peteyperson
Recycles dryer sheets
- Joined
- Sep 19, 2004
- Messages
- 108
"Conservative" may be a misnomer, but the portfolio is intended to survive a decade like the 1970s and keep on tickin'.
Sample portfolio:~
Global Common Stocks - 35%
Global Real Estate - 20%
Timber - 10%
Oil & Gas | Metals & Minerals - 5%
Absolute Return - 10%
10-Year TIPS - 20%
========================
Total - 100%
A conservative strategy would be to aim for income over capital gains. This might include indexing the large cap universe globally via VTI, EFA, EEM, going low-cost on global REITs, direct stocks for Timber, Merger Fund for Absolute Return and direct purchase TIPS. Where available, one could instead opt for large-cap value indexing and today this would deliver 0.25% higher yield even after the slightly higher fees. Long-run returns may well be better too.
The portfolio yield excluding TIPS would be circa 2.2%. Annual capital sales needed circa 1.8%. The idea behind directly-held TIPS would be for a 10-year ladder where 2% of the 20% allocation falls due each year. In a 70s environment, one could live off this capital and not touch other assets. The value is inflation linked, as is the yield. Other yield revenue may not keep up with inflation as happened in the early part of the 70s, but you'll still make it through the decade with all your higher returning assets still in place. Including the initial TIPS yield, portfolio yield is circa 2.6%. This provides a bit of padding if things get out of hand, reducing gradually as you sell TIPS off thru a 70s environ.
The degree to which one aims for growth in the common stocks allocation depends on the level of yield desired for the portfolio as a whole, the level of capital sales required annually, and the (sometimes) conflicting desire for greater returns thinking this will boost withdrawal rates. The truth is that higher returns don't always translate into higher withdrawal rates if your portfolio is poorly structured. One may well get better diversification with a split of large and small cap, as one might get from value exposure instead of blend. Exposure to small cap would reduce the yield on the portfolio and increase the need for capital sales however.
Diversification and real growth should be sufficient on these assets to provide the capital gains to survive. The payout levels are not so high that this puts a strangehold on future growth. Debt levels are not so high that this puts the investments in danger. Leverage is not so high that you might get wiped out. The asset allocation is intended to be simple to own and manage. Total assets fall between twelve and fourteen.
I'd welcome thoughts, observations & ideas.
Petey
Sample portfolio:~
Global Common Stocks - 35%
Global Real Estate - 20%
Timber - 10%
Oil & Gas | Metals & Minerals - 5%
Absolute Return - 10%
10-Year TIPS - 20%
========================
Total - 100%
A conservative strategy would be to aim for income over capital gains. This might include indexing the large cap universe globally via VTI, EFA, EEM, going low-cost on global REITs, direct stocks for Timber, Merger Fund for Absolute Return and direct purchase TIPS. Where available, one could instead opt for large-cap value indexing and today this would deliver 0.25% higher yield even after the slightly higher fees. Long-run returns may well be better too.
The portfolio yield excluding TIPS would be circa 2.2%. Annual capital sales needed circa 1.8%. The idea behind directly-held TIPS would be for a 10-year ladder where 2% of the 20% allocation falls due each year. In a 70s environment, one could live off this capital and not touch other assets. The value is inflation linked, as is the yield. Other yield revenue may not keep up with inflation as happened in the early part of the 70s, but you'll still make it through the decade with all your higher returning assets still in place. Including the initial TIPS yield, portfolio yield is circa 2.6%. This provides a bit of padding if things get out of hand, reducing gradually as you sell TIPS off thru a 70s environ.
The degree to which one aims for growth in the common stocks allocation depends on the level of yield desired for the portfolio as a whole, the level of capital sales required annually, and the (sometimes) conflicting desire for greater returns thinking this will boost withdrawal rates. The truth is that higher returns don't always translate into higher withdrawal rates if your portfolio is poorly structured. One may well get better diversification with a split of large and small cap, as one might get from value exposure instead of blend. Exposure to small cap would reduce the yield on the portfolio and increase the need for capital sales however.
Diversification and real growth should be sufficient on these assets to provide the capital gains to survive. The payout levels are not so high that this puts a strangehold on future growth. Debt levels are not so high that this puts the investments in danger. Leverage is not so high that you might get wiped out. The asset allocation is intended to be simple to own and manage. Total assets fall between twelve and fourteen.
I'd welcome thoughts, observations & ideas.
Petey