No where to hide

[mathjak107]

i would seek a vanguard or fidelity newsletter and let them call the shots.  it worked for me and kept me from myself.

But those newsletters have writers and researchers that change over time.

I think you take for granted that you have a special skill set that gives you favorable investing results.

the skill set for success is simple , no magic calls or insight from the marketing gods needed.

just stick to the plan with no timing in or out.

mold it to the big picture as best you can

if you are wrong the moves are so slight in nature it does not matter much

don't waste a lot of money trying to cover remote situations as time has even made them okay. 


the difference is market cycles recover fairly quick and interest rate and cold cycles do not.
my newsletter  portfolio has been through the same crashes and downturns as the pp has over the last 27 years  only look at the balance difference.

[dutchtraffic]

market cycles recover fairly quick

Until they don't.

[mathjak107]

I am 100% with barrett. 

I've been doing this for 25 years.  I have little skill at it, and I would get over run by emotions at the worst possible times.  I am the typical 2% average return person.

If I had a 50/30/10/10 like mathjak, I could guarantee when that next stock drop comes, I'd be itching to get out.

My intent is simply to continue saving as much as possible, into the standard PP, and basically hope that it works going forward.  I see there are a lot of thoughts and concerns on headwinds, the bond bull is over, stocks have to drop, gold will go below $1000 and stay there for years, the dollar will continue being devalued.

Hence my original title "No where to hide."

I am comfortable with 25% in each.  It may not win the day in returns, but lets me sleep at night.

rule number 1 , invest for your pucker factor.

which is why age based investing is soooo bad. telling someone you are young and should be all stocks is just as foolish as telling a retiree with a big pucker factor they shouldn't own equity's.

being 25 and  bailing out in every downturn and losing money does a youngin no good.

on the other hand even a 65 year old has money they will not use to eat with for 25 years or more . nothing wrong with equities.

mark my words , once all these retirees see 8 -10% hits in their bond heavy portfolios they were told to go into they will freak.

how you allocate has nothing to do with age and everything to do with your own pucker factor and goals.

[mathjak107]

market cycles recover fairly quick

Until they don't.

it is that thinking that has left many folks a whole lot poorer for the last 146 years as long term it never has happened. but they believe their own bull-sh%t and so pay the price for thinking this Armageddon  event is coming.

in reality think about this.

since i started in 1987 , 10k in the pp is 67k today.  10k in my  portfolio model  is 203k today.  how much would things have to fall before i am just even with the pp if i did it instead.

while the pp seems  a lot more risk free the real risk that more than likely will play out is you will end up with an under funded retirement and the calamity you visioned will once again never happen.

standard portfolio's have weathered every storm the pp has  and went on in all cases to grow far more money in the end.

i am not saying don't use the pp if you are happy with it . but as harry would say allow for the uncertainty , in this case allow for the almost consistent fact  you will have below typical performance  in the accumulation stage and you may fall far short of your retirement savings goals.

that is the risk with the pp and it is a very real risk .

[dutchtraffic]

it is that thinking that has left many folks a whole lot poorer for the last 146 years as long term it never has happened.

It has never happened? Maybe not in the US..

[mathjak107]

correct , which is the only place my comments refer to.

[Pointedstick]

the skill set for success is simple , no magic calls or insight from the marketing gods needed.

just stick to the plan with no timing in or out.

Except you just entered and exited the PP in the space of a few weeks. Again, I think you are missing the fact that your skill and intuition for investing are far above average. In the course of several threads, you have articulated a lot of investing rules and described how you've violated them when doing so would improve your investment performance. That's superb. Most of us can't do that. I know I can't. My ability to read the market was terrible before I jumped into the PP. If I look at the prevailing market conditions today, I don't see whatever it is that you see that tells you that stocks are a good bet. I feel more like Cortopassi does, that everything looks bad.

[mathjak107]

well the numbers speak for themselves. take any balanced fund you like , and compare the numbers .  let both go through extended periods of time so they include the best and the worst of times and tell us what you got at the end of 20 -40 years of investing.

want to talk about the near term coming up ?

well if we even go by jack bogles calculation which makes sense here is what you got in this low rate high valuation environment.

you have dividends  typically representing 1/3 of the markets returns and dividends are linked to interest rates.

so with dividends at 2% we are looking at total returns in the 6% range.

you have long term treasury's at the bottom of the rate cycle which took 40 years to get here.

if those bond rates go up even 1% that is a 30% loss in bonds.

now i am not that great at math but  my logic tells me a 6% gain with a pretty good chance of at least  a  40% loss can be a horrible way to kick off retirement. it can take decades for  you to heal if rates head back to their norm over many many years in the 6-7% range.

unless we have that remote flyer , counting on it may not be the bast way to go from here.


so here is what i see:

you can use the pp and bet  on some remote flyer to give you the edge , or you can bet on what , was , what is , and what stands a pretty good chance of meeting your retiremnet goals vs what more often than not under performed in that respect over the decades.

it certainly has never been back tested as to how it would have handled the worst of times in retirement . if it is anything like the longer term corporates  that the  trinity study used and had more failures then that certainly would not be the way to go in retirement , that is the part that scared me out.

[buddtholomew]

well the numbers speak for themselves. take any balanced fund you like , and compare the numbers .  let both go through extended periods of time so they include the best and the worst of times and tell us what you got at the end of 20 -40 years of investing.

want to talk about the near term coming up ?

well if we even go by jack bogles calculation which makes sense here is what you got in this low rate high valuation environment.

you have dividends  typically representing 1/3 of the markets returns and dividends are linked to interest rates.

so with dividends at 2% we are looking at total returns in the 6% range.

you have long term treasury's at the bottom of the rate cycle which took 40 years to get here.

if those bond rates go up even 1% that is a 30% loss in bonds.

now i am not that great at math but  my logic tells me a 6% gain with a pretty good chance of at least  a  40% loss can be a horrible way to kick off retirement. it can take decades for  you to heal if rates head back to their norm over many many years in the 6-7% range.

unless we have that remote flyer , counting on it may not be the bast way to go from here.


so here is what i see:

you can use the pp and bet  on some remote flyer to give you the edge , or you can bet on what , was , what is , and what stands a pretty good chance of meeting your retiremnet goals vs what more often than not under performed in that respect over the decades.

it certainly has never been back tested as to how it would have handled the worst of times in retirement . if it is anything like the longer term corporates  that the  trinity study used and had more failures then that certainly would not be the way to go in retirement , that is the part that scared me out.

How do you arrive at a 30% loss in LTT's? Why do you continue to ignore the fact that a barbell approach of STT's or Cash combined with long-term treasuries can be matched to any duration of your choice. At the end of the day you are taking more risk in equities (which I too am comfortable with) and less risk in Gold (as you have substituted TIPS). That's really the only difference between your approach and the 4x25PP.

As long as you are aware of the trade-offs - generally less equity downside protection, and TIPS as an inflation hedge versus more gold. TIPS are bonds as well, so increase your FI duration.

[mathjak107]

because the permanent portfolio uses only long term bonds .  each 1  point rise on a 30 year is a 30% drop in value.  roughly 1% for each year to maturity. for sure you will see 20-25% on a 1% rise  .

unlike stocks which cycle around like day follows night eventually you may never see rates his low again as 40 year cycles can happen , they just did.

[Pointedstick]

you have long term treasury's at the bottom of the rate cycle which took 40 years to get here.

if those bond rates go up even 1% that is a 30% loss in bonds.

now i am not that great at math but  my logic tells me a 6% gain with a pretty good chance of at least  a  40% loss can be a horrible way to kick off retirement. it can take decades for  you to heal if rates head back to their norm over many many years in the 6-7% range.

How are you arriving at a 40%+ loss in the PP? If LTTs go down by a huge amount because interest rates are rising, you'll benefit from your cash yielding more, and theoretically stocks or gold or both will rise. Long term treasuries are not like long-term corporates. LTTs are a flight-to-safety asset, while corporates can decline when the stock market does. That's why adding them to a conventional portfolio serves you poorly if you're unlucky enough to have a market crash in the first few years.

[mathjak107]

did gold rise ?  the long bond just went from 2.30% in january to 3.25% now .

[buddtholomew]

because the permanent portfolio uses only long term bonds .  each 1  point rise on a 30 year is a 30% drop in value.  roughly 1% for each year to maturity. for sure you will see 20-25% on a 1% rise  .

unlike stocks which cycle around like day follows night eventually you may never see rates his low again as 40 year cycles can happen , they just did.

You're still not getting it - COMBINE cash + LTT's to produce 5.6 year duration. 1% rise across the yield curve produces a 5.6% decline and not 20, 30 or 40.

[mathjak107]

but that is not what you are going to experience , cash will not offset a drop in  the nav of your bonds.  right now TLT has lost all its interest this year plus 6% of the principal  as well since january .

that is offset but none of the cash.

[Pointedstick]

did gold rise ?  the long bond just went from 2.30% in january to 3.25% now .

And long bonds did not go down 30%. During that timeframe, TLT (long govt bond ETF) is down 7.8%, not 30%. YTD, gold is down 1.5% and stocks are up 1.5%; basically both flat. Hence, "Nowhere to hide." 

[iwealth]

because the permanent portfolio uses only long term bonds .  each 1  point rise on a 30 year is a 30% drop in value.  roughly 1% for each year to maturity. for sure you will see 20-25% on a 1% rise  .

unlike stocks which cycle around like day follows night eventually you may never see rates his low again as 40 year cycles can happen , they just did.

If it were as simple as a 30-year bond loses 30% of its value every time rates rise 1%, then a 3.3% rise in rates would imply your 30 year bonds lose 100% of their value. That's not going to happen. I'm sure there's a way to calculate it.

but that is not what you are going to experience , cash will not offset a drop in  the nav of your bonds.  right now TLT has lost all its interest this year plus 6% of the principal  as well since january .

The intent isn't to completely offset, that's one of the biggest misconceptions of this portfolio - that gains in one asset class or another somehow 100% offset losses in another asset class. We want and welcome that volatility. We want to capture it during rebalances.

[MachineGhost]

once i hit retirement i would move the PP back in to a standard retirement allocation that i knew already survived 146 years of  rolling time frames and use that through retirement if i needed 4% withdrawals.

The only problem with this is that 44 of those 146 years was a floating exchange rate regime and 102 of those 144 years was a fixed exchange rate regime.  You cannot use the past to predict the future when the foundational assumptions have completely changed.  The PP is designed for the former.  Currency can drop and gold can go up; that was not possible in a fixed exchange rate regime.

I think the novelty of a simultaneously overvalued stocks and bonds and a tight money scenario disfavoring gold is not a fault of the PP.

[MachineGhost]

the model works out to 50% in equities , 30% bonds , 10% gold 10% cash

What will happen to this portfolio when equities correct 50% back to fair value?  A quick backtest of the real returns:

Code: Select all

Year	mathajk	PP
1968	4.01%	4.23%
1969	-11.72%	-12.15%
1970	2.98%	2.50%
1971	8.43%	8.11%
1972	11.92%	16.03%
1973	-6.94%	5.13%
1974	-16.52%	-0.11%
1975	11.88%	-0.79%
1976	11.19%	5.96%
1977	-7.40%	-1.39%
1978	-1.32%	2.81%
1979	11.06%	24.63%
1980	6.75%	0.78%
1981	-10.52%	-14.10%
1982	17.62%	18.63%
1983	7.93%	-0.68%
1984	2.12%	-1.30%
1985	19.63%	16.16%
1986	15.42%	17.71%
1987	1.71%	2.62%
1988	4.40%	-0.68%
1989	15.90%	9.68%
1990	-4.62%	-4.54%
1991	16.48%	8.87%
1992	2.34%	0.49%
1993	7.21%	10.31%
1994	-3.57%	-5.07%
1995	22.23%	17.08%
1996	8.65%	1.77%
1997	15.67%	6.52%
1998	16.27%	11.37%
1999	7.40%	0.58%
2000	-4.27%	-0.45%
2001	-4.42%	-1.34%
2002	-7.10%	0.75%
2003	14.61%	11.44%
2004	3.10%	2.74%
2005	1.09%	4.38%
2006	8.87%	8.87%
2007	5.41%	9.08%
2008	-13.80%	2.88%
2009	11.64%	2.92%
2010	10.61%	11.89%
2011	1.33%	8.13%
2012	7.44%	4.72%
2013	10.59%	-3.93%
2014	6.67%	9.60%
Total	238.36%	222.86%

[MachineGhost]

And the other main investment philosophy driver is wealth protection during those outlier events that don't concern you. So when you combine the desire for max drawdown reduction and wealth protection against all outlier scenarios I think you'd be hard-pressed to find a more appropriate allocation than the 4x25 PP.

Technically, its 25%, 35%, 20%, 20% but who's counting. 

[MachineGhost]

standard portfolio's have weathered every storm the pp has  and went on in all cases to grow far more money in the end.

That's true, but the PP would never have been down -80% in real terms as bonds were during 1946-1981.  Are we all just supposed to have faith?

[MachineGhost]

if those bond rates go up even 1% that is a 30% loss in bonds.

It is 17%.  You use duration not maturity.

[MachineGhost]

now i am not that great at math but  my logic tells me a 6% gain with a pretty good chance of at least  a  40% loss can be a horrible way to kick off retirement. it can take decades for  you to heal if rates head back to their norm over many many years in the 6-7% range.

Bogle isn't an expert at forecasting future returns.  Lets use Hussman's model that indicates 10-year stock returns are now negative including the 2% dividends.

What will you do now, sir?  Still think your 50%/30%/10%/10% is the way to go?

[mathjak107]

well all i can say is look at your returns and if you are happy with them then that is all that matters. the proof is in the pudding as they say.

the numbers all speak for themselves as both more standard portfolio's and the pp have all lived through the same worst case scenario's.

look at the differences in balances at the  end of the day and the risk is typically that you will fall way behind more traditional conservative investments.

[mathjak107]

now i am not that great at math but  my logic tells me a 6% gain with a pretty good chance of at least  a  40% loss can be a horrible way to kick off retirement. it can take decades for  you to heal if rates head back to their norm over many many years in the 6-7% range.

Bogle isn't an expert at forecasting future returns.  Lets use Hussman's model that indicates 10-year stock returns are now negative including the 2% dividends.

What will you do now, sir?  Still think your 50%/30%/10%/10% is the way to go?

yep , i would certainly sooner go with that mix . not even a doubt in my mind. i would bet that 20 years from now the same results as always will pan out with the pp leaving  hundreds of k on the table.

[buddtholomew]

but that is not what you are going to experience , cash will not offset a drop in  the nav of your bonds.  right now TLT has lost all its interest this year plus 6% of the principal  as well since january .

that is offset but none of the cash.

With 66% Cash and 33% LTT's (entire FI allocation in taxable), FI is -2.4% YTD. Barclays AGG Bond Index had a -.14 return over the same period. Doesn't appear to be a blood bath.