Gyroscopic Investing

Looking for some feedback on a VP portfolio. 

Stocks
500 index 20%
small cap Value 5%
International developed stocks 10%
Emerging markets 5%

Bonds
Long term government bonds (TLT) 20%
Short term goverment bonds (SHY) 15%

Real Assets
Real Estate investment trusts 10%
Gold 15%

I used a back testing site and came up with the below results based on a 1972 to 2010 time frame:

Portfolio Allocation: 20.0% 500 Idx , 5.0% EM , 15.0% ST Trsry , 10.0% REIT , 20.0% LTGB , 15.0% GOLD , 10.0% EAFED , 5.0% SCV Compound return = 11.06%  Worst year: 2008 -13.48%

Looks reasonable. Seems like a PP with some personal tilts thrown in.

Would you mind walking us through your logic when deciding on the weights?

Just thought it's nice to have a look at your allocation in another tool. Here's the 1972-2011 results from Simba's spreadsheet:

Foglifter - thank you for the data!

Melveyr-Yes, you are correct I wanted to keep as much of the balanced PP theory as possible while titling towards a more growth oriented VP. I do not have a specific allocation formula for the individual asset weighting rather I used the basic concepts I have gleamed from reading books by Harry Brown and David Swensen. 

Stocks 40%: 

US: 20% S&P 500 with a growth tilt of 5% to Small Cap Value – 25% total

International: 10% developed with a growth tilt of 5% to Emerging markets – 15% total

Overall for stocks

·  Tired not to overweight the portfolio in stocks so bonds and gold could counter balance a sharp drop in the market.



Bonds 35%:

US Long term 20% - Hedge for deflation, flight of fear asset against stock market drops

US short term 15%- Helps smooth volatility of stocks and 20 year bonds; small hedge to recession. 

Gold 15%

Gold-  Hedge to inflation, flight of fear asset against stock market drops.

US Real Estate 10% -

US Real Estate - I was thinking of direct ownership via personal property rental or the TIAA real estate fund which provides direct ownership interest in commercial real estate.  Real Estate works as a diversifier and has a long term hedge to inflation.  The REIT’s index ETF "VNQ" is going to be a fall back option because I am concerned with the close correlation to the US stock market (index of real estate Company’s stocks not actual property).



"Feels" balanced to me but I am still in the learning process so feel free to pick this apart or ask questions.

Good PP VP!

GT wrote: Stocks
500 index 20%
small cap Value 5%
International developed stocks 10%
Emerging markets 5%

Bonds
Long term government bonds (TLT) 20%
Short term goverment bonds (SHY) 15%

Real Assets
Real Estate investment trusts 10%
Gold 15%

foglifter wrote: Just thought it's nice to have a look at your allocation in another tool. Here's the 1972-2011 results from Simba's spreadsheet:

I played changing a little this portfolio in Simba's spreadsheet and I got this result:

15% US TSM
15% EAFE85/EM15

30% Long Term Govt Bond
15% 2 year ST Treasury

15% Gold
10% REIT

1972-2011
Average: 10.58%
Std. Dev: 8.06%
CAGR: 10.30%

Worst Year 2008: -7.37

EDIT: And still less volatile without much return loss:
10% US TSM
10% EAFE85/EM15

30% Long Term Govt Bond
20% 2 year ST Treasury

20% Gold
10% REIT

1972-2011
Average: 10.35%
Std. Dev: 7.54%
CAGR: 10.10%

Worst Year 2008: -2.74


What do you think?

Looks Good Escafandro! I would have guessed that you would have needed more in stocks to reach that level of return but it looks like you would not have...

Prosperity - 15% total US Market; 15% International/ with emerging markets
Inflation - 15% Gold; 10% REIT
Recession - 15% short term US Bonds
Deflation - 30% Long term US Bonds

Maybe we can get pointedstick or one of the more experienced portfolio folks to chime in... hint hint