Gyroscopic Investing

Coffee wrote: http://youtu.be/LPCfhshWg54

That sounds very familiar...

anyone want to give a synopsis of the meat and potatoes of the tony robins seven step system? or a skip to time?  i am afraid i couldn't make it past the sales pitch telling me how great what he was going to tell me would be, how awesome rich and important the people he worked with are, and how much he felt like and really is just like all us little people this system is going to help....

Most of it is stuff that guys on this forum are already very familiar with: Compound interest, asset allocation (Ray Dalio fund sounds very similar to PP -- which I think was talked about here in a few threads). 

One thing I didn't know very much about were hybrid annuities... which I'll need to research more.  He was saying that $100k invested today will pay out $75k a year for life (after age 80) ... and you can buy these policies through 100+ year-old insurance companies.  (Hopefully that's inflation adjusted?)

that doesn't seem unreasonable or like some get rich quick scheme...  my low threshold for the smooth talking sales pitch is usually a good defense against wasting time on nonsense, it is nice to hear that what he is selling has at least some basis in sound investing reality..

maybe moda can chime in on the annuity side of it, i think he has some experience and expertise in that area..

He basically interviewed 50 of the top guys in the investment world -- including Bogle, Templeton, etc... And then has synthesized their philosophies.

Coffee wrote: One thing I didn't know very much about were hybrid annuities... which I'll need to research more.  He was saying that $100k invested today will pay out $75k a year for life (after age 80) ... and you can buy these policies through 100+ year-old insurance companies.  (Hopefully that's inflation adjusted?)

That sounds like the Infinite Banking concept, also previously discussed on here.  Essentially you fund whole life insurance with mutual insurance companies and have the ability to borrow against the increasing cash balance without any payback needed (nullified out at death).

Why the all-weather portfolio is a wash-out

By Barry Ritholtz, Published: December 5 | Updated: Saturday, December 6, 4:09 PM

Motivational speaker Anthony Robbins has a new book on investing, “Money: Master the Game.”? It is his first book in two decades, and he has been everywhere, flogging it directly onto the best-seller list.

The good news is that the book contains snippets of conversations with some of the world’s greatest investors.

The bad news is that Robbins is not one of them.

When he is quoting the great investors of our generation, the book is good, even compelling. When he is offering his own advice, it is not. A friend wrote of it, “it’s a tough slog of logical fallacies, inappropriate analogies, self-aggrandizement and exclamation points.”?

The book recommends a portfolio that is, to be blunt, bad. Investment advice he has made in the past has similarly been less than stellar.

But Robbins is an upbeat, positive kind of guy, and in that spirit, I will try to be as well. Rather than dwell on the negative, let’s take his advice and see if we can make some lemonade.

I’ll explain why his “all-weather portfolio”? is destined to underperform. I’ll suggest a specific portfolio that is likely to do better — and with less volatility and smaller drawdowns. And last, I will put my money where my mouth is, and wager that my portfolio can beat his. I will back that bet with $100,000 in cash.

When it comes to investing, there is no such thing as a one-size-fits-all portfolio. Whenever I write about asset allocation, I am aware that each person has unique risk tolerances, financial goals and tax circumstances. The readers of this column span a big age group, all in different places in the arc of their lives. What might be suitable for a 25-year-old with a growing income and a 50-year time horizon is different than what is for someone in his 60s a few years from retirement.

Robbins is a wildly successful guy. He has touched millions of people with his books and public appearances. My beef is not with him, just some of his recommendations.

With that in mind, let’s look at his portfolio:

All-weather portfolio

30 percent stocks

15 percent in seven- to 10-year

Treasuries

40 percent in 20- to 25-year

Treasuries

7.5 percent in gold

7.5 percent in commodities

The big problem with this is that it looks backward, not ahead. Two of the bigger bull markets of the past decade have been in commodities, including gold, and in bonds. This portfolio is dramatically overweight in both.

The most obvious problem is bonds, which are 55 percent of this portfolio. The past three decades have seen the greatest bond rally in history. The oil embargo and inflation of the 1970s led to then-Fed Chairman Paul Volcker cranking rates all the way up to 20 percent in 1979 and 1980. The fixed-income story of the 35 years since has been the ongoing fall of interest rates from that 20 percent down to almost zero. As rates go down, bonds go up. Hence, this has been a unique period, one that has been especially good to fixed-income portfolios.

Ben Carlson, an investment analyst who writes the Wealth of Common Sense blog, showed that this recent bull market in bonds radically skewed the returns of Robbins’s portfolio by about 400 basis points a year. The period from 1928 to 1983 would have cut the returns of the portfolio almost in half, from 9.7 percent to 5.8 percent.

Adjusting a portfolio to take advantage of what already occurred is called form-fitting. Indeed, there is no reason to believe that the next 30 years will look anything like the past — especially in fixed-income markets. If you have a time machine, you can go back and take advantage of the bond rally. Otherwise, this portfolio is likely to perform poorly over the next 30 years.

A similar rookie mistake is made with commodities. After nearly three decades of little or no progress, gold had a spectacular run from 2001 to 2011. Then it hit a wall, losing more than a third of its value since those 2011 highs.

In real, inflation-adjusted terms, gold is unchanged since the early 1980s — the last peak in gold. However, it’s not only that one 30-year span: Lots of academic studies show commodities are a drag on portfolios. The key finding is that in real, inflation-adjusted terms, commodities add no value or performance to a set of holdings. As Cullen Roche noted, real commodity prices have been in a 130-year bear market. Based on historical commodity returns, the all-weather portfolio spots a smarter portfolio a 15 percent head start.

This sort of error can be attributed to the recency effect: People tend to assume that what just happened will likely to keep happening, even if it is somewhat unusual. Hence, the extrapolation of recent activity to infinity.

The all-weather portfolio is a biased sample, form fitted to have done well over recent decades.

Understanding that, let’s talk about a portfolio that was developed based on the returns of a century of data. It would look something like this:

All Century Portfolio

20 percent total U.S stock

market

5 percent U.S. REITs

5 percent U.S. small cap value

15 percent Pacific equities

15 percent European equities

10 percent U.S. TIPs

10 percent U.S. high yield corp

bonds

20 percent U.S. total bond

market

This is a classic 60/40 portfolio. You can express this portfolio in a variety of ways, with different fund companies offering variations on a theme. I picked a basic, inexpensive set of holdings from Vanguard and Blackrock.

It looks like this:

(VTI) Vanguard Total Stock

Market ETF

(VNQ) Vanguard REIT ETF

(VBR) Vanguard Small-Cap

Value ETF

(VPACX) Vanguard Pacific

Stock Index Fund Investor

Shares

(VEURX) Vanguard European

Stock Index Fund Investor

Shares

(AGG) iShares Barclays

Aggregate Bond Fund

(VWEHX) Vanguard High-Yield

Corporate Fund Investor Shares

(TIP) iShares TIPS Bond

This is just one example (but a damn fine one). If you happen to like other fund families, you should be able to find most of these holdings or their equivalents.

Again, one size does not fit all. For a younger investor with a longer timeline, I would add a little more equity — a microcap fund and an international small-cap value fund. That would come at the expense of less fixed income.

A more conservative investor might want to have less equity and more bonds; They could combine the Pacific and European holdings into one holding such as iShares MSCI EAFE Index Fund (EFA), and end up with more bonds at the expense of equities.

Investors interested in this sort of asset allocation can access this portfolio numerous ways. You can do it yourself for free. It requires a bit of work and you need to do a rebalancing once or twice a year. But it’s cheap and easy and will do better than 90 percent of what Wall Street has for sale.

The most challenging part of this is you. Your emotions, your lack of discipline, your ability to stick to a tried-and-true methodology and not get distracted by something shinier.

If you are likely to have any of those behavioral issues, you have two options. You can hire an automated software (a/k/a robo-adviser). Check out Betterment, Wealthfront or Liftoff. It will cost you a little something, but it will help protect you from yourself.

The third route is to hire an adviser. That is the costliest option, but it gets you a variety of additional financial, estate and tax planning. It also gets you a real person to talk you off of the ledge when necessary.

Anyone of these approaches should get you a more steady set of returns than whatever craziness your brother-in-law was talking about over Thanksgiving.

Last, the wager. I am willing to bet Tony Robbins that my Century portfolio will significantly outperform his all-weather portfolio over the next 20 years. Toward that I end, I propose that each of us puts $100,000 into our own portfolios. Set it with whatever automatic rebalancing you want — then leave it alone. On Jan. 1, 2035, whichever one is worth more is declared the winner. The loser then donates that original $100,000 investment to the charity of the winner’s choice.

Seems like easy money to me.

http://www.washingtonpost.com/business/ ... print.html

Been reading through the parts of this book I find interesting and skipping a lot of it which is just pretty basic investing and personal finance stuff (with lots of exclamation points!!!!). He's really big on a having a Fixed Index Annuity as part of a retirement plan. Any opinions on those? Moda, don't you have some familiarity with these? Thanks.

barrett wrote: Been reading through the parts of this book I find interesting and skipping a lot of it which is just pretty basic investing and personal finance stuff (with lots of exclamation points!!!!). He's really big on a having a Fixed Index Annuity as part of a retirement plan. Any opinions on those? Moda, don't you have some familiarity with these? Thanks.

http://gyroscopicinvesting.com/forum/pe ... annuities/

Fixed are a scam; no inflation protection.

I think in the book he talks about some type of hybrid that correlates to the S&P.

MangoMan wrote: The ONLY type of annuity that ANYONE should be considering as a tool is an SPIA [single premium immediate annuity]. Not sold by brokers, scam free.  immediateannuities.com  For those without a pension, a guaranteed stream of payments for life can be a comfort.

Although, with interest rates so low these days, the payout ratio leaves a lot to be desired.

If I remember correctly, the main risk associated with SPIAs other than that already mentioned is that of insurance company default, for example bankruptcy.  They may not always be "too big to fail".

... Mountaineer

MangoMan wrote: The ONLY type of annuity that ANYONE should be considering as a tool is an SPIA [single premium immediate annuity]. Not sold by brokers, scam free.  immediateannuities.com  For those without a pension, a guaranteed stream of payments for life can be a comfort.

Although, with interest rates so low these days, the payout ratio leaves a lot to be desired.

Is there inflation adjustment?  'cuz to me that's where the scam is, not the middlemen malarky which can be easily avoided.

I went trough the book and was pretty disappointed. I would have expected it to be a lot better.

Here's a good review of it.
http://www.basonasset.com/yes-i-actuall ... -new-book/

People like Tony Robbins bother me.

He always delivers his ideas as if they were easy, but the truth is that gurus like Tony Robbins seem to attract people based on their fascination with his charisma and charm, rather than any real insight in his solutions to life's problems.

I may be wrong, but I have always suspected that what Tony Robbins is really selling is a 15 minute rental of a good feeling, which begins to evaporate soon after your contact with him ends.

Again, I may be wrong here, but I would love to interview 100 people who attend a Tony Robbins conference one month, one year, and five years after the event and ask them this question: "Compared to how you thought the conference was going to affect your future life as you were walking away from it on the last day of the event, how has it actually affected you?"

But that's not to say that Robbins' work has no value.  An informed consumer of Tony Robbins' work might put it like this: "It's worth $499 to me to spend a weekend feeling like the solutions to my problems are actually very simple and right at my fingertips.  Feeling that way intensely for two full days, and then enjoying the residue of that feeling for a few more days afterward is worth $499 to me."

IMHO, Tony Robbins is to meaningful life improvement as high-end hookers are to true love.

One thing Tony Robbins does have, though, is a high enough profile to get interviews with almost anyone, so to the extent that his book is a channel for the insights of those he interviews, then it might be very valuable resource, just like a serious TV show with a panel of relationship experts hosted by Heidi Fleiss might be worth watching.

ILoveMoney wrote: Here's a good review of it.
http://www.basonasset.com/yes-i-actuall ... -new-book/

Once a huckster, always a huckster, it seems.

As Faber pointed out, the All Weather Portfolio is easily replicated at low cost by the Global Market Portfolio -- which is a fancy way of saying own every investable market in the world, portfolio weighted by its market-cap.

MachineGhost wrote:

ILoveMoney wrote: Here's a good review of it.
http://www.basonasset.com/yes-i-actuall ... -new-book/

Once a huckster, always a huckster, it seems.

As Faber pointed out, the All Weather Portfolio is easily replicated at low cost by the Global Market Portfolio -- which is a fancy way of saying own every investable market in the world, portfolio weighted by its market-cap.

Sounds rather "Bogleheadish". 

... Mountaineer 

Well said MediumTex.  Bravo!

MediumTex wrote: People like Tony Robbins bother me.

He always delivers his ideas as if they were easy, but the truth is that gurus like Tony Robbins seem to attract people based on their fascination with his charisma and charm, rather than any real insight in his solutions to life's problems.

I may be wrong, but I have always suspected that what Tony Robbins is really selling is a 15 minute rental of a good feeling, which begins to evaporate soon after your contact with him ends.

Again, I may be wrong here, but I would love to interview 100 people who attend a Tony Robbins conference one month, one year, and five years after the event and ask them this question: "Compared to how you thought the conference was going to affect your future life as you were walking away from it on the last day of the event, how has it actually affected you?"

But that's not to say that Robbins' work has no value.  An informed consumer of Tony Robbins' work might put it like this: "It's worth $499 to me to spend a weekend feeling like the solutions to my problems are actually very simple and right at my fingertips.  Feeling that way intensely for two full days, and then enjoying the residue of that feeling for a few more days afterward is worth $499 to me."

IMHO, Tony Robbins is to meaningful life improvement as high-end hookers are to true love.

One thing Tony Robbins does have, though, is a high enough profile to get interviews with almost anyone, so to the extent that his book is a channel for the insights of those he interviews, then it might be very valuable resource, just like a serious TV show with a panel of relationship experts hosted by Heidi Fleiss might be worth watching.

How do you account for the numerous top-level celebrities and business moguls who give him unpaid endorsements?  Are they too just looking for an occasional sugar high?

MediumTex wrote: I may be wrong, but I have always suspected that what Tony Robbins is really selling is a 15 minute rental of a good feeling, which begins to evaporate soon after your contact with him ends.

He seemed to have an effect on that Shallow Hal guy. 

The amount of stoopid and/or insecure money out there is astounding!  We truly are in the wrong business.

[quote=http://www.riabiz.com/a/501169100370739 ... e-partners
]This is a happy tale of an RIA windfall. The best part of my interview with Ajay Gupta came when I asked him how it’s possible he received all these referrals from a mere mention of his sub-RIA in Tony Robbins’ book, considering the thick tome contains no hyperlinks — nary a phone number or a web address. Gupta says that the transmission of good will even is more amazing than that. Nothing resembling a proper landing page for client prospects existed. Prospective clients conducted web searches that led to a link to a link to a link. But such is the power of Tony Robbins’ referring voice that despite some negative reviews of Money: Master the Game, truly affluent investors from far and wide found a path to Stronghold Financial’s door.

...

Initially, Gupta planned to manage the windfall of referred accounts using model portfolios and Los Altos, Calif.-based Jemstep Inc. technology and, for a lesser fee of 75 basis points, service them in Stronghold Financial, a second RIA.

Gupta Wealth itself took in many accounts of $1 million or more and the firm’s assets, largely on the strength of that tide, swelled from about $540 million at the time of his breakaway from UBS in October of 2013 to near $1 billion currently.
[/quote]

I bet MT and craigr are making a pittance from their book compared to this.

The veneer of respectability these RIA jokers get makes me wanna hurl.  Stupid is as stupid does?