Gyroscopic Investing

Not sure if anyone else has experience with the PP without the benefit of rebalancing. Without it, I'm not sure the PP works. It may be a way to hedge severe downturns but not a way to generate a return. Also, for me I kept it out of my taxable account in order to avoid the major issue of taxes during rebalancing.

Not rebalancing things like gold has to hurt …gold spikes and then when the smoke clears it rolls back .

Odds are if you don’t harvest the spike it goes away.

Gold can start a year , spike , roll back and by years end go no where or be down.

You would need a long bull market in equities for not rebalancing the pp to work out .

Normally rebalancing hurts you as you typically rebalance from equities to less capable assets so unless you are a good timer you will hurt your returns .

But the pp has such volatile movers that when it is their day in the sun you can get equal moves to equities .

So the answer really is it depends on how long each assets day in the sun lasts

Perhaps this will shed some light on my predicament.

Would you still invest in the PP if your timeframe was 8-10 years? If not, how would you adjust the allocation if your horizon was this short? I ask because my PP-like portfolio is earmarked to bridge the gap between now and full retirement age when 401K’s/IRA’s withdrawals are penalty free.

Currently sitting at 43/12/0/45.
Sold LTT’s in 2020 with a huge gain to offset SCV losses and put all proceeds in SPY.

buddtholomew wrote: ↑Sun Jan 16, 2022 8:32 am Perhaps this will shed some light on my predicament.

Would you still invest in the PP if your timeframe was 8-10 years? If not, how would you adjust the allocation if your horizon was this short? I ask because my PP-like portfolio is earmarked to bridge the gap between now and full retirement age when 401K’s/IRA’s withdrawals are penalty free.

Currently sitting at 43/12/0/45.
Sold LTT’s in 2020 with a huge gain to offset SCV losses and put all proceeds in SPY.

Well I had to go from a pedal to the metal growth portfolio to a growth and income one .

Luckily we had used managed fidelity funds in the taxable account so taxes were paid along the way for decades rather then ending up with a huge tax torpedo to deal with .

I just sold what we didn’t want and bought what we did want

Kitces recommends toning down a large portfolio about 8-10 years pre retirement….again i dont know about going as low as th pp with 8-10 years to go but certainly 60/40 wouldn’t be a bad choice from 100% equities.

The red zone extends in to the first 10 years in to retirement…then after that you can go as heavy as you want in to equities….

Big hits can be huge in dollars when portfolios are at their highest peaks before retirement and a bit in to it …

Like I say a mere 7% drop is a decade of maxing out my 401k at catch up, it’s years of living expenses…so you want to be careful when fuel tanks are full

I’m living off PP in taxable now, retirement funds are 60/40. 10-years until retirement assets are available. Is this the scenario you are responding to MJ?

Yes , I was responding to your comment .

We are going into the seventh year of retirement but never had to touch our ira accounts

buddtholomew wrote: ↑Sat Jan 15, 2022 10:38 pm

ppnewbie wrote: ↑Sat Jan 15, 2022 6:40 pm I’m confused here. What is your exact allocation (percentages) , when did you get in to the PP, how many times have you rebalanced, how many times have you added more money into the PP. Also gold is up fifty percent in three years.

IMHO:
If your young and have a long runway of earnings you should consider at least moving to a GB.

Your trying to preserve the wealth you have. If you are still accumulating wealth, the PP is going to be a slow path.

AA has morphed over time since I recently retired.
Gold may be up last 3 years but I started in 2011.
I’ve added additional funds over the years but PP is in taxable so rarely rebalance (except during major stock declines).

Retirement accounts are invested 60/40 stocks/Stable Value and some Total Bond market as well.
60% is globally diversified with tilts to SV and REITs.

Gold is the dollars competitor ….it is the dollar it has to be compared to .

Most investors are either going to keep non equity money in a total bond fund or in cash instruments.

So those are golds common competitors.

Let’s take a look at compounded average returns ..which would you have preferred ? not the last three years but let’s double that and make it the last 7 years

Gold returns to 2021 , gld , bnd , Bil ,portfolio visualizer data

Average compounded returns from


2021 . Gold minus 4.15—-t- bill. Zero , total bnd minus 1.86

2020 .. gold 9.38—t- bill zero , total bnd 2.81

2019. Gold 12.13 cagr —-T BILL .77– total bnd 4.78

2018. Gold 8.44. ——T bill 1.01— total bond 3.54

2017. Gold 9.30 ——t bill. .95— total bond 3.54%

2016 .Gold 9.09—-t bill .81—total bond 3.37

2015 gold 6.02 ——t-bill .67— total bond 2.97

Thanks for the details MJ.
I continue to own 12% Gold to counterbalance a heavy allocation to Cash. I thought it necessary to keep that part of the portfolio intact.
What I’m trying to avoid is a deep drawdown in Gold/LTT’s that may not recover over the 8-10 year timeframe.

Worst case scenario if stocks decline when I need the money, I will pull from fixed income in tax-deferred and pay the 10% penalty.

mathjak107 wrote: ↑Sun Jan 16, 2022 2:42 am Not rebalancing things like gold has to hurt …gold spikes and then when the smoke clears it rolls back .

Odds are if you don’t harvest the spike it goes away.

Gold can start a year , spike , roll back and by years end go no where or be down.

You would need a long bull market in equities for not rebalancing the pp to work out .

Normally rebalancing hurts you as you typically rebalance from equities to less capable assets so unless you are a good timer you will hurt your returns .

But the pp has such volatile movers that when it is their day in the sun you can get equal moves to equities .

So the answer really is it depends on how long each assets day in the sun lasts

Rebalancing broadly neither hurts nor improves, its more of a risk control action

Rebalanced vs non-rebalanced and the two progression lines followed much the same lines, but where the non-rebalanced was seeing increased negative side portfolio volatility as early as the 4th year (-14% vs -5%)

For those in drawdown rebalancing might be as simple as just taking the income from the asset with the highest value at the time. Or if accumulating (not sure why anyone might use the PP during accumulation years) you might add to the asset with the lowest value at the time.

Kitces looked into rebalancing .

Assuming a 50/50 with an average of 10% a year on equities and bonds averaging 5% , over 30 years the 50/50 would become 80/20 just letting assets drift

https://www.kitces.com/blog/how-rebalan ... nt-anyway/

ppnewbie wrote: ↑Mon Dec 20, 2021 10:03 pm Just to echo what I believe Mathkak said, I moved to a PP in order to protect the wealth already created as I hopefully glide towards retirement. I would probably not choose this earlier in life. In fact I’m trying to decide the investing strategy for my kids. Is it better to limit losses with a golden butterfly. Or is it better to swing for the fences dollar cost averaging into 100 percent VTI over the next 25 years for them.

Right now it doesn’t matter what the rear view mirror shows .

All assets are taking a hit …..the pp is a bit worse off then my core model , but the volatility on the pp is way higher when these powerful movers in it move in the same direction which they have been doing.

These are the kinds of moves in the pp one would expect if they went high equity ……. I bet many users didn’t go high equity to avoid the daily cringing they are seeing anyway

mathjak107 wrote: ↑Tue Jan 18, 2022 7:42 am

ppnewbie wrote: ↑Mon Dec 20, 2021 10:03 pm Just to echo what I believe Mathkak said, I moved to a PP in order to protect the wealth already created as I hopefully glide towards retirement. I would probably not choose this earlier in life. In fact I’m trying to decide the investing strategy for my kids. Is it better to limit losses with a golden butterfly. Or is it better to swing for the fences dollar cost averaging into 100 percent VTI over the next 25 years for them.

Right now it doesn’t matter what the rear view mirror shows .

All assets are taking a hit …..the pp is a bit worse off then my core model , but the volatility on the pp is way higher when these powerful movers in it move in the same direction which they have been doing.

These are the kinds of moves in the pp one would expect if they went high equity ……. I bet many users didn’t go high equity to avoid the daily cringing they are seeing anyway

My guess is that most PP users aren't watching their balance daily. And if they are (I usually do), there's an understanding that investing is a marathon, not a sprint. I don't get upset if things are down on any given day. That's a recipe for a miserable life.

I would think most here do look daily ..it is simply because they have an interest in it enough to be here .


They are also using the pp because they are gun shy so I would think they look.

People in forums tend to be active

dockinGA wrote: ↑Tue Jan 18, 2022 9:53 am My guess is that most PP users aren't watching their balance daily. And if they are (I usually do), there's an understanding that investing is a marathon, not a sprint. I don't get upset if things are down on any given day. That's a recipe for a miserable life.

Exactly.

It’s good to have mathjak around as a reality check, but the whole philosophy of the pp is just the polar opposite. No day trading of gold, none of this idea that the pp is a bet on low prosperity — or on any one condition; the pp is agnostic — and certainly no worrying about the day to day price fluctuations.

It is a bet on lower inflation and rates not necessarily low prosperity… all assets can move up in prosperity.

Rising rates and moderate inflation are its Achilles heel

mathjak107 wrote: ↑Tue Jan 18, 2022 10:09 am It is a bet on lower inflation and rates not necessarily low prosperity… all assets can move up in prosperity.

Rising rates and moderate inflation are its Achilles heel

You yourself has said that NOTHING is doing well at the moment. So maybe this is the Achilles heel of all investment portfolios?
Is it possible that the current conditions (this so-called Everything Bubble) is bad for all investments, and the PP could still end up being one of the least bad options?

dockinGA wrote: ↑Tue Jan 18, 2022 11:29 am

mathjak107 wrote: ↑Tue Jan 18, 2022 10:09 am It is a bet on lower inflation and rates not necessarily low prosperity… all assets can move up in prosperity.

Rising rates and moderate inflation are its Achilles heel

You yourself has said that NOTHING is doing well at the moment. So maybe this is the Achilles heel of all investment portfolios?
Is it possible that the current conditions (this so-called Everything Bubble) is bad for all investments, and the PP could still end up being one of the least bad options?

Here is what I am hoping:
If there is a deflation, I feel like gold will catch the portfolio in a severe crash, the cash will rise in value, and the LTT's still have room to increase in value as everyone runs to the long end of the curve for safety.

dockinGA wrote: ↑Tue Jan 18, 2022 11:29 am You yourself has said that NOTHING is doing well at the moment.

MJ,

How long do you think we'll be in this mode?

• VTI : -1.71%

• TLT : -1.18%

• IAU : -0.20%

Until 2 pm Friday .

No idea , perhaps a long time ….no one knows.

Rising rates stink for all segments of the portfolio and can hit 3 out of 4 parts pretty hard ..
Only cash or short term bonds won’t get hit as hard.

It can be a white knuckle ride for some followers

ppnewbie wrote: ↑Tue Jan 18, 2022 11:35 am

dockinGA wrote: ↑Tue Jan 18, 2022 11:29 am

mathjak107 wrote: ↑Tue Jan 18, 2022 10:09 am It is a bet on lower inflation and rates not necessarily low prosperity… all assets can move up in prosperity.

Rising rates and moderate inflation are its Achilles heel

You yourself has said that NOTHING is doing well at the moment. So maybe this is the Achilles heel of all investment portfolios?
Is it possible that the current conditions (this so-called Everything Bubble) is bad for all investments, and the PP could still end up being one of the least bad options?

Here is what I am hoping:
If there is a deflation, I feel like gold will catch the portfolio in a severe crash, the cash will rise in value, and the LTT's still have room to increase in value as everyone runs to the long end of the curve for safety.

That is the optimistic view ..

And it very well could play out . I certainly can see that happening .

The question is though how much damage has to be undone by the time we reach that point …and how long will gun shy pp users hang in here getting so beat up daily.

They likely didn’t sign on for these kinds of falls almost daily
.

dockinGA wrote: ↑Tue Jan 18, 2022 11:29 am

mathjak107 wrote: ↑Tue Jan 18, 2022 10:09 am It is a bet on lower inflation and rates not necessarily low prosperity… all assets can move up in prosperity.

Rising rates and moderate inflation are its Achilles heel

You yourself has said that NOTHING is doing well at the moment. So maybe this is the Achilles heel of all investment portfolios?
Is it possible that the current conditions (this so-called Everything Bubble) is bad for all investments, and the PP could still end up being one of the least bad options?

Correct , nothing is doing well but some portfolios are doing worse , despite the fact they are supposed to be quite docile in their yin Yang action …..after today I would say the pp is likely down 2x what my much less rate sensitive core is down with the same equity allocations

Cash is King..been a while since I’ve heard that uttered.

mathjak107 wrote: ↑Tue Jan 18, 2022 11:48 am

ppnewbie wrote: ↑Tue Jan 18, 2022 11:35 am

dockinGA wrote: ↑Tue Jan 18, 2022 11:29 am

mathjak107 wrote: ↑Tue Jan 18, 2022 10:09 am It is a bet on lower inflation and rates not necessarily low prosperity… all assets can move up in prosperity.

Rising rates and moderate inflation are its Achilles heel

You yourself has said that NOTHING is doing well at the moment. So maybe this is the Achilles heel of all investment portfolios?
Is it possible that the current conditions (this so-called Everything Bubble) is bad for all investments, and the PP could still end up being one of the least bad options?

Here is what I am hoping:
If there is a deflation, I feel like gold will catch the portfolio in a severe crash, the cash will rise in value, and the LTT's still have room to increase in value as everyone runs to the long end of the curve for safety.

That is the optimistic view ..

And it very well could play out . I certainly can see that happening .

The question is though how much damage has to be undone by the time we reach that point …and how long will gun shy pp users hang in here getting so beat up daily.

They likely didn’t sign on for these kinds of falls almost daily
.

damage has to be undone - What are you comparing this to?
shy pp users hang in here getting so beat up daily. - what is the time horizon for this type of investor? Does this investor have a VP?

mathjak107 wrote: ↑Tue Jan 18, 2022 11:51 am

dockinGA wrote: ↑Tue Jan 18, 2022 11:29 am

mathjak107 wrote: ↑Tue Jan 18, 2022 10:09 am It is a bet on lower inflation and rates not necessarily low prosperity… all assets can move up in prosperity.

Rising rates and moderate inflation are its Achilles heel

You yourself has said that NOTHING is doing well at the moment. So maybe this is the Achilles heel of all investment portfolios?
Is it possible that the current conditions (this so-called Everything Bubble) is bad for all investments, and the PP could still end up being one of the least bad options?

Correct , nothing is doing well but some portfolios are doing worse , despite the fact they are supposed to be quite docile in their yin Yang action …..after today I would say the pp is likely down 2x what my much less rate sensitive core is down with the same equity allocations

- pp is likely down 2x what my much less rate sensitive core is down - Can you give approximate percentages. Is it 5 percent vs 10 percent or .5 percent vs 1 percent?
- Also you have probably already done this but can you discuss your core portfolio maybe in a different thread. Or just point me to the thread if its already started.

ppnewbie wrote: ↑Tue Jan 18, 2022 12:19 pm

mathjak107 wrote: ↑Tue Jan 18, 2022 11:48 am

ppnewbie wrote: ↑Tue Jan 18, 2022 11:35 am

dockinGA wrote: ↑Tue Jan 18, 2022 11:29 am

mathjak107 wrote: ↑Tue Jan 18, 2022 10:09 am It is a bet on lower inflation and rates not necessarily low prosperity… all assets can move up in prosperity.

Rising rates and moderate inflation are its Achilles heel

You yourself has said that NOTHING is doing well at the moment. So maybe this is the Achilles heel of all investment portfolios?
Is it possible that the current conditions (this so-called Everything Bubble) is bad for all investments, and the PP could still end up being one of the least bad options?

Here is what I am hoping:
If there is a deflation, I feel like gold will catch the portfolio in a severe crash, the cash will rise in value, and the LTT's still have room to increase in value as everyone runs to the long end of the curve for safety.

That is the optimistic view ..

And it very well could play out . I certainly can see that happening .

The question is though how much damage has to be undone by the time we reach that point …and how long will gun shy pp users hang in here getting so beat up daily.

They likely didn’t sign on for these kinds of falls almost daily
.

damage has to be undone - What are you comparing this to?
shy pp users hang in here getting so beat up daily. - what is the time horizon for this type of investor? Does this investor have a VP?

I can’t tell you who that investor is but I can tell you this .

NO PORTFOLIO IS EVER EXEMPT FROM BAD INVESTOR BEHAVIOR …every one has their PUCKER POINT ..