Anyone feel like ripping this asset allocation to shreds?

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seekinganswers
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Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Wed Sep 28, 2016 5:44 pm

Hi ... if it isn't too bad, maybe just poke holes in it.

STOCKS 30%
>> VT Vanguard total/global

BONDS 40%
>> BND Vanguard total bond index (US)

TIPS 5%
>> TIP iShares

GOLD 15%
>> GLD 12%
>> Physical gold 3%

COMMODITIES 5%
>> DBC Commodities index

REIT 5%
>> VNQ Vanguard REIT


No questions, just criticism desired --- thanks in advance :)

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9-5 Suited
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by 9-5 Suited » Wed Sep 28, 2016 5:59 pm

Not sure you will get any quality replies without context around your current situation and future goals. Your AA should match your personal circumstances and there's no way to criticize it from this info.

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Dutch
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by Dutch » Wed Sep 28, 2016 6:04 pm

Looks very conservative.

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Wed Sep 28, 2016 6:09 pm

9-5 Suited wrote:Not sure you will get any quality replies without context around your current situation and future goals. Your AA should match your personal circumstances and there's no way to criticize it from this info.


Purchasing power preservation for about 40 years with an ever decreasing need to purchase - as one reaches 80 years old for example.

There are a lot of AA plans out there ... 3 fund, All Weather, Rick Ferri, Core-Four, blahhh, blahhh. This is just a general allocation as they are.

If you forget about tax advantage, taxable vs. non-taxable, all-in vs. dollar cost avg, growth vs. asset preservation, blahh vs. blahh ... simply looking to see if there is a blatant problem with this AA - maybe fund choices, overlaps, or something I don't understand. If it was 1980, I'd totally not do this. But, it's not 1980.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by amphora » Wed Sep 28, 2016 6:09 pm

I'll bite 8-)

Your portfolio is way too light on stocks (only 30% of your allocation) and too heavy on commodities/gold. Bogleheads generally aren't huge fans of gold/commodities because they don't generate profits; it's an inflation hedge or speculation.
https://www.bogleheads.org/wiki/Commodities

I know you wrote "no questions, just criticism," but when critiquing an asset allocation, it's helpful to understand the investor's rationale. Your portfolio is very conservative with an overdose of inflation protection.

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LAlearning
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by LAlearning » Wed Sep 28, 2016 6:15 pm

looks gross. good luck!
I know nothing!

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Wed Sep 28, 2016 6:18 pm

I'll bite 8-)

Your portfolio is way too light on stocks (only 30% of your allocation) and too heavy on commodities/gold. Bogleheads generally aren't huge fans of gold/commodities because they don't generate profits; it's an inflation hedge or speculation.
https://www.bogleheads.org/wiki/Commodities

amphora wrote:I know you wrote "no questions, just criticism," but when critiquing an asset allocation, it's helpful to understand the investor's rationale. Your portfolio is very conservative with an overdose of inflation protection.


Thanks amphora ... you're level headed rationale is more my type of approach. I need to keep that. But also like what you said - "conservative with an overdose of inflation protection" - seems like that's the next decade. So much of what I read has to do with the past four decades.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by boglephreak » Wed Sep 28, 2016 6:21 pm

i have yet to see a reasonable argument why anyone would buy gold (let alone 15% of their AA) or commodities.

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Wed Sep 28, 2016 6:21 pm

LAlearning wrote:looks gross. good luck!


Love it! I'll get to work on that :sharebeer

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Wed Sep 28, 2016 6:27 pm

boglephreak wrote:i have yet to see a reasonable argument why anyone would buy gold (let alone 15% of their AA) or commodities.


No purchase at this point. Although, I only joined this forum a few days ago and only posted two questions. Your response about gold came up last time. I don't know if it is just this form's general stance or if there is actually intelligent minds out there that are not pushing gold - seems like it has been a debatable topic. Lot's of people on different sides of the story. Time will tell - and then it will be backtested against whatnot.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by moshe » Wed Sep 28, 2016 6:32 pm

Thank you for posting. No ripping for me but some concerns about expense ratios perhaps (thinking DBC Commodities index) and holding gold.

Echoing the concerns with holding gold. As a commodity that does not produce any cash flows and actually costs money to store i am skeptical about holding in such large amounts? If you have fear of inflation perhaps increasing the iTips is better? I am not sure. I personally don't worry about things that seem to be currently under control. It we see GDP and the participation rates spike then worth considering perhaps.

~Moshe
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by boglephreak » Wed Sep 28, 2016 6:39 pm

seekinganswers wrote:
boglephreak wrote:i have yet to see a reasonable argument why anyone would buy gold (let alone 15% of their AA) or commodities.


No purchase at this point. Although, I only joined this forum a few days ago and only posted two questions. Your response about gold came up last time. I don't know if it is just this form's general stance or if there is actually intelligent minds out there that are not pushing gold - seems like it has been a debatable topic. Lot's of people on different sides of the story. Time will tell - and then it will be backtested against whatnot.

Image

well, considering its jack bogle's stance, its not surprising people on bogleheads take it up.

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Wed Sep 28, 2016 6:42 pm

moshe wrote:Thank you for posting. No ripping for me but some concerns about expense ratios perhaps (thinking DBC Commodities index) and holding gold.


Thanks ... good point. I read that keeping expense ratios below 1% is advised. GLD is 0.4% and DBC is 0.67% (the highest in the proposed aa).

moshe wrote:Echoing the concerns with holding gold. As a commodity that does not produce any cash flows and actually costs money to store i am skeptical about holding in such large amounts? If you have fear of inflation perhaps increasing the iTips is better? I am not sure. I personally don't worry about things that seem to be currently under control. It we see GDP and the participation rates spike then worth considering perhaps.

~Moshe


Thanks ... yes, I have it on my learning list to figure out why TIPS would be an equal or better replacement to gold when dealing with inflation. Not sure about the two - like if you were comparing baseball to curling.

Also like your comment about not worrying about things that are currently under controls. We do this in our lives, why not in investing ... must be a media+emotional cocktail that prompts the masses.

Thanks again ... constructive!

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LAlearning
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by LAlearning » Wed Sep 28, 2016 6:43 pm

seekinganswers wrote: I don't know if it is just this form's general stance or if there is actually intelligent minds out there that are not pushing gold - seems like it has been a debatable topic.


im pretty sure buffet doesnt push gold. and has a few famous phrases about it.
I know nothing!

soboggled
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by soboggled » Wed Sep 28, 2016 6:49 pm

Partly depends on how close you are to retirement.
I would:
Dump the gold. (It appeals to those who think we are going to have runaway inflation and we will some day return to the gold standard. If you find yourself in that conspiratorial camp, go for it, otherwise forget it. The fact is most intelligent minds are very skeptical.)
Dump the REITs, especially if you own a home, as they probably overlap with stock and personal housing positions.
Dump the commodities as they are just another inefficient inflation hedge.
Dump the TIPS unless you are in retirement, in which case increase the TIPS allocation. Still, if you are super-concerned with inflation, use TIPs and maybe stocks instead of gold and commodities.
Stick with stocks, fixed income and TIPS (if in retirement), allocated according to your age and risk tolerance.
Last edited by soboggled on Wed Sep 28, 2016 6:53 pm, edited 1 time in total.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by saltycaper » Wed Sep 28, 2016 6:50 pm

If you want to reduce your inflation exposure, consider reducing BND somewhat in exchange for CDs and more TIPS.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by boglephreak » Wed Sep 28, 2016 6:51 pm

LAlearning wrote:
seekinganswers wrote: I don't know if it is just this form's general stance or if there is actually intelligent minds out there that are not pushing gold - seems like it has been a debatable topic.


im pretty sure buffet doesnt push gold. and has a few famous phrases about it.

here are some:

“Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”

“The problem with commodities is that you are betting on what someone else would pay for them in six months. The commodity itself isn’t going to do anything for you….it is an entirely different game to buy a lump of something and hope that somebody else pays you more for that lump two years from now than it is to buy something that you expect to produce income for you over time.”

“Gold is a way of going long on fear, and it has been a pretty good way of going long on fear from time to time. But you really have to hope people become more afraid in a year or two years than they are now. And if they become more afraid you make money, if they become less afraid you lose money, but the gold itself doesn’t produce anything.”

“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion dollars – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion dollars…you could have all the farmland in the United States, you could have about seven Exxon Mobils, and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67 foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.”

“The major asset in this category is gold, currently a huge favorite of investors who fear almost all other assets, especially paper money (of whose value, as noted, they are right to be fearful). Gold, however, has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end.”

“What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As “bandwagon” investors join any party, they create their own truth — for a while.“

“I have no views as to where it will be, but the one thing I can tell you is it won’t do anything between now and then except look at you. Whereas, you know, Coca-Cola will be making money, and I think Wells Fargo will be making a lot of money and there will be a lot — and it’s a lot — it’s a lot better to have a goose that keeps laying eggs than a goose that just sits there and eats insurance and storage and a few things like that.”

http://commodityhq.com/education/top-se ... investing/

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by bertilak » Wed Sep 28, 2016 6:54 pm

seekinganswers wrote:I don't know if it is just this form's general stance or if there is actually intelligent minds out there that are not pushing gold.

Could be both at once.

Yes, gold does diversify your holdings.

BUT -- there is a theory that diversification is no good, or at least (way) less than optimal, if each of the holdings does not have some expected earnings of its own. "Expected earnings" does not include speculation. Speculation is also called "the greater fool theory." Whoever sold YOU the gold considered you the greater fool. You are betting that there are even greater fools out there who will someday pay you more than you paid.

(I am sure there are points that can be argued, but the above has the most negative spin on it I can come up with -- just to give you a feel for things.)
Listen very carefully. I shall say this only once. (There! I've said it.)

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by KlangFool » Wed Sep 28, 2016 7:03 pm

OP,

1) Do you own a house?

2) Do you have a mortgage on your house?

If you believe inflation is gong to happen, you should buy a house and take a big mortgage on the house.

3) If your goal is to protect your retirement at all costs, can your portfolio survive a deflation? You are leaning too far in inflation protection. Hence, you are not protected if deflation happened instead.

The world is not going to show up as you plan. You need to be protected under all possible circumstances. Balance is the key.

KlangFool

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by Elbowman » Wed Sep 28, 2016 7:12 pm

For someone who is retired, it is 80% good, 20% commodities, which probably averages out to "good enough" if you stick with it. Could use some TISM. It is pretty conservative, but to know if it is too conservative for you we need more information (retirement savings vs. required income).

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by saltycaper » Wed Sep 28, 2016 7:13 pm

KlangFool wrote:
3) If your goal is to protect your retirement at all costs, can your portfolio survive a deflation? You are leaning too far in inflation protection. Hence, you are not protected if deflation happened instead.



Why do you think OP is too focused on inflation? The only thing I see that will likely perform poorly in a deflationary environment other than stocks is commodities, of which OP only has 5%.
"I guess I should warn you, if I turn out to be particularly clear, you've probably misunderstood what I've said." --Alan Greenspan

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by TomCat96 » Wed Sep 28, 2016 7:52 pm

seekinganswers wrote:Hi ... if it isn't too bad, maybe just poke holes in it.

STOCKS 30%
>> VT Vanguard total/global

BONDS 40%
>> BND Vanguard total bond index (US)

TIPS 5%
>> TIP iShares

GOLD 15%
>> GLD 12%
>> Physical gold 3%

COMMODITIES 5%
>> DBC Commodities index

REIT 5%
>> VNQ Vanguard REIT


No questions, just criticism desired --- thanks in advance :)


You're looking for holes, so I guess I'll bite.
In light of what you wrote, you have 40% bonds for safety,
and 25-30% for inflation protection, depending on how you classify REITs.

I honestly don't think you're as nearly well protected against the worst as you might think. You're sacrificing growth for protection and your protection has holes in it.

The reason why Gold isn't well considered here is because it can only grow via inflation. To paraphrase buffet, you're buying a lump of something hoping that someone will pay more for it in time. Simply put, you can do better than that. Once more paraphrasing Buffet, the skills of a heart surgeon will still be worth the same whether inflation is high or low. The dollar amount may differ, but relative value will always be there.

The idea behind an investment is you look for something which will grow not just passively, but actively.

Let's say instead of Gold, you bought yourself a chicken coop. The chickens will lay eggs over time. The number of your chickens will grow. The value of your investment will expand beyond mere passive inflation growth. Buying gold is like buying a single chicken saying, if disaster hits, demand for this chicken will go through the roof. I'm not going to sit here and deny that. But the point is you can do better.

Besides, I know a little of the Gold bug community, and I'll cite two truisms they quip over and over.

That 12% investment in gold...if you don't hold it, you don't own it!
The Gov't has confiscated gold before and they can do it again!


Now let's goto your TIPs. This is my personal contention with them. Inflation has been pretty low these past few years. But have you felt that way personally? Just remember the computation for inflation the government uses to decide what to pay you for TIPs is decided by them. I take issue with such computations and you should too. Even the Fed doesn't use the government's CPI when determining inflation for it's own sake. If times get really bad, you are at the mercy of what the gov't decides is the "official story" is on inflation.

Now let's look at your bonds. 40%. Are you using these to counterbalance stocks if stocks crash? Do note that if you're really trying to prevent against hyperinflation, your bonds will goto zero. Look at your own Zimbabwe trillion dollar example.
How much will a bond paying 5% be worth when inflation is what it is in Zimbabwe. Answer: Nothing.

Bonds have a history of being negatively correlated to stocks, but they are the worst place to be in the case of hyperinflation.


So the question with your portfolio is this: what do you want to do? What is your objective?
Is it to protect against hyperinflation? Is it for your retirement? Is it to guard against a stock market crash?

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by DoWahDaddy » Wed Sep 28, 2016 8:12 pm

Assuming that (a) this is a long term portfolio, and (b) you aren't yet in retirement, the most glaring issue here is that you primary driver of growth (stocks) is too low to be effective. Really that's the whole shebang.
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Snowjob
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by Snowjob » Wed Sep 28, 2016 8:21 pm

I'm generally not a fan of allocations less than 10% cause they wont do much unless they are levered like options / futures.

Id consolidate to less positions for starters.

If you need to have the gold why not do 40% stock / 40% bond / 20% gold? -- seems simpler.

Or to take it a step further if inflation is really on your mind. 40% stock / 20% Nominal Treasuries/ 20% Tips / 20% gold.

I personally down own any gold but if I did it would be the physical. I mean, does the IRS know if your buying and selling?

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by TinkerPDX » Wed Sep 28, 2016 8:34 pm

Commodities, including gold, are 0-sum. Not productive. Unless you actually have a future need for some commodity, why invest in futures?

As for gold specifically, it seems the deep appeal is for when things really hit the fan. If and when that does happen, no one is going to trade cash for your shares in gold companies, and certainly not useful goods for your physical gold...at least not me!

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by joe8d » Wed Sep 28, 2016 8:47 pm

Put it all in TSM.
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by soboggled » Wed Sep 28, 2016 9:13 pm

TomCat96 wrote:
seekinganswers wrote:Hi ... if it isn't too bad, maybe just poke holes in it.

STOCKS 30%
>> VT Vanguard total/global

BONDS 40%
>> BND Vanguard total bond index (US)

TIPS 5%
>> TIP iShares

GOLD 15%
>> GLD 12%
>> Physical gold 3%

COMMODITIES 5%
>> DBC Commodities index

REIT 5%
>> VNQ Vanguard REIT


No questions, just criticism desired --- thanks in advance :)


Now let's goto your TIPs. This is my personal contention with them. Inflation has been pretty low these past few years. But have you felt that way personally? Just remember the computation for inflation the government uses to decide what to pay you for TIPs is decided by them. I take issue with such computations and you should too. Even the Fed doesn't use the government's CPI when determining inflation for it's own sake. If times get really bad, you are at the mercy of what the gov't decides is the "official story" is on inflation.

Now let's look at your bonds. 40%. Are you using these to counterbalance stocks if stocks crash? Do note that if you're really trying to prevent against hyperinflation, your bonds will goto zero. Look at your own Zimbabwe trillion dollar example.
How much will a bond paying 5% be worth when inflation is what it is in Zimbabwe. Answer: Nothing.

Bonds have a history of being negatively correlated to stocks, but they are the worst place to be in the case of hyperinflation.


1. The Federal Reserve does indeed not use the CPI. No, they use the PCE, which has shown LOWER inflation than the CPI used by TIPS.
2. There is no "official story" about the CPI. Federal politicians do not compute the CPI. Professional economists at BLS do.
3. The primary potential problem with the CPI is that it may not match one's personal spending patterns, not that it may be manipulated.
4. The US is not Zimbabwe or any other starving third world nation and the US dollar is not the Zimbabwe dollar. (Though I would argue if one is all that concerned about hyperinflation of the dollar, investing in foreign currencies of the countries you think are run better is a better strategy than buying gold).
5. The purpose of bonds is not to protect against hyperinflation. Stocks might do that. Bonds do protect against deflation, however, which is probably a much bigger threat - this country has experienced sever deflation but never hyperinflation. The worst inflation was in the late 70s to 80s and TIPs would probably have done quite well, so they are a substitute for nominal bonds if one dreads inflation.

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Tyler9000
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by Tyler9000 » Wed Sep 28, 2016 9:22 pm

Here's a bit of data for reference. This shows every investing period since 1972 for your proposed portfolio based on the year you started and the length you held it. While I don't have data for a global stock fund, half total stock market (VTI) and half total international (VXUS) should be pretty close.

Image

Offhand, that chart is really impressive for how consistent it is across decades. For reference, here's the same chart for the Three-Fund portfolio:

Image

Your proposed portfolio has historically generated a very similar long-term CAGR to the three-fund portfolio but with more consistency and less downside. Not bad. Studying the past can't predict the future, but looking for consistent portfolios is a good place to start. There's more to investing than just banking on the stock market, and I appreciate how you've diversified for all sorts of economic outcomes.

If you're looking for something along the same vein but a little simpler, I'd recommend reading about the Permanent Portfolio. Based on your asset choices, I think you might appreciate it. And you might also try the calculators at PortfolioCharts that were used to create the charts above. Back up your instincts with solid data, and hopefully you'll find something you're comfortable with.

Hope that helps!
Last edited by Tyler9000 on Wed Sep 28, 2016 10:10 pm, edited 2 times in total.

soboggled
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by soboggled » Wed Sep 28, 2016 9:42 pm

Everybody knows the world began in 1972. You know, when gold was at its lowest price.

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Tyler9000
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by Tyler9000 » Wed Sep 28, 2016 9:47 pm

soboggled wrote:Everybody knows the world began in 1972. You know, when gold was at its lowest price.


Well, the beauty of the chart is that you can skip any start years for whatever reason you choose, or even start at the gold peak in 1980 and see how it did in the subsequent crash.

To your point, I personally like to look at the worst case timeframes for any portfolio (worst year, longest drawdown, etc). If you can handle that, you'll be a happy and successful investor with no issues staying the course. Without knowing his risk tolerance, I think the OP is doing a good job from a volatility mitigation perspective.

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raven15
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by raven15 » Wed Sep 28, 2016 10:58 pm

In my opinion you are too light on stocks. There is not really any good reason to have less than 50% stocks unless you truly cannot tolerate market fluctuations. Stocks generally have similar or even less deep risk than do bonds, and also generally do reasonably well in inflation. Plus stocks generally result in you having more money.

Also you have more parts than necessary. I would ditch REITs, commodities, TIPS, and 5% of BND. You would then have 50% stock, 35% bonds, and 15% gold. The removed slices don't add anything that isn't already covered by gold, stocks, and bonds. Look for a gold fund with lower expense ratio. Truthfully I would probably even trim bonds back to 20% and gold to 10% to get 70% stock. A global cap weight stock index fund is already fairly immune to most serious preventable risk.
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boglerdude
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by boglerdude » Wed Sep 28, 2016 11:14 pm

They should tie TIPS to the money supply. Would be fun.

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heyyou
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by heyyou » Wed Sep 28, 2016 11:46 pm

The commodities futures funds only buffer unexpected inflation like oil price shocks in the 1970s, of which there have been few since then. They do not buffer regular inflation. TIPS only buffer inflation on the dollars that are invested in them, no help for the rest of the portfolio. The best inflation buffer is stock ownership coupled with the patience to hold them for decades through shorter periods of high inflation. Equity growth has worked far better than the complex inflation buffer products that are marketed to fearful investors by Wall Street. You need more equity exposure for long term growth than gadgetry based on previous problems. Like the Maginot Line example, the next crash will be slightly different than what is currently known, but wait long enough and there will be recovery from the crash.

Having low necessary spending relative to your portfolio size, is an excellent buffer for many financial setbacks. The best assets are patience, perseverance, feeling satisfied with what you have, being adaptable, and living below your means. Allocation is in a lower tier.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by young-ish » Thu Sep 29, 2016 12:53 am

35% in stocks (counting REIT's) is probably fine if you are saving aggressively. The more you have saved the less risk you need to take in order to achieve your goals.

I doubt 5% in TIPS is going to matter either way. Maybe just up the BND to 45% and simplify.

5% in commodities is a nice idea but how do you invest in oil, pork bellies, soybeans and wheat in a low cost manner? Also why should you accept the allocations set by Bloomberg (or Goldman Sachs) as best for you? They usually have a big allocation to oil and gas for instance. Why?

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Thu Sep 29, 2016 10:35 am

Thanks for all the great feedback. So much meat on the bone from you guys ... I'm super impressed with the minds paying attention to this forum.

---------UPDATED AA---------

PROCESS: Move cash into these allocations at rate of 30K/quarter, rebalancing by adding rather than selling. Do this for 8-10 years - roughly 2017 - 2027.

---------

STOCKS 45%
>> VT Vanguard total/global

BONDS 40%
>> TOTL SPDR Doubleline Total Return Tactical ETF

GOLD 15%
>> GLD 12%
>> Physical gold 3%

---------

I know there was a lot of pushback on the gold allocation. But, in the above example, it is only 150K/million invested and doesn't even reach that for a decade. I'll reread and contemplate the various inflation protection guidance you've all commented on above. If anyone wants to tweak that 15% allocation to something else, with justification, feel free.

Also, I've been getting feedback on the various bond funds and their duration/risk - don't really understand what's what for what and why. Considering what we may see in the next decade, is a change to TOTL good? Other options were BIV, BLV, and BND. Any clues/insights would be great.

Finally, is VT the best choice to weather this storm?


------------------

soboggled wrote:Partly depends on how close you are to retirement. ...


Thanks for your feedback - made adjustments.

Want to retire in two years. The problem is that, according to statistics, I'm only half way through life ...

saltycaper wrote:Why do you think OP is too focused on inflation? The only thing I see that will likely perform poorly in a deflationary environment other than stocks is commodities, of which OP only has 5%.


Thanks for playing some defense!

TomCat96 wrote:You're looking for holes, so I guess I'll bite.


Thanks! Helpful comments!


DoWahDaddy wrote:Assuming that (a) this is a long term portfolio, and (b) you aren't yet in retirement, the most glaring issue here is that you primary driver of growth (stocks) is too low to be effective. Really that's the whole shebang.


Thanks! Cranked up the stocks allocation.



Snowjob wrote:I'm generally not a fan of allocations less than 10% cause they wont do much unless they are levered like options / futures.
Id consolidate to less positions for starters.


Thanks! Consolidated down to 3 ... now need to know if they are the best 3.

TinkerPDX wrote:Commodities, including gold, are 0-sum. Not productive. ...


Thanks! Made adjustments ... still wrestling with gold.


soboggled wrote:1,2,3,4,5


Great points! Made adjustments.


Tyler9000 wrote:Your proposed portfolio has historically generated a very similar long-term CAGR to the three-fund portfolio but with more consistency and less downside. Not bad.


Thanks ... at least there was something showing positive data. Thanks for putting those charts together!

raven15 wrote:Also you have more parts than necessary. I would ditch REITs, commodities, TIPS, and 5% of BND. You would then have 50% stock, 35% bonds, and 15% gold. The removed slices don't add anything that isn't already covered by gold, stocks, and bonds. Look for a gold fund with lower expense ratio. Truthfully I would probably even trim bonds back to 20% and gold to 10% to get 70% stock. A global cap weight stock index fund is already fairly immune to most serious preventable risk.


Thanks for this! Made adjustments!

GLD has and ER of 0.4%. The other choice would be IAU with an ER of 0.25% ... pretty comparable.


heyyour wrote:Having low necessary spending relative to your portfolio size, is an excellent buffer for many financial setbacks. The best assets are patience, perseverance, feeling satisfied with what you have, being adaptable, and living below your means. Allocation is in a lower tier.


Well said! I am of the obsession in reducing as many moving parts from life as possible. The less your need means the less you need - practice Occam's Razor!

I also removed the commodity and TIPS allocations.

young-ish wrote:The more you have saved the less risk you need to take in order to achieve your goals


Such an important comment. Thanks for reminding my brain about this. I keep getting caught up in all the asset allocation hoopla, and forget this critical factor. Thanks!

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by FrugalInvestor » Thu Sep 29, 2016 10:49 am

seekinganswers wrote:
boglephreak wrote:i have yet to see a reasonable argument why anyone would buy gold (let alone 15% of their AA) or commodities.


No purchase at this point. Although, I only joined this forum a few days ago and only posted two questions. Your response about gold came up last time. I don't know if it is just this form's general stance or if there is actually intelligent minds out there that are not pushing gold - seems like it has been a debatable topic. Lot's of people on different sides of the story. Time will tell - and then it will be backtested against whatnot.

Image


Watch the video beginning at the 1:57 mark....

https://www.youtube.com/watch?v=KlhT07G8zGs
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Thu Sep 29, 2016 11:00 am

FrugalInvestor wrote:
seekinganswers wrote:
boglephreak wrote:i have yet to see a reasonable argument why anyone would buy gold (let alone 15% of their AA) or commodities.


No purchase at this point. Although, I only joined this forum a few days ago and only posted two questions. Your response about gold came up last time. I don't know if it is just this form's general stance or if there is actually intelligent minds out there that are not pushing gold - seems like it has been a debatable topic. Lot's of people on different sides of the story. Time will tell - and then it will be backtested against whatnot.

Watch the video beginning at the 1:57 mark....

https://www.youtube.com/watch?v=KlhT07G8zGs


Thanks for that. GLD is down about $50/share since that video in 2011. Still need to protect purchasing power for use in 5, 10, 20, 30, and 40 years - although I'll only need a nurse and diapers in the latter. According to some comments on this post, stocks may protect purchasing power by going up in price themselves - although the dollars you exchange for those stocks in the future will buy less - presumably.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by joebh » Thu Sep 29, 2016 11:07 am

seekinganswers wrote:No questions, just criticism desired --- thanks in advance :)


Not enough equities. You are welcome.

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Thu Sep 29, 2016 11:09 am

joebh wrote:
seekinganswers wrote:No questions, just criticism desired --- thanks in advance :)


Not enough equities. You are welcome.


If you see my updated post a few above, I moved stocks up to 45% ... are you referring to that?

Snowjob
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by Snowjob » Thu Sep 29, 2016 11:40 am

seekinganswers wrote:Thanks for all the great feedback. So much meat on the bone from you guys ... I'm super impressed with the minds paying attention to this forum.

---------UPDATED AA---------

PROCESS: Move cash into these allocations at rate of 30K/quarter, rebalancing by adding rather than selling. Do this for 8-10 years - roughly 2017 - 2027.

---------

STOCKS 45%
>> VT Vanguard total/global

BONDS 40%
>> TOTL SPDR Doubleline Total Return Tactical ETF

GOLD 15%
>> GLD 12%
>> Physical gold 3%

---------

I know there was a lot of push back on the gold allocation. But, in the above example, it is only 150K/million invested and doesn't even reach that for a decade. I'll reread and contemplate the various inflation protection guidance you've all commented on above. If anyone wants to tweak that 15% allocation to something else, with justification, feel free.

Also, I've been getting feedback on the various bond funds and their duration/risk - don't really understand what's what for what and why. Considering what we may see in the next decade, is a change to TOTL good? Other options were BIV, BLV, and BND. Any clues/insights would be great.

Finally, is VT the best choice to weather this storm?



I may have missed it before but your assets, spending requirements and age will probably affect the appropriateness of this allocation -- specifically the stock bond split.

As far as VT for the equity component of your portfolio. I like to use that for the taxable account because of the efficiency. You could pair that with another domestic equity fund in an IRA or something to dial in the Domestic:Foreign exposure. (VT is about 50/50, which may or may not be to high for your taste.)

I'd still probably dial the Gold down to about 10% and hold a greater % of that as the physical commodity. With physical gold you have no expense ratio and its off balance sheet as far as the government goes.

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seekinganswers
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Thu Sep 29, 2016 12:14 pm

Snowjob wrote:I may have missed it before but your assets, spending requirements and age will probably affect the appropriateness of this allocation -- specifically the stock bond split.

As far as VT for the equity component of your portfolio. I like to use that for the taxable account because of the efficiency. You could pair that with another domestic equity fund in an IRA or something to dial in the Domestic:Foreign exposure. (VT is about 50/50, which may or may not be to high for your taste.)

I'd still probably dial the Gold down to about 10% and hold a greater % of that as the physical commodity. With physical gold you have no expense ratio and its off balance sheet as far as the government goes.


Thanks for the feedback! Taking this all into account.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by FrugalInvestor » Thu Sep 29, 2016 12:19 pm

More food for thought on gold as inflation hedge....

http://www.forbes.com/sites/danielfishe ... 9e9630d927

From article.....

Financial Analysts Journal, which examines six different explanations for why gold prices rise and fall. Authors Claude Erb and Campbell Harvey, a professor at Duke University’s Fuqua School of Business, conclude that the assumptions of most investors — that gold rises during times of inflation, or serves as a hedge against a collapsing dollar — don’t measure up. The most likely explanation for why gold prices go up is because gold prices are going up.
IGNORE the noise! | Our life is frittered away by detail... simplify, simplify. - Henry David Thoreau

staybalanced
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by staybalanced » Thu Sep 29, 2016 12:19 pm

I would use ishares IAU instead of the GLD

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by staybalanced » Thu Sep 29, 2016 12:22 pm

FrugalInvestor wrote:More food for thought on gold as inflation hedge....

http://www.forbes.com/sites/danielfishe ... 9e9630d927

From article.....

Financial Analysts Journal, which examines six different explanations for why gold prices rise and fall. Authors Claude Erb and Campbell Harvey, a professor at Duke University’s Fuqua School of Business, conclude that the assumptions of most investors — that gold rises during times of inflation, or serves as a hedge against a collapsing dollar — don’t measure up. The most likely explanation for why gold prices go up is because gold prices are going up.


https://institutional.vanguard.com/iam/pdf/ICRLSTPS.pdf

Page 10, gold actually had a very high almost as high as 0-5 tips correlation to year over year inflation. I was actually surprised to see this paper because I have read so much here and other places about it not being an adequate hedge against inflation. I assume it only works with an aggressive re balancing strategy due to the volatility.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by Jack FFR1846 » Thu Sep 29, 2016 3:21 pm

If you're buying physical gold for fun, then buy it for fun. There is typically a decent markup by the dealer on the buy (spot plus $xx) and if you buy from far away, you have to pay for shipping. I actually don't think storage is any big deal if you don't go around telling people you've got thousands of dollars of gold coins in your basement. So then it's time to sell. You pay that big markup and shipping again and you'll pay collectables tax on the gains.

I suppose you can get around some of this by using craigslist to advertise you want to buy gold dollars. Meet in a mall, hand some random person $1100 for a gold coin and save the markup and shipping over someplace like Apmex. But then you go to sell. Maybe you send the coin in to Apmex. They send back a disturbing letter that your coin is fake and not actually gold but gold plated lead and they are returning it to you as soon as you send them $7 for shipping. (this happens more than you'd think).

Or you eBay it. From my times buying and selling silver coins, I've had discussions with a local wholesaler. He tells me that a full 10% of his sales get disputed (scammed) by buyers on eBay. Just the cost of doing business. And this is after he does note tell tale signs and cancel sales before he ships anything. So you sell your coin on eBay, the buyer (who always wins) states that you shipped a box with silver Morgan dollars worth $20 instead of $1200 and you lose your money.

Those are the reasons I don't like gold. I'm a practical person.
Bogle: Smart Beta is stupid

soboggled
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Re: Anyone feel like ripping this asset allocation to shreds?

Post by soboggled » Thu Sep 29, 2016 3:27 pm

When the world coming to an end and you can't buy food, I am sure that everyone will want a metal whose primary use is in making jewelry.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Thu Sep 29, 2016 3:30 pm

Jack FFR1846 wrote:If you're buying physical gold for fun, then buy it for fun. There is typically a decent markup by the dealer on the buy (spot plus $xx) and if you buy from far away, you have to pay for shipping. I actually don't think storage is any big deal if you don't go around telling people you've got thousands of dollars of gold coins in your basement. So then it's time to sell. You pay that big markup and shipping again and you'll pay collectables tax on the gains.

I suppose you can get around some of this by using craigslist to advertise you want to buy gold dollars. Meet in a mall, hand some random person $1100 for a gold coin and save the markup and shipping over someplace like Apmex. But then you go to sell. Maybe you send the coin in to Apmex. They send back a disturbing letter that your coin is fake and not actually gold but gold plated lead and they are returning it to you as soon as you send them $7 for shipping. (this happens more than you'd think).

Or you eBay it. From my times buying and selling silver coins, I've had discussions with a local wholesaler. He tells me that a full 10% of his sales get disputed (scammed) by buyers on eBay. Just the cost of doing business. And this is after he does note tell tale signs and cancel sales before he ships anything. So you sell your coin on eBay, the buyer (who always wins) states that you shipped a box with silver Morgan dollars worth $20 instead of $1200 and you lose your money.

Those are the reasons I don't like gold. I'm a practical person.


Thanks ... that is all scary stuff. I guess I'll just hold "the value" in poopie old doll'ahs as the entropy sets in.

I do take your comments seriously tho - thanks.

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by David Jay » Thu Sep 29, 2016 3:39 pm

As others have said, there is no real return on commodities. You have put 20% of your portfolio into assets that do not have real returns.

Even a tiny real return (say 1%), compounded over decades become a lot of growth.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Anyone feel like ripping this asset allocation to shreds?

Post by seekinganswers » Thu Sep 29, 2016 3:44 pm

David Jay wrote:As others have said, there is no real return on commodities. You have put 20% of your portfolio into assets that do not have real returns.

Even a tiny real return (say 1%), compounded over decades become a lot of growth.


Thanks David! Below was the updated version posted above.


seekinganswers wrote:Thanks for all the great feedback. So much meat on the bone from you guys ... I'm super impressed with the minds paying attention to this forum.

---------UPDATED AA---------

PROCESS: Move cash into these allocations at rate of 30K/quarter, rebalancing by adding rather than selling. Do this for 8-10 years - roughly 2017 - 2027.

---------

STOCKS 45%
>> VT Vanguard total/global

BONDS 40%
>> TOTL SPDR Doubleline Total Return Tactical ETF

GOLD 15%
>> GLD 12%
>> Physical gold 3%

---------

I know there was a lot of push back on the gold allocation. But, in the above example, it is only 150K/million invested and doesn't even reach that for a decade. I'll reread and contemplate the various inflation protection guidance you've all commented on above. If anyone wants to tweak that 15% allocation to something else, with justification, feel free.

Also, I've been getting feedback on the various bond funds and their duration/risk - don't really understand what's what for what and why. Considering what we may see in the next decade, is a change to TOTL good? Other options were BIV, BLV, and BND. Any clues/insights would be great.

Finally, is VT the best choice to weather this storm?


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Re: Anyone feel like ripping this asset allocation to shreds?

Post by FillorKill » Thu Sep 29, 2016 3:58 pm

seekinganswers wrote:Purchasing power preservation for about 40 years with an ever decreasing need to purchase...

...PROCESS: Move cash into these allocations at rate of 30K/quarter, rebalancing by adding rather than selling. Do this for 8-10 years - roughly 2017 - 2027.

Your plan is to spend 20-25% of your investment horizon getting to your stated AA? You'd probably be better off with a more conservative AA implemented in a much shorter period. Your actual AA across the 40 year period is already much more conservative than your target as you take (up to) a decade to get there.

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