How much to gamble in a VP and how frequent are your trades?

[Mike59]

I'm curious how large your VP is relative to the PP ? 

What about trading frequency?
I've tried before with weekly/daily chart swing trading  (between 5-10 trades per month) and barely broke even, I'm thinking a slower steadier pace with a monthly chart may be (a bit) safer.

I'm trying to find my own comfort zone, and am thinking I'd go with 1-5% of net worth (somewhere under 10% of the PP value at highest).

[ochotona]

I think this whole VP idea is just trash talking everything else but PP. It's juvenile.

I get it that PP is very safe and dependable... But that does not mean my 60/40 balanced portfolio is a trip to Vegas.

I wonder if the VP concept "only invest what you can afford to lose" encourages people to take too much total risk. Like in the UK the official advice is that you should only have 2 or 3 alcoholic drinks a day... But people take it mean, "Well, I haven't had me three drinks yet today!"

Frankly, I hate to lose any money; but I do want different pots of money to perform differently, so half is PP, half is "VP". And my VP I don't trade at all. Well, I am playing with 0.5% of my portfolio at present in $UWTI. Not winning that game, yet.

[Cortopassi]

I had a "VP" in effect for the past 25 years, and after careful analysis, I believe I calculated out a 1.3% average annual return (nominal) during that time for money I controlled.

This was with constant stress, market watching, getting into the latest and greatest stock via tips from friends, etc.  The amount of time, trades and stress over those years, looking back, is freaking mind boggling. 

I have no VP.  it is 100% in PP, and my current plan is I rebalance quarterly (not when the bands are hit).  Somewhere along the way, I read an analysis that quarterly provided marginally better returns, but in effect it is more of a way for me to feel like I am more actively involved.  It is likely to change to bands or yearly in the near future.

I am not saying a VP isn't good for some people.  But it took 25 years for me to realize it is not for me.

Mike

[dualstow]

I'm curious how large your VP is relative to the PP ? 

My VP is 60-25% of my total. (vp+pp). It was 100% until I adopted the pp in 2010. Wow, has it been 5 years already?

What about trading frequency?

A lot of my vp is bogleheady, so not much trading there at all. Just adding to some funds and even then, only when the money doesn't get added to the pp.

I have dividend stocks that I trim on occasion.

Finally, there's a newsletter that I use trade for my dad. I got him to try a small pp but he rejected it. He wants what he wants. So I buy and sell stocks for him according to that newsletter, and those stocks are sometimes held for a year or two. A few months if the author bails on bad ones. Sometimes I buy these for myself, but rarely. There's only so much $ to go around, so I'm trying to be disciplined.

[sapperleader]

I view VP more like dualstow, and don't view it as gambling money.  Money I am willing to expose to more risk(for more return) does not mean I want to lose it.  We(my wife and I) buy and hold everything, including individual stocks, so we do not do day trading.  Our goal is 0% turnover except when re balancing PP.  We do a dividend strategy with blue chips using individual stocks, boglehead style setups in my 401k, and use some other indexes to add some diversification for everything.  right now our PP is 80/20, and we will be 60/40 within 5 years using annual saving contributions.

We are using PP to protect our core retirement savings, VP lets us deal with 401k's that don't support PP and fix perceived holes for us by boosting returns.  I personally think day trading is a losing game, and indexing and value investing(buy cheap, hold longterm) are the only real ways to make money in the market year after year.

All that said, if you are going to gamble with VP, and I think you have the right idea at keeping it small(less than 5%)
good luck

[MachineGhost]

My PP is my VP as my VP is my PP.

But referring to trading, the 10% or less rule is smart.  HB's advce about VP is for Joe Sixpack who isn't quantitative and has a multitude of behaviorial bias problems, so they won't make any (or much) money in the long-run.  That's just the way it is.

[Mark Leavy]

My understanding from HB's writings and lectures is that your "Permanent Portfolio" doesn't have to be the traditional HBPP.  It can be any conservative investment where you aren't expecting anything more than average market returns.  Money you can't afford to lose, invested safely and inexpensively for market returns.  The HBPP is just Harry's best version of a Permanent Portfolio.  I think a Boglehead portfolio or any number of conservative, passive, all weather investment schemes also qualify.

Harry's idea of a Variable Portfolio was pretty much "educated gamble" money.  This would be only money you could afford to lose, and I interpreted it as "likely to lose".  With that in mind, Harry dabbled in VP's that would potentially return many times the original investment.  These weren't just a play on different mutual funds or dividend growth stocks or the index fund of the month - these were big time gambles that for some reason you felt you knew more than the average joe.

For me, my VP is about 5% of my Net Worth and I invest it in startup companies run by techies that I have known throughout my career.  Every investment I make, I assume will be a 100% loss - and write it off on my spreadsheet as such as soon as I make it.  Every now and then one of them becomes something.  And that is pretty cool.

[Ad Orientem]

I am a fan of putting around 10% of investment money into a dedicated long term buy and hold VP consisting of one position... an S&P 500 index/ETF. No trading, no rebalancing. Just reinvest the dividends and leave it alone until I hit 55 when I will probably start folding it into the PP, gradually.

[MachineGhost]

I am a fan of putting around 10% of investment money into a dedicated long term buy and hold VP consisting of one position... an S&P 500 index/ETF. No trading, no rebalancing. Just reinvest the dividends and leave it alone until I hit 55 when I will probably start folding it into the PP, gradually.

Why?  What does that offer above the PP itself?

[Ad Orientem]

I am a fan of putting around 10% of investment money into a dedicated long term buy and hold VP consisting of one position... an S&P 500 index/ETF. No trading, no rebalancing. Just reinvest the dividends and leave it alone until I hit 55 when I will probably start folding it into the PP, gradually.

Why?  What does that offer above the PP itself?

Conceding that there are no guarantees in life, historically, equities have provided the best return of all the assets over the long term. If that holds true going forward, a straight stock market index fund should outperform the PP over a 20+ year period. But of course a lot depends on the vagaries of chance. If a big crash lies at the end of that twenty years it could all be for naught.

[ILoveMoney]

I am a fan of putting around 10% of investment money into a dedicated long term buy and hold VP consisting of one position... an S&P 500 index/ETF. No trading, no rebalancing. Just reinvest the dividends and leave it alone until I hit 55 when I will probably start folding it into the PP, gradually.

Why?  What does that offer above the PP itself?

Conceding that there are no guarantees in life, historically, equities have provided the best return of all the assets over the long term. If that holds true going forward, a straight stock market index fund should outperform the PP over a 20+ year period. But of course a lot depends on the vagaries of chance. If a big crash lies at the end of that twenty years it could all be for naught.

I really like this idea. I was thinking about doing something similar, for the exact same reasons you stated, but this makes things much simpler! Thanks for sharing it AO.

Quick question to clarify.... if you have money to invest, you take 10% of that money and put it into the s&p500 fund and than take the remaining 90% and invest that in a straight PP... and you do this same process each time you have new investment money available?

[Ad Orientem]

I am a fan of putting around 10% of investment money into a dedicated long term buy and hold VP consisting of one position... an S&P 500 index/ETF. No trading, no rebalancing. Just reinvest the dividends and leave it alone until I hit 55 when I will probably start folding it into the PP, gradually.

I thought you preferred VT to SPY or VTI in a buy and hold VP...

I really like VT and used it for a while. But I have been slowly coming around to VOO.The main arguments for VOO are that the big cap index gives you international exposure and the ER is half that of VT. But I would be completely comfortable with either.

[Ad Orientem]

Why?  What does that offer above the PP itself?

Conceding that there are no guarantees in life, historically, equities have provided the best return of all the assets over the long term. If that holds true going forward, a straight stock market index fund should outperform the PP over a 20+ year period. But of course a lot depends on the vagaries of chance. If a big crash lies at the end of that twenty years it could all be for naught.

I really like this idea. I was thinking about doing something similar, for the exact same reasons you stated, but this makes things much simpler! Thanks for sharing it AO.

Quick question to clarify.... if you have money to invest, you take 10% of that money and put it into the s&p500 fund and than take the remaining 90% and invest that in a straight PP... and you do this same process each time you have new investment money available?

Yes. You could also use any other broad index including VTI or VT.

[MachineGhost]

If you're going to market-cap index, then global equity exposure makes the most sense so you're closer to the global portfolio which is the true buy and hold passive portfolio.

However, now that I understand the rationale, 10% in the VP is essentially a overweighting the equity part of the PP.  I think there are much better uses for VP than that.