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The Permanent Portfolio Jr.
Posted: Thu Oct 01, 2015 3:17 pm
by MachineGhost
I'll keep this short. For those that cannot tolerate the risk of the Permanent Portfolio, I've crunched the numbers over the past 100 years or so to come up with a substantially less risky version that still accomplishes the goal of wealth preservation and beating CPI inflation. Ta da:
80% 5-Year Ladder (CD's, Treasuries)
10% Stocks
10% Gold
Yep, thats literally it. You can then sleep like a baby at night. No need to worry about gut quenching 25% maximum drawdowns (either real or nominal depending on who you believe).
Re: The Permanent Portfolio Jr.
Posted: Thu Oct 01, 2015 3:25 pm
by Xan
What rebalancing bands do you use?
How do you go back 100 years across the line where gold was tied to the USD and come up with anything meaningful?
Re: The Permanent Portfolio Jr.
Posted: Thu Oct 01, 2015 4:56 pm
by MachineGhost
Xan wrote:
What rebalancing bands do you use?
How do you go back 100 years across the line where gold was tied to the USD and come up with anything meaningful?
I used annual rebalancing. I can't remember, but I think I used gold priced in GBP converted to USD to get earlier prices. Or just silver. Or real estate. It doesn't really matter. Birds of a feather flock together.
However, real estate is a consistent underperformer.
Re: The Permanent Portfolio Jr.
Posted: Thu Oct 01, 2015 7:54 pm
by dualstow
Have you seen Tyler's new charts during your hiatus?
portfoliocharts.com
You can plug your jr in there.
Re: The Permanent Portfolio Jr.
Posted: Thu Oct 01, 2015 8:13 pm
by MachineGhost
dualstow wrote:
Have you seen Tyler's new charts during your hiatus?
portfoliocharts.com
You can plug your jr in there.
Oh wow, that's pretty darn cool!
80% into Short Term Treasury is close enough, but of course in the real world, CD rates were higher and duration exactly 2.93 years.
T-Bills top out at 12 months, so technically it would be a T-Bill + T-Note ladder.
It looks like starting this when stocks are overvalued is a bad idea, at least for 10 years out.
Re: The Permanent Portfolio Jr.
Posted: Thu Oct 01, 2015 8:17 pm
by dutchtraffic
Tbills are riskier than gold.
Re: The Permanent Portfolio Jr.
Posted: Thu Oct 01, 2015 11:45 pm
by Reub
Cd's aren't.
Re: The Permanent Portfolio Jr.
Posted: Fri Oct 02, 2015 12:39 am
by dutchtraffic
Reub wrote:
Cd's aren't.
They are.
The govt. might "guarantee" them, but what is that worth....?
Re: The Permanent Portfolio Jr.
Posted: Fri Oct 02, 2015 5:45 am
by mathjak107
MachineGhost wrote:
I'll keep this short. For those that cannot tolerate the risk of the Permanent Portfolio, I've crunched the numbers over the past 100 years or so to come up with a substantially less risky version that still accomplishes the goal of wealth preservation and beating CPI inflation. Ta da:
80% 5-Year Ladder (CD's, Treasuries)
10% Stocks
10% Gold
Yep, thats literally it. You can then sleep like a baby at night. No need to worry about gut quenching 25% maximum drawdowns (either real or nominal depending on who you believe).
many years ago i read a book about the armadillo investing strategy . it was 80 % 5 year treasury's ,10% GOLD , 10% STOCK .
5 year cd's had a good run because of falling rates . you were always a head of the curve for most of history the last 40 years . but with rates rising , be careful , you will be behind the curve .
Re: The Permanent Portfolio Jr.
Posted: Fri Oct 02, 2015 6:45 am
by dualstow
Was it by Richard C. Young? 1 of 2 reviews say the focus was on dividends. (?)
Re: The Permanent Portfolio Jr.
Posted: Fri Oct 02, 2015 8:53 am
by mathjak107
yes that was the author . he was pushing his book around the same time i discovered harry brown .
Re: The Permanent Portfolio Jr.
Posted: Fri Oct 02, 2015 4:15 pm
by Reub
Who knew that Machine Ghost was an armadillo?
Re: The Permanent Portfolio Jr.
Posted: Fri Oct 02, 2015 5:01 pm
by buddtholomew
Who knew interest rates were rising?
Re: The Permanent Portfolio Jr.
Posted: Fri Oct 02, 2015 7:30 pm
by MachineGhost
mathjak107 wrote:
5 year cd's had a good run because of falling rates . you were always a head of the curve for most of history the last 40 years . but with rates rising , be careful , you will be behind the curve .
I backtested it through the 40-year bond bear market. Do not go past 3-year weighted maturity if you want to come out alive.
Re: The Permanent Portfolio Jr.
Posted: Fri Oct 02, 2015 7:32 pm
by MachineGhost
Reub wrote:
Who knew that Machine Ghost was an armadillo?
I am but a humble armadillo...
[img width=800]
http://i.imgur.com/rG85Arr.jpg[/img]
So much for my "original" idea, though! But I made a modification at least!
Re: The Permanent Portfolio Jr.
Posted: Thu Oct 08, 2015 8:44 am
by k9
According to this source
https://books.google.fr/books?id=OgUEAA ... gy&f=false
Young's Armadillo strategy is 20% treasuries, 10% gold, 70% stocks, so quite different from MG's allocation.
