Why do you use the PP?

[mathjak107]

your best bet is to do exactly what pointed stick did if you run a variable.

no matter how you try to disguise your re-weighting things with a vp and calling it a separate portfolio your money has no memory as to  which gang it belongs too.

it is like buying a target fund then buying all kinds of other investments  un-doing what the target fund is trying to do .

if you have a vp look at it all together or you are fooling yourself but not your money .

as a true pp'er you have to live with the thought any moment can be the moment you have been waiting for , ( otherwise why hold so much gold  when conditions are so far off for it ?) and to be weighted the wrong way can undo years of waiting for this moment .

so you should look at your total portfolio as just that instead of a part time pp'er with a side bet . . .

[ozzy]

I also use the PP because I believe in the theory behind it.  After studying the PP for a couple years I realized its the only truly diversified portfolio.  A 50/50 Boglehead portfolio just doesnt cover all the bases.

Of course I have fiddled with the percentages and made mine more juicy, but I’m comfortable with it.

I sleep at lot better at night.  The piece of mind it provides me has value.  I no longer feel the need to buy and sell funds, or listen to the latest financial advice from the "experts".  Just one simple lazy passive allocation.  I think its a solid portfolio. I love it.

[goodasgold]

you already know my feeling . the pp will not be a pleasant place to be if rates continue to rise  as that leveraged bond position will always be behind the curve by a lot no matter how much you rebalance for years after rates stop rising.

Yes, mathjak, long bonds *will* be hurt when rates go up. But folks have been predicting this rise for years, so far without much success. And even when bond rates finally do rise sharply, you seem to forget that they will also eventually go down again, reaping big gains for bonds.

In summary, short-term thinking is the curse of most investors, few of whom can ever perform multiple miracles by predicting changes in rates, not to mention fluctuations in other asset classes.

This is why I am a PP investor.

[dualstow]

I use the pp so that I can continue to hold stocks without worrying about an exit strategy, an exit being either getting out at the top or saving myself from financial ruin. Both impossible.

I hold a vp (I have read mathjak's comments) and looking at pp+vp, I am about 50% in stocks which is where I want to be.

I can see myself abandoning gold in the future (just before it triples), but I like holding cash and thinking of it as part of my investment package instead of wasted capital, and I love thinking of my 30-YR bonds as insurance.

In short, the pp makes me feel good about my investments. I would never trust myself to put together an ideal portfolio but I really do trust the wisdom of Harry Browne.

[iwealth]

no matter how you try to disguise your re-weighting things with a vp and calling it a separate portfolio your money has no memory as to  which gang it belongs too.

it is like buying a target fund then buying all kinds of other investments  un-doing what the target fund is trying to do .

if you have a vp look at it all together or you are fooling yourself but not your money .

Well put, I agree with this. Not that there's anything wrong with modifying a portfolio to suit one's needs, but when you put 50% of your money in the PP and 50% in a 60/40, your risk and reward profile is that of a 42.5% stocks, 20% total bond, 12.5% long bond, 12.5% gold, 12.5% cash portfolio. I hope people think of allocations this way, but you can never be sure.

[barrett]

If I tabulate the totals across all my accounts, here's the result as of today:

Stocks: 33%
Long bonds: 22%
Total bond market: 5%
Gold: 17%
Cash: 25%

Feels good to me.

Ah, got it. Very PP-ish.

Little side excursion here. I have a bunch of EE and I Bonds and can never figure out how to really categorize them when figuring out what my overall asset allocation really is. They provide some deflation protection but are clearly not long bonds. They are not really cash either because there are gains and taxes to deal with. Anyone else have this "problem"?

[Dieter]

Little side excursion here. I have a bunch of EE and I Bonds and can never figure out how to really categorize them when figuring out what my overall asset allocation really is. They provide some deflation protection but are clearly not long bonds. They are not really cash either because there are gains and taxes to deal with. Anyone else have this "problem"?

I think of them as cash - no principle movement. Impacted by inflation, but don't loose NAV when interest rate rise. (And the correlary - no bounce when interest rates drop or money flows to safety.)

[rickb]

Well, having a VP doesn't mean you don't have a PP. It just means 100% of your net worth isn't in the PP.

As for why I do this, it's sort of ideological and sort of practical. Ideologically, I do want more stocks and shorter-term bonds, and practically, my wife and my Roth IRAs are in accounts that can't do a commission-free PP, so we just run then as 50/50 BH portfolios instead. Good enough. If I tabulate the totals across all my accounts, here's the result as of today:

Stocks: 33%
Long bonds: 22%
Total bond market: 5%
Gold: 17%
Cash: 25%

Feels good to me.

So - you're not rebalancing your overall percentages to anything in particular, but rather maintaining separate "PP" and "VP" accounts?  This sounds to me very much like Browne's PP rules (never rebalance OUT of your PP, but do whatever you want with your VP including transferring money into your PP).

For the folks who maintain a "VP" to adjust the percentages of your overall portfolio - if this requires selling a "PP" asset (gold seems to be the most hated asset at this point), will you do this?  I.e. do you rebalance to a target allocation across your entire portfolio, or do you maintain separate VP and PP accounts and keep the PP account rebalanced at 25/25/25/25.  More specifically, will you move money from your "PP" to your "VP" to rebalance your overall portfolio?

If so, you're not actually maintaining a PP and separate VP in Browne's sense, but rather changing the allocations of your PP.  If this is what you need to do to sleep at night, go for it - but mathjak is right that if this what you're doing you're not maintaining a PP and a separate VP.  Browne's VP is a separate account.  Managed under any rules you want.  BUT - you never ever transfer money from your 25/25/25/25 PP to your VP.  If this is not a restriction you accept, you don't have a PP and VP - you have a modified PP.

[mathjak107]

you already know my feeling . the pp will not be a pleasant place to be if rates continue to rise  as that leveraged bond position will always be behind the curve by a lot no matter how much you rebalance for years after rates stop rising.

Yes, mathjak, long bonds *will* be hurt when rates go up. But folks have been predicting this rise for years, so far without much success. And even when bond rates finally do rise sharply, you seem to forget that they will also eventually go down again, reaping big gains for bonds.

In summary, short-term thinking is the curse of most investors, few of whom can ever perform multiple miracles by predicting changes in rates, not to mention fluctuations in other asset classes.

This is why I am a PP investor.

i would say the  downward  spiral the long bond and its funds has seen for more than  6 months now  isn't exactly predicting rates will rise with no success . 

it is already happening as the long bond' s yield  went up a full point from its low which is a big hit for funds like TLT .

rebalancing from a portfolio being up overall from  gains is a good thing . rebalancing because of losses is never a good thing .

my opinion as you know is if you want to be in bonds this late in the game keep maturities short  as the hand writting is already on the wall and happening .

trying to be a contrarian now will be  taking a  big risk trying to catch a falling knife since  gold has been going no where but down , cash is producing little , bond values have been falling  and equities seem to be the only thing producing some positive gains and struggling at that  .  in effect you are risking a bet on some calamity happening to give you positive returns .  other wise the weight on bonds and gold will pull you down as it has been doing in what seems to have become the new normal. .


what are the returns on the 4 part pp since bnds flipped in january ?  i don't track the pp except for the time frame i bought a few weeks ago before changing my mind so i don't know but i doubt they are positive with TLT down 7% including interest ,  gld is down over 2%
vti is up 3.50%

on the other hand more conventional  models like the fidelity insight models which are typical of any mix with those allocations  , since the turn in bonds  are up .

the conservative income and capital preservation model with 26% equity and shorter maturity bonds are up 1.90%  , the growth and income model is up 3.60% and the  growth model up almost 6% .

if i wanted to run the pp at this stage i would do 50% in the pp so you know at least 1/2 your assets are going to be low volatility, ( they have not proved to be safer over the long term , only less volatile with lower returns to match  )    and the other half in a growth and income model where you are not betting so heavy on interest rates and gold .

the combo of the two should give you a much better balance and far less risk tied  to interest rates and gold.


in times of such uncertainty for gold and heavy bets on bonds  and not knowing if finally after decades the pp is meeting it's waterloo it isn't a bad idea to try to use a variable pp just in case times have changed and like everything in life eventually what worked  doesn't.

just keep the total mix of the two in a range you can sleep at night.

perhaps if you are a fidelity user 2/3's in the fidelity insight income and preservation model and 1/3 in the growth and income model may be a good balance to look in to if you are not happy with the pp or nervous about the pp going forward.  . .

because  folks pay for that subscription i can't disclose what funds the models hold but you can catch a free older issue from their web site for some older models that were used .

i think as of this month my subscription is up  and i likely will not renew since i decided to go with my own model for retiremt which starts in 10 more working days .  YIPEEEEEE!

[bedraggled]

As Goodasgold mentioned, rates could drop after climbing.  This morning's CBS News radio business report mentioned crude oil is down to the $51 neighborhood and Iran wants to bring more supply to the world market.  Another deflation indicator.  Can oil drop below $20?  Traders have pushed oil that low in recent history- without a deflationary scenario. Now, with deflation?

That velocity of money post may just indicate deflation may be upon us.  The dollar index, DXY, is at around 96, after climbing from 79 last August.  Maybe the Euro will help!  Ha ha!

So, we might conclude that the bond cycle has, or is ready to, reverse but these are not ordinary times.  I proposed a deflation portfolio last October of 40% LTTs and 30% cash.  Got a few chuckles with that.  So, what to do?  Maybe nothing but despair and hold 25/25/25/25 as TLT surges to new highs.  We saw "The King and I" on stage a couple of weeks ago.  This whole bond scenario: "It is a puzzlement."

Doing nothing seems to have worked for my family in the last 19 years since we moved back to Manhattan.  Next month my wife and I will convene our annual "G-2" meeting and probably agree to do nothing for another year.

All hail Harry Brown?

[mathjak107]

of course rates could drop  , but if the party ends at midnight we are likely at 10 or 11 pm.

that is a risky bet .  if you said to me you were going 50% equity's and 50% long term bonds  i would not think it was as risky of a bet.

so in my opinion if there ever was a time to have a variable portfolio i think now is the time.

I say that because we have bedfellows that never happened before. things like low interest rates and high stock valuations .  we have gold and long term bonds following each other down.

it used to be if markets fell 15% at the historical norm interest rates made you whole again in two years ready to move on .

lots of very different situations going on and I would hedge the fact gold and bonds are moving together more than they move opposite now.

a variable portfolio can do that ..

just google  lazy portfolio's and many models will come up.

[barrett]

Serious question for you, mathjak...

With all your doom and gloom about gold and bonds, doesn't it concern you at least a little that stocks are only up 2% this year? Even that slightly positive figure is only because the last two trading days have been good to stocks. Otherwise they are flat for 2015. Shouldn't that asset really be rocking right now? Cash will at least keep you even in the short run. Isn't putting 50% of your assets in an asset that is struggling to keep its head above water pretty darn risky? If fundamentals are so bad all around, why not go all to cash for a while?

[mathjak107]

you hit the nail on the head . equity's are only up 2%.

so with little oomph behind them and everything else not only at a loss but typically running longer cycles than equities I would want to give my equity's a fighting chance without crushing them under two very damaging potential assets today namely long term bonds and gold .

historically stocks have always cycled around faster even when they dip so if I had to hitch my wagon to a horse that  would be my choice .

that has always been the best gainer long term and had near zero loses over 20 or more years unless self inflicted. . even 15 years has been loss free.

thinking this time is different has always lost money for investors over the long haul.

so with that in mind I think a variable portfolio with at least some of the money will be a good hedge against those long term bonds and gold if they continue to turn nastier.
.

sometimes winning is by not losing or losing as much and mitigating what seems to be causing the losses is always a good idea.

trends always have plenty of time to make changes  and as you all know by now I firmly believe no portfolio  is forever and they need to be nudged like steering a big ship to keep it on course.

[barrett]

historically stocks have always cycled around faster even when they dip so if I had to hitch my wagon to a horse that  would be my choice .

that has always been the best gainer long term and had near zero loses over 20 or more years unless self inflicted. . even 15 years has been loss free.

OK, but you are very close to retirement. Not to be callous, but how many more 15 to 20-year cycles do you realistically have?

Also, and don't answer this if it's too personal, but why are you even still playing the investment game? Why not go all cash and call it a day?

[barrett]

historically stocks have always cycled around faster even when they dip so if I had to hitch my wagon to a horse that  would be my choice .

that has always been the best gainer long term and had near zero loses over 20 or more years unless self inflicted. . even 15 years has been loss free.

OK, but you are very close to retirement. Not to be callous, but how many more 15 to 20-year cycles do you realistically have?

Also, and don't answer this if it's too personal, but why are you even still playing the investment game? Why not go all cash and call it a day?

Gosh, I sound like a complete A-hole. But figuring out how people are ticking is interesting.

[Pointedstick]

So - you're not rebalancing your overall percentages to anything in particular, but rather maintaining separate "PP" and "VP" accounts?  This sounds to me very much like Browne's PP rules (never rebalance OUT of your PP, but do whatever you want with your VP including transferring money into your PP).

Nope, I don't rebalance or transfer money between the PP and VP.

[Pointedstick]

i would say the  downward  spiral the long bond and its funds has seen for more than  6 months now  isn't exactly predicting rates will rise with no success . 

it is already happening as the long bond' s yield  went up a full point from its low which is a big hit for funds like TLT .

[...]

what are the returns on the 4 part pp since bnds flipped in january ?  i don't track the pp except for the time frame i bought a few weeks ago before changing my mind so i don't know but i doubt they are positive with TLT down 7% including interest ,  gld is down over 2%
vti is up 3.50%

7% is a big hit? Doesn't really seem so terrible to me. A few more of these and rates will be up to 5%

[mathjak107]

the 7% is after you negated the interest too. it is total return so it is down almost 10 from the first of the year.

however I think it was in feb the long bond bottomed out before it started rising so tlt fell to this point from about 138.00

[flagator]

on the other hand more conventional  models like the fidelity insight models which are typical of any mix with those allocations  , since the turn in bonds  are up .

the conservative income and capital preservation model with 26% equity and shorter maturity bonds are up 1.90%  , the growth and income model is up 3.60% and the  growth model up almost 6% .



Mathjak,

What are the YTD returns on these portfolios, or is this what you are quoting?

Thanks.

[mathjak107]

that is the year to date. the bond fund portions  were up much higher when bonds hit their low in feb so basically the gains are gone but the shorter term bond funds are still to the right of zero a bit.

my own model is doing slightly better since I shortened bond maturity's more than they did as well as holding a bit more foreign so equity's have less weight from longer maturity bonds pulling the portfolio down...

[frugal]

Hello everybody!

I use it because I was not good trading, but I wanted to do it for a living.

Also I use it because of the track record.

Hope that it works in EUROPE.

Regards.

[ochotona]

Having a PP and a VP is like being a devout Christian with a mistress on the side!!! 

FYI, the fall in long term bonds and risk of further declines, and the astounding deadness of gold, has stopped me out of the HBPP totally. When gold was non-responsive to Grexit, I knew all of the goldbuggery was false and a lie. I'm in the same camp as mathjak107.  I'm now in a 60% / 20% intermediate bonds / 20% cash portfolio with 11 years left to go to retirement. I am waiting until this old bull runs out of steam and falls over, then I will redeploy the piles of cash, like I did in the 2009 slump. Also will put aside some funds to buy gold when it's 20-50% off from where it is now.

I put a reminder event to remind myself to look on 1/1/2020 to see how the past five years have been for the HBPP. I'll be that much closer to retiring, I will re-consider it as a distribution-stage allocation.

your best bet is to do exactly what pointed stick did if you run a variable.

no matter how you try to disguise your re-weighting things with a vp and calling it a separate portfolio your money has no memory as to  which gang it belongs too.

it is like buying a target fund then buying all kinds of other investments  un-doing what the target fund is trying to do .

if you have a vp look at it all together or you are fooling yourself but not your money .

as a true pp'er you have to live with the thought any moment can be the moment you have been waiting for , ( otherwise why hold so much gold  when conditions are so far off for it ?) and to be weighted the wrong way can undo years of waiting for this moment .

so you should look at your total portfolio as just that instead of a part time pp'er with a side bet . . .

[Tyler]

@Mathjak -- In the spirit of the topic, perhaps you should simply post why you invest the way you do.  I respect your position and experience, and think you can contribute a lot more than simply challenging the PP in every thread.  Being a professional naysayer will only last for so long before it becomes a broken record. 

[mathjak107]

I invest the way I do because I am retiring and more chicken than I used to be.

I was always a very aggressive investor with a long term view so volatility wasn't an issue.  there is really little risk in diversified funds as long term over 111 30 year time frames there are nearly no losses and most times pretty good gains.

but for retirement I want less volatility , I want something more conventional that should support a 3-4% swr and leave plenty for the kids.

so I find a 50-60% equity mix is right for me.  the other 40% is a mix of different  types of bond funds . 

fair amounts of equity's work well because when we get good up turns the extra growth cushions the down turns .

so much so that even 100% equity's in retirement has over a 90% success rate even through time frames that included the great depression.

so while no one can predict the future I prefer to at least leave the gate with the best model I can put together  that is neither to conservative nor to volatile .
then like steering that big ship I nudge the portfolio over time to better keep it on course and fitting the  big picture a bit better.

right now my big picture says stay away from excessively interest rate sensitive bonds and don't tie up money in gold at this stage .


I have never been a what if kind of investor running every possible negative scenario through my head that may never come to pass  although if I let myself I could be quite good at paralyzing myself.

[Tyler]

I invest in the PP because it's the best portfolio for my needs. 

My career accumulation phase was notably truncated by aggressive saving after only 14 years, so 30-year returns were irrelevant.  I chose to meet my wealth goals with greater certainty by maximizing my savings rather than maximizing average investment returns. Looking back, considering I graduated in 2000 and compound real stock market returns were negative for the next 12 years, I'm thankful I didn't follow the traditional path.  The long run is too long for my tastes.  I discovered the PP several years before retirement, and it was a godsend for my planning and security. 

Now in early retirement, the PP provides plenty of returns to support my lifestyle without the requisite market swings.  It protects both my nest egg and my sanity.  And thanks to the broad diversification and a strategy that focuses more on capital gains than other portfolios, the PP is also tremendously tax efficient for an early retiree with lots of levers to pull for tax management.  With multiple tools my chest, I will effectively pay no taxes most years even while living very comfortably.

If the portfolio ever stops meeting my needs, I'll look for other options.  However, based on the strong economic theory behind it I think that day will be a long time coming.