In order.sophie wrote: Probably I should stay out of this, but for the benefit of the people watching on the sidelines I'll just inject a few common sense points:
- There is always going to be a portfolio that does better than the one you're holding. Like, say, 100% gold during the 1970s. The problem is that you don't know which one it's going to be. Also of course if you're not actually holding it during the entire period of your backtest, it does you no good, and only makes you frustrated with the "I could have done better" feeling.
- CAGR is not the whole picture - portfolio management and usability are easy to overlook. A steep drawdown during the withdrawal phase (i.e. retirement) can hurt significantly, as you may be forced to sell assets that have dropped in value, thus locking in losses. This problem is exacerbated by portfolios that do not include a cash allocation. Even when you're in the accumulation phase, you may suffer a catastrophic event (job loss, medical condition) that requires that you dip into your retirement funds. And, there is a better than even chance that a job loss will coincide with a bad market condition, as Libertarian666 pointed out.
- The above portfolio comparison completely ignores taxes and trading fees. A finely sliced portfolio like #2 would have incurred a lot of steep fees over the backtest period, and probably would have to be rebalanced annually. In comparison, the PP does not require much trading as rebalances occur only about every 2-3 years, and it's highly tax efficient.
For sure...the key is finding something you can stick to and live with.
Indeed...however, I think fundamentally a crisis cash stash and setting aside money for future LT needs, retirement, kids' college, whatever, should not be commingled. The time horizons and acceptable risks are quite different and you should be using different metrics/characteristics when evaluating the two pots of assets. If mentally it helps to mix them, OK then do it. But the former is absolutely about safety. The latter is about meeting future goals and balancing risk vs. time remaining. A smooth ride that comes up way short of meeting the future goal in the final analysis was not a good strategy.
In today's world if you are paying a lot in fees particularly given the ETFs tested then you are not a good investment shopper and should fix that. Fees can and should be negligible. Taxes of course matter greatly and the MoPP's results should be reduced by one's LT vs. ST tax rates assuming a non-tax advantaged account. The MoPP would certainly be better in a tax-advantaged account, no doubt.
At the end of the day my post was to provide readers an option that is true to the basic 4 economic periods construction, should successfully deal with one of the PP's disadvantages and has a reasonable chance of similar risk and better returns. By design one of the 4 assets will always suck and as MJ points out repeatedly this is a portfolio and returns decreasing drag.
And OBTW I don't mind folks poking at anything I post so long as it is constructive and I've never seen you do anything but post good constructive stuff Sophie. You can poke at me anytime. :-)