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You might take the time to actually read posts before replying. Note that I said my advice is for people who won't need to use their account for 10 years or longer.
You may want to read the article by kitces ….ten years before retirement and ten years in to retirement is more than ten years … there can be a caution zone or red zone that extends for quite a while where we are the most vulnerable.
So just more than 10 years may not be enough criteria to go that high in his opinion, it depends where that greater than 10 year period falls out
You might take the time to actually read posts before replying. Note that I said my advice is for people who won't need to use their account for 10 years or longer.
Exactly! Impending retirement, or even already being in retirement, does not necessarily imply touching one's accounts. Circumstances vary. Let's please stop pretending as if they were all alike.
It is remarkable how much trouble and loss are incurred, in trying to hedge against trouble and loss.
@mathjak107
I think you have fully convinced me that permanent portfolio is the best Way to go ( for my reserves) I’m already maxing out a retirement account and an smaller Brokerage account for growth.
My biggest concern is that everyone is warning about investing in bonds at this time and since permanent portfolio is 55% bonds .Do you think that is still prudent in this environment ?and will approximately 15% gold be able to “fly fighter cover” as you say for those bonds?
Thanks
To be a permanent portfolio depending on your age you do need some bonds. If you go 40% or 55% the 15% difference may not matter so much. Compare the Wellington fund with Wellesley.
Big concern on this is the extent the 60% or 45% in stock duplicates what you already have in the retirement account or the brokerage account. For example, it seems most of stock market index is in tech stocks. Don't want more than 5% in any company stock be it Apple or Tesla or Kroger.
For gold may also be important to check out natural resource funds to include energy, metals, ag, paper etc.
Exactly! Impending retirement, or even already being in retirement, does not necessarily imply touching one's accounts. Circumstances vary. Let's please stop pretending as if they were all alike.
It is remarkable how much trouble and loss is incurred, in trying to hedge against trouble and loss.
You are jumping the gun .
Not needing your account in retirement is very different then planning a portfolio FOR retirement. You can be 100% equities forever if you not going to be living off it the same as money invested for legacy money …you are not designing A portfolio to live off of eventually .
EXECUTIVE SUMMARY
The final decade leading up to retirement, and the first decade of retirement itself, form a retirement danger zone, where the size of ongoing contributions and the benefits of continuing to work are dwarfed by the returns of the portfolio itself. As a result of this “portfolio size effect”, the portfolio becomes almost entirely dependent on getting a favorable sequence of returns to carry through.
And because the consequences of a bear market can be so severe when the portfolio’s value is at its peak, it becomes necessary to dampen down the volatility of the portfolio to navigate the danger – a strategy commonly implemented by many lifecycle and target date funds, which use a decreasing equity glidepath that drifts equity exposure lower each year.
Yet the reality is that the retirement danger zone is still limited – after the first decade, good returns will have already carried the retiree past the point of danger, and bad returns at least mean that good returns are likely coming soon, as valuation normalizes and the market cycle takes over. Which means while it’s necessary to be conservative to defend against the portfolio size effect, it’s not necessary to reduce equity exposure indefinitely.
Instead, the optimal glidepath for asset allocation appears to be a V-shaped equity exposure, that starts out high in the early working years, gets lower as retirement approaches, and then rebuilds again through the first half of retirement. Or viewed another way, the prospective retiree builds a reserve of bonds in the final decade leading up to retirement, and then spends down that bond reserve in the early years of retirement itself (allowing equity exposure to return to normal).
Last edited by mathjak107; 08-13-2021 at 11:47 AM..
To be a permanent portfolio depending on your age you do need some bonds. If you go 40% or 55% the 15% difference may not matter so much. Compare the Wellington fund with Wellesley.
Big concern on this is the extent the 60% or 45% in stock duplicates what you already have in the retirement account or the brokerage account. For example, it seems most of stock market index is in tech stocks. Don't want more than 5% in any company stock be it Apple or Tesla or Kroger.
For gold may also be important to check out natural resource funds to include energy, metals, ag, paper etc.
The permanent portfolio is a very specific portfolio, not just something you use for a long time so it is called permanent ….
To be the actual permanent portfolio concept it has to have exactly those 4 assets listed above .
The permanent portfolio fund which is different from the Harry brown 4x4 uses Swiss francs , energy and natural resource stocks , silver , gold , treasuries , etc .
It has done quite poorly compared to the do it yourself 4x4 version .
The fund is actually the Harry brown ,terry coxen original version before it was simplified and re designed to be not so inflation heavy
The fund is way to inflation oriented .
Wellesley while a great fund lacks much high inflation protection , or even recession ,depression.
It has no inflation hedges by itself .
The idea of the permanent portfolio is it protects and covers you in
Prosperity
Recession
High inflation ,weak dollar
Depression
Wellesley is designed for lower inflation and prosperity , any other outcome will send it tumbling.
If one wants an all season portfolio then it is what it is and all these dr frankenstein versions have failed at doing it better.
Wellesley with a 20% stake in gold is about as close to the permanent portfolio / golden butterfly concept as you can get but it is still not going to do the same thing.
Last edited by mathjak107; 08-13-2021 at 11:42 AM..
The permanent portfolio is a very specific portfolio, not just something you use for a long time so it is called permanent ….
To be the actual permanent portfolio concept it has to have exactly those 4 assets listed above .
The permanent portfolio fund which is different from the Harry brown 4x4 uses Swiss francs , energy and natural resource stocks , silver , gold , treasuries , etc .
It has done quite poorly compared to the do it yourself 4x4 version .
The fund is actually the Harry brown ,terry coxen original version before it was simplified and re designed to be not so inflation heavy
The fund is way to inflation oriented .
Wellesley while a great fund lacks much high inflation protection , or even recession ,depression.
It has no inflation hedges by itself .
The idea of the permanent portfolio is it protects and covers you in
Prosperity
Recession
High inflation ,weak dollar
Depression
Wellesley is designed for lower inflation and prosperity , any other outcome will send it tumbling.
If one wants an all season portfolio then it is what it is and all these dr frankenstein versions have failed at doing it better.
Wellesley with a 20% stake in gold is about as close to the permanent portfolio / golden butterfly concept as you can get but it is still not going to do the same thing.
Ok so just started it
25 % VT
25% TLT
25% gold
25% treasury bills
Will rebalance when any asset is 35% of the portfolio or falls to 15% or once a year
We need to look into the context of 70-s and 80-s when inflation reached 12-14% and Feds rate was above18%. It coincided or was fuelled by abandoned Gold standard.
With negative real return for the number of years Harry Brown came up with idea of gold as essential part of portfolio. I believe gold had ROI up to 108% at one point. So portfolio is definetly skewed toward inflation. According to him gold start to surge at inflation rate of 6%.
We need to look into the context of 70-s and 80-s when inflation reached 12-14% and Feds rate was above18%. It coincided or was fuelled by abandoned Gold standard.
With negative real return for the number of years Harry Brown came up with idea of gold as essential part of portfolio. I believe gold had ROI up to 108% at one point. So portfolio is definetly skewed toward inflation. According to him gold start to surge at inflation rate of 6%.
The 4x4 is not skewed for inflation anymore with equal investments in the four assets …golds price back in the early 80’s was a one time event caused by many factors…
It was a mispriced like nasdaq was at 5000 a decade ago.
The final decade leading up to retirement, and the first decade of retirement itself, form a retirement danger zone..... it becomes necessary to dampen down the volatility of the portfolio to navigate the danger – a strategy commonly implemented by many lifecycle and target date funds, which use a decreasing equity glidepath that drifts equity exposure lower each year.
.......
IMO there are two ways to arrive at this sort of conclusion. First would be a gross overabundance of pessimism and fear. The second possibility is to be an internet guru looking for clickbait attention.
The data leads to quite a different conclusion. This can readily be seen by testing various equity allocations using the Firecalc webpage. A very high equity allocation has some risk of failure especially due to sequence of returns early in retirement. A very low equity allocation also has a substantial risk that the 4% rule will fail prior to 30 years of retirement. The sweet spot is roughly 60-80% equities. With a relatively high equity allocation early in retirement, it is likely that the retiree's portfolio will double and result in a life changing increase in spending levels. That has happened to anyone who retired in the last decade or two even with the Great Recession and Covid.
A life changing increase in one's portfolio is by no means certain, just likely. On the downside there is indeed a risk that very poor returns for a prolonged period of time early in retirement can cause a failure in the 4% rule. Again, Firecalc tells the story and the risk of failure is about 5% for 60-80% equities. The fear mongers catch attention by focusing on that low probability. Again, Firecalc tells the story. Very poor returns over a long period of time early in retirement can lead to failure but that needs to be viewed with some perspective. "Failure" does not mean a retirement lifetime of misery and poverty. All it means is that inflation adjusted 4% withdrawals may not carry the retiree for 30 years. Instead if still alive, the retiree might need to cut back on expenses somewhere in there late 80s or early 90s in order to have their money last longer. Again the risk of this is very minimal. It is way, way more likely that they will have twice as much money to spend as originally anticipated.
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