iwealth wrote:
MediumTex wrote:
Vanguard Wellesley is close to 60% bonds and 40% stocks and it lost about 10% in 2008.
I just don't like exposure to losses of that size. I can't deal with them. I get too freaked out. I can't think clearly and I start making bad decisions.
Up to this point the PP has avoided those sized losses, but then again so did Wellesley from 1972-2007 (a 6.5% loss in 1974 was the previous worst), and yet from 1975-2011, Wellesley outperformed the PP with a 10.86% vs. 9.19% CAGR w/ similar standard deviations. I did leave out 1972-1974 because I believe gold needed a few years to settle. So even if you start at 1977 which erases a few fantastic years for Wellesley, it still outperformed 10.34% to 9.19%. Not necessarily throwing these numbers out there to compare the two portfolios, just to point out that before 2008, Wellesley had yet to experience its largest loss.
I'm no math teacher, but I'll assume it's accurate to say any portfolio's worst performance is always ahead of it, we just don't know when.
Wellesley provides little deflation protection, so it would make sense that it did well during a period where there were no deflationary economic conditions.
The PP, OTOH, provides protection in all economic environments.
The U.S. first began experiencing deflationary conditions in 2007 when the housing market started to roll over and the economy went into recession (people didn't see it then, but that's what was happening).
Here is a comparison of Wellesley and the PP over the 2007-2011 timeframe (which has basically been a period of continuous deflationary economic conditions which the Fed has tried to offset through 0% interest rates and QE):
***
Wellesley:
2007: 5.19%
2008: (12.58%)
2009: 14.05%
2010: 10.36%
2011: 8.94%
Avg. for 2007-2011 timeframe:
5.19%
***
Permanent Portfolio:
2007: 13.3%
2008: (.7%)
2009: 10.5%
2010: 14.5%
2011: 10.5%
Avg. for 2007-2011 timeframe:
9.62%
***
Wellesley is a great fund, but it's not built for all economic conditions. I don't mind slightly lower returns in exchange for the all-weather protection that the PP provides.
JMHO, of course.