Gyroscopic Investing

I am not sure if this has been discussed on this forum before, probably it has, but a thought occurred to me when I was reading about the theory behind the PP. If the assets have been selected, partially at least, because they are generally uncorrelated with each other, then does it make sense to always start a new PP at 4x25?

For instance, if an investor wanted to start a PP in 1980 when interest rates were at 17%, versus 30 years later in 2010 when they were at near-0%, and you know what the long-term 10-year Treasury average rate is (though averages do change over time) then is there an argument for looking at 4 mostly uncorrelated assets (who will generally move in different directions from each other, though they are not negatively correlated, but they are premised on not all out-performing at the same time) and asking which actually is more expensive/risky at a certain point in time when starting out?

Some risks I can see with this would be:

1) Potentially losing out on the rebalancing bonus inherent in the portfolio, or some other mathematical advantage that the equal split provides.

2) Generating a pattern of generally trying to time the markets and splice your portfolio accordingly, leading to tinkering and the costs (taxes, fees) and pitfalls associated with it.

3) The asset that you bought the most of may continually increase in value, which you would then either have to re-balance out of (harming yourself doubly) or you let it ride up to the 25% point and thus cost yourself gains needlessly.

4) Something else ...

What do you think? Would there be advantages to trying something like this, within certain bands, or is there is a reason or reasons why it should not be attempted?

Once you're convinced that a portfolio is for you, it's best to go all-in.
If you're not fully convinced, you're better off letting the funds sit until you're 100% decided.
Trying to predict the future has never worked out for me and is particularly dangerous with the volatile elements of the PP, unless they are all held together as a single portfolio.

TomWexler wrote: ↑Wed May 01, 2024 9:32 am What do you think? Would there be advantages to trying something like this, within certain bands, or is there is a reason or reasons why it should not be attempted?

I've come to the conclusion that 4x25 is just a guide and that anything within the 35/15 bands (or your bands of choice) is a valid PP. If you think you can buy a bargain or avoid something overpriced, go for it. It should average out over time, whether you were right or wrong initially.

And if I could get 17% for 30 years I think I would ditch the PP in an instant and buy those LTTs. Compounded over 30 years, that's $111 for every dollar invested.

TomWexler wrote: ↑Wed May 01, 2024 9:32 am1980 when interest rates were at 17%, versus 30 years later in 2010 when they were at near-0%

In the UK the taxman doesn't even bother taxing capital (price) appreciation on Treasury's (Gilts), broadly a zero sum game such that tax collecting would just be a cost. From the start of the Fed (fiat/fractional, where money = debt) to 1980 US real gains from either a 10 year Treasury bullet or 50/50 T-Bill/20 year Treasury barbell ... yielded 0% real. As is the case for the last 20 years. 1981 to 2002 as you say saw a large decline in Treasury yields, outside of that and over the last 110 years rewards have mostly been 0% real. During the gold standard periods, pre 1913 and the state/crown had to pay real returns in order to borrow money (gold), on the Fiat standard the crown/state has no real need to borrow when it has a money printing press.

A PP type variant might be to allocate 50% to short bonds rather than long bonds - that 25% SSO (2x stock), 50% gold, 12.5% in each of 2x short stock (SDS) and 2x short gold (DZZ) might be considered to be a form. If the shorts are added to where there's tax credits on the way in, taxable on the way out, and the other assets are held in taxed on the way in, tax exempt on the way out, then the tendency is to see the former value migrated to the latter, potentially resulting in 25% tax credits added on the way in, tax exempt on the way out (overall tax free on both the way in and way out). But that's not really appropriate across a period of high to low treasury yields progression as per 1980 to the 2000's - when borrowing was relatively expensive.

Yes the as-is PP benefited by high to low yield transition, as did stocks. Gold suffered. Since the mid 2000's and gold has performed reasonably well, bonds flat. During high to low yield transitions you might opt for the as-is PP, from low treasury yields the above alternative (with short bonds) might relatively outperform.

I like dollar cost averaging over a year or so.

I Shrugged wrote: ↑Sun Nov 10, 2024 6:15 pm I like dollar cost averaging over a year or so.

Agreed. When I started with the PP, I DCA'd my way in over the course of 18-24 months. 12 might be easier and more reasonable, though.

personally i would go with some much better choices in portfolios today unless i already made all the money i will need , and even then the risk vs reward is not that great as we have seen the last few years

If I could do it all over, while young, I would have focused on accumulating equities in tax-free space and gold with any taxable money left over. Cash position is emergency fund sized.

Then as middle age approaches, and considerable personal capital has been converted to financial capital, I would buy bonds and cash and balance it all out to 25x4.

Im still accumulating, well at least until I quit my job in a few weeks.

I am 60% equities, 20% LTT, 20% gold.

The cash I keep is enough for 2 years of expenses. I feel thats enough. That is not included in the above.

Jack Jones wrote: ↑Thu Nov 14, 2024 9:05 am If I could do it all over, while young, I would have focused on accumulating equities in tax-free space and gold with any taxable money left over. Cash position is emergency fund sized.

Then as middle age approaches, and considerable personal capital has been converted to financial capital, I would buy bonds and cash and balance it all out to 25x4.

Same, pretty much.
Additionally, although Bogleheads got me into the idea of bonds in tax deferred, if I could do it all over again I would probably start with stocks in tax deferred (Roth IRA), too, to stretch it out. I’d fill it with bonds much, much later.

personally i would never take up valuable tax advantage space with bonds

mathjak107 wrote: ↑Tue Nov 19, 2024 4:33 pm personally i would never take up valuable tax advantage space with bonds

For traditional IRA types ... it ends up all the same with having it there or in taxable. Both taxed at ordinary income rates.

Could be a different story for Roth IRA types.

not really …

the gains being much greater on equities are compounding on money that would typically have gone for taxes in a taxable account .

in effect you are generating more money on money which typically would not be in your possession

that is what makes an ira so powerful for growing money

it makes no sense to have the slowest growers compounding under those conditions

In 2008-09, after reading Bill Bernstein’s Four Pillars Of Investing, I rebooted into stock index funds for tax efficiency in my taxable space.

Since then the value is WAY up but I have paid next to no taxes on any of the gains. I’ve paid on the dividends, of course, taxed at favorable qualified dividends rates. The Vanguard index funds normally throw off no capital gains.

This is only the way to hold stocks in taxable IMO. Active funds throw off gains.

Not sure if I’ll ever sell any, so the gains will go to heirs and/or charities.

For those who wonder, the vanguard index funds consist of multiple classes of the same fund. They are able to launder their gains through the institutional and ETF class.

https://www.investopedia.com/how-vangua ... ds-4686985

I Shrugged wrote: ↑Tue Nov 19, 2024 7:32 pm For those who wonder, the vanguard index funds consist of multiple classes of the same fund. They are able to launder their gains through the institutional and ETF class.

https://www.investopedia.com/how-vangua ... ds-4686985

The process is completely legal and is even protected by a U.S. patent that blocks competitors from copying it until 2023, but Vanguard has chosen not to publicize it.

Doesn't it have to be public to be patented?

the jabs are patented. And they dont have to tell you exactly what formula they mandated. or hopefully im wrong

Xan wrote: ↑Tue Nov 19, 2024 8:07 pm

I Shrugged wrote: ↑Tue Nov 19, 2024 7:32 pm For those who wonder, the vanguard index funds consist of multiple classes of the same fund. They are able to launder their gains through the institutional and ETF class.

https://www.investopedia.com/how-vangua ... ds-4686985

The process is completely legal and is even protected by a U.S. patent that blocks competitors from copying it until 2023, but Vanguard has chosen not to publicize it.

Doesn't it have to be public to be patented?

In saying publicize, I think the author meant advertise or promote.

Xan wrote: ↑Tue Nov 19, 2024 8:07 pm

I Shrugged wrote: ↑Tue Nov 19, 2024 7:32 pm For those who wonder, the vanguard index funds consist of multiple classes of the same fund. They are able to launder their gains through the institutional and ETF class.

https://www.investopedia.com/how-vangua ... ds-4686985

The process is completely legal and is even protected by a U.S. patent that blocks competitors from copying it until 2023, but Vanguard has chosen not to publicize it.

Doesn't it have to be public to be patented?

Don't have a direct answer to that but the patent did expire this year. Doesn't not seem to yet be, though, any other investment companies who are doing the same.

yankees60 wrote: ↑Tue Nov 19, 2024 6:34 pm For traditional IRA types ... it ends up all the same with having it there or in taxable. Both taxed at ordinary income rates.

Could be a different story for Roth IRA types.

Only true if your marginal tax rate is the same when you're working as when you retire. In most case it isn't, your tax rate at retirement is lower. Thats the real tax benefit of the IRA.

That all said, I keep lost of bonds in taxable. My theory is that our taxes are all likely to go up based on our deficits. Strap in for the ride.

welderwannabe wrote: ↑Fri Nov 22, 2024 6:23 am That all said, I keep lost of bonds in taxable. My theory is that our taxes are all likely to go up based on our deficits. Strap in for the ride.

Are you thinking that you may have a harvestable capital loss with your bonds over time, as long rates stay high or go higher due to increased US Treasury issuance to fund the guv?

welderwannabe wrote: ↑Fri Nov 22, 2024 6:23 am

yankees60 wrote: ↑Tue Nov 19, 2024 6:34 pm For traditional IRA types ... it ends up all the same with having it there or in taxable. Both taxed at ordinary income rates.

Could be a different story for Roth IRA types.

Only true if your marginal tax rate is the same when you're working as when you retire. In most case it isn't, your tax rate at retirement is lower. Thats the real tax benefit of the IRA.

That all said, I keep lost of bonds in taxable. My theory is that our taxes are all likely to go up based on our deficits. Strap in for the ride.

the reality is that people do a wrong comparison when comparing tax rates in retirement.

they usually look at their last few peak earning years and compare .

the truth is our long term average tax bracket which on most normal jobs spans decades going from very low to much higher over time is actually lower then our retirement tax rate .

many retirees , self included tend to have built a lifestyle around their higher years and retirement income is about that range

welderwannabe wrote: ↑Fri Nov 22, 2024 6:23 am

yankees60 wrote: ↑Tue Nov 19, 2024 6:34 pm For traditional IRA types ... it ends up all the same with having it there or in taxable. Both taxed at ordinary income rates.

Could be a different story for Roth IRA types.

Only true if your marginal tax rate is the same when you're working as when you retire. In most case it isn't, your tax rate at retirement is lower. Thats the real tax benefit of the IRA.

That all said, I keep lost of bonds in taxable. My theory is that our taxes are all likely to go up based on our deficits. Strap in for the ride.

But what is commonly left out in the many times it's been written or spoken the same as you -- that you benefit if your tax rates are lower in retirement -- that having to take taxable distributions can end up in having a higher amount of your Social Security being taxed and higher Medicare rates via IRMMA.

yankees60 wrote: ↑Fri Nov 22, 2024 10:49 am

welderwannabe wrote: ↑Fri Nov 22, 2024 6:23 am

yankees60 wrote: ↑Tue Nov 19, 2024 6:34 pm For traditional IRA types ... it ends up all the same with having it there or in taxable. Both taxed at ordinary income rates.

Could be a different story for Roth IRA types.

Only true if your marginal tax rate is the same when you're working as when you retire. In most case it isn't, your tax rate at retirement is lower. Thats the real tax benefit of the IRA.

That all said, I keep lost of bonds in taxable. My theory is that our taxes are all likely to go up based on our deficits. Strap in for the ride.

But what is commonly left out in the many times it's been written or spoken the same as you -- that you benefit if your tax rates are lower in retirement -- that having to take taxable distributions can end up in having a higher amount of your Social Security being taxed and higher Medicare rates via IRMMA.

There's no reason to worry about future taxes on long-term bonds - the way things are going, they won't be worth anything!

stpeter wrote: ↑Fri Nov 22, 2024 6:02 pm

yankees60 wrote: ↑Fri Nov 22, 2024 10:49 am

welderwannabe wrote: ↑Fri Nov 22, 2024 6:23 am

yankees60 wrote: ↑Tue Nov 19, 2024 6:34 pm For traditional IRA types ... it ends up all the same with having it there or in taxable. Both taxed at ordinary income rates.

Could be a different story for Roth IRA types.

Only true if your marginal tax rate is the same when you're working as when you retire. In most case it isn't, your tax rate at retirement is lower. Thats the real tax benefit of the IRA.

That all said, I keep lost of bonds in taxable. My theory is that our taxes are all likely to go up based on our deficits. Strap in for the ride.

But what is commonly left out in the many times it's been written or spoken the same as you -- that you benefit if your tax rates are lower in retirement -- that having to take taxable distributions can end up in having a higher amount of your Social Security being taxed and higher Medicare rates via IRMMA.

There's no reason to worry about future taxes on long-term bonds - the way things are going, they won't be worth anything!

That fits into we cannot keep having deficits.

Yet we keep having them and the size of them is on an upward trajectory.