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Old 09-11-2015, 06:52 PM   #21
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I think when Harry Browne made his permanent portfolio it was before TIPS and I-bonds? The matching strategies in the Boglehead lay out some ideas for keeping up with inflation without risking principle (no growth expectations either though). I like the posts by a poster called bobcat2 on that forum.

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Old 09-12-2015, 03:39 AM   #22
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Originally Posted by kevink View Post
A friend who's been investing for a very long time makes the following points about what you're saying here:

" It’s incorrect to say that about gold wasn’t investible during the 1960s and early 1970s. Ownership of gold bullion was illegal. But it was perfectly legal and very easy to purchase slightly older gold coins (like British Sovereigns and certain U.S. gold coins) with low numismatic premiums over their bullion value. Bank safe deposit boxes to store them in were also cheap and often free with a checking account. Admittedly few U.S. investors (probably lulled by the isolated bliss of the post-WWII U.S. stock market and the stability of the U.S. dollar) bothered to investigate or take advantage of this simple investment alternative.

Until the early 1980s, stocks, bonds and T-bills, especially in small amounts, were almost equally as expensive and difficult to buy and sell (everything considered) as gold. Discount brokers, money market funds, and index funds did not appear until the late 1970s/early 1980s. The brokerage industry enjoyed artificially high SEC-fixed commission rates until deregulation in 1975 (which took an additional several years to have an impact). Before that purchasing stocks or bonds in relatively small amounts, whether individually or in baskets of some type, involved high minimums and large commissions for most investors. There were some open end mutual funds around, but virtually all were actively managed and had high (probably 2%, on average) yearly expense fees and high up-front loads.

Buying Treasuries directly, either through a regional Federal Reserve Bank or over the counter in Washington, involved filling out a long written form and showing up in person with cash (usually $10,000 or more), or delivering or mailing in a certified cashier’s check in advance of an auction. You had to arrange and accept delivery of a registered certificate (just like a stock) or a bearer bond. Savings bonds could be purchased at any commercial bank or through payroll deduction, but until the program was overhauled in 1982, they were very different (and extremely uncompetitive) investments compared to what you know today. It literally required an act of Congress for rates to be raised or lowered."

IMHO these comments illustrate some dangers of relying on backtesting that few folks really take into account - namely that the vehicles we take for granted with which to invest mostly haven't been around long enough for backtesting to be all that meaningful.

The Permanent Portfolio's allocations are based on having assets that are truly non-correlated and that thrive in very different economic and sociopolitical conditions. I respect its performance, particularly during times of market crisis, but William Bernstein's recent book "Deep Risk" has convinced me that the PP isn't well constructed for a world that Harry Browne never predicted, in which the full faith and credit of the U.S. government is called into question by politicians and paper gold has largely replaced the real stuff as an investible asset. Moreover, as Bernstein points out, the PP's 4 x 25% allocation attempts to insure equally against economic conditions that are anything but equally likely to occur. Swedroe's low fat tails portfolios are much more sophisticated - or, for that matter, one could just go 100% Wellesley and call it a day.

i was arguing these points over at the pp forum where they do not see the fact that they are in effect speculating on events that have a low chance of playing out .

they think they are not speculating because they own these night and day but the fact is they have money riding on them and a lot too .. betting gold will have its day in the sun at some point is speculating no matter how you disguise it with low volatility when mixed in with other assets .

today you certainly are speculating on interest rates making a 25% bet on long term bonds .

while gold could be bought in off the cuff manners pre 1975 it was not widely traded or used so we do not know how it would have impacted things as far as a safe withdrawal rate . if we can't accurately test it against 1965/1966 we just don't know what it would do in comparison to a standard portfolio

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Old 09-12-2015, 07:06 AM   #23
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Boy the data from Canada is much different. My portfolio had a CAGR total return of about 9.9% from 2000 till now. It's 100% equity as I have a generous pension which represents my FI portion of AA. Very lucky. S&P really had a bad run.

TSX (CDN index) had a CAGR total return of about 7.3% over this period. Much better than US.
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Old 09-12-2015, 09:04 AM   #24
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Originally Posted by kevink View Post
There's been a little discussion of this recent article by John Greaney in a couple of threads about other topics, but it seems to me to be worthy of its own:

2014 Update: Real-Life Retiree Investment Returns

It's a lengthy post backed up with lots of spreadsheets, but there are some choice nuggets to be found.

A couple that struck me:

1. In comparing a plain vanilla Bogleheads 60:40 portfolio to a sophisticated DFA-style slice-and-dice Modern Portfolio Theory one, Greaney says (with typical irreverence):

"While the MPT portfolio value has trailed the simple S&P500/fixed income portfolio (No. 1 above) by 19% as of Dec 31, 2014, advocates of this approach like its reduced volatility and sterling academic recommendations. Which brings us to an important investing truism -- it's OK to under perform as long as you're pleased with the results and proud of what you are doing."

2. Most important (to me, anyway, since I ER'd in 2002), Greaney, who ER'd in 1994, points out that someone retiring in 2000 or later would have a very different perspective on which portfolios are viable:

"If you happened to retire in January 2000, the last fourteen years haven't been pleasant. Only the Warren Buffett portfolio and Harry Browne Portfolio has a value appreciably exceeding its $100,000 starting balance. The 100% fixed income portfolio is underwater while the MPT portfolio, Larry Swedroe Portfolio and Harry Dent Portfolio are all 15% to 20% in the black. The other two portfolios both show losses. The worst performer was the 75% S&P500/25% fixed income portfolio which is now less than two-thirds of its starting value."

There'll probably be as many take-aways from this as there are readers of his post, but I find it interesting how well some of the purely defensive portolios such as Browne'e Permanent Porfolio and Swedroe's have done. Greaney's figures are also based on 4% SWR PLUS inflation, and I continue to feel much more comfortable going with 3-4% of actual porfolio balance as of January 1 each year (or Bob Clyatt's 95% rule in years of steep market declines).

Great to see John Greaney still writing - and don't miss his just-published piece on the same site on Vanguard's new financial advisor service. He's a really merciless advocate for low costs - John Bogle would be proud!

you have to wonder if harry could see into today''s world if he would have allocated differently .

there is no question equal amounts of money in non equal probability's of outcomes is weighting and weighting meant speculating to harry

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