Call_Me_Op wrote:Based upon back-testing, a 30/70 portfolio of stocks/5 year treasuries compares favorably with the Permanent Portfolio (return. SD, and draw-down), and appears to be intrinsically less risky in the sense that 70% of the portfolio is very safe.
This is a Boglehead 25/75 Total International Stocks/Total Bond comparison to the Permanent Portfolio (courtesy of Simba's spreadsheet/data)
One stop UK versions of Boglehead portfolios
80-20
http://www.morningstar.co.uk/uk/funds/s ... F00000MLUR
60-40
http://www.morningstar.co.uk/uk/funds/s ... F00000MLUP
20-80
http://www.morningstar.co.uk/uk/funds/s ... F00000MLUL
Expense Ratio comparisons
Boglehead (Vanguard) 0.3%
PERM 0.5%
PRPFX 0.8%
The 4x25 (stocks, LTT, T-Bill, Gold) Permanent Portfolio might be considered as a gold tilt (additional gold exposure above and beyond Total Market exposure), so would be expected to relatively lead when gold was rising (1970's, 2000's), and lag when gold was in decline (1980's, 1990's). During the early years of the 1980's gold was declining at -15% annualised (i.e. 1980 to 1984 inclusive). At other times gold might be putting on 16%+ annualised (i.e. 2007 to 2011 inclusive).
If you're considering a tilted portfolio, perhaps its best
not to do so when the tilt asset has had a very strong prior decade. Often however that's when investors are more attracted to such tilting - only to later sell out of such tilt after subsequent relatively poor performance.
5 year Treasury's instead of total bond ? - Personally I quite like that myself. Again that's tilting away from total bond though. A 5 year treasury ladder when each rung is held to maturity has no capital risk and rolls relatively quickly to track yields up (or down). When holding each rung to maturity, interim capital value fluctuations can in effect be ignored as they're just paper value changes. When so, the gain each year for such a 5 year ladder is the average of the current and past four years 5 year Treasury yields. UK since 1980, a 5 year Gilt (treasury) ladder yielded a 3.7% annualised real (after inflation) return - not bad for something that is nigh on totally risk free. Much of that however would have been a consequence of generally transitioning from relatively high yields in the 1980's, down to more recent low/average yields. Going forward ??? I wouldn't expect such historic high real gains to persist, excepting perhaps if yields again spiked heavily upwards and maturing bonds were rolled into those higher yields (I'd be inclined to extend the ladder out to perhaps 10+ years under such conditions i.e. roll maturing gilts into 10 year gilts).
Total bonds versus specific bonds is ??? For example whilst corporate bonds might yield 2% more than gilts, the corporate bond default rate might average 2% and in effect negate the benefit of higher yields (approximation for corporate bonds is yield - default rate (%)). A problem with defaults is that they tend to cluster, so whilst there may be no defaults for 9 years, you might encounter 20% defaults in the tenth year and endure a sizeable capital loss in that year as a result (silly example perhaps, but conveys the gist).