Gumby wrote:
Well, a TIPS fund (like VIPSX) lost roughly 15% of its value during 2008. So, no, I don't think anyone can consider TIPS to be the equivalent of cash.
Cash stuffed into a mattress would have lost to inflation heavily during the 1970's. Tbills also endured a -15% drawn down in real terms.
Yes, but when TIPS go down 15% in a year, in nominal terms, it's pretty easy to see that TIPS are nothing like cash. Cash should, at the very, least hold its value in nominal terms.
Clive wrote:
it's completely unrealistic to show a portfolio with no actual emergency cash and compare it to a portfolio that incorporates a substantial and stable cash strategy.
Some investors utilise part of dividend income as income for general living expenses with a view to sell some stock if necessary to cover emergencies. T+3 is little different to having to wait from Friday evening to Monday morning in normal high street banking. Excepting for the enforced sale of stock to cover an emergency the capital paper value and volatility might be totally secondary or even ignored by such investors. Their prime investment objective being that of dividends and dividend growth.
I know of investors who fully load into such a strategy, holding around equal weightings in a wide range of stocks bought at marginally above market average dividend yield time points, reducing any that rise to realign them back to average weightings in order to avoid any one stock becoming overweight, replacing candidates where dividend yields have declined either through price appreciation or dividend payout reduction. Of the performance I have seen since the 1980's, such investment style has actually yielded capital gains that have matched or exceed the total rewards achieved by the PP, AND dividend incomes that have also risen at around similar rates over time. For them, holding 30 or 40 stocks that all pay dividends spread across the whole year is like their wage packet/cash, and if you suggested that they kept 25% back in cash they'd likely refuse in preference to getting the funds 'working' for them asap.
As the PP specifically includes cash as one of its assets it exposes itself to having that asset class included in its overall relative performance comparisons.
I don't think I could ever live that way, but that's a very interesting approach. Thanks for sharing, Clive. I still feel that a non-cash PP would be a fairer comparison for those individuals who like to have all of their money 'working' for them. Nevertheless, you raise some very good points.
Last edited by Gumby on Sat May 21, 2011 9:57 pm, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
pershing83 wrote:Tenn is right to work and no income tax. Times appear bad, maybe desperate even. The old Confederacy should consider secession again.
That's pretty funny, because a lot of red states in the south get more federal aid than they send back in federal taxes. Are you suggesting the south would be better off if they seceded and refused to take all of the free federal money? Personally, as a blue stater in the northeast, I'd be happy to keep more of my federal tax dollars to help local causes. My federal tax dollars shouldn't be paying to help poor people living in a flood plain with no flood insurance anyway.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines. Not that I'm complaining, of course." -ZedThou
l82start wrote:
some other portfolios do recommend a 6 to 8 month emergency fund that gets counted separately, no two investors would have the same cash holding depending on the number of months they are comfortable having and the differences in there cost of living, i am not sure how you could come up with a useable number to account for it in a comparison.
Right, I think it's disingenuous of most portfolios to show returns with 100% invested (not counting cash), while simultaneously suggesting you should have an emergency fund of 6-12 months.
The PP pretty much allows you to have your cake and eat it too - the cash component doubles as your emergency fund.
"I came here for financial advice, but I've ended up with a bunch of shave soaps and apparently am about to start eating sardines. Not that I'm complaining, of course." -ZedThou
These issues (IMO) are best resolved by having seperate folders that contain you investments, real estate, cash, and maybe some even have pretty good chunk of cash value in those old ordinary life policies (like I do-it just crept up on me over the years) to consider. One should not spend the day obsessing over, say cash and pp.
I have 3 large CD's due this year and probably will put equal amounts in PRPFX and VWINX. If doing my own pp I might do differently. But I like VWINX and Cuggino might make changes that are not to my taste.
Well, I left this off... and it is really interesting. Seeking Alpha has a great commentary on "lazy" portfolios that may interest many here. And, I am pleased to say PRPFX leads the pack after 5 yrs. Some may have seen it.
There's much talk about VWINX having no cash. According to Morningstar's X-ray VWINX is 9% cash, 32% US stocks, 6% foreign and 53% bonds.
50% of the stocks are value and 93% are large cap. I hope this helps the discussion.
If I'm reading this article correctly, it seems like another sloppy example of equating the HBPP with PRPFX. They each have strengths and weaknesses, but they are different animals. I consider PRPFX, by itself, to be a speculative VP investment.
Clive wrote:
Even without rebalancing I don't think it was that deep in nominal terms
I agree that 15% is probably more accurate than 17% for the drawdown on HB PP (not sure what's wrong with etfreplay.com), but I don't think that changes the conclusion. I suspect a lot of people look at the worst January to January nominal drop in PP of around 5% and think that's as volatile as it gets, but they should be prepared for a 15% drop in their portfolio value when holding it and be able to rebalance against all their inclinations in the middle of it.
kka wrote:
I agree that 15% is probably more accurate than 17% for the drawdown on HB PP (not sure what's wrong with etfreplay.com), but I don't think that changes the conclusion. I suspect a lot of people look at the worst January to January nominal drop in PP of around 5% and think that's as volatile as it gets, but they should be prepared for a 15% drop in their portfolio value when holding it and be able to rebalance against all their inclinations in the middle of it.
Bear in mind, though, that a 2008-style financial crisis is normally a once-in-a-generation event. It's good to be ready for it, but from a historical perspective it isn't something that happens very often.
HB PP drawdowns from prior years might be a better indicator of what to expect during normal market turbulence. I think the HB PP was down 6% or so following the 1987 crash but ended the year with a gain.
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