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Permanent Portfolios
Ludditeme
Posted: 02 June 2017 19:49:15(UTC)
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Hi All,

I have been looking at this simple way to set up a portfolio'and wondered if anyone follows the system? It sounds too simplistic, and I suspect I would be unable to sit on my hands until rebalancing day.

It would be interesting to read how people have run this and what are their experiences - and results. I'm particularly worried about gold because it doesn't do anything useful (for me!). Could this be substituted for Cobalt etc., as that has a use in a growing industry - or is 'use' unimportant?

Cheers.

25% Cash
25% Long Term Bonds
25% Stocks
25% Gold
King Lodos
Posted: 02 June 2017 20:47:25(UTC)
#2

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Some versions use 12.5% gold, 12.5% commodities ETF.

Weightings would depend on what you were trying to achieve.

The likes of Yale use similar portfolios, but with 25% each: Private Equity, Stocks, Absolute Return, Real Assets .. Meb Faber's book, The Ivy League Portfolio, shows different variations on that concept that are easier to implement .. You can make it more fun by using active funds and rebalancing often or strategically – Yale treat each allocation as a mini portfolio they run very actively (but of course most people lose money doing that).

3 users thanked King Lodos for this post.
Ludditeme on 02/06/2017(UTC), Guest on 02/06/2017(UTC), Jim S on 02/06/2017(UTC)
Ark Welder
Posted: 02 June 2017 23:27:17(UTC)
#3

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Ludditeme;47498 wrote:
Hi All,

I have been looking at this simple way to set up a portfolio'and wondered if anyone follows the system? It sounds too simplistic, and I suspect I would be unable to sit on my hands until rebalancing day.

It would be interesting to read how people have run this and what are their experiences - and results. I'm particularly worried about gold because it doesn't do anything useful (for me!). Could this be substituted for Cobalt etc., as that has a use in a growing industry - or is 'use' unimportant?

Cheers.

25% Cash
25% Long Term Bonds
25% Stocks
25% Gold

http://moneyforums.cityw...io--help.aspx#post26397
http://moneyforums.cityw...io--help.aspx#post26405
http://moneyforums.cityw...io--help.aspx#post26422

...although a read of the whole of that thread might be in order just to see alternative views. My conclusion was that sometimes re-balancing works and sometimes it doesn't - it depends upon which timescale is chosen.

I wouldn't bother looking for substitutes for gold - the likes of cobalt will have industrial purposes and will be subject to speculation and demand in a different context to gold
1 user thanked Ark Welder for this post.
Ludditeme on 03/06/2017(UTC)
Jon Snow
Posted: 02 June 2017 23:39:43(UTC)
#7

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Ludditeme;47498 wrote:
Hi All,

I have been looking at this simple way to set up a portfolio'and wondered if anyone follows the system? It sounds too simplistic, and I suspect I would be unable to sit on my hands until rebalancing day.

It would be interesting to read how people have run this and what are their experiences - and results. I'm particularly worried about gold because it doesn't do anything useful (for me!). Could this be substituted for Cobalt etc., as that has a use in a growing industry - or is 'use' unimportant?

Cheers.

25% Cash
25% Long Term Bonds
25% Stocks
25% Gold


KL

"Weightings would depend on what you were trying to achieve."


King Lodos
Posted: 02 June 2017 23:59:09(UTC)
#4

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Ark Welder;47507 wrote:
Ludditeme;47498 wrote:
Hi All,

I have been looking at this simple way to set up a portfolio'and wondered if anyone follows the system? It sounds too simplistic, and I suspect I would be unable to sit on my hands until rebalancing day.

It would be interesting to read how people have run this and what are their experiences - and results. I'm particularly worried about gold because it doesn't do anything useful (for me!). Could this be substituted for Cobalt etc., as that has a use in a growing industry - or is 'use' unimportant?

Cheers.

25% Cash
25% Long Term Bonds
25% Stocks
25% Gold

http://moneyforums.cityw...io--help.aspx#post26397
http://moneyforums.cityw...io--help.aspx#post26405
http://moneyforums.cityw...io--help.aspx#post26422

...although a read of the whole of that thread might be in order just to see alternative views. My conclusion was that sometimes re-balancing works and sometimes it doesn't - it depends upon which timescale is chosen.

I wouldn't bother looking for substitutes for gold - the likes of cobalt will have industrial purposes and will be subject to speculation and demand in a different context to gold


Well rebalancing's effectiveness is mostly to do with probabilities (range of outcomes).

A rebalanced Permanent Portfolio produces very similar returns most decades, with very similar volatility – plus you're constantly profiting from inefficiencies in market movements.

A non-rebalanced equivalent would become more chaotic over time as allocations drifted .. Of course it may do better in backtests, but not because the portfolio's working – rather because your allocation to equities is getting higher and the portfolio's becoming riskier .. If that's your desired outcome after 20 years, you might as well just invest 100% in equities now .. Neither of these gives you a higher risk-adjusted return .. For that, you'd rebalance a Permanent Portfolio, and leverage it up to the risk of equities (theoretically close to the highest return possible per unit risk).
Ark Welder
Posted: 03 June 2017 00:54:50(UTC)
#5

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King Lodos;47510 wrote:
Well rebalancing's effectiveness is mostly to do with probabilities (range of outcomes).

A rebalanced Permanent Portfolio produces very similar returns most decades, with very similar volatility – plus you're constantly profiting from inefficiencies in market movements.

A non-rebalanced equivalent would become more chaotic over time as allocations drifted .. Of course it may do better in backtests, but not because the portfolio's working – rather because your allocation to equities is getting higher

Did you read any of the links before you posted, nevermind the whole thread? Because it doesn't look like it from your reply.

Firstly, the non-rebalanced equivalent did not deliver a better (i.e. higher) return in the exampe spreadsheet.

Secondly, whether rebalanced or not, gilts outperformed equities in the two scenarios - and equities actually ended up in third place in the non-rebalanced example.

Thirdly, rebalancing occasionally meant selling asset classes that subsequently preformed well and rebalancing into asset classess that subsequently performed badly, so you weren't 'constantly profiting from inefficiencies in market movements'.

Fourthly, if you had read the comments then you would see that I refer on more than one occasion to how easy it is to pick a dataset to 'prove' a point, and that how a different dataset, such as a different starting date, can 'prove' the opposite.
King Lodos
Posted: 03 June 2017 01:31:38(UTC)
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Ark Welder;47512 wrote:
Did you read any of the links before you posted, nevermind the whole thread? Because it doesn't look like it from your reply.

Firstly, the non-rebalanced equivalent did not deliver a better (i.e. higher) return in the exampe spreadsheet.

Secondly, whether rebalanced or not, gilts outperformed equities in the two scenarios - and equities actually ended up in third place in the non-rebalanced example.

Thirdly, rebalancing occasionally meant selling asset classes that subsequently preformed well and rebalancing into asset classess that subsequently performed badly, so you weren't 'constantly profiting from inefficiencies in market movements'.

Fourthly, if you had read the comments then you would see that I refer on more than one occasion to how easy it is to pick a dataset to 'prove' a point, and that how a different dataset, such as a different starting date, can 'prove' the opposite.


I did read your posts in the links.

And you have to appreciate you're not the first person to try this .. You can read decades of work on Modern Portfolio Theory, Efficient Frontiers, Harry Markowitz, William Sharpe – which shape the way institutions from pension funds to Yale and Harvard manage multi-$billion portfolios.

You're using extremely limited data, and lacking the basic tools and knowledge to interpret it properly .. You'd need to do a lot of work to get up to the standard of an IFA; yet in your posts, you're challenging assumptions made by Nobel Prize winning economists .. You wouldn't attempt this in particle physics .. I read your posts and it's like seeing an 8-year-old trying to measure the speed of light with a ruler and a stop watch .. Maybe I've missed it in your posts, but for a start you need to understand Sortino ratios.
Ark Welder
Posted: 03 June 2017 07:14:39(UTC)
#8

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Quote:
Lodos was a drowned man who claimed to be the living son of the Drowned God.

Following the death of Harren the Black, Lodos was crowned King of the Iron Islands with a driftwood crown by twoscore priests gathered at Nagga's Bones on Old Wyk.

When King Aegon I Targaryen attacked the Iron Islands to put down several rebellious would-be kings, Lodos turned to his god and called on the krakens of the deep to drag down Aegon's warships. When the beasts failed to appear, Lodos filled his robes with stones and walked into the sea to "take counsel" with his father. Thousands followed him. Their corpses would wash up on the shores for years to come, except for Lodos's own body.


https://awoiaf.westeros.org/index.php/Lodos_(I)
King Lodos
Posted: 03 June 2017 08:33:16(UTC)
#9

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I don't know who wrote that, but I was fully exonerated of any involvement in the mass drowning.
3 users thanked King Lodos for this post.
sandid3 on 03/06/2017(UTC), Cyrus Zaydan on 04/06/2017(UTC), Guest on 05/06/2017(UTC)
Ark Welder
Posted: 03 June 2017 11:36:59(UTC)
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Your post made me think that you had actually drowned a few too many...
Keith Cobby
Posted: 03 June 2017 12:56:09(UTC)
#11

Joined: 07/03/2012(UTC)
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I believe you have to put money to work to get a return. Gold and cash (at negligible interest rates) doesn't achieve this. Bonds are OK if used tactically but the only decent returns come from equities (including property funds). This is why I am 100% equities. Obviously you have to choose funds carefully!
1 user thanked Keith Cobby for this post.
Cyrus Zaydan on 04/06/2017(UTC)
Mr Helpful
Posted: 03 June 2017 14:48:02(UTC)
#13

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Ludditeme;47498 wrote:

I have been looking at this simple way to set up a portfolio'and wondered if anyone follows the system? It sounds too simplistic, and I suspect I would be unable to sit on my hands until rebalancing day.

25% Cash
25% Long Term Bonds
25% Stocks
25% Gold



View from an adaptive value investor :-

The PP has had an excellent run over the last 30 years or so, but now?
25% Cash : Sub-Inflation (guaranteed loss of purchasing power)
25% Long Term Bonds : The 30 to 35 year Bond bull run strongly boosted the PP, can that Bond bull run continue yet further?
25% Stocks : Ever more expensive (continuously top-slicing).
25% Gold : To do the heavy lifting as the last remaining chance of serious appreciation?
King Lodos
Posted: 03 June 2017 18:31:43(UTC)
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Keith Cobby;47537 wrote:
I believe you have to put money to work to get a return. Gold and cash (at negligible interest rates) doesn't achieve this. Bonds are OK if used tactically but the only decent returns come from equities (including property funds). This is why I am 100% equities. Obviously you have to choose funds carefully!


It's a very narrow view.

In the 19th century, bonds outperformed stocks for nearly 70 years straight. So far this century, long-term bonds have been outperforming the S&P500 for nearly 20 years straight.

In the early 80s you could buy 30 year bonds with >15% yields – that's safer than money in the bank, and over twice the long-term return of stocks.

http://i.imgur.com/bcIz7mH.jpg
King Lodos
Posted: 03 June 2017 18:41:13(UTC)
#14

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Mr Helpful;47545 wrote:
Ludditeme;47498 wrote:

I have been looking at this simple way to set up a portfolio'and wondered if anyone follows the system? It sounds too simplistic, and I suspect I would be unable to sit on my hands until rebalancing day.

25% Cash
25% Long Term Bonds
25% Stocks
25% Gold



View from an adaptive value investor :-

The PP has had an excellent run over the last 30 years or so, but now?
25% Cash : Sub-Inflation (guaranteed loss of purchasing power)
25% Long Term Bonds : The 30 to 35 year Bond bull run strongly boosted the PP, can that Bond bull run continue yet further?
25% Stocks : Ever more expensive (continuously top-slicing).
25% Gold : To do the heavy lifting as the last remaining chance of serious appreciation?


Then the question becomes: how are you going to beat stock and bond markets, both poised to deliver 2-3% annual returns, when so few people do?

Global debt and slowing growth make a stagflationary environment, like the 70s, a realistic possibility .. In which case Gold and Commodities would be expected to do well (and for this reason the likes of Ruffer and Troy opt for Inflation-linked Bonds).

What cash gives you is purchasing power if stock and bond markets crash – which also gets more likely as valuations climb .. So coming off the back of such a strong period for stocks and bonds, cash and commodities could be a very rational choice .. What makes the Harry Browne portfolio smart is it doesn't rely on being right .. If any asset class crashes or corrects, it ensures you have purchasing power .. So it can make a profit off instability itself .. My concept of markets if water flowing between rock pools – there's always value moving somewhere, and you can profit from it either buying what's cheap, or riding what's trending.
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