Doomer Portfolio

[ShortInSeattle]

What I want it to do is to hopefully outperform the rest of the market (should a high inflationary environment ensue), while at the same time allowing me to stay the course and participating in gains if normal market times occur into the future.

I am not as experienced as others here, but doesn't everyone want to outperform the market? Hasn't it been demonstrated that there is no likely or certain way to do this?

I'm not seeing a connection between the fund types you picked and high performance during periods of stagflation.

I say this not to be unhelpful, but just to say I don't get it.

SIS

 

[AndrewJackson]

I am not as experienced as others here, but doesn't everyone want to outperform the market? Hasn't it been demonstrated that there is no likely or certain way to do this?

I'm not seeing a connection between the fund types you picked and high performance during periods of stagflation.

I say this not to be unhelpful, but just to say I don't get it.

SIS

here was my justification: High inflation leads to high natural resource prices which are highly correlated to emerging markets. High inflation also causes people to cut back and purchase more necessary items, hence the dividend staples fund through vanguards div appreciation fund. The middle third is just a diversified grouping of all developed markets (foreign/domestic).

This is a buy and hold strategy. I am a little perplexed why everyone is so bothered by this? I see this portfolio as a couch potato portfolio with some slight tweaks given my long term outlook. I am not looking to make a quick buck or outperform next year. Also I am keeping it very simple at basically 4-5 funds.

In this thread, I just wanted decent feedback on whether the funds I chose would be appropriate given my view of the future. I don't want to debate this view. If you think that a certain type of broad based fund will be more appropriate to achieving my goals I lade out, then I would like to hear about it.

 

[NW-Bound]

Emerging markets will go into the tank whenever US markets go into the tank. The reason is pretty obvious: If US consumers aren't buying, then EM corps can't be selling...

I am betting that eventually China and the other emerging markets will discover that they can trade between themselves without the US "helping" by consuming much of what they produce.

So far, the Chinese are such savers that they make the Japanese look like spendthrifts. Well, I might be too early, but I may still live another couple of decades to see how history unfolds.

 

[AndrewJackson]

Regarding dividends, I would throw IDV into the mix. Large foreign companies with nice yields.

How would you compare this to the vanguard div appreciation fund? It seems riskier. Any ultra conservative dividend funds in the international space that would complement VDAIX?

 

[traineeinvestor]

One of many articles on the poor performance of stocks during periods of high inflation:
History Shows Stocks Are A Poor Inflation Hedge - Seeking Alpha

Although a case could be made that the starting valuations matter - at the begining of the 1970s inflationary period stock valuations were very high (Nifty Fifty) and the inflation adjusted returns were terrible. If the valuations are low enough when the period of higher inflation begins, you might well get a different result. Ditto if inflation remains low.

On gold, it's worth remembering that (i) it has been confiscated before (although at a time when Amercia was on the gold standard and and (ii) the US Treasury is still holding the contents of safe deposit boxes that were never claimed by the owners when the banks at which they were held went down in the 1930s. If the bank is closed, it is unlikely that you will be given access just because your father knows someone at the bank. Executive Order 6102 - Wikipedia, the free encyclopedia

+ 1 to the idea of a fixed long term mortgage.

 

[AndrewJackson]

I give up. This thread was in no way shape or form supposed to be about picking strategies,timing, or anything of that matter.

All I proposed was a broad based fairly diversified portfolio, that I felt would outperform the market during a scenario (which would occur over years) that I personally believe has a fairly high likelihood in the medium term. Out performance does not imply huge real gains as you all know.

I just wanted some input on this "doomer portfolio" to see if my investment choices (made in a context of broad based diversification as far as stocks go for my age), matched my inkling about the longer term future.

Surely I am not the only one who has ever done this?

 

[Lsbcal]

I give up. This thread was in no way shape or form supposed to be about picking strategies,timing, or anything of that matter.

All I proposed was a broad based fairly diversified portfolio, that I felt would outperform the market during a scenario (which would occur over years) that I personally believe has a fairly high likelihood in the medium term. Out performance does not imply huge real gains as you all know.

I just wanted some input on this "doomer portfolio" to see if my investment choices (made in a context of broad based diversification as far as stocks go for my age), matched my inkling about the longer term future.

Surely I am not the only one who has ever done this?

I give up too. This thread is going nowhere fast. Good luck with the doomer portfolio.

 

[JPatrick]

How would you compare this to the vanguard div appreciation fund? It seems riskier. Any ultra conservative dividend funds in the international space that would complement VDAIX?

Well IDV holds the largest international stocks, while Vanguard has large US corps. Also, the IDV yield is about double the other.
So, I would want them both to get dividend coverage across a wider spectrum.
I do this with IDV and DVY instead of Vanguard, but VDAIX is fine. VIG is yet another choice if you want an ETF that looks like VDAIX.

 

[AndrewJackson]

Well IDV holds the largest international stocks, while Vanguard has large US corps. Also, the IDV yield is about double the other.
So, I would want them both to get dividend coverage across a wider spectrum.
I do this with IDV and DVY instead of Vanguard, but VDAIX is fine. VIG is yet another choice if you want an ETF that looks like VDAIX.

Yeah, that is probably not a bad idea. The yield is a lot nicer for sure. How would you suggest % allocation for us/foreign for holding both of these funds? With very large cap dividend payers, it is kind of hard to think of what a logical % allocation is. Do you think 50/50 will do?

 

[LOL!]

Did you go back and look to see what investments were good during the late 70's and early 80's when inflation was rampant?

 

[seabourne]

The web site is currently offline (server shift?) but early retirement extreme forums have some good discussion along the "doomer" portfolio lines, as well as some good overall discussion of the worries you have. Jacob used to work on a peak-oil website/non-profit, so there is some pretty well-thought out discussion there, regardless if you agree with the conclusions.

I don't personally know enough to recommend specific funds, but depending on where you live and how much you are working with, there are some things outside equities that might fit. I believe that WI (and probably some other states) has a program of property tax forbearance for land used in tree production where you place it in a program to raise trees for a pre-determined number of years (10, 20, 30 etc) and grow, harvest, sell the tree crops, and so long as you fulfill the pledge, you don't owe any property taxes for those years (but trigger back taxes if you change your mine before the agreed date). It serves to both encourage trees (it was an environmentally driven law) but really lets farmers and investors land-bank at low cost and without having just barren land. I think that people generally end up making a little (but not much) profit on it, but for a doomer scenario, it's not a bad way to set up a fall back and have some investment in farmland becoming more valuable WTSHTF.

 

[JPatrick]

Yeah, that is probably not a bad idea. The yield is a lot nicer for sure. How would you suggest % allocation for us/foreign for holding both of these funds? With very large cap dividend payers, it is kind of hard to think of what a logical % allocation is. Do you think 50/50 will do?

I'd be inclined to go more like 65 (US) 35 (foreign)
If you plan to add a bunch of EM you'll have plenty of other foreign exposure.

 

[heeyy_joe]

A doomer that will not consider TIPS? Best to focus on commodiities as an alternative if you so distrust the government.

 

[haha]

Also, from reading and learning about personal finance over the last couple years, it seems that the ones that succeed are the ones that stay the course.

This is even more true if they have picked the right course to stay.

 

[ERhoosier]

At 22 you have a nice long investment horizon. While no one could predict the future, I'll bet your AA would turn out just fine over next 40yrs.

 

[Mill]

As much as I disagree with the doomer portfolio, I will not criticize it per the op's request. This has been a fun thread to read, I will say that.


But question to the OP, surely you dont plan on staying 100% equities forever?

What are you going to rebalance to when it comes time to retire? Gold?

 

[ShortInSeattle]

This thread is coming to a close I suspect, but I couldn't resist sharing this relevant, brief video.


http://m.youtube.com/#/watch?v=6bbIBs0P2t0&desktop_uri=/watch?v=6bbIBs0P2t0

SIS

 

[RobLJ]

This is the best option. It's a leveraged bet with a fixed interest rate and a sizable chunk of the asset price increase is tax exempt.

The problem with equities, in general, is that when inflation and interest rates increase above expectations, equity prices decline. I would be especially cautious about EM equity valuations, as policy mechanisms in developing countries are not as effective and demand is much more sensitive to changes in price.

Timber is an excellent inflation hedge. Energy infrastructure via MLPs should be as well.

I would consider a kind of Permanent Portfolio approach, with a significant component of S&P Index or better Total Stock Index with World (50%), then commodities/materials and Emerging/Foreign bonds, if you are afraid of US bonds.
Diversifying but incorporating a bias towards inflation hedge, if that is your fear, is the safest. You're in your 20s, dude.
If I had invested solely on my concerns when I was your age, I would be screwed.
Luckily, I didn't have much to invest until I earned my grad degree and was close to 30. But investing young covers a multitude of mistakes, particularly if you're willing to let your "mistakes" run.
Edit: actually what served me well was an allocation percentage, with rebalancing, although I allowed myself some weasel room on relative value on the percentages.
So if you keep to rebalancing a somewhat uncorrelated portfolio with a bias towards some inflation assets (energy, metals, materials, TIPS or inflation-adjusted world), I think you will do very well over a 30 year period. I rebalanced yearly, intervening once in a while if an allocation got completely out of whack, but very rarely until I was in my 40's.
What worked for me may not work for you. Thinking of investment timeline in individual areas as 3-7 years did work, however. (So if foreign midcap went down 10% it might seem a good deal, if you considered you might be selling gains 7 years down the line after the cheap values began to "pay off.") Worked for me, but perhaps not for you.
I had a simple portfolio at first, then added non-correlated areas as the portfolio grew. That also might not work for you.
Figuring out what does work for you, then sticking to it, and innovating on the edges, probably does work. Particularly when the market goes down big time, as it will. What will you stick to?

 

[AndrewJackson]

I would consider a kind of Permanent Portfolio approach, with a significant component of S&P Index or better Total Stock Index with World (50%), then commodities/materials and Emerging/Foreign bonds, if you are afraid of US bonds.
Diversifying but incorporating a bias towards inflation hedge, if that is your fear, is the safest. You're in your 20s, dude.
If I had invested solely on my concerns when I was your age, I would be screwed.
Luckily, I didn't have much to invest until I earned my grad degree and was close to 30. But investing young covers a multitude of mistakes, particularly if you're willing to let your "mistakes" run.
Edit: actually what served me well was an allocation percentage, with rebalancing, although I allowed myself some weasel room on relative value on the percentages.
So if you keep to rebalancing a somewhat uncorrelated portfolio with a bias towards some inflation assets (energy, metals, materials, TIPS or inflation-adjusted world), I think you will do very well over a 30 year period. I rebalanced yearly, intervening once in a while if an allocation got completely out of whack, but very rarely until I was in my 40's.
What worked for me may not work for you. Thinking of investment timeline in individual areas as 3-7 years did work, however. (So if foreign midcap went down 10% it might seem a good deal, if you considered you might be selling gains 7 years down the line after the cheap values began to "pay off.") Worked for me, but perhaps not for you.
I had a simple portfolio at first, then added non-correlated areas as the portfolio grew. That also might not work for you.
Figuring out what does work for you, then sticking to it, and innovating on the edges, probably does work. Particularly when the market goes down big time, as it will. What will you stick to?

Yeah, I figure the portfolio will be rebalanced once every year unless things really go outside of their allocations (maybe 10%). I want to keep my equity portfolio as simple as possible and utilize things like real estate/business opportunities/precious metals to diversify my assets.