Gyroscopic Investing

Suppose you were going to build a portfolio which is 90% bonds, and 10% "full discretion" i.e. any asset class.

What kind of bond would you use for the 90% and what holdings would you use for the other 10%? And why?

Purely for academic study - Not Financial Advice.

This is along the same line of thinking as Larry Swedroe. Swedroe advocates investing in small proportions of high returning but very volatile stocks and balancing them with high percentages of stable bonds. 

His classic example is the Swedroe Min Fat Tails portfolio.  It has 70% bonds split between short-term treasuries and TIPS, and 30% stocks split between small cap value and emerging markets.  In his book "Reducing the Risk of Black Swans" he updates the bond recommendation to simply using 5-year treasuries and tweaks the stocks slightly, but the basic idea is the same. 

Among non-PP options, I admit I'm kinda partial to the Swedroe MFT approach.  The results (especially the PP-like low volatility with good returns) are quite impressive.  You might consider reading up on his work. 

Bernstein talks about never being less than 25% stocks (or more than 75%.).

What duration bonds / include a cash emergency fund? Around these here parts, the default for "Bonds" implies long duration treasuries....

All that being said, I'd go simple route and put into one of S&P 500, total IS stock, or total world.

If a little more non-Bond, I'd put at least 5% into Gold.

atrchi wrote: Suppose you were going to build a portfolio which is 90% bonds, and 10% "full discretion" i.e. any asset class.

What kind of bond would you use for the 90% and what holdings would you use for the other 10%? And why?

Purely for academic study - Not Financial Advice.

Zero Coupons and Private Equity.  I'd do a ladder since the liquidity event is hard to time.

I would not do a 90% bond portfolio. Whatever you use for the remaining 10% would not be enough to protect you from a sharp rise in interest rates or inflation.

I agree with Ad O. I can see myself running a Swedroe Min Fat Tails, but gun to my head, if I could only have 10% in stocks, I'd probably pick 1/2 google and 1/2 some other individual stock and try to 'shoot the moon'.

dualstow wrote: I agree with Ad O. I can see myself running a Swedroe Min Fat Tails, but gun to my head, if I could only have 10% in stocks, I'd probably pick 1/2 google and 1/2 some other individual stock and try to 'shoot the moon'.

Then, during bear markets you'd want to be 10% short

I don't short, ever.
One would have to hold onto these tech stocks even when they lose most of their value, in order to not miss out on the sudden increases.
Not easy.

dualstow wrote: I don't short, ever.
One would have to hold onto these tech stocks even when they lose most of their value, in order to not miss out on the sudden increases.
Not easy.

The thing about the largest % increases, they live next door to the largest % declines. Best to avoid those neighborhoods.

Would something like Rob Kirby's Portfolio be considered equivalent to Larry Swedroes Black Swan approach??

1/3 Equity, 1/3 Cash/Bonds 1/3 Real Assets (Gold etc)

ie 1/3 Risk 2/3 Low Risk

http://taxoasis.com/files/EVERYTHING-Yo ... esting.pdf

Any thoughts on this 3 x 33% approach?  Sounds very close to the PP.....

Hal

I never understood the point of 90/10 portfolios, which describes most target date funds (except they are 90% stocks).  The 10% is just too small a slice to make a measurable impact, unless you design it so that the 10% is extremely volatile and moves in the opposite direction to the 90%.  In the Desert Portfolio, the 10% gold only softens the impact of high inflation, and I think is more about getting people to hold some gold who are otherwise uncomfortable with the idea.  I suppose you could think about a leveraged ETF.

I second the suggestion to look at the Swedroe portfolios, or the Desert, if you want to hold a large slice of short-ish term bonds.  I went with something like that in my TIAA-CREF account using the TIAA guaranteed fund, which is actually an insurance vehicle that behaves like cash with an outsized return (currently a hair over 3%).

sophie wrote: I never understood the point of 90/10 portfolios, which describes most target date funds (except they are 90% stocks). 

You must be younger than I thought! 

dualstow wrote:

sophie wrote: I never understood the point of 90/10 portfolios, which describes most target date funds (except they are 90% stocks). 

You must be younger than I thought! 

Not :-) but even so, I got out of target portfolios several years ago when I saw that they had me in 90% stocks.  I was pretty shocked and that's when I decided I'd better handle the portfolios myself.

Not to derail the thread, but for what it's worth, I have a tiny amount in Vanguard's year 2035, and that's now closer to 80% in stocks. 2025 fund is 66% stocks, so I guess that's where I'll be in ten years.
Point taken, though, and I wouldn't want  my whole portfolio to have that allocation.