As you know I have been struggling to finalize an investment strategy and was curious to hear Craig's thoughts on why he abandoned his former slice and dice portfolio of the past? Was it due to not using treasuries for the bond component or ??
For example: I am strongly considering the adoption of the following portfolio which seems to offer higher long term returns than the PP.
50% Global Stocks & 50% 3-7 Yr. Treasuries
The stock portion would be broken down as follows:
25% VV
25% IJS
15% EFV
10% VWO
25% VSS
The bond portion would be invested in IShares 3-7 Yr. Treasury ETF.
I welcome any thoughts on this approach versus the PP.
? for Craig & Others
Moderator: Global Moderator
Re: ? for Craig & Others
What you presented is a heavily stock-tilted portfolio that will have higher volatility than PP due to the following reasons:
1. No gold.
2. Tilt to stocks - 50%, compared to 25% in PP
3. Tilt to small value.
Yes, your portfolio might produce better returns, but nobody can say for sure. Remember the "past performance..." mantra. And if there were a situation when gold fired to the sky while stocks and bonds dropped your portfolio would be in a big trouble.
Remember - PP is not just a slice-and-dice portfolio where you can freely add/remove/replace one asset class with another as you wish. The whole idea is to have those 4 assets - each of the 4 responding in a predictable way to a specific economy cycle.
1. No gold.
2. Tilt to stocks - 50%, compared to 25% in PP
3. Tilt to small value.
Yes, your portfolio might produce better returns, but nobody can say for sure. Remember the "past performance..." mantra. And if there were a situation when gold fired to the sky while stocks and bonds dropped your portfolio would be in a big trouble.
Remember - PP is not just a slice-and-dice portfolio where you can freely add/remove/replace one asset class with another as you wish. The whole idea is to have those 4 assets - each of the 4 responding in a predictable way to a specific economy cycle.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
- Talmud
Re: ? for Craig & Others
Yes, but by the same token it's also heavily Treasury tilted, with 50% in something like IEI...foglifter wrote: What you presented is a heavily stock-tilted portfolio
...
The stock portion is nicely balanced, with 50% US, 50% world. 50% large, 50% small. Not too many ETfs which will keep it oversee-able. So it looks nice I'd say...
Hrux, have you plugged this into the Simba spreadsheet? That way you can get an idea what kind of trouble you could get yourself in by looking at how this might have done in 2008. To get an idea of the volatility Foglifter is talking about...
(not sure if Simba's spreadsheet has the 3~7 year treasuries in there though)
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Re: ? for Craig & Others
Hi- I have not played around with Simba's spreadsheet, do you have a link by chance?jmourik wrote:Hrux, have you plugged this into the Simba spreadsheet? That way you can get an idea what kind of trouble you could get yourself in by looking at how this might have done in 2008. To get an idea of the volatility Foglifter is talking about...foglifter wrote: What you presented is a heavily stock-tilted portfolio
...
(not sure if Simba's spreadsheet has the 3~7 year treasuries in there though)
Thanks,
Heather
Another idea I am contemplating is allocating 50% to a PP and 50% to a portfolio like the above.
Re: ? for Craig & Others
That's a good approach many people naturally come too. The second 50% would be called VP.hrux wrote: Another idea I am contemplating is allocating 50% to a PP and 50% to a portfolio like the above.
Although Harry Browne envisioned VP as a place for perhaps riskier investments this doesn't mean that one could not use VP for a more conservative portfolio that is just different from PP.
As I mentioned in other threads, I personally concluded that I feel more comfortable mentally separating PP and VP than trying to tweak a single portfolio (PP). History shows there is no ideal allocation - the tweaking/tilting/gambling can go forever.
"Let every man divide his money into three parts, and invest a third in land, a third in business, and a third let him keep in reserve."
- Talmud
- Talmud
Re: ? for Craig & Others
Clive wrote: You can download both Excel and OpenOffice versions of Simba's spreadsheet via
http://www.bogleheads.org/forum/viewtop ... fd255146e0
Buying into a treasury ladder i.e. directly holding treasuries avoids the need to pay ETF management fees, but does incur topping up the ladder once each year - might be an alternative worth considering.
Once you have Simba's spreadsheet, check out allocating 15% EM, 15% SCV, 40% to 5 year treasuries (an indicator of a 1 to 5 year ladder) and 30% into the top 2 strongest prior years gainers out of stocks, gold, LT and ST, holding for a year. Historically higher rewards than the PP and with less risk (something like a -8% max drawdown versus PP's -13% drawdown based on yearly values). You'll have to do a little spreadsheet work to figure the yearly top 2 strongest for each year, but its nothing particularly taxing.
do u have a spreadsheet showing the annual returns for this allocation
Re: ? for Craig & Others
The reason I abandoned it is I didn't think a stock/bond only portfolio had the diversification I wanted.hrux wrote: As you know I have been struggling to finalize an investment strategy and was curious to hear Craig's thoughts on why he abandoned his former slice and dice portfolio of the past? Was it due to not using treasuries for the bond component or ??
We won't know what is outperforming for many years forward. By then, a totally different approach may outperform going forward from that. So I would focus less on what is hotly performing, and what is going to likely suit your needs. The permanent portfolio has an attribute in that it has had relatively low draw downs compared to conventional portfolios. Also it has generally had real returns in the +3-5% range over the time period we have to analyze. Other portfolios have hit big spots of dead air with negative or near zero real returns for decade+ periods over this same time.For example: I am strongly considering the adoption of the following portfolio which seems to offer higher long term returns than the PP.
I use this portfolio because I looked at the alternatives and just didn't feel comfortable with them. Ultimately that's what each investor needs to decide for themselves. You have to do what is comfortable to you otherwise you'll abandon the strategy.
Re: ? for Craig & Others
I don't like surprises. That's why I use the PP.
Virtually all other portfolios, given the right conditions, will let you down.
Through almost 40 years, the PP has kept its promise of steady returns and low volatility, no matter what sort of craziness the world throws at it.
The real secret sauce of the PP, in my view, is that it provides a steady inflation-adjusted return. Beating inflation in a safe and reliable manner is harder to do than it looks (especially since the tax system is designed to make it even harder to keep up with inflation by taxing you on ALL returns, even if the returns reflect a zero real rate when adjusted for inflation).
Virtually all other portfolios, given the right conditions, will let you down.
Through almost 40 years, the PP has kept its promise of steady returns and low volatility, no matter what sort of craziness the world throws at it.
The real secret sauce of the PP, in my view, is that it provides a steady inflation-adjusted return. Beating inflation in a safe and reliable manner is harder to do than it looks (especially since the tax system is designed to make it even harder to keep up with inflation by taxing you on ALL returns, even if the returns reflect a zero real rate when adjusted for inflation).
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A: “Not unless round is funny.”
Re: ? for Craig & Others
You might compare your proposed portfolio to the PP by analyzing how it will perform under the four conditions of prosperity, recession, inflation, and deflation.
The 1/8 in large cap blend is linked to prosperity. The other 3/8 stocks are not exactly "the market" so are not tied directly to domestic prosperity. However small cap value companies are still companies and should loosely track prosperity. Likewise, foreign companies track domestic prosperity loosely due to globalization.
In principle the 1/2 in intermediate treasuries should approximate 1/4 in short-term and 1/4 in long term, so I would expect your bond allocation to provide adequate protection against mild to moderate recessions and deflations. It's conceivable we'll see a horrendous recession/deflation where there's no substitute for cash/long term bonds.
The international stocks are denominated in foreign currencies and conduct business in mostly foreign currencies and so serve as a hedge against inflation. The supply of foreign stock shares is not constrained in the way that physical gold is, so foreign stocks may not be as explosively volatile as gold in a hyperinflation scenario.
In summary: your portfolio seems to offer protection against mild-to-moderate conditions in the four corners. However it may not be as bulletproof as the PP under severe conditions. This nudges expected returns up a bit in exchange for downgrading "bulletproof" to "bullet-resistant." That's a reasonable trade, but personally I'd prefer to do that with a 4x25 PP and a VP allocation to stocks.
Finally, if I were building a 50/50 global stock/bond portfolio, I'd lump all the stocks into VT rather than slicing and dicing. There's a lot to be said for simplicity.
The 1/8 in large cap blend is linked to prosperity. The other 3/8 stocks are not exactly "the market" so are not tied directly to domestic prosperity. However small cap value companies are still companies and should loosely track prosperity. Likewise, foreign companies track domestic prosperity loosely due to globalization.
In principle the 1/2 in intermediate treasuries should approximate 1/4 in short-term and 1/4 in long term, so I would expect your bond allocation to provide adequate protection against mild to moderate recessions and deflations. It's conceivable we'll see a horrendous recession/deflation where there's no substitute for cash/long term bonds.
The international stocks are denominated in foreign currencies and conduct business in mostly foreign currencies and so serve as a hedge against inflation. The supply of foreign stock shares is not constrained in the way that physical gold is, so foreign stocks may not be as explosively volatile as gold in a hyperinflation scenario.
In summary: your portfolio seems to offer protection against mild-to-moderate conditions in the four corners. However it may not be as bulletproof as the PP under severe conditions. This nudges expected returns up a bit in exchange for downgrading "bulletproof" to "bullet-resistant." That's a reasonable trade, but personally I'd prefer to do that with a 4x25 PP and a VP allocation to stocks.
Finally, if I were building a 50/50 global stock/bond portfolio, I'd lump all the stocks into VT rather than slicing and dicing. There's a lot to be said for simplicity.