Spreadsheet

[mathjak107]

but taking emotions out of the equation it really does not matter what time frame you want to pick as long as .it is for the long haul  . the pp and more conventional portfolio's went through identical time frames good and bad.

with few exceptions going out 15 years or more odds are you will have accumulated considerably less for retirement.

even when it comes to retirement spending we have never ever had a 30 year time frame that a conventional 50/50 mix or higher would have done poorly at it during the worst of times drawing 4% inflation adjusted.


i still say the pp is great for preserving the assets after you make it but you run a pretty good chance of lagging if you  need to accumulate a nest egg that meets your goals.


as long as folks understand that if they set their sights on having a certain amount by retirement based on conventional averages  they may be quite far off  if  they are using the pp as  that protection has a  cost that will weigh on returns unless we have particularly poor markets.

2000 to 2015 was a rare occurrence historically where we had 2 back to back recessions.

even so returns were fine for a diversified portfolio . i think i averaged about 6% in the insight model.

here is the diversified conventional mix that was used

you can see how it did vs just the s&p 500 over any time frame you like  . 

no gold no long term bonds .

[Pointedstick]

I feel like it's disingenuous to compare the PP to 50/50 portfolios and other similar ones. People who invest that way during their accumulation phase are, if they're sensible, keeping a lot of cash off to the side to pay for life's inevitable expected and unexpected expenses. The PP investor doesn't have to do this. If you include that cash in the portfolio, than many conventional stock-heavy portfolios start to look a lot less awesome in terms of absolute growth compared to the PP.  Almost nobody sane has 100% of their liquid net worth in nothing but stocks and bonds while they're working.

[LC475]

Well, I haven't finished my testing and investigation, but what the heck:

15% Small-cap value US stocks
15% Emerging market stocks
10% Gold
60% intermediate treasuries / 30%+30% barbell, whichever you're more comfortable with

Nice.  It should perform well in periods of prosperity.  And in a period of runaway inflation, well, 10% of the portfolio will do well.

[Pointedstick]

Well, I haven't finished my testing and investigation, but what the heck:

15% Small-cap value US stocks
15% Emerging market stocks
10% Gold
60% intermediate treasuries / 30%+30% barbell, whichever you're more comfortable with

Nice.  It should perform well in periods of prosperity.  And in a period of runaway inflation, well, 10% of the portfolio will do well.

The 30% cash slice should keep up too unless things are really, really broken. Which is always possible, of course. But the reason why this feels more comfortable is because runaway inflation periods never really last all that long, unless the entire country is broken. And furthermore, all the non-gold assets have dual purposes that help them do okay in multiple environments:

- Stocks benefit from prosperity, low interest rates, and financial repression.
- Long bonds benefit from deflation, high interest rates, falling interest rates, and non-SHTF financial crises.
- Cash benefits from recession, high interest rates, rising interest rates, and is intrinsically useful for its stability and liquidity as well.

However, gold only seems to respond to inflation. Which we don't have much of and haven't for a while. And I think its recent run-up and crash were due to faulty expectations from a gold market that didn't know what to make of QE.


I haven't actually ditched the PP by the way. I think I'm going to stick with it. But I might try out this alternative or something like it in one of my accounts. I've long felt that the agnosticism of the PP wasn't totally justified given how the four different economic conditions are not equally likely. Of course, the ratios might be different in the future!

[LC475]

But the reason why this feels more comfortable is because runaway inflation periods never really last all that long

Right, they make all your savings evaporate very quickly.  Well, "quickly" is relative.  It could take several years.  Let's just say, then, that runaway inflation (hyperinflation) will make your savings evaporate with more quickness than you may desire in such a process. 

However, gold only seems to respond to inflation. Which we don't have much of and haven't for a while.

Yes, lowering the gold allocation amounts to making a bet and taking a risk that inflation will not occur.  You could be right, or you could be wrong.  Thing about hyperinflation: it's kind of a one-time thing.  It's not cyclical, like "oh, we're having a recession, just wait it out 'til next year".  Currency dies, it dies.  It's done.  That can only happen once.  So, yeah, it didn't end up happening in the 1970s.  Crisis averted.  And it didn't end up happening in the 2000s, as apparently lots of money thought it might.  Whew, what a relief.  And it may not happen for 100 years.  Or 10.  But chances are, at some point the dollar will end.  "All good things..."  And at that point, it will be nice to have gold.

If you don't have anything but dollar assets at that time, you will lose the vast majority of your wealth.  But that's OK; that loss won't show up in the spreadsheets, it won't be incorporated into anyone's investment advice.  It'll stink for you, but hey, that's the price we pay for orthodoxy!

[Tyler]

I've long felt that the agnosticism of the PP wasn't totally justified given how the four different economic conditions are not equally likely. Of course, the ratios might be different in the future!

To my knowledge, the PP construction was never intended to imply the likelihood of any given economic condition. Like the Swedroe Min Fat Tails portfolio your idea appears to be based on (itself inspired by Taleb's writings on Black Swans, I believe), it was designed to equally mitigate a variety of economic conditions without making such assumptions.  Money you can't afford to lose, and all that.  It's true that prosperity may be more likely in the longrun, but as you said, you never know what that schedule will really look like in your lifetime. 

The PP is also the only portfolio I'm aware of that embraces the idea of a variable portfolio where you speculate to your heart's content.  There's nothing at all wrong with loading up on stocks in your VP if you believe prosperity is likely and want more growth.  Just stay aware of the downside risks associated with the probabilities.  Black Swans, retirement timing, college fund dates, etc.

IMHO, the PP is a remarkably solid foundation.  Build on top of it all you like.  Just don't dig up the concrete for mortar in your new walls, or you'll probably regret that later. 

[Pointedstick]

I've long felt that the agnosticism of the PP wasn't totally justified given how the four different economic conditions are not equally likely. Of course, the ratios might be different in the future!

To my knowledge, the PP construction was never intended to imply the likelihood of any given economic condition. Like the Swedroe Min Fat Tails portfolio your idea appears to be based on (itself inspired by Taleb's writings on Black Swans, I believe), it was designed to equally mitigate a variety of economic conditions without making such assumptions.  Money you can't afford to lose, and all that.  It's true that prosperity may be more likely in the longrun, but as you said, you never know what that schedule will really look like in your lifetime. 

The PP is also the only portfolio I'm aware of that embraces the idea of a variable portfolio where you speculate to your heart's content.  There's nothing at all wrong with loading up on stocks in your VP if you believe prosperity is likely and want more growth.

Right, and that's what I've done so far. Needless to say, I've been very pleased with the performance of my VP lately. In all likelihood that's what I'll continue doing.

[vnatale]

Deciding to seek the protection from that calamity we are still waiting for can leave you well short of goals.

Stocks do not eliminate that risk.  They amplify it.  Goals should not ignore uncertainty, and good planning is about more than targeting the highest returns.

Let's use the example of saving for a college fund.  Let's say one wants $100k in today's dollars 20 years from now.  They save $2k/year (adjusted up for inflation each year) and invest in a TSM index.  Looking at every rolling 20-year investment period since 1972, the median end value is $101k.  But half the results are lower than that, and the minimum (from one of the most recent periods!) is only $51k.  Unless you have an extra $49k laying around, the risk here is that regardless of your best efforts you can't afford to send your daughter to college.

Now let's save the same $2k/year and invest in the PP.  The median end value is only $69k.  Yep, that's significantly lower.  Saving $3k/year increases the median to $103k.  But the minimum is only $93k.  In the worst-case situation, you need an extra $7k.  That's pretty reasonable. 

In case you're wondering, let's say you saved the same $3k/year and invested it all in stocks.  The median end value is $152k, and the minimum is $77k.  While the median return is 50% higher, the downside risk of your daughter not affording college is actually greater than if you followed the same plan with the PP!

Basically, stocks provide higher average growth, but with much higher uncertainty.  The markets are not guaranteed to cooperate on your timeframe, and 100% stocks run a great risk of tanking when you need them.  If one can simply wait ten or more years to recover then it may work out in your favor but that's not always practical.  I personally prefer to invest more conservatively with less uncertainty and compensate by saving more.  My goals are too important to me to leave them to chance. 

Another Tyler gem!

Tyler,

Do you have versions of what you have written above (and elsewhere in the Forum) at your web site? I'm holding off exploring your web site until I finish my exploration of this Forum.

Vinny

[Tyler]

Another Tyler gem!

Tyler,

Do you have versions of what you have written above (and elsewhere in the Forum) at your web site? I'm holding off exploring your web site until I finish my exploration of this Forum.

Vinny

Yep! Illustrating the importance of consistency compared to simple averages is one of the core concepts of the site. It's hard to find just one article to point to, but I'm a fan of this one: https://portfoliocharts.com/2019/02/11/ ... he-weapon/

[Smith1776]

Another Tyler gem!

Tyler,

Do you have versions of what you have written above (and elsewhere in the Forum) at your web site? I'm holding off exploring your web site until I finish my exploration of this Forum.

Vinny

Yep! Illustrating the importance of consistency compared to simple averages is one of the core concepts of the site. It's hard to find just one article to point to, but I'm a fan of this one: https://portfoliocharts.com/2019/02/11/ ... he-weapon/

Don't mean to go off-topic.

Tyler, have you ever had the idea of including a section of your website that consists of "fun" portfolios? One came to mind recently: the Ron Paul portfolio.

https://www.cnbc.com/id/100978321

https://seekingalpha.com/article/472131 ... -portfolio

Paul's investment portfolio is dedicated almost solely to hard assets, with 64 percent in gold and silver miners, 21 percent in real estate and 15 percent in cash, according to an analysis from the StreetAuthority blog.

It's obviously not a "serious" allocation that you're going to find advisors recommending to clients, or hailed as prudent in most forums. But it's an incredibly interesting allocation, and seeing backtest data would be invaluable.

Not trying to shove work on to you or anything of course, just some ideas, 'cause your site rocks! And I don't think I'd be able to what you do.

[Mark Leavy]

Smith, you know you can use Tyler's site to get a full analysis of any portfolio weighting you like. Just plug in the numbers from your post and you'll see it all...

[Smith1776]

Smith, you know you can use Tyler's site to get a full analysis of any portfolio weighting you like. Just plug in the numbers from your post and you'll see it all...

Indeed,. No gold miner data though.