Gyroscopic Investing

John Greaney's website is one of the oldest finance sites for those contemplating (or having already chosen) early retirement. He's a very sharp numbers guy and wonderfully irreverent about the investing world, FA fees and much else. This updated story on real-world portfolio returns has much of interest:

http://www.retireearlyhomepage.com/reallife15.html

He doesn't give volatilty and real-world likely/actual behavior of investors in response to it much thought, but it's still an interesting study, and not least for this important comment buried near the end of the article:

"What if you retired in January 2000?

If you happened to retire in January 2000, the last fourteen years haven't been pleasant. Only the Warren Buffett portfolio and Harry Browne Portfolio has a value appreciably exceeding its $100,000 starting balance. The 100% fixed income portfolio is underwater while the MPT portfolio, Larry Swedroe Portfolio and Harry Dent Portfolio are all 15% to 20% in the black. The other two portfolios both show losses. The worst performer was the 75% S&P500/25% fixed income portfolio which is now less than two-thirds of its starting value . The chart below illustrates this performance."

I think it's a really worthwhile comparision of popular approaches, and would be interested in other's thoughts.

That's an interesting link with lots of info, but ultimately I think it does the PP a disservice by grossly misrepresenting how it works.  Classifying it as a "concentrated portfolio" with "big bets" on gold and treasuries truly misses the point.

In any case, it's no secret I think the PP is a very good portfolio for a retiree. 

There was an edit, that was easily missed and rather relevant...

"If you've been following this update for the past several years, you'll notice that the Harry Browne portfolio has fallen to the middle of the pack. A spreadsheet error greatly exaggerated the Harry Browne portfolio performance for the years 1994-2013. That error has been corrected in this issue. There was no error for the analysis covering 2000-2013. The Harry Browne portfolio continued to be a strong performer over that shorter period."

Since I ER'd in 2002 myself Greaney's comments about poor returns for those retiring in 2000 certainly hit home. Since, like many here, I don't have the stomach for the volatility that comes with the kind of high equity allocations Greaney and other Bogleheads are comfortable with I thought I'd compare the PP with one of Larry Swedroe's low fat tail portfolios over that 2000-2014 period (I can't get the table from Portfolio Visualizer to copy so will enter the key numbers manually):

Portfolio    Initial Balance    Final Balance    CAGR        Std. Dev.      Best Year    Worst Year    Max. Drawdown

PP            10,000              29,965              6.84%      5.37%          13.85%      -2.0%          -2.0%
Larry        10,000              30,922              7.82%      4.74%          16.02%      -3.34%        -3.34%
       
On the one hand, it certainly shows the durability of the PP.  On the other (and I know this is as heretical on this board as it would be to champion gold on Bogleheads) the Larry Portfolio's returns suggests you don't need to own gold or 30 year Treasuries to build a bunker.

Kevin K. wrote: On the one hand, it certainly shows the durability of the PP.  On the other (and I know this is as heretical on this board as it would be to champion gold on Bogleheads) the Larry Portfolio's returns suggests you don't need to own gold or 30 year Treasuries to build a bunker.

Nah -- it's not heresy to point out other good portfolios.  There's more than one way to invest wisely.

FWIW, Swedroe's Minimize Fat Tails portfolio is essentially equal parts stocks, TIPS, and cash.  If you consider TIPS a mash-up of bonds and gold (inflation protection) then it actually looks a lot like a close cousin to the PP.

The analysis uses VGPMX for the Gold portion of the PP allocation. Where's the garbage can?

buddtholomew wrote: The analysis uses VGPMX for the Gold portion of the PP allocation. Where's the garbage can?

Yikes.  Good catch.  Yeah, it helps to make sure you actually model the portfolio correctly before making comparisons. 

buddtholomew wrote: The analysis uses VGPMX for the Gold portion of the PP allocation. Where's the garbage can?

PortfolioVisualizer.com lists its data souces here: https://www.portfoliovisualizer.com/faq#dataSources

For Gold they use KITCO returns 1972-2004, and GLD from 2004-2014.  Thats pretty accurate in my opinion.

Right -- the mid-thread Portfolio Visualizer results are accurate.  The data from the link in the OP is not. 

BTW, thanks for the Portfolio Visualizer reference, Kevin K.  It looks like an excellent tool.

"The analysis uses VGPMX for the Gold portion of the PP allocation. Where's the garbage can?"

I just compared VGPMX to GLD for the period in question on Portfolio Visualizer and the results are exactly the same.

Kevin K. wrote: "The analysis uses VGPMX for the Gold portion of the PP allocation. Where's the garbage can?"

I just compared VGPMX to GLD for the period in question on Portfolio Visualizer and the results are exactly the same.

No way, Jose!

https://tinyurl.com/pavzqb5

You're right MachineGhost, and I apologize for my error (and Greaney's!). $10,000 invested in GLD from 1994-2014 = $25,932 final balance, while the same amount invested in VGPMX yielded a paltry 10,980. He also used Vanguard's LT Treasury fund as a proxy for 30 year Treasuries instead of TLT, though that's a comparitively minor error. Both show a lack of understanding of (and respect for) the PP on Greaney's part, which is a bit surprising considering that he's usually a stickler for detail AND that the PP is one of the very few portfolios with a posiitive return since 2000.

Thanks for catching this, and sorry I didn't.

He updated the PP to use GLD the next year (http://www.retireearlyhomepage.com/reallife16.html):

"A couple of readers suggested that replacing the Vanguard Precious Metals Fund (VGPMX) with the SPDR Gold Shares ETF (GLD) would be closer to Harry Browne's original intent for his Permanent Fund. The switch was made, but it resulted in lower performance for the 1994-2015 period."

The latest update from April 2018: http://www.retireearlyhomepage.com/reallife18.html

The PP for this last one: 25% VFINX, 25% VMMXX, 25% VUSTX, 25% GLD (rebalanced annually)

Through end of 2017:

* PP is second BEST if retired in Jan 2000
(bottom of page for comparison chart)

* PP is second WORST if retired in 1994 (only up ~91%)