Author Topic: Portfolio Charts - The Golden Butterfly  (Read 295052 times)

Classical_Liberal

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Re: Portfolio Charts - The Golden Butterfly
« Reply #600 on: June 05, 2019, 05:29:50 PM »
But if you think youíre able to stay invested in this model through thick and thin than youíd find yourself far ahead of most investors out there.Ē

That statement is true of almost any portfolio containing any amount of equities between 25% and 100%.

For the higher percentages, that means riding out the crashes. For the lower percentages, that means sitting tight during bull markets where you're under -performing. Either way, pick your AA and sit tight, and you'll likely do fine.

Put bluntly, what is your greatest fear.  Fear of missing out, or fear large losses.  Expand that thought process.  One approach minimizes performance tails on both ends, while the other magnifies the tails.  IOW, for someone choosing a PP-like portfolio over 80/20 or 90/10 the lower returns is actually a feature of the portfolio.  For some reason this concept seems hard to grasp for folks on this forum.

I've made the argument many times one size does not fit all. And it certainly does not need to remain static throughout a lifetime where circumstances change regularly.  100% VTI (or 80/20) works great for someone like MMM who has had either real estate cash flow, or side businesses generating most or all of his living expenses throughout FIRE. For someone FIREing during a long-in-the-tooth bull market with high CAPE and no secondary income sources... Well, to each their own, just consider all options.

dragoncar

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Re: Portfolio Charts - The Golden Butterfly
« Reply #601 on: June 05, 2019, 05:36:38 PM »
While googling trying to find the right starting date for the Permanent Portfolio - still looks like 1982...Iím open to being corrected - I came across this piece by Michael Batnick:

https://theirrelevantinvestor.com/2016/12/02/the-permanent-portfolio/

ďI have little bad to say about the actual construction of the Permanent Portfolio; I can think of far worse ways to manage your money. The biggest potential problem is that sitting through underperformance is very difficult, which is obviously true of anything other than a plain-vanilla index. But if you think youíre able to stay invested in this model through thick and thin than youíd find yourself far ahead of most investors out there.Ē

Batnick and Ben Carlson do a weekly podcast I enjoy, called Animal Spirits.

Anyway, good piece. Similar to what Bill Bernstein wrote about the PP.

I'm not really sure what makes any start date "correct".  Like is the correct start date for evaluating a total US stock market porfolio 11/13/2000 because that's the year VTSAX was created?  When you create a new portfolio in your head, do you figure that it's impossible to evaluate because there's no out-of-sample data?
« Last Edit: June 05, 2019, 05:40:13 PM by dragoncar »

arebelspy

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Re: Portfolio Charts - The Golden Butterfly
« Reply #602 on: June 05, 2019, 05:42:08 PM »
IOW, for someone choosing a PP-like portfolio over 80/20 or 90/10 the lower returns is actually a feature of the portfolio.  For some reason this concept seems hard to grasp for folks on this forum.

I have to disagree. The low volatility is the feature. The low returns is a negative byproduct.

If someone in the PP could get 8% returns, with the same volatility of the PP over the last 35 years, and a similar allocation, I bet most (all?) would take it. They don't want low returns, they're willing to accept them for the benefits of the PP.

Or maybe I'm not grasping something, as your last sentence I quoted implies. If so, please try to explain. :)
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Telecaster

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Re: Portfolio Charts - The Golden Butterfly
« Reply #603 on: June 05, 2019, 05:58:06 PM »
I'm not really sure what makes any start date "correct".  Like is the correct start date for evaluating a total US stock market porfolio 11/13/2000 because that's the year VTSAX was created?  When you create a new portfolio in your head, do you figure that it's impossible to evaluate because there's no out-of-sample data?

That's a great question.  The world and and the stock market itself is radically different than in was in, say 1940.  How valid is the comparison between then and now?  No idea.  VTSAX tracks the S&P 500 pretty well, so you could probably use the S&P 500 as a decent proxy.   

dragoncar

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Re: Portfolio Charts - The Golden Butterfly
« Reply #604 on: June 05, 2019, 06:16:42 PM »

If someone in the PP could get 8% returns, with the same volatility of the PP over the last 35 years, and a similar allocation, I bet most (all?) would take it. They don't want low returns, they're willing to accept them for the benefits of the PP.


As long as thereís no gold in the portfolio, in which case people would endlessly complain about that GD worthless metal

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Re: Portfolio Charts - The Golden Butterfly
« Reply #605 on: June 05, 2019, 09:18:26 PM »
Curious. Has there ever been a fantasy portfolio challenge on MMM?  Itís fun to play with the numbers on portfolio charts and try to come up with max CAGR and low volatility portfolio.

Fantasy football for finance geeks. 😁
I had one. Then Tyler revised financial history and it hasn't been as good since.

100% VTI (or 80/20) works great for someone like MMM who has had either real estate cash flow, or side businesses generating most or all of his living expenses throughout FIRE. For someone FIREing during a long-in-the-tooth bull market with high CAPE and no secondary income sources... Well, to each their own, just consider all options.
I think that is a very fair point. A person with 30% of their NW in income generating real estate, who owns an additional home free and clear, a side business, and Social Security coming in a decade or three is already pretty well diversified and 100% VTI is more or less OK (still like total world more though). The net present expected value of employment income and Social Security add a pretty hefty bond component for most people. However a person who FIREd after 30 qualifying Social Security quarters, owns nothing, left useful skills at the cubicle, and is 100% VTI should have a lot less faith in the stability of their income, and consider a lot more diversification.

I'm not really sure what makes any start date "correct".  Like is the correct start date for evaluating a total US stock market porfolio 11/13/2000 because that's the year VTSAX was created?  When you create a new portfolio in your head, do you figure that it's impossible to evaluate because there's no out-of-sample data?
I think I have actually used that as the start date for about half the PV backtests I have posted this year.

Classical_Liberal

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Re: Portfolio Charts - The Golden Butterfly
« Reply #606 on: June 06, 2019, 02:42:43 AM »
I have to disagree. The low volatility is the feature. The low returns is a negative byproduct.

If someone in the PP could get 8% returns, with the same volatility of the PP over the last 35 years, and a similar allocation, I bet most (all?) would take it. They don't want low returns, they're willing to accept them for the benefits of the PP.
Of course they would, but there's no free lunch... And that's my point.  Also the fundamentals behind a portfolio like the the PP make absolute macroeconomic sense.  IF the goal is wealth preservation.  That isn't everyone's goal.  I get that, and am totally cool with it.  The problem we see here is the VTI and forget it doctrine being touted as the gold standard (ha see my little pun).  Then we back up this doctrine with historical situations where people spend multiple decades saving and DCAing.  God forbid this happens to someone on here!  Our whole point is fast accumulation and long periods of withdrawal, this changes the game.  Risks change, SORR is magnified, inflation has much longer to work, etc.  So far the only real solution I read about is lower WR's (like ERN's excellent work).  Unfortunaly this only makes the masses of, already fidgety, OMY people more scared to pull the plug.  Of course, Tyler's work being an exception.

Or maybe I'm not grasping something, as your last sentence I quoted implies. If so, please try to explain. :)
If there was one, simple, base premise that I wish more folks understood is that reduced volatility impacts WR just as dramatically as increased CAGR.

vand

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Re: Portfolio Charts - The Golden Butterfly
« Reply #607 on: June 06, 2019, 04:18:40 AM »

Or maybe I'm not grasping something, as your last sentence I quoted implies. If so, please try to explain. :)
If there was one, simple, base premise that I wish more folks understood is that reduced volatility impacts WR just as dramatically as increased CAGR.

Exactly.

Think of Sequence of Returns Risk as the opposite of Dollar Cost Averaging.

In DCA'ing you are taking advantage of volatility to buy more units when they are cheap & lowering your cost base and you are rewarded when prices go back up.

The opposite is true when you are consistently taking money out of your portfolio; you are at risk of volatility causing you to sell more units when prices are low, leaving you with fewer units to participate for when prices go back up.... the exact opposite of DCA


arebelspy

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Re: Portfolio Charts - The Golden Butterfly
« Reply #608 on: June 06, 2019, 07:49:43 AM »
If there was one, simple, base premise that I wish more folks understood is that reduced volatility impacts WR just as dramatically as increased CAGR.

Fair enough.

Tyler's work has done a lot to illuminate this, especially with the SWR research for multiple portfolio types and the perpetual WR concept, along with the sleep at night factor (my mind is blanking on the name of the butt clench index).

There's always the back testing validity question, but it seems pretty undeniable that portfolio diversity would have been pretty close to a free lunch in the past.
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Classical_Liberal

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Re: Portfolio Charts - The Golden Butterfly
« Reply #609 on: June 06, 2019, 12:40:14 PM »
There's always the back testing validity question

Yes there is, and this a truly legit concern/argument.  I will offer two pieces of advice on this. 

The first, I'm not sure having more/older data would be overly helpful anyway.  Sure, it be great to know what small cap value returns looked like in the 1890's.  Back then, though, one of the major concerns for some small caps may have literally been roving bands of horseback gunman stealing large portions of profits. Maybe a bit of an exaggeration, obviously, but you see the point. The marketplace has changed a bit, so having that data could lead to even more false conclusions than we draw from the modern, more relevant data.  This is basically the same argument people make for higher CAPE mean in modern times vs all historical, and I buy that argument.  More generally this is precision and accuracy.

The second, no two periods of history are going to look exactly alike.  There will be similarities, and it's likely asset classes will react in the same way to similar historical pressures.  However, to know which pressure will occur next takes a bit of a crystal ball. You can make educated guesses based on macroeconomic circumstances and still be wrong.  So if one hedges a bit for any circumstance (which I call a PP-like portfolio, there is more than one way to do this), they are playing the long game safely. Even better, if one has an understanding of which economic pressures impact which asset classes and why.  They can use this knowledge to construct a portfolio that addresses their personal financial weak points at any given time.  For example, SORR in early portion of a traditional FIRE.
« Last Edit: June 06, 2019, 12:57:59 PM by Classical_Liberal »

AdrianC

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Re: Portfolio Charts - The Golden Butterfly
« Reply #610 on: June 07, 2019, 06:18:22 AM »
I'm not really sure what makes any start date "correct".  Like is the correct start date for evaluating a total US stock market porfolio 11/13/2000 because that's the year VTSAX was created?  When you create a new portfolio in your head, do you figure that it's impossible to evaluate because there's no out-of-sample data?

I think it's important to see how a portfolio or strategy has done after it was widely published. It looks like the PP was published in 1982. A back test of it would have looked good, but how did it do since publication? Did it "stand the test of time"?

Well, 1982 to now, it looks to me like the humble 60/40 beat it very handily in terms of final balance (2.5x more) and withdrawal rate. You can all drive Portfolio Visualizer and come to your own conclusions.

Going forward, who knows? So we invest based on the story we find most compelling.

Tyler

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Re: Portfolio Charts - The Golden Butterfly
« Reply #611 on: June 07, 2019, 08:41:26 AM »
Well, 1982 to now, it looks to me like the humble 60/40 beat it very handily in terms of final balance (2.5x more) and withdrawal rate. You can all drive Portfolio Visualizer and come to your own conclusions.

Careful.  The entire point of SWR studies is to find the worst-case timeframe of a portfolio using the most data we can get our hands on.  I'm confident that you're not going to find a single financial professional who recommends using a SWR of nearly 10% that you find by only looking at data for the 60/40 portfolio since 1982.  One is free to use whatever decision criteria they like to choose a portfolio, but if you don't believe in using known good historical data before a portfolio idea was first published then IMO you shouldn't be looking at SWRs at all.

« Last Edit: June 07, 2019, 08:47:21 AM by Tyler »

AdrianC

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Re: Portfolio Charts - The Golden Butterfly
« Reply #612 on: June 07, 2019, 09:49:55 AM »
Well, 1982 to now, it looks to me like the humble 60/40 beat it very handily in terms of final balance (2.5x more) and withdrawal rate. You can all drive Portfolio Visualizer and come to your own conclusions.

Careful.  The entire point of SWR studies is to find the worst-case timeframe of a portfolio using the most data we can get our hands on.  I'm confident that you're not going to find a single financial professional who recommends using a SWR of nearly 10% that you find by only looking at data for the 60/40 portfolio since 1982.  One is free to use whatever decision criteria they like to choose a portfolio, but if you don't believe in using known good historical data before a portfolio idea was first published then IMO you shouldn't be looking at SWRs at all.

I never mentioned SWR in my post.

Tyler

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Re: Portfolio Charts - The Golden Butterfly
« Reply #613 on: June 07, 2019, 11:39:51 AM »
I never mentioned SWR in my post.

Well, you used Portfolio Visualizer to compare the withdrawal rates of two portfolios since 1982 and encouraged others to do the same.  PV reports two withdrawal rate metrics -- SWR and PWR -- and my point applies to either option.  Properly using PV to study withdrawal rates requires an understanding of how it works, and for the benefit of anyone who doesn't know the inner-workings here's a quick explanation.

The PV numbers don't work the way most people understand withdrawal rates, as it simply calculates the WR over a single specific start and end date.  IMO it is not useful information in isolation. You can see why in this chart.  Using the PV "backtest portfolio" tool to find the 30-year SWR starting in 1982 is the equivalent of looking at only the 1982 data point that just happens to be the single best retirement start date on record for the 60-40 portfolio.  All that really tells you is that retiring right after the bond rate peak and before the stock bubble was awesome.  Nobody will dispute that point, but when planning their own WRs most people are a lot more concerned about the worst timeframes than the best ones.



One way to address that is to run a PV backtest for every possible start and end date and search for the WRs in the worst case scenario for your particular retirement duration.  Another is to use a tool like Firecalc, cFIREsim, or my own withdrawal rates calculator that does all of that for you.  Or even better, use them all and compare results!  The more you know, the better.  But no matter what tool you prefer, intentionally cropping out the worst years for stocks and bonds (the 70's were particularly brutal for both) is generally not considered good practice when studying withdrawal rates.

Just to be clear -- I'm not trying to change your mind about any particular portfolio preference.  You're allowed to like or dislike any portfolio you want!  I also fully support PV and think it's a great website.  My goal is just to help everyone understand how the various tools work so that they can make their own educated portfolio decision.
« Last Edit: June 07, 2019, 03:37:13 PM by Tyler »

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Re: Portfolio Charts - The Golden Butterfly
« Reply #614 on: June 07, 2019, 01:55:05 PM »
Nobody will dispute that point, but when planning their own WRs most people are a lot more concerned about the worst timeframes than the best ones.

And that's the key.  I have a low equity allocation myself with less than a year to go to FIRE.  The chances are my portfolio balance will be lower in the long run, but I like improving my odds of a successful FIRE using the SWR based on those worst case scenarios.

AdrianC

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Re: Portfolio Charts - The Golden Butterfly
« Reply #615 on: June 07, 2019, 03:52:41 PM »
Well, you used Portfolio Visualizer to compare the withdrawal rate of two portfolios since 1982 and encouraged others to do the same. 
Sure, but in context, I was interested in how someone would have done had they took Harry's advice when he first published it. Yes, a specific start date, the start date of the Permanent Portfolio. Our investor would have done just fine, but they would have done spectacularly fine had they gone with the humble 60/40.

Quote
PV reports two withdrawal rate metrics -- SWR and PWR -- and my point applies to either choice. 
Do you mean Portfoliocharts reports two withdrawal rate metrics? Great tool, by the way. I really like the PWR for us FIRE types, though mostly that gives numbers less than 4%, which is frowned upon here :-)

Quote

Thanks for the chart. Very illuminating.

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One way to address that is to run a PV backtest for every possible start and end date and search for the WRs in the worst case scenario for your particular retirement duration. 
Absolutely. Totally get that. Your site does it much better.

Quote
Just to be clear -- I'm not trying to change your mind about any particular portfolio preference.  You're allowed to like or dislike any portfolio you want!  I also fully support PV and think it's a great website.  My goal is just to help everyone understand how the various tools work so that they can make their own educated portfolio decision.
Sure, no problem!

I think we would agree that the most important thing is to find a sensible portfolio or strategy you can stick with, and that means believing the story behind it, not just how well it back tested. Having faith in the story. I put my faith in a mix of the Buffett/Swenson/Bogle stories Ė equities are where itís at. It's better to be in productive assets (stocks, real estate) and be globally diversified. That's my bet.

Tyler

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Re: Portfolio Charts - The Golden Butterfly
« Reply #616 on: June 07, 2019, 04:40:45 PM »
Do you mean Portfoliocharts reports two withdrawal rate metrics?

I meant PV, but it's true for PC, too.  The main difference is just that PV calculates it from one timeframe but PC calculates it over all timeframes.

I think we would agree that the most important thing is to find a sensible portfolio or strategy you can stick with, and that means believing the story behind it, not just how well it back tested. Having faith in the story.

Agreed!  Where's the "cheers" emoji when I need one?  :)
« Last Edit: June 08, 2019, 07:57:51 AM by Tyler »

Classical_Liberal

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Re: Portfolio Charts - The Golden Butterfly
« Reply #617 on: June 07, 2019, 11:30:42 PM »
...means believing the story behind it, not just how well it back tested.
I really like this statement, "the story behind it".  I'm gonna steal that for future discussions of this nature.

arebelspy

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Re: Portfolio Charts - The Golden Butterfly
« Reply #618 on: June 08, 2019, 09:52:14 AM »
...means believing the story behind it, not just how well it back tested.
I really like this statement, "the story behind it".  I'm gonna steal that for future discussions of this nature.

It's a useful concept. You must have missed the Miles dual momentum days (in mid-late 2015?). I think that's when the story concept became most popular around here (and where some learned the term a priori).  :)
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AdrianC

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Re: Portfolio Charts - The Golden Butterfly
« Reply #619 on: June 13, 2019, 10:54:27 AM »
I have a low equity allocation myself with less than a year to go to FIRE.  The chances are my portfolio balance will be lower in the long run, but I like improving my odds of a successful FIRE using the SWR based on those worst case scenarios.
Understandable, for sure. How low is low, though?

vand

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Re: Portfolio Charts - The Golden Butterfly
« Reply #620 on: June 14, 2019, 03:30:32 AM »
I have a low equity allocation myself with less than a year to go to FIRE.  The chances are my portfolio balance will be lower in the long run, but I like improving my odds of a successful FIRE using the SWR based on those worst case scenarios.
Understandable, for sure. How low is low, though?

I'm guessing low enough to sleep well at night ;-)

Just throwing this out there as a genergal question:
how would your AA change if your portfolio was frozen at this point in time and you couldn't make any changes at all for the next 5 years?

« Last Edit: June 14, 2019, 03:32:42 AM by vand »

arebelspy

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Re: Portfolio Charts - The Golden Butterfly
« Reply #621 on: June 14, 2019, 03:53:41 PM »
I have a low equity allocation myself with less than a year to go to FIRE.  The chances are my portfolio balance will be lower in the long run, but I like improving my odds of a successful FIRE using the SWR based on those worst case scenarios.
Understandable, for sure. How low is low, though?

I'm guessing low enough to sleep well at night ;-)

Just throwing this out there as a genergal question:
how would your AA change if your portfolio was frozen at this point in time and you couldn't make any changes at all for the next 5 years?
That means no rebalancing. And potentially trying to short term guess the economical climate of the next five years.

The longer you set the timeframe of that question, the higher you'd want your equity allocation to be, IMO.

Luckily we don't have that, and can use MPT.
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Re: Portfolio Charts - The Golden Butterfly
« Reply #622 on: June 18, 2019, 04:37:36 AM »
I'd love to find a site like Portfolio Charts or Portfoliovisualizer where I can analyze individual commodities in my portfolio - ie silver, coffee, cocoa etc. and see how they mix with other assets.  Does anyone know if this exists?

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Re: Portfolio Charts - The Golden Butterfly
« Reply #623 on: July 28, 2019, 10:23:30 PM »
I've enjoyed reading this thread. I'm still thinking that I'm 5-7 years out from retiring, so my mishmash of 401k's obscures me from understanding my current allocation. I would like to make it a bit more organized and especially moving into a more diversified AA. Something like the GB sound intriguing, I would probably trade out some of the Gold with REIT if not all of it. And I would have to read more on LTB's. Not sure that I'm completely sold on it, but it has caused me to look into commodities and how well they can act as a non-correlating asset.

I looked at Vanguard's VAW, but it looks like that more or less follows the market and isn't a good looking hedge at all. If I don't want Gold to be my only commodity, do I just buy a mishmash of 10 separate commodity etfs? Something like the Ivy portfolio looked to be something that I would be more comfortable with than GB or PP.

Tyler

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Re: Portfolio Charts - The Golden Butterfly
« Reply #624 on: July 28, 2019, 11:03:48 PM »
I'd love to find a site like Portfolio Charts or Portfoliovisualizer where I can analyze individual commodities in my portfolio - ie silver, coffee, cocoa etc. and see how they mix with other assets.  Does anyone know if this exists?

Your best bet is to use Portfolio Visualizer or ETFreplay and enter the ticker for the closest ETF you can find (SLV, NIB, etc).


I looked at Vanguard's VAW, but it looks like that more or less follows the market and isn't a good looking hedge at all. If I don't want Gold to be my only commodity, do I just buy a mishmash of 10 separate commodity etfs? Something like the Ivy portfolio looked to be something that I would be more comfortable with than GB or PP.

The reason you're seeing VAW follow the stock market is that it tracks stocks in the materials sector.  Commodities on the site (and in the Ivy Portfolio) track commodities futures and are most similar to funds like DBC and GSG. 

BTW, based on your comments on preferred assets I think you might also like the 7Twelve Portfolio
« Last Edit: July 28, 2019, 11:12:55 PM by Tyler »

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Re: Portfolio Charts - The Golden Butterfly
« Reply #625 on: July 29, 2019, 07:56:55 AM »

I looked at Vanguard's VAW, but it looks like that more or less follows the market and isn't a good looking hedge at all. If I don't want Gold to be my only commodity, do I just buy a mishmash of 10 separate commodity etfs? Something like the Ivy portfolio looked to be something that I would be more comfortable with than GB or PP.

The reason you're seeing VAW follow the stock market is that it tracks stocks in the materials sector.  Commodities on the site (and in the Ivy Portfolio) track commodities futures and are most similar to funds like DBC and GSG. 

BTW, based on your comments on preferred assets I think you might also like the 7Twelve Portfolio.

Awesome! I was able to find one the Ivy Portfolio book, but the 7-twelve book isn't available at my library. (drat) I'll have to buy it off ebay or the used section at Amazon. Thanks for the recommend. I'll have to read through both of these before pulling any levers.

FIPurpose

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Re: Portfolio Charts - The Golden Butterfly
« Reply #626 on: July 29, 2019, 08:25:55 PM »
So here is my review of The Ivy Portfolio:

I thought it would take longer to read this book, but there were a number of chapters that I decided to more or less skip. The book is based on following the principles laid out by some of the best Ivy League Endowment Managers around. He does this specifically modeling after the Yale and Harvard funds. Both Yale and Harvard used a strategy of investing heavily in real and alternative assets.

Both of these endowments are actively managed, Harvard invested heavily in lumber (Harvard had 3 lumberjacks on staff at one point), Yale more so in Real Estate. Some of the strategies they employ are unavailable to the average investor. Both Yale and Harvard take on private equity investments and hedge funds.

The author attempts to filter this down into an easily managed portfolio for the individual into 5 major sectors: Domestic Stock, Foreign Stock, Bonds, RE, and Commodities in equal proportions. The author mentions as many here did, that the investors biggest source of failure is inflation. So 80% of the portfolio is designed to help combat that:

stocks - have done well in times of low inflation
RE and Commodities - have done well in times of high inflation
bonds - hedge against deflation

The parts of the book I skipped was him going over a market timing strategy, hedge fund picking, and private equity. I just, I just know I don't have the desire to do that stuff.

The crux of the book though is his table of suggested ETF's that represent this portfolio (attached). A simple 5- fund portfolio, 10-fund, and 20-funds

If I end up deciding to implement this, I would probably look at somewhere inbetween the 10 and 20. I'm not sure I'd be on board with all of those ETF's or necessarily see the need to split up all the stock positions into different funds.

Nest up is the 7-twelve book, though since I couldn't find that one online, that will have to wait a bit longer to read.

effigy98

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Re: Portfolio Charts - The Golden Butterfly
« Reply #627 on: July 30, 2019, 04:24:32 PM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

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Re: Portfolio Charts - The Golden Butterfly
« Reply #628 on: July 30, 2019, 10:16:05 PM »
Alright so I ended up finding a copy of the 7-twelve book online. If you've read a basic individual investing book, he covers most of the same material with the focus around the diversification he suggests. From the ETF's that he suggests, his portfolio really doesn't differ by more than a few percent from the Ivy-10 fund portfolio. I skimmed most of the book because he doesn't really present any new information, but if you're looking for a good basics, he seemed to do the job.

When I make it back to the US, I need to come up with a plan to transition to this plan. I just recently cleaned out my remaining notes in Lending Club, and I'll hopefully be able to consolidate my HSA accounts into a Fidelity HSA. I'll start working on moving out of my single stock positions, and put more money into general funds. I've had fun with stocks, and actually didn't do too bad. But I just have other interests and I don't want stock picking taking up my time.

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Re: Portfolio Charts - The Golden Butterfly
« Reply #629 on: July 30, 2019, 10:45:34 PM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

Not sure if you follow the PP forum but check out this thread:

https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=10&t=603

Might try to find the point where KGB starts implementing the 3x ETF leveraged portfolio

vand

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Re: Portfolio Charts - The Golden Butterfly
« Reply #630 on: July 31, 2019, 02:43:01 AM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

Not sure if you follow the PP forum but check out this thread:

https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=10&t=603

Might try to find the point where KGB starts implementing the 3x ETF leveraged portfolio

Not a good idea. Leveraged ETFs are rebalanced daily. This leads to massive time decay for most long ETFs, and huge downside volatility for short ETFs.

There is no free lunch.

effigy98

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Re: Portfolio Charts - The Golden Butterfly
« Reply #631 on: July 31, 2019, 07:59:28 AM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

Not sure if you follow the PP forum but check out this thread:

https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=10&t=603

Might try to find the point where KGB starts implementing the 3x ETF leveraged portfolio

This is a great thread! Thank you.

effigy98

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Re: Portfolio Charts - The Golden Butterfly
« Reply #632 on: July 31, 2019, 08:18:41 AM »
The 3x funds look like a useful tool and have been working for almost 40 years. Fast inflation looks like the biggest risk and you have to re-balance frequently. Going to carve off a tax sheltered M1 account (to make re-balances easier) with 10% and implement and get that butterfly moving faster.
« Last Edit: July 31, 2019, 08:21:48 AM by effigy98 »

dragoncar

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Re: Portfolio Charts - The Golden Butterfly
« Reply #633 on: July 31, 2019, 10:00:53 AM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

Not sure if you follow the PP forum but check out this thread:

https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=10&t=603

Might try to find the point where KGB starts implementing the 3x ETF leveraged portfolio

Not a good idea. Leveraged ETFs are rebalanced daily. This leads to massive time decay for most long ETFs, and huge downside volatility for short ETFs.

There is no free lunch.

This is addressed in the thread, and it wasnít as big an issue as you might expect in the context of a balanced portfolio.  IIRC, you lose some to volatility but itís made up for by the leverage.  Thereís another consideration that the optimum amount of leverage will depend on total costs (interest/fees/decay) and once those costs go too high sure it doesnít make any sense to lever, but itís not cut and dried (need to dig up that paper).  For me the biggest issue is counterpart risk.  One firm can go under and screw you.

vand

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Re: Portfolio Charts - The Golden Butterfly
« Reply #634 on: July 31, 2019, 11:26:10 PM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

Not sure if you follow the PP forum but check out this thread:

https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=10&t=603

Might try to find the point where KGB starts implementing the 3x ETF leveraged portfolio

Not a good idea. Leveraged ETFs are rebalanced daily. This leads to massive time decay for most long ETFs, and huge downside volatility for short ETFs.

There is no free lunch.

This is addressed in the thread, and it wasnít as big an issue as you might expect in the context of a balanced portfolio.  IIRC, you lose some to volatility but itís made up for by the leverage.  Thereís another consideration that the optimum amount of leverage will depend on total costs (interest/fees/decay) and once those costs go too high sure it doesnít make any sense to lever, but itís not cut and dried (need to dig up that paper).  For me the biggest issue is counterpart risk.  One firm can go under and screw you.

If you think counterparty risk outweights the inherent portfolio risk associated with leveraged ETFs then you have no idea. Literally, less than no idea, how risky these products are. For example look at any leveraged x3 crude oil fund, and see how they generally lose money over the long term even as the price of crude oil has gone up.

I cannot stress what a bad idea it is for the vast, vast majority of people to consider holding leveraged ETFs.  They are not designed for traders who understand the risks, not buy and hold investors whose mantra seems to be "VTSAX VTSAX VTSAX ".  Time works against you with this products, not for you.

The vast majority of leveraged ETFs tend towards zero... They will either produce no long term return or they will completely blow up on you when there is a violent price correction (see XIV).


dragoncar

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Re: Portfolio Charts - The Golden Butterfly
« Reply #635 on: August 01, 2019, 12:55:56 AM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

Not sure if you follow the PP forum but check out this thread:

https://www.gyroscopicinvesting.com/forum/viewtopic.php?f=10&t=603

Might try to find the point where KGB starts implementing the 3x ETF leveraged portfolio

Not a good idea. Leveraged ETFs are rebalanced daily. This leads to massive time decay for most long ETFs, and huge downside volatility for short ETFs.

There is no free lunch.

This is addressed in the thread, and it wasnít as big an issue as you might expect in the context of a balanced portfolio.  IIRC, you lose some to volatility but itís made up for by the leverage.  Thereís another consideration that the optimum amount of leverage will depend on total costs (interest/fees/decay) and once those costs go too high sure it doesnít make any sense to lever, but itís not cut and dried (need to dig up that paper).  For me the biggest issue is counterpart risk.  One firm can go under and screw you.

If you think counterparty risk outweights the inherent portfolio risk associated with leveraged ETFs then you have no idea. Literally, less than no idea, how risky these products are. For example look at any leveraged x3 crude oil fund, and see how they generally lose money over the long term even as the price of crude oil has gone up.

I cannot stress what a bad idea it is for the vast, vast majority of people to consider holding leveraged ETFs.  They are not designed for traders who understand the risks, not buy and hold investors whose mantra seems to be "VTSAX VTSAX VTSAX ".  Time works against you with this products, not for you.

The vast majority of leveraged ETFs tend towards zero... They will either produce no long term return or they will completely blow up on you when there is a violent price correction (see XIV).

OK I don't want to hijack the thread, was mostly trying to answer effigy98's question.  There's a really long thread already discussing these issues.  However, since we are in the golden butterfly thread, I'll reiterate that evaluating risk based on individual assets misses the bigger picture of how those assets interact within a portfolio as a whole.  Specifically, non-correlated (we hope) assets.  You can create a portfolio of extremely risky assets that's 90% cash and sleep really well at night even when you fully expect the risky assets to occasionally go to zero.
« Last Edit: August 01, 2019, 01:09:14 AM by dragoncar »

effigy98

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Re: Portfolio Charts - The Golden Butterfly
« Reply #636 on: August 01, 2019, 09:01:37 AM »
Yes exactly. Uncorrelated assets are important to my portfolios. PortfolioCharts is probably the fastest way to visual see how awesome it is especially with volatile assets.

effigy98

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Re: Portfolio Charts - The Golden Butterfly
« Reply #637 on: August 14, 2019, 11:32:07 AM »
Gold looking pretty good right now with half the world having negative interest rates, or you could go the buffet route and put your cash on pallets stashed in a vault somewhere.

dragoncar

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Re: Portfolio Charts - The Golden Butterfly
« Reply #638 on: August 14, 2019, 06:42:21 PM »
Gold looking pretty good right now with half the world having negative interest rates, or you could go the buffet route and put your cash on pallets stashed in a vault somewhere.

I was about to sell some gold yesterday, but my short term market timer said ďno, itís down today... sell tomorrow instead.Ē  By virtue of my incredible intellect (read: sheer luck), I sold at todayís intraday high.  Yah for me I guess?  I need the money this month.

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Re: Portfolio Charts - The Golden Butterfly
« Reply #639 on: August 15, 2019, 02:01:12 PM »
Gold looking pretty good right now with half the world having negative interest rates, or you could go the buffet route and put your cash on pallets stashed in a vault somewhere.

This doesn't make sense to me, because gold is intended to be used as a hedge against hyper-inflation. Negative interest rates are the opposite of hyper inflation.

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Re: Portfolio Charts - The Golden Butterfly
« Reply #640 on: August 15, 2019, 10:56:45 PM »
@talltexan
Think in terms of the relative strength of US dollar. How do decreasing US treasury yields impact the US dollar's value? 

Also, if someone considers gold a zero yield, zero risk asset, how does it become more appealing if a low yielding/low risk asset suddenly become a zero yield (or negative)/low risk asset.

vand

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Re: Portfolio Charts - The Golden Butterfly
« Reply #641 on: August 16, 2019, 01:30:49 AM »
You can always count on the "invest with your nose" crowd to be a reliable indicator of when to do the opposite:

Gold has handily beaten VTSAX since this person was ready to throw in the towel:

https://forum.mrmoneymustache.com/investor-alley/how-to-get-rid-of-gold-stash/

while D.R. giving us yet more of his famous investing advice:

https://www.youtube.com/watch?v=S6vby9WHcPA



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Re: Portfolio Charts - The Golden Butterfly
« Reply #642 on: August 16, 2019, 06:43:58 AM »
@talltexan
Think in terms of the relative strength of US dollar. How do decreasing US treasury yields impact the US dollar's value? 

Also, if someone considers gold a zero yield, zero risk asset, how does it become more appealing if a low yielding/low risk asset suddenly become a zero yield (or negative)/low risk asset.

because US people don't want to save, so instead they buy more goods from other countries, and the sellers of those goods invest in treasuries.

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Re: Portfolio Charts - The Golden Butterfly
« Reply #643 on: August 16, 2019, 08:02:25 AM »
You can always count on the "invest with your nose" crowd to be a reliable indicator of when to do the opposite:

Gold has handily beaten VTSAX since this person was ready to throw in the towel:

https://forum.mrmoneymustache.com/investor-alley/how-to-get-rid-of-gold-stash/

Weather is not climate.

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Re: Portfolio Charts - The Golden Butterfly
« Reply #644 on: August 16, 2019, 07:18:32 PM »
It's been a pretty good time to be selling the "permanent portfolio -like" assets the past couple weeks! Last week I let go 25% of my gold miner equity. Yesterday I dumped 25% of ZROZ at 152. I will look pretty smart if those trend down and stocks trend up. And if not, I was following a predetermined rebalancing strategy, so I will look pretty smart either way! And since each one was like $3k, either way in the grander scheme of things it will be more or less meaningless. To be clear I am not rebalancing into stocks, so much as out of the other two.

effigy98

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Re: Portfolio Charts - The Golden Butterfly
« Reply #645 on: August 17, 2019, 08:07:02 AM »
So far so good as the leverage actually has good risk parity.

I use the 3x leveraged TMF and UPRO for the LTT and Stock portions. I do not like the 3x gold however. I decided to stick with GLD and selling covered calls on it to get some yield out of it. I see a lot of people saying gold just sits there and has no yield, that does not have to be true. Many people buy derivatives to hedge against huge gold moves and they pay a significant premium for that which you can profit off of.

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Re: Portfolio Charts - The Golden Butterfly
« Reply #646 on: September 05, 2019, 08:40:57 PM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

Interestingly enough, if you would've had a portfolio of

TQQQ 60%
TMF 40%

and held it over the last 8.5 years you would have an 18x return

I think there is definitely a place for leveraged ETF's in a portfolio

bacchi

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Re: Portfolio Charts - The Golden Butterfly
« Reply #647 on: September 06, 2019, 08:16:14 AM »
Anyone using 3x UGLD or TMF at 7% vs the full 20% of non leveraged? With interest rates so low, daily borrowing costs for the leverage are in our favor.

Interestingly enough, if you would've had a portfolio of

TQQQ 60%
TMF 40%

and held it over the last 8.5 years you would have an 18x return

I think there is definitely a place for leveraged ETF's in a portfolio

Why mess around? Just go for the actual futures. RTY is 50:1 or just go for the big boy and buy SPX at 250:1 leverage.

effigy98

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Re: Portfolio Charts - The Golden Butterfly
« Reply #648 on: October 11, 2019, 06:25:41 PM »
Thinking of switching to.

40% NTSX
20% SMMV
20% EDV
20% GLDM

This will overweight the Long Term Treasuries a bit, but I want to get a little more defensive.

dragoncar

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Re: Portfolio Charts - The Golden Butterfly
« Reply #649 on: October 11, 2019, 06:26:57 PM »
Thinking of switching to.

40% NTSX
20% SMMV
20% EDV
20% GLDM

This will overweight the Long Term Treasuries a bit, but I want to get a little more defensive.

Thereís leveraging and then thereís market timing... not sure I can approve of both!