Whats your Bernstein index?

[Notmuchlonger]

I am certainly not as intelligent as my fellow posters. However the 4 pillars I had to re-read pages several times to make any sense of it. It was a good read In my opinion. I dont follow anything blindly but I feel it had some solid advice.

[unclemick]

Hmmm - I voted moderately influenced --- BUT:

I go around nowadays saying don't read books and now(as of Jan 2006) have: 85% Target retirement 2015

and 15% individual stocks(34 of them) - by way of taking the other side of the mythical bet (Google up Bernstein's 15 Stock Diversification Myth).

Lately I have stopped buying a $1 quickpick Powerball ticket when I gas up.

Sooooo - what label does a Vanguard lifecycle have in the land of 'slice and dice' and asset allocation?

heh heh heh - can't be totally passive since somebody picked them out in the first place. Deferred judgement slice and dice?? .

[deserat]

I vote moderately - the best part of the four pillars that I remember is to have a broad diversification of assets, know your asset allocation you want and stay the course, beware of bubbles (I loved the tulip sorty) and assuming long term returns of 10% or better is naive (I think he advocated 4-6%).

Yes - he did pound with data and statistics - what else would one expect from a PhD? That's their training......that's OK - I've learned to skim read that type of stuff and grab nuggets where I see them.

I agree with Nords - all comes down to how much work you want to do. Frankly, I'm pretty lazy so I like the 'target' approaches. The investing machinations I read about on this board sometimes scare me - but hey, if that's what you like, that's what you like! I'm sure you'd find lace knitting (or knitting lace) patterns making you cross-eyed, too, if you weren't as interested. :-)

[cute fuzzy bunny]

Yep, the pretty pictures were fairly critical.

Oh dear god, I cant imagine listening to someone read me that book. How many times did you lose consciousness?

[W2R]

I don't see how he could follow without the graphs.

[Patrick]

Quote:

Originally Posted by cute fuzzy bunny IIRC, thats the one that someone came up with that had the highest total long term returns and were the most uncorrelated from each other. Wee bit of volatility though.

That sounds interesting. Have any more info on it? Where can I find a writeup? Thanks.

[lswswein]

Quote:

Originally Posted by Patrick That sounds interesting. Have any more info on it? Where can I find a writeup? Thanks.

The place to start to do all the experiments is here:
Bogleheads :: View topic - Spreadsheet for backtesting (includes TrevH's data)

The spreadsheet will let you play and generate all kinds of data. Anyway real men own an Asset allocation of 50% EM + 50% Commodities or 50% ScV + 50% Commodities. They both have really low correlations and the Sharpe ratio is comparable to S&D portfolio's that Bernstein et al talk about. The problem with owning that is that little thing called sleep at night factor. :-)

-h
p.s: real men with titanium balls sir....

[cute fuzzy bunny]

Besides that one, Portfolio Management Topics for Retirees has some extensive discussion on how formerly rare asset classes performed in combination.

Like momentum, I'd express some caution for the difference between what used to work and what will work in the future when one wanders off the beaten path.

Be advised you may also experience 20% volatility days with such a portfolio.

There may be a sudden loss of cabin pressure as well.

[Khan]

Quote:

Originally Posted by cute fuzzy bunny Besides that one, Portfolio Management Topics for Retirees has some extensive discussion on how formerly rare asset classes performed in combination. Like momentum, I'd express some caution for the difference between what used to work and what will work in the future when one wanders off the beaten path. Be advised you may also experience 20% volatility days with such a portfolio. There may be a sudden loss of cabin pressure as well.

Roof flies off?

[Nords]

Quote:

Originally Posted by Khan Roof flies off?

So to speak...

[DblDoc]

Quote:

Originally Posted by cute fuzzy bunny Besides that one, Portfolio Management Topics for Retirees has some extensive discussion on how formerly rare asset classes performed in combination. Like momentum, I'd express some caution for the difference between what used to work and what will work in the future when one wanders off the beaten path. Be advised you may also experience 20% volatility days with such a portfolio. There may be a sudden loss of cabin pressure as well.

Not too mention sphincter tone...

DD

[lswswein]

Another old post from the morningstar boards that I had saved and like to re-read often by Steve Dunn, a close friend of W Bernstein. I think this says everything that needs to be said on the topic. (Again highlighting my me)

-h

Order of importance
swdunn| 12-18-05 | 06:31 PM

As a rather sluggish slice and dice type, I think that issue versus going total stock market is way down the list of what is important in managing one's financial affairs. In order of priority, I would list what is important in the following order of priority:

1. How much you earn (the value of your human capital).

2. An intelligent insurance program.

3. Your savings rate.

4. Your allocation to stocks versus bonds.

5. Have a reasonable diversification to your portfolio (anything reasonable will do).

6. Rebalancing to manage risk.

7. Tax management.

8. International versus domestic

9. Value versus growth.

10. Small versus large.

11. Slice and dice.

After number 7, it just doesn't matter much IMO, for about 99% of investors. I say that as one who has watched the numbers pop up on my Quicken computer screen over the passing years. Some things matter a whole lot more than others as to what really influences those numbers.

This chit chat about who is the fairest of them all when choosing vehicles for slice and dice is really beside the point in the larger picture. The choice of slice and dice vehicles is largely rounding error. It doesn't make much difference.

What does make a difference? Your decision about how much to save, how much to spend, how much to spend on your home, how much term of life insurance to buy, your desires and strategy as to how to go about earning a living, the allocation choice between bonds and stocks (sometimes, the importance of that decision depends on when the choice is made), and perhaps, as a considerably lessor matter typcially, the degree of titling to value overall with the equity portion of the portfolio, whatever the slice and dice vehicle. To suggest that Vanguard Large Value is "bad" in this larger context kind of hits my funny bone.

Steve

[Patrick]

Quote:

Originally Posted by cute fuzzy bunny Besides that one, Portfolio Management Topics for Retirees has some extensive discussion on how formerly rare asset classes performed in combination.

Hmm. In this article: have long been interested in using commodity futures as an asset class but until recently there has been no simple way to implement a, Raddr shows that 45% Small Cap Value and 55% Commodities allows a SWR of 7.1%, yet he states that "Certainly no rational person would retire with a portfolio split roughly equally between ScV and a commodity futures fund . . ."

Why not? If the expected return is better than other combos, why not invest that way? :confused: What is so irrational about that portfolio if it is developed with the same analytical tools as the other more-popular portfolios?

[REWahoo]

Quote:

Originally Posted by Patrick What is so irrational about that portfolio if it is developed with the same analytical tools as the other more-popular portfolios?

Could it be that the whiplash from volatility could kill you long before you ran out of money?

[lswswein]

Quote:

Originally Posted by Patrick Why not? If the expected return is better than other combos, why not invest that way? :confused: What is so irrational about that portfolio if it is developed with the same analytical tools as the other more-popular portfolios?

Because, "Past Performance is no guarantee for future results".
The problem with the obscure asset classes and their combinations is the fact that no one held those asset classes in large numbers previously. So we don't know for sure if the returns were because of something intrinsic to the asset class or the obscurity of the asset class. So always use common sense.
The 45%ScV and 55% Commodities might be appropriate for someone who has a Govt job, guaranteed health care and pension etc, and is trying to hit homeruns. There is a backstop saving them. For others the extra 2-3% returns might not be worth the leap of faith

-h

[Patrick]

Quote:

Originally Posted by REWahoo Could it be that the whiplash from volatility could kill you long before you ran out of money?

The volatility doesn't appear to be that extreme: "The "sweet spot" on the efficient frontier is located at about 11-12% std. dev. This is where returns are highest with the lowest volatility."

[DblDoc]

Quote:

Originally Posted by Patrick The volatility doesn't appear to be that extreme: "The "sweet spot" on the efficient frontier is located at about 11-12% std. dev. This is where returns are highest with the lowest volatility."

Patrick - there is a big difference between the accumulation phase with long-term investment horizon and being retired and safely withdrawing from your portfolio. You are less concerned about overall total return and MUCH more concerned about low volatility, beating inflation and safely running out of money at about the time you slide into home plate...

DD

[Patrick]

Quote:

Originally Posted by DblDoc Patrick - there is a big difference between the accumulation phase with long-term investment horizon and being retired and safely withdrawing from your portfolio. You are less concerned about overall total return and MUCH more concerned about low volatility, beating inflation and safely running out of money at about the time you slide into home plate... DD

Agreed. However, Raddr's calculated SWR with this portfolio is 7.1% vs. 4-5% for the "traditional" portfolios. So this portfolio should be safer, no? You can take more out each year without the expectation of going broke. What's not to like?

[cute fuzzy bunny]

That it might not work that way anymore and you'd lose all your money.

I think I've detected the disconnect. You're seeking get rich quick schemes with almost a sole focus on total return and no focus at all on volatility and potential loss. Many of the folks here are focused on how to not lose all their money in three days.

[Nords]

Quote:

Originally Posted by Patrick Agreed. However, Raddr's calculated SWR with this portfolio is 7.1% vs. 4-5% for the "traditional" portfolios. So this portfolio should be safer, no? You can take more out each year without the expectation of going broke. What's not to like?

Garbage in, garbage out (GIGO).

Most of the historical data in the more rigorous retirement calculators is eight decades, and FIRECalc happens to go back 135 years. Yet the explosives commodities & small-cap value data you're playing with has a much shorter history. Note that Raddr is using phrases like "The 5-year correlation coefficients (1957-2003)", and "First the bad news. I was able to find data for the CRB index (presumably spot prices, equal weighted?) dating back to the 1920's. Commodities helped little, if any, in the survival of 1929-era portfolios.", and "I think that this is a better reference period than the 1920's since we were on the gold standard then which favored deflation when the economy went bad. On the other hand, since we went to fiat currency in 1971 the economy has been fighting inflation." He also mentions that there's no real ScV index before 1993 but that he put something together from Fama & French's data.

We spend a lot of time arguing on this board about trying to use 135 years of FIRECalc historical data for 50-year retirements and whether a partial data run (less than a 50-year period) is valid. Monte Carlo is popular for its ability to synthesize more runs because it mixes the data up, but none of the calculators will predict future correlations.

It's possible that we have no idea what's going on because we don't have enough data. It's quite possible that going off the gold standard and using fiat currency will keep on doing great things for commodities. It's almost certain that the correlation between commodities and small-cap value will change in the future (as has the correlation between international & domestic stocks).

I'll point out that my ER is largely funded by a govt COLA'd annuity and that our high-equity ER portfolio has one of the board's highest tolerances for volatility. But, hey, you're young and you'll have plenty of working years to recover from GIGO.

You don't have to debate the subject with us. Send Raddr a PM on his board or post over there, where there are a number of guys who have studied this far more intensely than most of this board's posters.