Gyroscopic Investing

I have a PP with 100% of my assets at this point. The size of my portfolio is such that I could afford a basic retirement in an overseas retirement country such as Thailand, Malaysia, and so on at 3-4% withdrawal rate. I'm 40 yrs old and I do not plan to retire next 25-30 yrs. The PP should double in size to support a nice retirement at that time. Given this, I would like to start taking more risk by putting new money in VP. I would like to develop a plan of similar nature and strictness like the plan behind PP to have it pretty much automated.

Some of my thoughts on VP design:

- put 80% of VP in total world market (VT)
- put 20% of VP in an even more risky ETF (for example, GDXJ junior miners)
- keep adding money in VP until it's no more than 20% of my overall assets including PP at which point put new money in PP
- let VP grow until it reaches 30% of total assets and then sell to drop it to 20%
- if VP drops below 15% of total assets, restart adding new money in VP
- within VP, if extra risky component reaches 30% re-balance to 20% by buying more VT. If extra risky component drops below 10% rebalance to 20% from VT

What do you think about this plan? I do not have any experience with trading and active investing, so it's really making VP as a risky bogleheads 100% equity portfolio with 20% of it in extra risky sector or something. Any ideas/improvements appreciated.

I like the idea.

Maybe you can add small-value and/or EM as part of the 20% extra risky investments.

Another idea could be adding a low-correlated asset like LT-bonds to try and get some nice zig-zagging between LT-bonds, miners and small-value.

LazyInvestor wrote: What do you think about this plan? I do not have any experience with trading and active investing, so it's really making VP as a risky bogleheads 100% equity portfolio with 20% of it in extra risky sector or something. Any ideas/improvements appreciated.

Do you think will really outperform the PP?  If so, do you think it'll be by enough to justify all the extra risk?

Probably as likely to underperform as it is to outperfom. What bothers me the most is that according to HB, VP is for the stuff you believe will give you 5-10x or even more in returns. This is definitely not a broad 100% stock allocation that I'm thinking about. In fact, I have no clue what would give me 5-10x returns. Almost all suggestions in the other threads on this forum don't fall under what HB considered as a good speculation for VP either, so I guess HB would probably say that all our VP ideas are total crap and a waste of time/effort and that we should stick to PP unless we are trying something really big with VP?

koekebakker wrote: I like the idea.

Maybe you can add small-value and/or EM as part of the 20% extra risky investments.

Another idea could be adding a low-correlated asset like LT-bonds to try and get some nice zig-zagging between LT-bonds, miners and small-value.

Good ideas, although GDXJ seems to me much riskier. I tried to find the riskiest ETF I could...

You don't have a vp but you want one?
My gosh it feels like you've never had a sip of alcohol but want to give it a try.
All I can do is look away. 

Well put, Dualstow.

Lazy, Though I understand the idea to tinker, it sounds like you've already put yourself on a great path. Over 25 years at a 6% nominal annual gain, you'll quadruple your money (rule of 72... you actually get there in 24 and then increase it again by another 50% - or up 600% in all - with a 30-year horizon).

To channel Mark Leavy... Money matters? Check. Already got that figured out. Move to the next item on the list.

Just my opinion, obviously.

dualstow wrote: You don't have a vp but you want one?
My gosh it feels like you've never had a sip of alcohol but want to give it a try.
All I can do is look away. 

:-) Well I built a small stash through heavy saving and put it in a PP for the retirement. This doesn't mean that I wouldn't wish to have more (or much more :-)). It'd be nice, for example, to build a nice legacy for kids or something. So, I was thinking about going more risky route with *new* money as that's the money that I can "afford to lose."

barrett wrote: Well put, Dualstow.

Lazy, Though I understand the idea to tinker, it sounds like you've already put yourself on a great path. Over 25 years at a 6% nominal annual gain, you'll quadruple your money (rule of 72... you actually get there in 24 and then increase it again by another 50% - or up 600% in all - with a 30-year horizon).

To channel Mark Leavy... Money matters? Check. Already got that figured out. Move to the next item on the list.

Just my opinion, obviously.

Yes, when I said double it was in the real terms: 6-7 nominal, 2.5-3 real should double it in 25 or so years... I'm not sure I can check off money matters. I have for a crappy retirement now and maybe OK retirement once it doubles. Keeping adding to PP would give me a great retirement but not much more. I'd rather have an OK retirement and leave a great legacy to kids, charity, so maybe worth that extra risk one gets in a VP...

A VP of 100% stocks that you keep in balance with the PP might be a very nice approach:  when it's doing well, sock away some of the savings, and when it's doing poorly, add extra.  If you think you can do it, that is.  I remember back in 2009, that would have been an outstanding time to buy stocks but at the time everyone was too frightened to do so.  And now, people are all on fire to buy and hold stocks but in retrospect, we might be near a peak.  There's simply no way to know.

Also over time, the PP matches or comes very close to the stock market returns.  In order to make your plan worthwhile, you'd have to try for especially volatile stocks, e.g. 2x funds, in which case you'd have to be prepared for enormous drawdowns.

Lazy, Do you have any investing track record prior to starting the PP? My Fidelity account has a performance tab that let's me see my one, three, five, and ten-year returns. What is clear to me is that over a long period (ten years) I significantly underperformed the PP. Others on here have had similar experiences and very few people have long-term returns that are even close to the indices. Just some food for thought. You might be great at investing/speculating. I am not.

I believe that having 25% of your PP in gold is enough for that sector. If you choose to speculate try something different with your VP.

LazyInvestor wrote: Probably as likely to underperform as it is to outperfom. What bothers me the most is that according to HB, VP is for the stuff you believe will give you 5-10x or even more in returns. This is definitely not a broad 100% stock allocation that I'm thinking about. In fact, I have no clue what would give me 5-10x returns. Almost all suggestions in the other threads on this forum don't fall under what HB considered as a good speculation for VP either, so I guess HB would probably say that all our VP ideas are total crap and a waste of time/effort and that we should stick to PP unless we are trying something really big with VP?

I think most investors gamblers who seek 5-10x returns do so with bets (i.e. gambles) on individual stocks, or leveraged bets (DANGER, DANGER) on individual commodities.  Since most full-time professionals on Wall Street who try this fail to match the return of the overall market in one year (let alone time spans of dozens of years), what makes you think you might be able to?  Are you going to spend every waking moment seeking some edge against all the Wall Street pros who are doing the same thing? 

If you're not talking about an active approach (e.g. individual stocks), then why not try the "double the PP" approach per http://gyroscopicinvesting.com/forum/va ... nterested/ ?

Of course, another option is to get a 2nd job, or buy and run a retail franchise (another 2nd job approach).

barrett wrote: Lazy, Do you have any investing track record prior to starting the PP? My Fidelity account has a performance tab that let's me see my one, three, five, and ten-year returns. What is clear to me is that over a long period (ten years) I significantly underperformed the PP. Others on here have had similar experiences and very few people have long-term returns that are even close to the indices. Just some food for thought. You might be great at investing/speculating. I am not.

No. I used to just save money and then I learned about Bogleheads and after few months of using a basic Bogleheads portfolio I switched to PP. I'm using last 4-5 years. So no experience speculating, trading, etc. That's why my idea of VP is to just go with a very aggressive Bogleheads' style portfolio.

sophie wrote: A VP of 100% stocks that you keep in balance with the PP might be a very nice approach:  when it's doing well, sock away some of the savings, and when it's doing poorly, add extra.  If you think you can do it, that is.  I remember back in 2009, that would have been an outstanding time to buy stocks but at the time everyone was too frightened to do so.  And now, people are all on fire to buy and hold stocks but in retrospect, we might be near a peak.  There's simply no way to know.

Also over time, the PP matches or comes very close to the stock market returns.  In order to make your plan worthwhile, you'd have to try for especially volatile stocks, e.g. 2x funds, in which case you'd have to be prepared for enormous drawdowns.

Thanks, I'm glad the idea sounds reasonable to you.

rickb wrote:

LazyInvestor wrote: Probably as likely to underperform as it is to outperfom. What bothers me the most is that according to HB, VP is for the stuff you believe will give you 5-10x or even more in returns. This is definitely not a broad 100% stock allocation that I'm thinking about. In fact, I have no clue what would give me 5-10x returns. Almost all suggestions in the other threads on this forum don't fall under what HB considered as a good speculation for VP either, so I guess HB would probably say that all our VP ideas are total crap and a waste of time/effort and that we should stick to PP unless we are trying something really big with VP?

I think most investors gamblers who seek 5-10x returns do so with bets (i.e. gambles) on individual stocks, or leveraged bets (DANGER, DANGER) on individual commodities.  Since most full-time professionals on Wall Street who try this fail to match the return of the overall market in one year (let alone time spans of dozens of years), what makes you think you might be able to?  Are you going to spend every waking moment seeking some edge against all the Wall Street pros who are doing the same thing? 

If you're not talking about an active approach (e.g. individual stocks), then why not try the "double the PP" approach per http://gyroscopicinvesting.com/forum/va ... nterested/ ?

Of course, another option is to get a 2nd job, or buy and run a retail franchise (another 2nd job approach).

You are right, it seems following original HB's recommendation would be equivalent to placing one big bet. I don't think I could do that. Thanks for the link - somehow I missed that thread - I'll check it out.

Reub wrote: I believe that having 25% of your PP in gold is enough for that sector. If you choose to speculate try something different with your VP.

Miners seem to be different than gold and they seem to be quite beaten down.

VT is great VP material, if you have a long term investment horizon and can stomach the ups and downs. Or alternatively you can put 50% in VOO and the other 50% in VEU and let them ride for a couple of decades, with the dividends reinvested. There are no guarantees in life or investing, but history suggests you will probably beat the PP's returns.

LazyInvestor wrote: Miners seem to be different than gold and they seem to be quite beaten down.

I'd hate to talk you out of something only to see it soar. I'm still feeling the sting of telling my friend what a horrible investment gold was in the mid-to-late-2000s, shortly before I left bogleheads for the pp. But, you're an investor and you're obviously going to do your due diligence. Stating the obvious here: please use caution. Maybe the miners are beaten down for a good reason. I thought *I* had bought them when they were beaten down, but they have continued to languish, and there's no law that says they have to rise.

You've got a beautiful thing going with a pure pp and I'm peanut butter and jealous as they say in The Interview. If you feel the need to speculate, why not look for a new company with a great innovation?

Doesn't sound like he actually wants to speculate.

Have you considered building a dividend stock portfolio?  Dividends are kind of fun to watch pile up, and they create a stream of tax-free income which could be quite useful as a complement to the PP.  Then you'd have your 100% stock "VP" but it'll be doing nice things for you even if it doesn't beat the return of the PP.

Another thing you might look into is Decision Moose.  They try to do something like what you're proposing:  pick assets based on momentum, so that you ride bulls and then get off when Mr. Bear comes along. 

If I were interested in building a sizeable VP, I'd personally go the dividend stock route.  Nothing fancy, I'd start at the top of the S&P dividend achievers and work my way down.  I've got a ways to go with my PP first though.  You are to be congratulated on getting yours as big as you need for retirement.

Thanks all for your advice and opinions. I dumped some new money I had in VWRD (Ireland-domiciled version of VT). In order to deal with the possible speculation bug that I might be catching, I put a very small amount (but just enough not to ignore it) into extremely volatile stuff:

UWTI 3x bull crude oil
NUGT 3x gold miners
RUSL 3x russia

I hope I get burned in this part in order not to get any thoughts to speculate anytime soon again :-). It already makes me dizzy just looking at it.

I'll just keep VWRD in VP and go with the rest as in OP.

RyeWhiskey wrote:

LazyInvestor wrote:
UWTI 3x bull crude oil
NUGT 3x gold miners
RUSL 3x russia

Yikes. I hope you understand how leveraged ETFs work...

+1

I also hope that you can stomach potentially brutal losses. It is entirely possible that you could get murdered in all three of those funds, simultaneously.

It's just little money. I'm expecting to be wiped out. I just played a simple contrarian move with most volatile assets I could find. However, I find it quite useful to experience these swings. They're quite insane over just last 2 days. Given that my whole investment experience is just little Bogleheads period in the beginning, followed by few years of PP, I find it useful to experience a bit of this speculation and damage it can make.

TennPaGa wrote:

LazyInvestor wrote: It's just little money. I'm expecting to be wiped out. I just played a simple contrarian move with most volatile assets I could find. However, I find it quite useful to experience these swings.

I like this.

My true VP (i.e. money I can afford to -- and expected to -- lose) is around 1% of my total portfolio, divided among 5 individual stocks.  Overall, these have returned 7% total over 3.5 years (so 2% CAGR).  Basically, I've had one big winner (+220%), one moderate winner (+15%), two pretty big losers (-35%, -60%), and one wipe-out (-98%). 

The main thing it has taught me is that I don't enjoy speculating, and that 1% total VP is about right for me.

Yeah, that's the idea - although yours is very aggressive at 1% - my VP with 3x ETFs is only 0.35% of the total portfolio :-)

LazyInvestor wrote:

TennPaGa wrote:

LazyInvestor wrote: It's just little money. I'm expecting to be wiped out. I just played a simple contrarian move with most volatile assets I could find. However, I find it quite useful to experience these swings.

I like this.

My true VP (i.e. money I can afford to -- and expected to -- lose) is around 1% of my total portfolio, divided among 5 individual stocks.  Overall, these have returned 7% total over 3.5 years (so 2% CAGR).  Basically, I've had one big winner (+220%), one moderate winner (+15%), two pretty big losers (-35%, -60%), and one wipe-out (-98%). 

The main thing it has taught me is that I don't enjoy speculating, and that 1% total VP is about right for me.

Yeah, that's the idea - although yours is very aggressive at 1% - my VP with 3x ETFs is only 0.35% of the total portfolio :-)

Of course the real danger in all this will come if inflation spikes, oil explodes and Russia suddenly gets hot again. Your micro VP will suddenly make you look (and maybe feel) like the greatest financial prophet since Peter Lynch. And you will be kicking yourself for not putting more money into it. Gambling addicts aren't created by losing. They get addicted when they win.