Gyroscopic Investing

Hello this is my first post in the forums. I really liked PP when I read the book and entered PP this year but I realized my portfolio is getting destroyed by the bonds allocation. Today I backtested PP with and without bonds (1/3 stocks , 1/3 gold , 1/3 cash). According to the portfoliovisualizer.com a portfolio that only has equal percentage of stocks , gold and cash had nearly the same annual return as PP with bonds.

Here are the resutls:
https://www.portfoliovisualizer.com/bac ... tion4_2=33
(also in the attachments)

I used BIL and SHV for the cash allocation and the website gave this warning:

The time period was constrained by the available data for SPDR Blmbg 1-3 Mth T-Bill ETF (BIL) [Jun 2007 - Mar 2022].

So I could only test as far as 2007. Maybe if we could test further the results would change but I don't know if there is an alternative to BIL to test further back.

It seems bonds did nothing for the last 15 years. I could live with bonds doing nothing but over time they might have a detrimental effect on the portfolio. What do you think about this?

EternalVoyage wrote: ↑Tue Apr 19, 2022 9:13 am Hello this is my first post in the forums. I really liked PP when I read the book and entered PP this year but I realized my portfolio is getting destroyed by the bonds allocation. Today I backtested PP with and without bonds (1/3 stocks , 1/3 gold , 1/3 cash). According to the portfoliovisualizer.com a portfolio that only has equal percentage of stocks , gold and cash had nearly the same annual return as PP with bonds.

Here are the resutls:
https://www.portfoliovisualizer.com/bac ... tion4_2=33
(also in the attachments)

I used BIL and SHV for the cash allocation and the website gave this warning:

The time period was constrained by the available data for SPDR Blmbg 1-3 Mth T-Bill ETF (BIL) [Jun 2007 - Mar 2022].

So I could only test as far as 2007. Maybe if we could test further the results would change but I don't know if there is an alternative to BIL to test further back.

It seems bonds did nothing for the last 15 years. I could live with bonds doing nothing but over time they might have a detrimental effect on the portfolio. What do you think about this?

If you run asset allocation instead of individual funds, it allows you to go back to 1978 or so. Here's a link showing standard PP, your proposal, and substituting 1/3 ITT's instead of cash as well. Looks like the LTT's in the standard PP help to smooth the ride.

https://www.portfoliovisualizer.com/bac ... on5_3=33.3

Max Drawdown and Worst Year were significantly reduced in Portfolio 1 (with LTTs)
Sharpe and Sortino Ratio were up.
Market Correlation was down.

You can decide if those are valuable to you. They are to me.

Thanks for the replies. I did some back testing and long term treasuries seem to have diminishing returns:

cagr
8.02 last 50 years
9.07 last 40 years
6.65 last 30 years
5.89 last 20 years
3.21 last 10 years

6.28 between 1972-1982
15.84 between 1982-1992
8,95 between 1992-2002
8,23 between 2002-2012
3.21 between 2012-2022

Also when you look at the Annual Asset Returns section of the portfoliovisualizer here: https://www.portfoliovisualizer.com/bac ... ion1_1=100(I also added the pictures below) it can be seen that positive returns have a tendency to decrease while drawbacks are increasing (I think 2022 will have the worst drawdown). Stocks and gold graphs doesn't look correlated. I am just saying.

EternalVoyage wrote: ↑Wed Apr 20, 2022 11:51 am Thanks for the replies. I did some back testing and long term treasuries seem to have diminishing returns:

cagr
8.02 last 50 years
9.07 last 40 years
6.65 last 30 years
5.89 last 20 years
3.21 last 10 years

Curious if these returns are adjusted for inflation or not. Obviously inflation was really high 50 years ago and just starting to really come down 40 years ago.

My issue with 30-year bonds is that when the interest rate is already low, they are unable to significantly help a portfolio in a sustained way. Their ability to smooth out returns in the PP seems to me to come from short bursts of great performance that have coincided with crashing stocks. So in late 2008, LTTs went up about 30% a few weeks after stocks started to crash. But that out performance was short lived. To really take advantage of it, one would have had to have sold LTTs and bought stocks at the correct moment in time. Similarly in March of 2020 when the bottom was falling out of the stock market and before the government provided massive liquidity, there was another dramatic rally in LTTs. Again, a huge plus if one got the timing right of selling their bonds and buying depressed stocks.

There was an accumulating poster on here years ago who didn't hold either cash or LTTs & just went with stocks & gold.

Anyway, I hope you get something figured out that you are content with.

That's not a great backtest setup. You should up VTI to 34% (the growth element) and then fiddle with the other three assets and see what happens.

Finally, even with the setup you did, you did read the results right? In every metric the PP outperformed.

In investing you can go with your gut or rely on some form of quantitative analysis. Neither will reflect the future, but the numbers generally DO tell you about what to expect and how assets behave under various conditions. It is always helpful to understand/know a little about economic conditions and major economic events during various periods of time during your total backtest period.

I would suggest putting the 4 assets into this part of PV https://www.portfoliovisualizer.com/eff ... sisResults

You will get the perfect, in hindsight, risk adjusted allocation.