Gyroscopic Investing

For those of you who follow or have followed the Bogleheads forum, I am curious what might be an acceptable modification of a simple BH portfolio that would also be fairly HB "bullet-proof." What about the following (to get things started)?:

40% Vanguard Total Bond Fund or ETF
30% Vanguard Total Stock Market Fund or ETF
20% Gold bullion
10% Cash or ST treasuries

or

75% Vanguard Wellesley
20% Gold bullion
5% Cash or ST treasuries

Anything, but needs to be relatively diversified, uncorrelated, inexpensive, and simple. What would you pick?

For simplicity's sake, I'd pick the second, and just make it 75% Wellesley 25% gold.

I would say something like this for a traditional 50/50 portfolio:

20% Vanguard Total Stock Market
5% Vanguard Total International Stock Market
25% Gold
50% Vanguard Total Bond Market

Or, if you want to be lighter on gold:

30% Vanguard Total Stock Market
10% Vanguard Total International Stock Market
10% Gold
50% Vanguard Total Bond Market

I personally would not pick Wellesley since it is actively managed and not as diversified as TSM + TISM

The 2nd option sounds a lot like PRPFX to me

You mean to use as VP ?

What about 50-50 and 10% of total?

Two fund portfolio:
VG Lifestrategy Conservative growth (60/28/12 TBM/TSM/TISM - soon to have 20% of TBM go TIBM)

Gold (IAU, GLD, ETC)

16% Gold (give or take - 10% some boggleheads might do...)

A little light on gold / over alocated to stock vs traditional, and some some non treasury bonds in the 50% intermediate term bonds, but pretty close, simple, and index based...

Or
Target Retirement Income Fund (going 70/30 bond/stock, with some 20% in TIPS - Short Term TIPS in a couple of months & dropping Prime MM fund)
10% Gold: ~20% of the fund will be ST TIPS (helps on the inflation side; has a bit of bond barbell); keeps overall stock alocation a little over 25% of total. Quite bond heavy, though....

rhymenocerous wrote: I personally would not pick Wellesley since it is actively managed and not as diversified as TSM + TISM

Wellesley is only "actively managed" by definition -- it is not simply tracking a 3rd party index so by definition it is active fund.  It is not very active by the definition most people think of when they think "active."  And by the functional characteristics Wellesley is a very good fund.  Unlike the typical active fund it has very low expenses (lower than many index funds) and only 1/3 the average turnover of the class of large conservative funds.  And at 60-65% bonds and 35-40% dividend stocks it is so diversified I don't see any distinction between it and TSM + TISM other than Wellesley is cheaper, especially when it comes to rebalancing.

Another one in the same class is Wellington.  It inverts the ratio so has 30-40% bonds and the rest in stocks.

At this time I have no hesitation recommending either of those funds to anyone just getting started or those for whom investing is too scary to do it alone.

Edit:  The diversification comparison I made was supposed to be: TSM + TISM + some bond fund

Any conservative Boglehead-style portfolio shares all these qualities with the PP: low volatility, multiple asset classes, diversified, low expenses, passive management, tax efficient, simple. PP and Bogleheads agree that stock should be in broad index funds. International stocks provide currency diversification to (but not as strong as) gold. The total bond index is roughly 70% treasuries, contains a significant proportion of long term bonds, and in practice is very similar to the PP bond/cash barbell.

Vanguard Target Retirement Income probably bears the closest resemblance to the PP. It is 30% stocks and also has fixed allocations to bonds, cash, and TIPS. No, the TIPS allocation is not a perfect substitute for gold, but it's something.

Similarly, LifeStrategy Income (20% stocks) and Conservative Growth (40%) are pretty close. As is any DIY allocation with <= 50% stocks. IMO a decent portfolio for a crappy 401(k) is 1/3 total stock market, 2/3 total bond market, since even the crappiest 401(k)s tend to have those two kinds of funds.

My favorite non-PP Bogleheadish portfolio is 50% total world stock market, 50% intermediate treasury index. This allocation has the aforementioned features, and further resembles the PP as it is a 1/N allocation involving 50% treasuries. The total world stock index keeps you diversified across all world currencies in proportion to their stock markets' cap. And using only treasury bonds is consistent with the PP analysis and also the academic modern portfolio theory literature on the subject.

Wellington and Wellesley are well regarded, but I don't like the credit risk inherent in their predominantly-corporate bond holdings, nor the manager risk inherent in their use of stock picking.

It looks very like my own allocation; I use 40 % stocks & 30 % Bonds

Backtesting (simba)
P1: HP PP
P2: 40 % stocks, 30 % Bonds, 20 % Gold, 10 % Cash
P3: 30 % stocks, 40 % Bonds, 20 % Gold, 10 % Cash

P1 P2 P3
Average 9,46% 10,18% 9,97%
Std. Dev. 7,79% 8,62% 7,94%
Down SD 2,53% 3,33% 2,64%
Up SD 6,58% 6,55% 6,51%
CAGR 9,20% 9,85% 9,70%
Sharpe 0,52 0,55 0,58
Sortino 1,76 1,55 1,89