This Forum & Dissenting Opinions of the HBPP

[jafs]

Ok.

So, I ran them again, from 2006, using the 60/40 bands and subtracting the fees from each segment each year.

At the end of the ten year period, $10,000 would have grown to $25,603, which translates to an average annual yield on the original investment of 15.456%.  I don't know how to get a CAGR from the numbers I have, but I'm sure it would be a bit lower than that, since it always is.

But, I'd be very happy with that yield, combined with no down years (psychologically very comforting), two re-balancing years and an investment I could feel good about, especially if I just invested the initial amount and didn't contribute any more, which would be my plan.

There would be some small transaction costs, maybe, from the re-balances, and possibly a small fee from the broker for managing the account, but I can't think of any other fees/costs.

[jafs]

According to a cagr calculator I found, the cagr of the portfolio would be 9.79%, which sounds very decent to me, considering the safety of the portfolio.

[MachineGhost]

According to a cagr calculator I found, the cagr of the portfolio would be 9.79%, which sounds very decent to me, considering the safety of the portfolio.

Don't forget to subtract the taxes on distributions...  that's another average of 1.45% less per year.  At least this fund generates Alpha.

It lost -29.93% in 2008 and and -1.61% in 2011.

[jafs]

Wouldn't those happen in any stock fund?

So, if I had VTSAX instead, I'd pay similar taxes, right?  Although, according to Morningstar, the distributions from VTSAX look like dividend income, where the ones from PARWX are a mix of long-term capital gains and dividends.  Historically, I believe that long-term capital gains are taxed at lower rates than ordinary income, so the PARWX distributions would be taxed at lower rates than the VTSAX ones.  At the same time, there seem to be higher distributions from PARWX, so it may all work out as a wash in the end.

My possible portfolio is a 50/50 mix of PARWX/TLT, and that's what I've been testing/evaluating.  I'm not sure why you keep focusing on PARWX in isolation.  It follows the original HB idea of a "small basket of volatile stocks" with long term bonds.  It outperforms the VTSAX/TLT blend and is less volatile (over the last ten years, which is as much as I can test).

[jafs]

VTSAX lost 36.99% in 2008.

[jafs]

I'm not sure how you got the 1.45% figure (I don't know how to calculate distributions exactly and their effect on taxes), but let's assume it's correct.

It would apply to half of the portfolio, so the net decrease would be about .75%, which would bring the CAGR down to about 9%, still quite respectable, I would think, for a somewhat conservative portfolio that didn't lose anything during the last (big) market crash.

[I Shrugged]

One prolific poster leaves, immediately replaced by another.  Hmmmmm.....

[jafs]

I swear on a Bible, or whatever book you want, that I am not mathjak (sp?)!

And, I don't share his view of the PP, or his tendencies towards active trading/market timing in the least.  I'm very risk/loss averse, and willingly would trade off some return for lower volatility.

Gold is a bit confusing for me - maybe we have that in common.  I've read a lot about it on this forum over time, but it's still not clear to me, and following HB's advice not to invest in things you don't understand (seems like sound advice), I tend to shy away from it.

[Pointedstick]

Gold priced in USD is influenced by a couple of things:

1. The strength of the USD. Stronger dollar = lower gold price. Weak dollar = higher gold price.
2. Nominal inflation rate in the USA. Low inflation = lower gold price. High inflation = higher gold price.
3. Interest rates in the USA relative to inflation. Interest rates that yield a positive real return on bonds = lower gold price. Mostly negative real rates = higher gold price.
4. Political and financial panic. People wanna buy gold when everything seems to be falling apart, but only dramatically so. The boiling frog effect is definitely visible here. Nobody rushes to buy gold if things get steadily worse by 2% a year for several years.

Right now we have a strong dollar, very low inflation, and interest rates that are positive at various points on the yield curve depending on whose inflation numbers you believe (that's another story).

That would be at least two bearish indicators for gold, possibly three, and one wildcard.

That said, all this probably makes it a great buy right now. Investing is weird like that.

[jafs]

Thanks.

I get some of that, but some of it is still a bit murky for me - there have been a number of threads that questioned gold's relationship to some of those.

If I understood it right, HB's idea was that gold would protect against hyperinflation or shtf scenarios - I'm pretty sure we won't have the first, given the Fed's involvement, and in the second, I'd guess that food/water/etc. would be more useful than gold.

But, I'm no expert - that's just my gut feeling.

[Ugly_Bird]

One prolific poster leaves, immediately replaced by another.  Hmmmmm.....

Yep...Matrix reload.

[Ugly_Bird]

I swear

Curious to see the IP address this message was posted from and compare that to mathjak's

[jafs]

I would gladly do that, except for privacy concerns.

What else would convince you?  It's odd to me, since I have very different views than he did, and a much more positive take on the PP.  In fact, I probably understated how exciting it was for me to come across it, and how it spurred a lot of research on investing for me.

The idea that it's hard, maybe impossible to accurately predict the future over time is very appealing to me, and the notion of a simple portfolio that will do well with different economic conditions is as well.  And, I prefer one that doesn't require much tinkering most of the time, and that can be managed with occasional re-balancing.

I hope that I can participate on here, and discuss things without having to continually try to prove I'm not somebody else.

It's not a very welcoming feeling, I must say.

[Pointedstick]

Yeah c'mon guys. Let's try to get over the negativity that's been permeating this forum recently.

[jafs]

In other online forums that I've participated in, moderators can look at members' ip addresses.

If they promise not to use/share that information in any other way, they have my permission to look at it, compare it with mathjak's, and report back to the forum that they're not the same.

[Cortopassi]

Funny stuff, thanks for a laugh early Saturday morning!  If jafs is mathjak, he's learned how to capitalize and punctuate....

I am kidding, of course.

Gold is a strange one, I agree.  I feel unquestionably calmer having it, but at the same time am worried that if the current state of the world/economy/interest rates can't keep it from going down, it will have a terribly difficult time when things are good.

[Libertarian666]

Funny stuff, thanks for a laugh early Saturday morning!  If jafs is mathjak, he's learned how to capitalize and punctuate....

I am kidding, of course.

Gold is a strange one, I agree.  I feel unquestionably calmer having it, but at the same time am worried that if the current state of the world/economy/interest rates can't keep it from going down, it will have a terribly difficult time when things are good.

As soon as the current dollar strength reverses, gold will do much better.

In fact, it's doing fine in every other major currency, which is just another way of saying that it is dollar strength rather than gold weakness that is keeping the $ price of gold down.

[jafs]

 

I did think my posts were substantially better in terms of grammar/punctuation/etc. than his.

How do you edit a post on here after posting it?  I've been posting one after another because I didn't see how to do that.

Wait, I just figured it out!

[barrett]

Gold is a bit confusing for me - maybe we have that in common. I've read a lot about it on this forum over time, but it's still not clear to me, and following HB's advice not to invest in things you don't understand (seems like sound advice), I tend to shy away from it.

Yeah, holding a 4X25 PP and following Harry Browne's advice to not invest in something you don't understand seems at first to be a bit of a contradiction. Long duration bonds are way harder to understand than stocks or cash. PS's gold summary is a nice contribution. I'll have to print that out and read it in my easy chair!

[Reub]

MangoMan are you really Clive? Zawahiri? Obama?

[MachineGhost]

Wouldn't those happen in any stock fund?

No, ETF's are far more tax efficient and have less distributions than mutual funds.

[MachineGhost]

My possible portfolio is a 50/50 mix of PARWX/TLT, and that's what I've been testing/evaluating.  I'm not sure why you keep focusing on PARWX in isolation.  It follows the original HB idea of a "small basket of volatile stocks" with long term bonds.  It outperforms the VTSAX/TLT blend and is less volatile (over the last ten years, which is as much as I can test).

Judging by your other comments, I don't think you're quite groking that the PP is an all weather portfolio.  It's a package deal for it to work that way.  No picking and choosing.

You probably need to backtest alot further so you can include the influence of other economic environments.  A 50/50 stock/bond mix would have been destroyed in the stagflationary 1970's, although you could have still barely eeked out a 4% withdrawal retirement if only because we didn't go the way of a Banana Republic or that the USD didn't lose reserve currency status.  We might not be so lucky next time and the writing is on the wall anyway.

[MachineGhost]

If I understood it right, HB's idea was that gold would protect against hyperinflation or shtf scenarios - I'm pretty sure we won't have the first, given the Fed's involvement, and in the second, I'd guess that food/water/etc. would be more useful than gold.

The Fed would be powerless to prevent hyperinflation because hyperinflation is a consequence of other political economic factors, not Fed "printing money" which it does not even do in the first place.  I suggest you just ignore all the ideological doom porn and view gold as an insurance hedge against systemic government failure, since that is all it ultimately is.

[MachineGhost]

In fact, it's doing fine in every other major currency, which is just another way of saying that it is dollar strength rather than gold weakness that is keeping the $ price of gold down.

Don't be so shocked when both the USD and gold go up together in an extended run.  What drives up prices of anything?  More demand than supply.  Not mathematical and/or statistical "law" relationships.  Does the reason for that buying matter?  NOT ONE IOTA.

[jafs]

I understand that - I was just saying that PARWX looks like a good substitute for VTSAX to me, and matches HB's original idea for the stock part of the PP.  In my earlier posts, I called my idea a "boglehead/PP" hybrid - it uses the simple two fund approach of bogleheads, with the PP idea of combining stocks with long term government bonds.

And, I agree it's possible for stocks/bonds to go down together, although they haven't over the last ten years (in this portfolio combination).  But I can't back-test my portfolio idea any farther back than that because PARWX didn't exist before 2006.

That's what I thought as well, but I'm not convinced that gold coins would be that much help given a catastrophic government failure like that.

I don't mean to be overly sensitive, but it seems that my entry into this forum has been met with varying degrees of hostility, and I'm not sure why - I prefaced my original comment with praise for the PP philosophy, and have answered all questions directly and as best I can, even when they were off-base.

I've enjoyed reading these threads for a while now, and thought it would be more fun to participate than it has been so far.  Maybe I should just go back to reading them.