Gyroscopic Investing

I am liking days like today.  Where the majority of investors might be concerned about the market pullback, bonds and gold are up, and the PP has held its own.

For those discussion that toss around not wanting to be in bonds, not wanting to be in cash, wanting to overweight in gold or stocks, wanting to wait for a pullback in "xx" before committing funds, to me, at least, days like today are showing the brilliance of 25% allocation to each category and not mess with it.

One day I actually hope to be blessed with a positive long term return (I am at -0.12% across all after ~6 weeks) but I'll say it again, this has dramatically reduced my stress and mental involvement with the markets by magnitudes!

Mike

If I'm not making money, it's not a good day (for my investments... To clarify I'm down today)

Cortopassi wrote: One day I actually hope to be blessed with a positive long term return (I am at -0.12% across all after ~6 weeks) but I'll say it again, this has dramatically reduced my stress and mental involvement with the markets by magnitudes!

6 weeks is not enough, even a year is not enough - but you will almost certainly have a positive long term return, close to 4.5% above inflation, over any period of 3-5 years.  See this post, and others in the same thread. 

If anyone has the inclination, a chart like this for the PP would be very interesting.

The PP fared significantly better than an equity heavy portfolio, or even a traditional BH 60/40 allocation. The long-term bond yield touched 3.50 in the early afternoon. Does anyone recall the low for the 30-year treasury in the midst of the 2008/9 declines? Under 3%?

Come'on rickb...6 weeks is an eternity when it comes to investing for a lifetime. 

buddtholomew wrote: The PP fared significantly better than an equity heavy portfolio, or even a traditional BH 60/40 allocation. The long-term bond yield touched 3.50 in the early afternoon. Does anyone recall the low for the 30-year treasury in the midst of the 2008/9 declines? Under 3%?

Come'on rickb...6 weeks is an eternity when it comes to investing for a lifetime. 

I'm quite sure the lowest rates were actually in 2012... but both times, right around 2.5%.

moda0306 wrote: I'm quite sure the lowest rates were actually in 2012... but both times, right around 2.5%.

Well it was lower than 2.75% because I happened to buy some 30-year treasuries around then... ouch. Luckily I was able to tax loss harvest them to offset some fatty gains I made elsewhere.

PS,

I'm disappointed to hear that you'd put 30-year bonds in anywhere but a tax-sheltered account .

moda0306 wrote: PS,

I'm disappointed to hear that you'd put 30-year bonds in anywhere but a tax-sheltered account .

I know this has been discussed plenty before, but I'm getting to the point where my bonds will take up almost all my tax-deferred space.  It actually looks like:

tax-deferred (401k) - bonds
tax-free (Roth) - stocks
taxable - Gold & cash

I don't know why, but this makes me nervous, especially since over time bonds will start consuming my Roth and stocks will move out to taxable.

dragoncar wrote:

moda0306 wrote: PS,

I'm disappointed to hear that you'd put 30-year bonds in anywhere but a tax-sheltered account .

I know this has been discussed plenty before, but I'm getting to the point where my bonds will take up almost all my tax-deferred space.  It actually looks like:

tax-deferred (401k) - bonds
tax-free (Roth) - stocks
taxable - Gold & cash

I don't know why, but this makes me nervous, especially since over time bonds will start consuming my Roth and stocks will move out to taxable.

You consider using EE bonds as a portion of your LT bond portfolio?

moda0306 wrote: PS,

I'm disappointed to hear that you'd put 30-year bonds in anywhere but a tax-sheltered account .

A PP within each account, remember?

Ah yes.  The micro-matrix of hedging!

To illustrate what a difference a year makes and how vacillating our fickle investment horizon perspective has been, anyone who started their PP on 6/23/2013 (the date of rickb's comments to stay the course when there was a lot of hand wringing going on), they would be up 5.44% (CAGR 6.87%)...

rickb wrote: If anyone has the inclination, a chart like this for the PP would be very interesting.

The original source for this chart is this article, http://www.nytimes.com/interactive/2011 ... .html?_r=0 , the overall point of which is that the return you see with a 100% stock investment varies with the start date and it may take a long time to show a net profit (adjusting for inflation).  Kind of incredible, but 20 years is not a slam dunk.  Even 30 years is not a slam dunk.  It takes 60-70 years for returns to smooth out the variability due to the starting date.

My guess is a PP version of this chart would look fairly similar, but with the timeframe changed to months, not years - i.e. after 20 months you'd generally (but not always) show a profit after inflation, after 30 months you'd nearly always (but still not always) show a profit, and after 60-70 months the returns would essentially always be close to the historical average.

rickb wrote:

rickb wrote: If anyone has the inclination, a chart like this for the PP would be very interesting.

The original source for this chart is this article, http://www.nytimes.com/interactive/2011 ... .html?_r=0 , the overall point of which is that the return you see with a 100% stock investment varies with the start date and it may take a long time to show a net profit (adjusting for inflation).  Kind of incredible, but 20 years is not a slam dunk.  Even 30 years is not a slam dunk.  It takes 60-70 years for returns to smooth out the variability due to the starting date.

My guess is a PP version of this chart would look fairly similar, but with the timeframe changed to months, not years - i.e. after 20 months you'd generally (but not always) show a profit after inflation, after 30 months you'd nearly always (but still not always) show a profit, and after 60-70 months the returns would essentially always be close to the historical average.

Anecdotally, I've run the numbers on 60 months and there were still quite a few negative results.  I don't still have the data, so that's just my recollection.

Pointedstick wrote:

moda0306 wrote: I'm quite sure the lowest rates were actually in 2012... but both times, right around 2.5%.

Well it was lower than 2.75% because I happened to buy some 30-year treasuries around then... ouch. Luckily I was able to tax loss harvest them to offset some fatty gains I made elsewhere.

Yep, I see 2.72 in mid-November 2012.

rickb wrote:

rickb wrote: If anyone has the inclination, a chart like this for the PP would be very interesting.

The original source for this chart is this article, http://www.nytimes.com/interactive/2011 ... .html?_r=0 , the overall point of which is that the return you see with a 100% stock investment varies with the start date and it may take a long time to show a net profit (adjusting for inflation).  Kind of incredible, but 20 years is not a slam dunk.  Even 30 years is not a slam dunk.  It takes 60-70 years for returns to smooth out the variability due to the starting date.

My guess is a PP version of this chart would look fairly similar, but with the timeframe changed to months, not years - i.e. after 20 months you'd generally (but not always) show a profit after inflation, after 30 months you'd nearly always (but still not always) show a profit, and after 60-70 months the returns would essentially always be close to the historical average.

I think 60-70 years is quite an exaggeration and imho totally not true

julian wrote:

rickb wrote: The original source for this chart is this article, http://www.nytimes.com/interactive/2011 ... .html?_r=0 , the overall point of which is that the return you see with a 100% stock investment varies with the start date and it may take a long time to show a net profit (adjusting for inflation).  Kind of incredible, but 20 years is not a slam dunk.  Even 30 years is not a slam dunk.  It takes 60-70 years for returns to smooth out the variability due to the starting date.

I think 60-70 years is quite an exaggeration and imho totally not true

Look at the graph.  The comment on the right says "After 60 or 70 years, returns are relatively stable, but this time frame is longer than the relevant horizon for many retirement plans."  This is not my opinion, it is what the article says.

What they're saying is that a diagonal line parallel to the left edge (like the highlighted 20-year line) doesn't become virtually entirely the neutral color until you move it 60-70 years in.  For example, the 40-year line runs into a bunch of pink for start dates between 1960 and 1970.  The 50-year line picks up pink areas for start dates in the late 1920s (looks like 1927-1929) and also 1958-1961 (which is 7 out of a sample size of 41 start dates).

Of course, this graph doesn't reflect how virtually anyone actually invests since the assumption is you plunk a chunk of money into the market on day 1, never add to it (other than reinvesting dividends), and then sell all of it at some point in the future (each horizontal line shows the result of selling out each year following the initial investment).

Also quoted from the article "the average individual investor expected that the stock market would return about 10 percent a year over the next 10 to 20 years — or about 7 percent after inflation".  The point is that 10-20 years is not nearly long enough to ensure your returns will be close to the historical average.

20 years is the minimuum to separate alpha from randomness at 95% confidence.