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So how do you keep your allocations from getting higher than your pucker factor without rebalancing to your desired levels ?
Maybe that’s your problem ..... if you are so rattled by even knowing your balance I think there is something wrong in what you are doing ..people either don’t look because they don’t care and are unelected by it ,,,or they don’t look because they over care and are upset by things when they fall ...
It does not sound to me like what your doing passes the sleep well test.. first rule of investing is you need to do what let’s you sleep well .
So how do you keep your allocations from getting higher than your pucker factor without rebalancing to your desired levels ?
My "pucker factor" is an emotional grappling with daily, monthly, yearly, decadal events. Not pouring over my account, I have no precise notion of what actually happened. If oil prices fell, presumably my oil-stock suffered. But not checking, I've no actual inkling. Since I have no intention of selling, the practical "pucker factor" is infinite. But any whiff of bad news, especially from Europe, unsettles me. The personal pucker-factor is zero.
Here's the great misunderstanding, Mathjak. Suppose that the stock market falls 20%, and your allocation is 50% stocks, and 50% cash. Your account fell only by 10%. Fantastic! Fantastic? Not really. How does knowing that your loss was only 10%, at all assuage trepidation or calm frayed nerves? Sure, 10% is better than 20%, but both are awful. I don't know about you, but personally I'd enjoy no solace from the realization that I only - only! - lost 10%. So then, what's the point of a 50/50 allocation? It only attenuates potential long-term gain.
It depends why you want that 50/50 mix ... in my growth stage I would never want anything but 100% equities.. today I live off that money and I no longer need the gains nor the wild swings 100% equity gives you ...today capital preservation and moderate growth is my goal .. I want to have a fraction of the swings and draw down I had in my growth mode..especially because now our yearly income is based on portfolio balance each year ...
There are portfolios models that keep draw down in a tighter range then others
100% equities has lost money 1/3 of the time since the 1970’s with a standard deviation of 17% ....on the other hand something like the butterfly lost money 20% of the time with just a 7% std deviation...
That is a fraction of the swings ,but only a small penalty in gain.. so there is a big difference in balance in those drops if that bothers you ...
You can temper things even more combining the permanent portfolio with your regular model ... yesterday markets were down ,, but the risk parity model I use was up so much in gold and treasuries that it turned the fidelity insight growth and income model positive on the day when looked at as a whole.
So you can temper things by quite a bit if it gets to you this much
Ultimately our desires don't differ that much. We all want maximal pleasure and minimal pain, maximal growth and minimal risk, all of the upside and zero downside. Sophisticates talk about the "efficiency frontier", but how does theory comport with practice? Even deeper sophisticates pontificate about volatile assets that correlate negatively with each other, the famous example being stock in a company that sells birth-control and another that sells diapers, or some such thing. But again I ask: in practice, how does this negative correlation actually work? Instead it seems that all assets - and not just stocks! - are highly correlated. Remember when we were taught to buy "defensive stocks" in fraught and volatile times, and "aggressive stocks" in times of growth? When's that last time that that worked adequately? The recession of 1991?
What I want is long-term building of wealth, for wealth's sake. Odds of success are, unfortunately, almost entirely out of my hands at this point. They depend on what the markets do, and not what I do, as a worker or a saver. And perhaps that's the greatest anguish of all.
100% equities has lost money 1/3 of the time since the 1970’s with a standard deviation of 17% ....on the other hand something like the butterfly lost money 20% of the time with just a 7% std deviation...
That is a fraction of the swings ,but only a small penalty in gain.. so there is a big difference in balance in those drops if that bothers you ...
You can temper things even more combining the permanent portfolio with your regular model ... yesterday markets were down ,, but the risk parity model I use was up so much in gold and treasuries that it turned the fidelity insight growth and income model positive on the day when looked at as a whole.
So you can temper things by quite a bit if it gets to you this much
I thought you said in Jan that you had moved out of your gold/treasuries—
Did you mean you just sold most of gains and reverted to your holding percentages...
I did sell out the gold and long term treasuries ... but after the fast run up and fed reversal I added them back over last month and just finished getting it all in
Ultimately our desires don't differ that much. We all want maximal pleasure and minimal pain, maximal growth and minimal risk, all of the upside and zero downside. Sophisticates talk about the "efficiency frontier", but how does theory comport with practice? Even deeper sophisticates pontificate about volatile assets that correlate negatively with each other, the famous example being stock in a company that sells birth-control and another that sells diapers, or some such thing. But again I ask: in practice, how does this negative correlation actually work? Instead it seems that all assets - and not just stocks! - are highly correlated. Remember when we were taught to buy "defensive stocks" in fraught and volatile times, and "aggressive stocks" in times of growth? When's that last time that that worked adequately? The recession of 1991?
What I want is long-term building of wealth, for wealth's sake. Odds of success are, unfortunately, almost entirely out of my hands at this point. They depend on what the markets do, and not what I do, as a worker or a saver. And perhaps that's the greatest anguish of all.
All assets are not correlated though all the time . When recession hits you can pretty much count on either gold or long term treasuries to run with the ball depending if it is a high inflation issue or a slide towards depression....
There is usually a flight to safety to one of them .
The proof is in the pudding and that is why these parity portfolios have less losing years and smaller deviation
What is surprising is that we extend the time horizon 2000-2019 and the two portfolios have identical returns. So 100% equities just did not perform any better than 80/20. However with 100% equities you did get a deeper max drawdown and more volatility for virtually no return which was not efficient.
So this implies that perhaps having some bonds is a good idea even if one is in the growth stage in case we have another lost decade like 2000-2009
100% equities has lost money 1/3 of the time since the 1970’s with a standard deviation of 17% ....on the other hand something like the butterfly lost money 20% of the time with just a 7% std deviation...
That is a fraction of the swings ,but only a small penalty in gain.. so there is a big difference in balance in those drops if that bothers you ...
You can temper things even more combining the permanent portfolio with your regular model ... yesterday markets were down ,, but the risk parity model I use was up so much in gold and treasuries that it turned the fidelity insight growth and income model positive on the day when looked at as a whole.
So you can temper things by quite a bit if it gets to you this much
Not sure where you are getting your numbers....since 1970 the S and P has had 10 down years--thats over a 48 year time frame....thats down about 20% of the time not 33% as you indicate here
My sense is the ending balance of 100% equity vs the butterfly portfolio is substantially more and not a "small penalty in gain"
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