Comparing the PP to a Boglehead-style Lifecycle fund? (Backtesting?)

[hedgehog]

All lifecycle funds start with the allocation of your age or are there variations? Like it starts with 100-0 or 80-20?

Someone with more computing power, time or expertise have done the comparison of Boglehead-Lifecycle to Permanent Portfolio? It would be interesting.

[Latterly]

Target Date funds would be very difficult to backtest because the returns for any year would vary by the target date of the fund (there are currently 8 different allocations), and each fund's asset allocations vary over time, so you'd need to determine the actual asset allocations for the fund for each year for which you wanted to calculate the return.

It would be fairly easy to get a general idea by using the spreadsheet linked to from this post on the Bogleheads forum: http://www.bogleheads.org/forum/viewtop ... 0&t=120052. (This is the spreadsheet Craig uses to calculate PP returns.) On the Compare_Portfolios tab, manually enter the current Vanguard Target Date Retirement Fund allocations, which are listed at http://www.bogleheads.org/wiki/Vanguard ... ment_funds. (Although there's no guarantee that the relative allocations will always remain the same.)

The PP generally does better than Boglehead portfolios during bear markets; Boglehead portfolios generally do better during bull markets. Or to put it another way, the PP has fairly consistent (though conservative) returns no matter what the stock market is doing :-). It seems to me that this implies that the Target Date funds aren't addressing all the variables, and that they might be addressing the wrong variables. OTOH from the Bogleheads perspective, the PP doesn't take sufficient advantage of stock market gains.

[sophie]

It depends how lucky you are.  Starting out in 1999 at age 20 with a 90+% stock portfolio would have been a nasty ride for the past 14 years, even with this year's glowing performance.

I've been wondering whether it wouldn't be better to use target date or standard Boglehead portfolios for retirement accounts, where it's much easier to set it and forget it until the time comes to retire.  You'd also get a bit of benefit from dollar-cost averaging your contributions.  Then when you retire, roll it all into an account that gives you access, visibility, and complete control.  The PP shines in that situation - there is a thread where we explored in great detail what happens to portfolios during the drawdown phase, and the benefits of having the cash allocation were truly astonishing.  And by that time, steady performance and preservation of capital become paramount.

It seems that the people on this board who really get to benefit from the PP are those who have retirement accounts that are completely under their control, e.g. self-employed with a SEP IRA at a major brokerage.

[hedgehog]

Thank you button.