Gyroscopic Investing

ochotona wrote:

madbean wrote: The thing about 25/25/25/25 is that it is completely agnostic about the future.

Why do people keep saying this? Yes, any fixed percentage allocation plan is agnostic about the future. But any fixed percentage choice is in some way biased, or a wilda** guess, or based on past irrelevant information or something. I think people get misled about the symmetry of the original PP allocation. Symmetry doesn't mean anything. It's just coincidence, or a deliberate simplification; it's not magic.

The symmetry of the 4x25 PP actually does have a very special property that any other allocation doesn't have: it minimizes your maximum possible loss if one of the four assets completely tanks. (In mathematics, they even have a name for minimizing your maximum possible loss: minimax.)

Craig has aptly referred to this property of the 4x25 PP in his article "A Portfolio With Firewalls."

Tyler wrote: My advice is to get your portfolio 80% perfect and just be happy. The cost of chasing that last 20% just isn't worth it, either in personal life satisfaction or possibly even in after-tax returns. Turn that optimizing energy to things you can actually control like reducing your expenses and learning new skills, and you'll likely be a lot wealthier and happier in the longrun.

My experience exactly.  Somehow I (and many others) think they can "figure" out the market or that latest tip is going to make them rich, or some "guru" who got a call right in the past will get all their calls right in the future.

I can't believe I spent so much time in the past coming up with my own set of indicators to determine buy/sell and backtesting them and yet when put into practice invariably failed consistently.

If I were to go back and turn every stock buy/sell decision I ever made off tips/indicators/gurus 180 opposite of the recommended call I guarantee you that my portfolio would be significantly higher than what it is.  That is how bad I am at this, and how I suspect most people are. 

Add to that there is no relation to reality in most markets nowadays and trading occurs at light speed, the average investor is better served going 4x25 PP, checking/rebalancing when required, and enjoy life otherwise.

My two cents.

Tyler wrote: Personally, I found that a healthier and more achievable goal was to stop chasing theoretical perfection and instead seek equilibrium where my portfolio is "good enough" in most any situation. That includes pre- and post-retirement. For me that's the 4x25 PP.

My advice is to get your portfolio 80% perfect and just be happy. The cost of chasing that last 20% just isn't worth it, either in personal life satisfaction or possibly even in after-tax returns. Turn that optimizing energy to things you can actually control like reducing your expenses and learning new skills, and you'll likely be a lot wealthier and happier in the longrun.

True words of wisdom and beautifully put.  Thank you Tyler!!

Geez...please do not make the error of looking at individual components of the PP and extrapolating anything. It is the components of the PP and how they work together as a team that matters. Folks jumping back and forth between arguments is the single biggest problem I see on this board even with people who should know better. Also...pointing out that HB backtested to develop the PP and then say one should never backtest the PP to tweak it is absolutely ludicrous/totally inconsistent.

With regard to stocks...the academic literature  is pretty clear on this. Unless the government makes some type of monumental error, stocks pretty much return GDP and some risk premium.  Stocks really do outperform every other asset class over long periods of time sans the above. Broken Record: I think Best Laid Plans by HB is hands down his best book on the PP. Per HB: It is OK to deviate from the 4x25 model so long as the deviations aren't huge. Finally, MG I think made a pretty compelling case on gold and not weighting it at the full 25%. It definitely serves a hugely important purpose and must be held, but at the end of the day the arguments that it is a non-returning asset are absolutely valid.

sophie wrote:

Tyler wrote: Personally, I found that a healthier and more achievable goal was to stop chasing theoretical perfection and instead seek equilibrium where my portfolio is "good enough" in most any situation. That includes pre- and post-retirement. For me that's the 4x25 PP.

My advice is to get your portfolio 80% perfect and just be happy. The cost of chasing that last 20% just isn't worth it, either in personal life satisfaction or possibly even in after-tax returns. Turn that optimizing energy to things you can actually control like reducing your expenses and learning new skills, and you'll likely be a lot wealthier and happier in the longrun.

True words of wisdom and beautifully put.  Thank you Tyler!!

What was that about the enemy of the perfect is the friend of the good?  Something like that.