SHY variant of HBPP

[middleman]

Backtesting: https://testfol.io/?s=aRr5LPTR6y0

25% SPY / 25% GLD / 50% SHY is essentially:

Growth engine: SPY
Crisis hedge / inflation shock: GLD
Volatility ballast + dry powder: SHY

Compared to Harry Browne’s classic PP (stocks / long bonds / gold / cash), you’ve:

Replaced long bonds with short Treasuries → lower duration risk
Leaned harder into capital preservation
Accepted slightly lower upside in exchange for stability

[Kevin K.]

ITT's are a better replacement for the short/long barbell - VGIT is one of the best options because it hews exactly to the optimal 5 year duration. Essentially identical returns to the classic PP without the scary drawdowns from LTT's. But it's still a really imbalanced portfolio IMHO. Gold and LTT's are insurance assets best used in percentages not exceeding 10%. No reason to ever go longer than 5 years on the bonds.

All of the stellar performance of the PP, GB and variants thereof comes from people starting backtesting in or around 1970. Bretton Woods ended in 1971 and there was a massive one-time surge in gold. Gold didn't really become an investable asset until the mid 70's. Start your backtest aa or around 1980 and you get a much more realistic idea of the returns of the PP and your proposed iteration vs. a plain vanilla 60:40:

https://www.portfoliovisualizer.com/bac ... JPMiJJBVhF

[mathjak107]

decent returns on gold really started about 20-35 years ago .

once gold etfs came on the scene gold became more main stream .

you would be hard pressed to find any time frame the last 25 years a combo of equities and bonds beat equities and gold

[Kevin K.]

Backtesting: https://testfol.io/?s=aRr5LPTR6y0

25% SPY / 25% GLD / 50% SHY is essentially:

Growth engine: SPY
Crisis hedge / inflation shock: GLD
Volatility ballast + dry powder: SHY

Compared to Harry Browne’s classic PP (stocks / long bonds / gold / cash), you’ve:

Replaced long bonds with short Treasuries → lower duration risk
Leaned harder into capital preservation
Accepted slightly lower upside in exchange for stability

Since you're new to the forum I wanted to say that there's been a ton of discussion over the years here about whether - and if so, how - to optimize the PP, as well as if the "orthodox" 4 x 25 version of the portfolio is set in stone and not to be monkeyed with.

I think that much of the brilliance of the PP comes from Browne's core idea of having different assets to deploy in response to specific economic conditions: stocks for prosperity, gold for inflation, long bonds for deflation, cash for "tight money." But IMHO his ideas are very much a product of their time and both the economic circumstances and investable assets available back then.

LTT's were yielding 11-14% in the early 80's when Browne came up with the PP, you had only an S & P 500 fund for broad stock market exposure, physical gold was the only option (and had only recently become available due to the end of Bretton Woods). We can speculate endlessly about what Browne would have recommended in a world with endless stock ETF options, paper gold having supplanted real gold and distorted gold's value in so doing, the bond market just emerging from many years of 30 year Treasuries offering negative real yields, etc.

Tyler over at Portfolio Charts (a site that deserves the highest praise for anyone looking at the PP and other risk-parity approaches) has probably thought longer and harder about these issues than anyone else I know of and his Golden Butterfly porfolio is one of the best evolutionary adaptations of the PP. That said, I think both the PP and GB are focused on equal weighting of assets, which makes no sense in a world where the economic conditions one needs to address are nowhere near equally likely to occure and where insurance against them has wildly varying costs. That's the point of Willaim Bernstein's book "Deep Risk," which is essentially a long commentary on the PP.

Prosperity is the most likely scenario and so stocks should be prominent - but why use the S & P when you can have broader exposure with a total market index like VTI that includes mid and small caps, or go global with VT? Deflation is highly unlikely and very expensive to insura against - meaning that a full 25% in LTT's was a crazy idea to begin with and is even stupider today. Treasuries beyond about 5 years in duration make no sense at all - unless you're building a TIPS ladder to cover essential expenses in retirement (which is a whole other discussion). Gold is not and never has been an inflation hedge (see the article on it on Portfolio Charts) - Harry Browne was simply wrong about it's role, but right to recommend SOME level of exposure to it as an insurance asset. But as with LTT's, a full 25% is probably excessive for most investors. A full 25% in cash is just as egregious a mistake as the 25% in long bonds and is a recipe for long-term low returns. As I mentioned above 5% in cash and 45% in ITT's is a much better choice if you insist on having a full 50% in bonds and cash.

There are many alternatives one could construct that are inspired by the PP but not beholden to it. For example, how about 40% in VT, 10% in gold (I like GLDM), 5% in cash, 25% in VGIT (5 year Treasuries) and 20% in VTIP (2.5 year duration TIPS). You've got much more diversified equities than either the PP or GB, enough cash for emergencies, much shorter duration bonds overall, and some actual inflation protection (vs. gold) from VTIP (short-duration TIPS are by far the most effective asset in responding to sudden or unexpected inflation, while of course the only long-term play is global equities, which comprise 40% of this portfolio). There are of course many other options that may well be better all depending on one's situation and goals.

At the end of the day it's worth remembering that Browne himself changed his mind about the PP frequently. The PP fund (PRPFX) is arguably truer to his original ideas than the 4 x 25 anyway, so why not follow in his footsteps and take his ideas a starting point for designing a portfolio that works for you?

[mathjak107]

20%-25% long term treasuries and 20% -25% cash have about the same duration as 50% in intermediate term bonds . they form a barbel that plays out about the same

[Kevin K.]

20%-25% long term treasuries and 20% -25% cash have about the same duration as 50% in intermediate term bonds . they form a barbel that plays out about the same

Not true. 25% LTT's with 25% cash gives you an average duration of about 11 years. The classic definition of intermediate term Treasury bonds is 5 years.

Like the rest of the classic PP the barbell is sub-optimal.

[mathjak107]

if you google it ,intermediate is generally defined as short as 3.5 and as long as ten years

ief is considered an intermediate term bond fund

tlt has a duration of 15.7 years . ief has a duration of 7

a 50% split between tlt and cash is pretty darn close to 50% in ief

so it all depends what funds are being used .

if you follow harry , you are selling 30 year treasuries when they get down to 25 years and rebuying 30 year but i think that’s a bit to much as far as weight

so tlt is very popular at 15.7 years duration