Anyone using the Larry Portfolio?

[kevink]

I get the impression that most who post here are using fairly standard stock:bond index fund blends with equities in the 40-60% range. I'm in that boat myself (45% very broadly diversified stocks, 55% bonds) but have been taking a hard look at the so called Larry (for Larry Swedroe) portfolio. For those unfamiliar here's an overview from the very cool Portfolio Charts site:

https://portfoliocharts.com/2017/02/...rry-portfolio/

In my particular case the appeal of an approach like this that historically has offered greatly reduced volatility and drawdowns during market crashes has everything to do with needing to make a too-small nest egg last until Social Security kicks in (I'm 60 now but would like to not begin taking SS until age 67-70). We need to take 4% a year every year from our nest egg between now and then, but the other side of the knife edge we're teetering atop is that with me at 60 and with DW only 53 I know that too low an allocation to equities is a sure way to guarantee running out of money.

Any perspective appreiciated.

[samclem]

Quote:

Originally Posted by kevink Any perspective appreiciated.

You're still interested in it, huh?
Well, since you've asked, I haven't changed my opinion since we discussed it here a couple of years ago. I think Larry is doing some datamining and I would not bet my future on his new idea. And I've been a fan of his for a long time.
It looks fairly certain that interest rates will be going up soon, at least moderately. That argues for short duration bonds or notes. In your boots, worried about a dip in stocks, I'd hold a big chunk of short to mid term bonds incl Treasury issues, but stocks, too (40%?). If stocks dip, rebalance and buy some cheaper, all the way down.

[mathjak107]

interest rates and their interaction with markets are so complex .

in fact I went the opposite way , Instead of intermediate term bonds , I split the bond budget between long term treasury's and short term treasury's/cash .

the farther out you go with bonds the more greed ,fear , and perception they are driven and the less short term rate moves matter .

in a flight to safety when money flows out of stocks the long end can soar .

2007 saw the fed raising short term rates while eventually the bond market saw things differently . bonds were dropping rates . that is why we had the inverted yield curve where short term rates were higher than long term rates .

eventually long term treasury bonds soared 40% .

so while right now inflation fears are driving long term rates that can shift on a dime once risk is off in stocks regardless of fed moves .

I actually use the golden butterfly shown on the portfolio charts site .

however despite how little volatility it shows historically , right now volatility is very very high in it until things sort their way out .

the small cap value fund slyv or ijs are 2 to 3x as volatile daily as the s&p 500 so with 20% of assets in it and the fact gold and bonds are more correlated than not today makes for a pretty wild ride at times .

but once money flees stocks as it always reaches a point it does the portfolio can still make money .

[rayinpenn]

Quote:

Originally Posted by kevink with me at 60 and with DW only 53 I know that too low an allocation to equities is a sure way to guarantee running out of money. Any perspective appreiciated.

My approach and focus is on earnings not valuation.
l plan to live off the roughly 3.5% dividends of my low cost diversified dividend mutual funds) and social security. Let's say your annual budget was roughly $80k gross (all in including taxes). Your dividends are 60 and social security is $20k. You want a three year downturn fund (where things go to hell) let's say in this apocalyptic 1989 world dividends drop by 50% (I've studied diversified portfolio dividends during downturns and they are not that variable) I would want three 3 years of cash like instruments to cover my dividend shortfall. So in this case my dividends would drop to $30 and I'd need $90k in safe funds to cover the next 3 years... what's nice is dividends outside of retirement funds are taxed at a lower rate.

In my opinion you need to build that safety net fund and not be so focused on total portfolio value. What if there is a downturn? - there will be followed by an upturn.

[DrRoy]

It reduces volatility but also reduces overall gain over time.

[mathjak107]

nothing beats 100% equity's for gains . so anytime any portfolio's diversified with other asset classes are used they are used to balance reward and volatility .

the stock funds used in the larry are extremely volatile . so right now you can use 1/2 as much in dollars in them as you would have put in an s&p 500 fund and see the same move up or down in dollars . in fact you could see even more in movement than 2x .

i use slyv as a small cap value ffund and daily it moves two to 3x what the s&p 500 does so a small allocation to it packs a powerful punch .

i prefer the extra diversification in the golden butterfly as compared to the larry . same premise as the 40% stock has a very powerful small cap tilt.

it amazes me how my slyv can move 10-11k in a day while the s&p 500 moves like 3500-4k .

[audreyh1]

Quote:

Originally Posted by DrRoy It reduces volatility but also reduces overall gain over time.

No. Swedroe's point was that you achieve the same gain as a traditional portfolio but with lower volatility. That was the whole purpose.

But I agree with samclem that it seems too much like data mining.

[MichaelB]

Quote:

Originally Posted by audreyh1 But I agree with samclem that it seems too much like data mining.

Me too. IIRC, in the decade before the Great Recession his portfolio was emerging markets plus munis, for the same reason - lower volatility without sacrificing returns. Since '09 that would be a disapppointing portfolio. He also had a long standing debate about using commodity futures which proved to be a dead end. The theory, quite solid, didn't work.

I think people who provide financial advice for a living are limited in what they can write and often suggest strategies that are more suitable for their businesses and not always applicable to us.

[mathjak107]

there is no time frame we can't make something shine better than something else . which is why for 30 years my portfolio has always been dynamic . not market timing but just better nudging for the big picture . swap one of the funds here and there every so often .

starting out in 1987 with 100k it beat the s&p 500 by 438k today with less risk for most of the trip .

at times the bigger picture just favors a slight tilt some where else .

who knows if rates on bonds are actually creeping back to normal we can have many many years of bonds taking a beating and the best place to be may be equity's and cash for the big picture .

will you get every swap right ? nope . you don't have to . you just have to get more right than wrong

[Lsbcal]

Quote:

Originally Posted by kevink I get the impression that most who post here are using fairly standard stock:bond index fund blends with equities in the 40-60% range. I'm in that boat myself (45% very broadly diversified stocks, 55% bonds) but have been taking a hard look at the so called Larry (for Larry Swedroe) portfolio. ...

Swedroe has a high net worth and so different risk profile then most of us here. I'd not want to go with too radical a departure from a balanced portfolio. Plus although I like some of Swedroe's writings, naming a portfolio after himself is kind of a turn off for me. Too much ego involved.

I do like the idea of using a lot of small cap international in place of so much large cap international. I think that is in the Larry port.

If you are slanting your portfolio in extreme ways just to defer SS, maybe you should just take SS a little earlier?

[kevink]

Thank you all very much for the helpful and insightful comments. samclem I want to thank you not just for your comments here but for being someone I always learn from on these forums - not just from your comments but from your questions!

mathjak107 I think you and I have both been "down the rabbit hole" on the Portfolio Charts site, and of course it's impossible not to be impressed by the construction and performance of the Golden Butterfly allocation. One of the things the GB, Permanent Portfolio and Larry's all have in common is that the investor has to be able to deal with a huge amount of tracking error over time. Personally I see too much evidence of manipulation of gold prices to be comfortable holding more than about 5-10% strictly as SHTF insurance since it is so utterly uncorrelated with stocks and bonds. The Treasury "barbell" in both the GB and PP has certainly worked well but not appreciably better than just holding IT Treasuries.

rayinpenn, MichealB and Lsbcal thanks for your sage advice too. I am going to stick with my allocation (for a change) and keep the early SS option in mind while making sure I have an adequate cash cushion. Having done everything I know of to diversify across asset classes and countries I need to respect the limits of both backtesting and forecasting and focus on the stuff I can control - i.e. SWRs and lifestyle choices.

Thanks again to all.

[mathjak107]

intermediate term treasury's only work as well as the barbell until they don't . that is when the difference show themselves as the volatility is far greater on the barbell .

just this week it was the reverse , the barbell fell much more than intermediate bonds .

the pulling power of the barbell will show itself in a flight to safety , not day to day . fear , greed and perception are far more dominate in the longer term treasury's even when the budget is split between the short and long term as well as yields are higher in the barbell . .

[DrRoy]

Quote:

No. Swedroe's point was that you achieve the same gain as a traditional portfolio but with lower volatility. That was the whole purpose.

That's not what his own data says. Larry's average gain was 5.1%, 60/40 5.8%, 100/0 7.1%.

[W2R]

Quote:

Originally Posted by MichaelB Me too. IIRC, in the decade before the Great Recession his portfolio was emerging markets plus munis, for the same reason - lower volatility without sacrificing returns. Since '09 that would be a disapppointing portfolio. He also had a long standing debate about using commodity futures which proved to be a dead end. The theory, quite solid, didn't work. I think people who provide financial advice for a living are limited in what they can write and often suggest strategies that are more suitable for their businesses and not always applicable to us.

+1

I learned so much from reading his books, which I think are very well written and easy to read. To be honest I don't really follow his advice. I pretty much do a simple Bogleheads 3-fund portfolio , but with a couple of tweaks (30% Wellesley is one of those tweaks, and the TSP "G Fund" for part of my bond allocation is the other). Still, I appreciate Swedroe's perspectives and feel much better educated about investing since I read his books.

[mathjak107]

Quote:

Originally Posted by DrRoy That's not what his own data says. Larry's average gain was 5.1%, 60/40 5.8%, 100/0 7.1%.

on the other hand for what it is worth the butterfly beat all the ones above except 100% equity . it uses 40% equity and averaged real returns of 6.1% with swings of just 7.80% .

[audreyh1]

Quote:

Originally Posted by DrRoy That's not what his own data says. Larry's average gain was 5.1%, 60/40 5.8%, 100/0 7.1%.

OK, then I don't know why he made that claim.

[Lsbcal]

Quote:

Originally Posted by audreyh1 OK, then I don't know why he made that claim.

Sometimes Swedroe has mentioned that one could use portfolio A and achieve similar results as portfolio B but without such a high equity exposure as in portfolio B. Could this be the difference in what you guys are remembering?