts canceled
2008--Collapse of Lehman Bros, global financial crisis, global real estate bubbles burst

During one ten year period, about a half generation, there were four times for you to be wiped out if you were unlucky or not running an all-weather portfolio.

[Libertarian666]

So that means we can't be in a gold bubble, which I had already concluded. It's pretty hard to have a bubble in an asset that almost no one takes seriously.

[smurff]

In the USA, except for a few gold bugs, PP and all weather weather portfolio enthusiasts, jewellers, and collectors, the larger market hates gold.  It's the opposite of a bubble.

[MediumTex]

In the USA, except for a few gold bugs, PP and all weather weather portfolio enthusiasts, jewellers, and collectors, the larger market hates gold.  It's the opposite of a bubble.

On more than one occasion I have had people who publicly poo poo gold tell me that they personally own some "just in case."

[Libertarian666]

In the USA, except for a few gold bugs, PP and all weather weather portfolio enthusiasts, jewellers, and collectors, the larger market hates gold.  It's the opposite of a bubble.

On more than one occasion I have had people who publicly poo poo gold tell me that they personally own some "just in case."

How much is "some"? Until the average investor has 10% or more in gold, there's no bubble as far as I'm concerned.

[notsheigetz]

Just saw some links coming in from a new asset allocation strategy from Saxo Bank called the "Balanced Portfolio." They are taking Browne's and Dalio's ideas and present the allocation they are going to use. I blogged about it here:

https://web.archive.org/web/20160324133 ... portfolio/

Basically, it uses Browne's concepts with Dalio's All Weather Portfolio slices. Pretty similar concept though and could give some food for thought.

Looks a little too complicated to me.

[melveyr]

Yeah once you start folding in a bunch of assets it gets really messy. I have contemplated allocating some of the equity piece to HY debt or emerging market bonds before, but it is kind of overcomplicating things and those funds have higher expense ratios. Also industrial commodities are more equity like than gold is, and I would hate to reduce my equity position to add to as abstract of an asset class as CCF...

[Ad Orientem]

Not impressed by the portfolio construct. They underweight equities and almost ignore gold.

[gizmo_rat]

It seems to me that this Balanced portfolio and the All weather portfolio make better "financial products" than for example PRPFX but really don't make me want to rethink my 4 x 25. 

I find the portfolio rationale / macro explanations of the BP and AWP more comprehensible than HB's original rationale (e.g. tight money recession) and I like the idea of risk parity, which means I should be comfortable with their asset allocation... but I'm not.

From Saxo

The reason for the Permanent Portfolio’s outperformance in 2008 was due to its 25 percent weight in cash, which also ended up being the only safe haven as risk asset correlations drifted towards one and diluted the effects of broad asset diversification.

On the face of it all the standard measures of performance are very close to the 4 x 25. So why engineer cash out ?

I think where the 4 x 25 really shines is in the holding, which encompasses taxes, fees, risk management and individual needs /psychology. I can't see how an "engineered product" is ever going to be able to address these factors.

So to answer Saxo's initial question "does a better version of the Permanent Portfolio exist?".
Not yet, because you haven't defined what "better" is from an individual investor's POV, which I think is what HB did.