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[mathjak107]

a quick comparison of a popular conservative fund wellesly income to the prpfx

wellesly    1 year 4.57      prpfx -2.47

3 year      8.65            prpfx 1.48

5 year    9.61    prpfx 4.31

10 year 7.28  prpfx 6.72

[Pointedstick]

Wellesley was down nearly 35% from January 2008 through March 2009, and PRPFX is not representative of the PP. "Conservative" is in the eye of the beholder.

[Cortopassi]

a quick comparison of a popular conservative fund wellesly income to the prpfx

wellesly    1 year 4.57      prpfx -2.47

3 year      8.65            prpfx 1.48

5 year    9.61    prpfx 4.31

10 year 7.28  prpfx 6.72

CAGRs from peak to trough on a self managed PP, which I assume everyone here pretty much does:

1 year PP  .67%
3 year PP 2.33%
5 year PP 5.99%
10 year PP 7.67%

[mathjak107]

still a considerable difference from one of the most conservative funds out there. many retirees have been using wellesly as their only investment .

wellesly is not even close to what a growth model would have done.

all in all I think  the past was a lot kinder  than the present has been to the pp.

[iwealth]

Wellesley was down nearly 35% from January 2008 through March 2009, and PRPFX is not representative of the PP. "Conservative" is in the eye of the beholder.

Max drawdown statistics are entirely absent from this recent conversation. Makes sense considering the term "drawdown" hasn't been relevant to the equity markets since the summer of 2011.

[mathjak107]

Wellesley was down 9.84% in 2008 and up 16% in 2009

[Cortopassi]

For me, that is the most salient point. 

The drawdown in what I owned in 2008/2009 scared me out, plain and simple. 

When another shock arrives (and it will), I cannot say with confidence I wouldn't bail again if I was invested similarly.  Seems reasonable that the PP is well insulated against most large drawdowns.

I will give up some return % for that, my opinion only.

I suck at timing and suck at remaining non-emotional.  Since Feb 2014 when I got into the PP, I have been the least emotional and least caring about whatever the heck the market is doing, so it works for me.

[dragoncar]

The losses I've reported are accurate.  I don't feel like explaining.  It was just for Budd's benefit.

If your losses are accurate, it seems apparent that you did not buy and hold. to be -40% on stocks after 9 years, most of which have been fantastic for stocks, you must have done something like panic-sold in 2008.

It must not be a PP improved index.  Maybe a sector index, or individual stocks

[Pointedstick]

Wellesley was down 9.84% in 2008 and up 16% in 2009

Actually, it was almost 17%:

[img width=500]http://i.imgur.com/yWlrB14.png[/img]


And January 2008 - March 6 2009, the max drawdown was -25.6%:

[img width=500]http://i.imgur.com/xStrItl.png[/img]

My previous numbers were wrong too: I was looking at Wellington, not Wellesley. But the less-volatile Wellesley still experienced quite a drop in 2009.

Don't get me wrong, these are good funds with strong histories. But when the shit hits the fan, they're not going to save you from a big drop. They are fair-weather friends.

[mathjak107]

Wellesley shows up in 2009 on the vanguard site.

down 9% in 2008 which is tiny considering how bad that year was but there were a lot of one time events with supposed conservative paper that  was marketed poorly .  even funds like fidelity ultra conservative bond fund got hammered because of the toxic paper.

my money market failed and I lost a few percent.

fidelity maintained a central core of funds for manager use . they could buy from this mutual fund for the mutual funds and beef up yield.

it turned out this paper became ill-liquid and that caused drops in funds not typical of the volatility in those funds

[Pointedstick]

down 9% in 2008

As I showed, it was down 16.82% in 2008, not 9%. It was up in 2009 overall, but my point was that the fund experienced a 14-month drawdown of -25%. That's a lot of losses, and also a lot of time to think about it and worry about it and make bad decisions about it.

[mathjak107]

one thing I think I learned in my 27 years as an investor is more damage is done trying to protect from these rare events then actually happens from them.

in 27 years I lived through only 2 crashes , both of which a few years later were a non event.  yet always on our minds was what if , what if and what if.

so you end up investing so protectively that decades later you gave up so much in gains that even if a drop happened you would be well  ahead.

in retrospect by going from my growth model to my more conservative income model 6 years ago because I feared another drop I gave up soooooooo much in additional gains.


realize you are not getting rational information from your brain. our brains hate losing money more  then it likes making it . it will always have you in fear of losing money.

in Jason zweigs book your money your brain , modern imaging equipment showed that we do not even use the same parts of our brain when we have real money at risk vs hypothetical when we make money decisions.

so many of us invest like the sky is falling any second and in return never really gain what we should..

the insurance industry makes billions off of our fears.

[Tyler]

@mathjak - I think it's more complicated than that.

I believe the people who invest in the PP because they feel like the sky is falling are not likely to stick with it long term. They're too reactionary and don't have the personality to stay with anything.

Likewise, those who are exuberant about market gains are unlikely to stick with it. They'll look back in retrospect and wish they had only stayed with whatever happened to do best. More riches are always right around the corner.

The long term PP investor simply has a uniquely neutral mindset. If one doesn't have it, one may not understand it.

[Pointedstick]

I agree with Tyler. I love making money. It's awesome. But I don't believe that the investment markets are the optimal way to do it. Over my short 6-year career, so far I have made 8 times more money than the market appreciation of my investments. If I want more money, the way seems very clear to me.

[mathjak107]

most of my money was made in nyc real estate but since I started in  funds in 1987 with the newsletter I use  , the fidelity insight /fidelity monitor newsletter, they grew  100k to 2.2 million  using nothing special fidelity funds .

that is some nice growth . my only regret is I let my brain talk me in to going more conservative after 2008 than I should have by switching model portfolio's  , but heck hind site is great.

[Pointedstick]

most of my money was made in nyc real estate but since I started in  funds in 1987 with the newsletter I use  , the fidelity insight /fidelity monitor newsletter, they grew  100k to 2.2 million  using nothing special fidelity funds .

that is some nice growth . my only regret is I let my brain talk me in to going more conservative after 2008 than I should have by switching model portfolio's  , but heck hind site is great.

Indeed, and it is some nice asset selection and market timing too. That period comprises the largest stock bull market in US history, and I gather that you had a very stock-heavy portfolio. It's not surprising that you did very well. However, your experience is not generalizable. We have no idea what the next major bull market will be in, and when it will begin or end. That's the PP philosophy: avoid making the kind of concentrated bet that you made. You won, and that's great! But most people who do what you did lose badly. The stock market has been going gangbusters for the past few years. Is this the start of a multi-decade bull market? Or is it about to fizzle out? Can anyone say they know the answer?

[l82start]

@mathjak - I think it's more complicated than that.

I believe the people who invest in the PP because they feel like the sky is falling are not likely to stick with it long term. They're too reactionary and don't have the personality to stay with anything.

Likewise, those who are exuberant about market gains are unlikely to stick with it. They'll look back in retrospect and wish they had only stayed with whatever happened to do best. More riches are always right around the corner.

The long term PP investor simply has a uniquely neutral mindset. If one doesn't have it, one may not understand it.

+1

[mathjak107]

who ever thought the real return on the s&p 500 over the last 15 years would only be 1.88% cagr.  that is low.

I think going forward investing is not going to be what we were all used to doing.

for one thing bond rates cannot and will not stay at these levels forever , that is a given.

so I think strategy's that counted on help from bonds  will come up short.

I think based on valuations stocks will under perform going forward for at least 5 years and maybe longer.

I think gold will be quiet for about the same amount of time as  there are to many other options today for betting against good times.  I don't see the kind of calamity in the cards that gold needs in the us dollar to do well.


so what do I think ?


I think a bigger part of our retirements will be diversifying away from markets and interest rates in to dead bodies .


yep , I think immediate annuities  plus ones own investing plus life insurance for heirs will become more and more popular.

work by dr wade pfau  has shown out of 67% of all the scenario's he ran  , using an spia in conjunction with your own investing and permanent life insurance for heirs beat  buying term and investing the difference.

the spia/ investing on your own / life insurance combo provided more income and more for heirs 67% of the time.

so I think guarantees are going to become more and more important  going forward.


so I think we will be counting less and less on our own doing and more and more on products that diversify in to areas not so much market dependent .

I guess that pretty much says what I think  ha ha ha 

[Introvert]

I think gold will be quiet for about the same amount of time as  there are to many other options today for betting against good times.

Do you really think the financial markets changed that much since 2008 when gold started skyrocketing? Do you really trust yourself that much to notice a major change in the market structure, while you are in the eye of the hurricane?

One could have said exactly what you said in the beginning of the 80s and then they were wrong.

[mathjak107]

well time will tell ,won't it ? I do think many people got burned in gold  and turned their backs on it. the same thing happened to our stock  markets in 2000.

so many in our company 401k fled and never came back. loss of so many former investors is one reason markets are doing so poorly the last 15 years.  retracing back is always quick and  easy but moving ahead from that retracement is always difficult.

in the mean time this year it is amounting to which portfolio is bleeding less.

[MachineGhost]

all in all I think  the past was a lot kinder  than the present has been to the pp.

You got that right!  Corporate bonds weren't so overvalued in the past as they are now, nor were there only 3 AAA's left to invest in.  Neither were stocks as a whole for that matter.

It's just not going to end well but I think we'll be the last ship afloat in the seas due to our long-standing reputation and deep capital markets.  If we're lucky, we'll come out of this global sovereign debt crisis the least unscathed.

Like I said, what is the alternative to the PP?  It covers all bases.  Wellesley is a prime example of "past returns are not predictive of future returns".  It's a huge bet on continuing economic growth.  What would Wellesley have done in a Japan or 1970's situation?

[iwealth]

It's just not going to end well but I think we'll be the last ship afloat in the seas due to our long-standing reputation and deep capital markets.  If we're lucky, we'll come out of this global sovereign debt crisis the least unscathed.

This is why I don't fear long bonds. Sure we were due for a rate bounce, and I'm sure it'll continue for awhile, but I find the deflationary spiral doomer porn more convincing than the rates will soon skyrocket doomer porn.

[mathjak107]

you really can't  compare since we are not japan.  long term even 100% equities has done quite well over every 30 year time frame.

Even retirees spending down would have withstood every 30 year time frame since 1926 even if they used 100% equities.

diversification historically is like using cash buckets in retirement.  they smooth out the same ride to the same place.

long term we have never had devastation in our stock markets. even retirees in 1926 and 1937 would have done just fine spending down from their portfolio's over 30 years.

could we one day ?    sure but I prefer not to plan around the long shots that never happened

[Pointedstick]

you really can't  compare since we are not japan.  long term even 100% equities has done quite well over every 30 year time frame.

Even retirees spending down would have withstood every 30 year time frame since 1926 even if they used 100% equities.

diversification historically is like using cash buckets in retirement.  they smooth out the same ride to the same place.

long term we have never had devastation in our stock markets. even retirees in 1926 and 1937 would have done just fine spending down from their portfolio's over 30 years.

could we one day ?    sure but I prefer not to plan around the long shots that never happened

I think this is the key difference between you and us. Things that have never happened before don't have to be long shots. Statistically, some are certain. Change is eternal. We may well become like Japan, and in fact, I think this is largely the direction that the native populations of first-world nations are trending in. The most inflationary and expanding markets in the world right now are developing nations, mirroring our own historical growth trajectory. The developed world is in a different place right now.

[dutchtraffic]

you really can't  compare since we are not japan.  long term even 100% equities has done quite well over every 30 year time frame.

Sorry but this is one of the dumbest things i've read here so far.
A Japan scenario is actually very likely for the US, might not happen, sure, nobody knows, but very likely.

You've lifted on one of the biggest bull markets ever, that's called luck, no more, no less, sorry.
You could've also be down 70%, nobody knows, that's why a lot of people here use the PP, i'm curious if in that case you would still say you don't like to plan for 'doom scenarios' (that are guaranteed to happen, we just don't know when).

Trying to prevent losing half or more of your lifesavings is called "being smart".

in 27 years I lived through only 2 crashes , both of which a few years later were a non event.

Until they are suddenly not a 'non-event'm guaranteed to happen, when? No clue.