Help me find the weakness in this FIRE Portfolio

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Topic Author
RovenSkyfall
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Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

TLDR: I think I found an ideal FI(RE) portfolio for all times of accumulation and retirement -- show me where I am wrong

Goal: I want to propose a portfolio optimized for someone wanting to get to FI(optional RE) and ask for everyone's help in trying to pick it apart and find where it may be flawed. This allocation should be ideal for both the accumulation phase and RE/draw-down phase.

Background: Much of the FIRE community speaks of low cost index fund investing, sticking with it through the ups and downs, and frequently reference the long time horizon people trying to FIRE will have. The portfolios most commonly encountered are 100% VTSAX, some combination of that with bonds, the three fund Boglehead's portfolio, Paul Merriman's and others. There seems to be a trend toward simplicity and a faith in the overall return over the long run. I am likely suffering from the Dunning-Kruger Effect myself, but worry that maybe people talking about FIRE actually are as well. That is why I am asking for help to see where I may be wrong in thinking I have found a better allocation of savings.

Problems I see with the typical FI(RE) portfolios:
  • The high volatility of the market opens up what seems like a lot of sequence of return risk. This particular article stressed this for me: https://portfoliocharts.com/2015/11/17/ ... ates-work/. Often the community suggests to mitigate this risk by decreasing a draw-down to 3.5% or less of the portfolio and adjusting withdraws depending on how the market is doing.
  • There is a much longer run-out for someone who FIREs than a typical retiree and it seems important to maintain the ability for ones portfolio to increase in value. Someone who FIREs but runs out of money 20-30 years into retirement isnt going to get an income generating job very easily.
  • High equity (stock) portfolios seem to be able to generate the needed return for the long future, but the instability can lead to long periods of draw-down and scenarios where portfolios run out of money. Safer portfolios often trade the volatility for a lower rate of return which makes it less likely that the portfolio could last 50+ years.
  • In the accumulation phase of FI(RE), one wants to gain maximum returns while not having their portfolio lose value before they RE. If people invest aggressively for the returns to get to FIRE quickly (and plan on riding out the bumps), then they risk a crash early or right before they RE which could change their ability to FIRE.
My Proposed FIRE Portfio:
50% SCV - IJS
30% Long Term Treasuries - TLT
20% Gold - IAU

(Alternatively for those seeking to be aggressive a 60/20/20 may offer higher overall returns with more volatility)

Comparing it to other portfolios:

By using back-testing with Portfolio Charts you can see how it has performed historically (you will have to manually enter the values -- I am not sure how to link it with the values): https://portfoliocharts.com/portfolio/my-portfolio/

Looks pretty good, right?

Compare it to: Looks even better when compared to the "standards" which are talked about.

Asset Back tested to outperform with higher Sortino ratio, lower Max Drawdown and lower Worst Year compared to TSM:
https://www.portfoliovisualizer.com/bac ... ion4_2=100

Fund-specific back tested vs VTSMX to show the same:
https://www.portfoliovisualizer.com/bac ... ion4_2=100

Strengths of the portfolio
Using the data Portfolio Charts uses, this FIRE Fund has relatively good stability combined with a good return. This leads to the following observations:
  • A lower ulcer index with relatively small "deepest" and "longest" draw-downs (especially when compared to other FIRE portfolios)
  • Rolling returns that are consistent compared to other portfolios. Also pretty consistent over the years.
  • A relatively high and narrow real CAGR range
  • A low start date sensitivity
  • A short and consistent time period when trying to determine when you will achieve FI
  • Much higher safe withdraw rate (SWR) and perpetual withdraw rate (PWR) compared to the others
  • Historical account values that suggest excellent growth for the future using an array of back tested start dates. I interpret this to mean that the portfolio in most scenarios continued to grown quite nicely compared to the others often spoken of.



Weaknesses of the portfolio: This is where I need everyone's help! I am not delusional to think I have found the secret sauce, but from what I can tell of the historical data it seems to have a high CAGR with low volatility and risk. How does this hold up in a taxable vs tax-deferred account? Surely I must be missing something....


Some things I anticipate people may say:

Historical data does not guarantee future returns. I agree with this 100%. Let us all agree that no one knows the future. In the absence of knowing this future, the best we can do is use the tools we have available. A very strong one in my mind is historical data (better than guesses, hunches, etc). Just as with people, historical performance doesn't guarantee future performance, but with an unknown future it is often times one of the most reliable sources to use. It is often better than assumptions or people thinking they can predict future markets. In essence we all go off of historical data when we invest in the market in general.

The most important thing is that you invest, re-balance and otherwise don't touch it. I agree wholeheartedly, but assuming you would do that with any portfolio, why not try and pick the best one? Ones faith in a portfolio usually comes form historical data, otherwise we wouldn't have any reason to have faith when the market doesn't go the way we expect. This emphasizes the importance of known historical data, otherwise it would just be blind faith.

Small Cap Value will not produce returns like it did historically. Even if SCV lost to growth over the recent history, this FIRE Portfolio still managed to do very well (even better) than the TSM. Additionally, predicting SCV wont do well seems like attempts at predicting the future (see above).


Thank you! Thank you! Thank you!

I want to thank everyone who made it this far. It was long, wordy and hopefully not too confusing. I really do appreciate any insights as to why a portfolio like this might not be as good as it looks on paper.
bloom2708
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Re: Help me find the weakness in this FIRE Portfolio

Post by bloom2708 »

If you could get the 30 year rate back up to ~10% (instantly) before you start it might work again.

Then you could travel long bonds from 10% to <1% over your investing horizon.

Back testing won't find you the best portfolio going forward.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
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galeno
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Re: Help me find the weakness in this FIRE Portfolio

Post by galeno »

Better:

50% TSM + 25% LT Treas + 25% LT TIPS.

Even better.

50% TSM + 50% LT TIPS.
KISS & STC.
as9
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Re: Help me find the weakness in this FIRE Portfolio

Post by as9 »

I wouldn't entertain for one second a portfolio that doesn't include big tech.
livesoft
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Re: Help me find the weakness in this FIRE Portfolio

Post by livesoft »

It might work; it might not. That's about all that one can write about it. What criteria will you use to decide that it is not working and what would you switch to in that case? That is, what are your Plan B, Plan C, Plan D, ... and when would you execute them and why?
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Topic Author
RovenSkyfall
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Re: Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

bloom2708 wrote: Fri Apr 24, 2020 2:55 pm If you could get the 30 year rate back up to ~10% (instantly) before you start it might work again.

Then you could travel long bonds from 10% to <1% over your investing horizon.

Back testing won't find you the best portfolio going forward.
My understanding was that the LT bonds are acting as a ballast more than anything here. https://portfoliocharts.com/2019/05/27/ ... convexity/
Topic Author
RovenSkyfall
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Re: Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

as9 wrote: Fri Apr 24, 2020 3:00 pm I wouldn't entertain for one second a portfolio that doesn't include big tech.
Why is that?
Topic Author
RovenSkyfall
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Re: Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

livesoft wrote: Fri Apr 24, 2020 3:01 pm It might work; it might not. That's about all that one can write about it. What criteria will you use to decide that it is not working and what would you switch to in that case? That is, what are your Plan B, Plan C, Plan D, ... and when would you execute them and why?
Good question. Shouldn't one have the same answer for this question as for the TSM? Or are you suggesting this is too different to have the same level of confidence? This is what I am trying to understand.
Topic Author
RovenSkyfall
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Re: Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

galeno wrote: Fri Apr 24, 2020 2:56 pm Better:

50% TSM + 25% LT Treas + 25% LT TIPS.

Even better.

50% TSM + 50% LT TIPS.
I will try and look at these, do you have a fund name for the LT TIPS?
retired@50
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Re: Help me find the weakness in this FIRE Portfolio

Post by retired@50 »

The portfolio that is contemplated:
50% Small Cap Value
30% Long Term Treasuries
20% Gold ETF IAU

To me this feels like a fad diet.
50% Pork Chops
30% Oranges
20% Milk

You could survive but there isn't any variety.
I'd feel safer with a three fund portfolio that holds US and International Stocks and a Total Bond Market fund.

Regards,
This is one person's opinion. Nothing more.
Topic Author
RovenSkyfall
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Re: Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

retired@50 wrote: Fri Apr 24, 2020 3:06 pm The portfolio that is contemplated:
50% Small Cap Value
30% Long Term Treasuries
20% Gold ETF IAU

To me this feels like a fad diet.
50% Pork Chops
30% Oranges
20% Milk

You could survive but there isn't any variety.
I'd feel safer with a three fund portfolio that holds US and International Stocks and a Total Bond Market fund.

Regards,
Do you mean that you like the idea of holding it all rather than a smaller group of funds?
marshall
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Re: Help me find the weakness in this FIRE Portfolio

Post by marshall »

I can totally relate to this post. I have been going through a similar exercise to land on my IPS.

A few questions ...

Why so much concentration in SCV?

Why long term Treasurys only? Ever thought about targeting the 10 year to reduce interest rate risk?

On IAU, the "Early Retirement Now" blog did a post that showed 15% gold was an optimal allocation (10% was also good). You are in the same ball park but may find it a good read.

https://earlyretirementnow.com/2020/01/ ... s-part-34/
retired@50
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Re: Help me find the weakness in this FIRE Portfolio

Post by retired@50 »

RovenSkyfall wrote: Fri Apr 24, 2020 3:11 pm
retired@50 wrote: Fri Apr 24, 2020 3:06 pm The portfolio that is contemplated:
50% Small Cap Value
30% Long Term Treasuries
20% Gold ETF IAU

To me this feels like a fad diet.
50% Pork Chops
30% Oranges
20% Milk

You could survive but there isn't any variety.
I'd feel safer with a three fund portfolio that holds US and International Stocks and a Total Bond Market fund.

Regards,
Do you mean that you like the idea of holding it all rather than a smaller group of funds?
You can hold 3 funds, the quantity of funds isn't the issue, it's what they hold.

The small cap value fund at Vanguard (VSIAX) holds a total of 853 stocks at the moment.
The Total US Stock Market Fund at Vanguard (VTSAX) currently holds 3,535 stocks.
Thus, your proposal is omitting over 2,600 U.S. Stocks and ALL 7,521 of the international stocks currently held in VTIAX.
That's over 10,200 stocks that you're actively choosing to avoid. I don't get it...?

Regards,
This is one person's opinion. Nothing more.
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galeno
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Re: Help me find the weakness in this FIRE Portfolio

Post by galeno »

If I were an American I'd buy and hold 50% VWELX + 50% VWINX. A true set and forget portfolio.

Regarding the LT TIPS you can buy them direct vía your broker. It's easy.

The only TIP ETF I know is TIP. It's intermediate term. Duration = 7.9 yr.

We own the Ireland version of the same ETF which we bought from the LSE.. Ours is called IDTP.
KISS & STC.
aristotelian
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Re: Help me find the weakness in this FIRE Portfolio

Post by aristotelian »

You are speculating on a small segment of the stock market and overweighting long bonds at a time when rates are at historical record lows. On top of that you are putting 20% in a lump of yellow metal with zero expected return. For early retirement especially, you need a stock heavy allocation to stay ahead of inflation. You are making a very risky bet that small value will outperform enough to compensate for a low equity allocation. Might look great in backtesting but if the future is not like the past you could be in for a world of hurt.
bloom2708
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Re: Help me find the weakness in this FIRE Portfolio

Post by bloom2708 »

RovenSkyfall wrote: Fri Apr 24, 2020 3:02 pm My understanding was that the LT bonds are acting as a ballast more than anything here. https://portfoliocharts.com/2019/05/27/ ... convexity/
It WAS a ballast. Stock market rallies coinciding with interest rates dropping over a long time period.

To repeat, you need high-ish rates again. To get there is bumpy ride for long bonds.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead
retiredjg
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Re: Help me find the weakness in this FIRE Portfolio

Post by retiredjg »

RovenSkyfall wrote: Fri Apr 24, 2020 2:28 pm
My Proposed FIRE Portfio:
50% SCV - IJS
30% Long Term Treasuries - TLT
20% Gold - IAU

Looks pretty good, right?
Not so much in my opinion.

There is nothing wrong with having some of any of those things. But you have no core holdings. This is not a portfolio I would use or recommend.

I would describe it as all icing and sprinkles with no cake underneath. All baggage with no donkey. You get the idea.
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timboktoo
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Re: Help me find the weakness in this FIRE Portfolio

Post by timboktoo »

It's an interesting portfolio, but I am concerned that you are relying too heavily on the past. You are right that nobody knows the future, though. It's frustrating.

This is something I struggle with about the topic of investment. In some other disciplines of life, you can meet with success by following the standards of that discipline. But investing is about the future of the world. Even following a disciplined approach does not guarantee success. I think it just improves our odds.

All three of the assets you chose could backfire on you for extended periods of time. Your portfolio also represents a dramatic divergence from what I imagine most of your peers are doing. Even if does prove successful in the long run, it could be very hard to stay the course. Volatility isn't the only thing that makes staying the course hard. The fear of missing out is also a strong influence. Please don't ignore it.

That said, I do think that reversion to the mean exists. Any of the assets you've chosen could succeed much more strongly than people would guess over the coming decade. Most of the people I know in real life have a tendency to think that an investment decision was right if it went up and it was wrong if it went down. They seem to fluctuate between regret and pride about things that are unknowable. I hope that whatever course you do take, you don't follow their lead. There are many intelligent portfolios that would help an investor reach their goals, if only they were able to hold the portfolio long enough.

I wish that there was an easy answer for this, some way to guarantee success if you spent enough time and energy on it. But there isn't. Please don't try to find the perfect portfolio. I think it's a fruitless pursuit. I don't think that the past is going to repeat itself. I think that whatever is coming in the future, it's something that almost nobody sees on the horizon. The Boglehead Philosophy gives you the best shot I know of meeting it, investing-wise. But it's still largely out of our hands.

Peace

- Tim
aristotelian
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Re: Help me find the weakness in this FIRE Portfolio

Post by aristotelian »

timboktoo wrote: Fri Apr 24, 2020 3:50 pm I wish that there was an easy answer for this, some way to guarantee success if you spent enough time and energy on it. But there isn't. Please don't try to find the perfect portfolio. I think it's a fruitless pursuit. I don't think that the past is going to repeat itself. I think that whatever is coming in the future, it's something that almost nobody sees on the horizon. The Boglehead Philosophy gives you the best shot I know of meeting it, investing-wise. But it's still largely out of our hands.

Peace

- Tim
I agree very much with this. The best guarantee, by far, is oversaving and having a low withdrawal rate. That is the only way to truly sleep at night. Everything else is a matter of balancing risks.
megabad
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Re: Help me find the weakness in this FIRE Portfolio

Post by megabad »

As already pointed out, the potential weaknesses are low diversity and therefore a very high exposure to specific risks. In your case, you are highly exposed to interest rates, small cap stocks, value stocks, and one commodity (that has very low intrinsic value). Might work out well, might not. I have heard of “tilts” but this portfolio tilts you right off a cliff in risk. Might you consider a little broader exposure to other equities and fixed income (but still tilt a little if you want)? Quite the gamble if this is intended to be for your entire portfolio.
jjj_22
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Re: Help me find the weakness in this FIRE Portfolio

Post by jjj_22 »

I would be very uncomfortable with this allocation. It consists of three highly volatile asset classes and nothing else.

I think you've aggressively overfit to the available historical data. For example, gold and long treasuries have both outperformed stocks over the last twenty years. Would you want to bet your retirement on that continuing?
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RovenSkyfall
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Re: Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

retired@50 wrote: Fri Apr 24, 2020 3:21 pm
RovenSkyfall wrote: Fri Apr 24, 2020 3:11 pm
retired@50 wrote: Fri Apr 24, 2020 3:06 pm The portfolio that is contemplated:
50% Small Cap Value
30% Long Term Treasuries
20% Gold ETF IAU

To me this feels like a fad diet.
50% Pork Chops
30% Oranges
20% Milk

You could survive but there isn't any variety.
I'd feel safer with a three fund portfolio that holds US and International Stocks and a Total Bond Market fund.

Regards,
Do you mean that you like the idea of holding it all rather than a smaller group of funds?
You can hold 3 funds, the quantity of funds isn't the issue, it's what they hold.

The small cap value fund at Vanguard (VSIAX) holds a total of 853 stocks at the moment.
The Total US Stock Market Fund at Vanguard (VTSAX) currently holds 3,535 stocks.
Thus, your proposal is omitting over 2,600 U.S. Stocks and ALL 7,521 of the international stocks currently held in VTIAX.
That's over 10,200 stocks that you're actively choosing to avoid. I don't get it...?

Regards,
Holding too many stocks almost seems to defeat some of the purpose. Additionally it is still the same asset class. 10k stocks don’t beat the 850 in SCV historically but they provide some stability compared to SCV. I just found a ballast in a different asset class with this is how I was thinking about it.
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RovenSkyfall
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Re: Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

aristotelian wrote: Fri Apr 24, 2020 3:40 pm You are speculating on a small segment of the stock market and overweighting long bonds at a time when rates are at historical record lows. On top of that you are putting 20% in a lump of yellow metal with zero expected return. For early retirement especially, you need a stock heavy allocation to stay ahead of inflation. You are making a very risky bet that small value will outperform enough to compensate for a low equity allocation. Might look great in backtesting but if the future is not like the past you could be in for a world of hurt.
That is helpful, thank you. My understanding is that the long term bonds still fluctuate despite low interest rates https://portfoliocharts.com/2019/05/27 ... convexity/. Why the zero expected return of gold? Thanks for your thoughts.
Topic Author
RovenSkyfall
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Re: Help me find the weakness in this FIRE Portfolio

Post by RovenSkyfall »

timboktoo wrote: Fri Apr 24, 2020 3:50 pm It's an interesting portfolio, but I am concerned that you are relying too heavily on the past. You are right that nobody knows the future, though. It's frustrating.

This is something I struggle with about the topic of investment. In some other disciplines of life, you can meet with success by following the standards of that discipline. But investing is about the future of the world. Even following a disciplined approach does not guarantee success. I think it just improves our odds.

All three of the assets you chose could backfire on you for extended periods of time. Your portfolio also represents a dramatic divergence from what I imagine most of your peers are doing. Even if does prove successful in the long run, it could be very hard to stay the course. Volatility isn't the only thing that makes staying the course hard. The fear of missing out is also a strong influence. Please don't ignore it.

That said, I do think that reversion to the mean exists. Any of the assets you've chosen could succeed much more strongly than people would guess over the coming decade. Most of the people I know in real life have a tendency to think that an investment decision was right if it went up and it was wrong if it went down. They seem to fluctuate between regret and pride about things that are unknowable. I hope that whatever course you do take, you don't follow their lead. There are many intelligent portfolios that would help an investor reach their goals, if only they were able to hold the portfolio long enough.

I wish that there was an easy answer for this, some way to guarantee success if you spent enough time and energy on it. But there isn't. Please don't try to find the perfect portfolio. I think it's a fruitless pursuit. I don't think that the past is going to repeat itself. I think that whatever is coming in the future, it's something that almost nobody sees on the horizon. The Boglehead Philosophy gives you the best shot I know of meeting it, investing-wise. But it's still largely out of our hands.

Peace

- Tim
Awesome, thank you for the time to write that. Very helpful.
aristotelian
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Re: Help me find the weakness in this FIRE Portfolio

Post by aristotelian »

RovenSkyfall wrote: Fri Apr 24, 2020 6:41 pm
aristotelian wrote: Fri Apr 24, 2020 3:40 pm You are speculating on a small segment of the stock market and overweighting long bonds at a time when rates are at historical record lows. On top of that you are putting 20% in a lump of yellow metal with zero expected return. For early retirement especially, you need a stock heavy allocation to stay ahead of inflation. You are making a very risky bet that small value will outperform enough to compensate for a low equity allocation. Might look great in backtesting but if the future is not like the past you could be in for a world of hurt.
That is helpful, thank you. My understanding is that the long term bonds still fluctuate despite low interest rates https://portfoliocharts.com/2019/05/27 ... convexity/. Why the zero expected return of gold? Thanks for your thoughts.
Why should gold have a positive expected return? Why would a lump of gold have more real value in the future than it does now?

Bonds will certainly fluctuate but that does not mean they will perform the same. The current situation is literally unprecedented so nobody knows what that means for future returns.
retired@50
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Re: Help me find the weakness in this FIRE Portfolio

Post by retired@50 »

RovenSkyfall wrote: Fri Apr 24, 2020 6:33 pm
retired@50 wrote: Fri Apr 24, 2020 3:21 pm
RovenSkyfall wrote: Fri Apr 24, 2020 3:11 pm
retired@50 wrote: Fri Apr 24, 2020 3:06 pm The portfolio that is contemplated:
50% Small Cap Value
30% Long Term Treasuries
20% Gold ETF IAU

To me this feels like a fad diet.
50% Pork Chops
30% Oranges
20% Milk

You could survive but there isn't any variety.
I'd feel safer with a three fund portfolio that holds US and International Stocks and a Total Bond Market fund.

Regards,
Do you mean that you like the idea of holding it all rather than a smaller group of funds?
You can hold 3 funds, the quantity of funds isn't the issue, it's what they hold.

The small cap value fund at Vanguard (VSIAX) holds a total of 853 stocks at the moment.
The Total US Stock Market Fund at Vanguard (VTSAX) currently holds 3,535 stocks.
Thus, your proposal is omitting over 2,600 U.S. Stocks and ALL 7,521 of the international stocks currently held in VTIAX.
That's over 10,200 stocks that you're actively choosing to avoid. I don't get it...?

Regards,
Holding too many stocks almost seems to defeat some of the purpose. Additionally it is still the same asset class. 10k stocks don’t beat the 850 in SCV historically but they provide some stability compared to SCV. I just found a ballast in a different asset class with this is how I was thinking about it.
I guess I believed Bogle when he suggested "Buy the haystack". Best of luck.

Regards,
This is one person's opinion. Nothing more.
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fredflinstone
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Re: Help me find the weakness in this FIRE Portfolio

Post by fredflinstone »

I like your proposed portfolio a lot. It covers three of the four asset classes in the Harry Browne portfolio (stocks, long-term treasuries, gold). It's low cost, simple, and avoids stock picking and actively managed funds. The one asset class you've missed is cash, but if you have to drop one that would be the one. It's amusing that several people said your portfolio is not adequately diversified, while someone else said you should not own gold. These two criticisms directly contradict each other.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
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fredflinstone
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Re: Help me find the weakness in this FIRE Portfolio

Post by fredflinstone »

RovenSkyfall wrote: Fri Apr 24, 2020 6:41 pm
aristotelian wrote: Fri Apr 24, 2020 3:40 pm You are speculating on a small segment of the stock market and overweighting long bonds at a time when rates are at historical record lows. On top of that you are putting 20% in a lump of yellow metal with zero expected return. For early retirement especially, you need a stock heavy allocation to stay ahead of inflation. You are making a very risky bet that small value will outperform enough to compensate for a low equity allocation. Might look great in backtesting but if the future is not like the past you could be in for a world of hurt.
That is helpful, thank you. My understanding is that the long term bonds still fluctuate despite low interest rates https://portfoliocharts.com/2019/05/27 ... convexity/. Why the zero expected return of gold? Thanks for your thoughts.
Over long periods of time (hundreds of years? thousands of years?) gold is expected to have a real return of zero because it is a non-productive asset. However, during my lifetime and probably during your lifetime, gold has had real returns much greater than zero. In times of war, civil instability, or high inflation, you will likely be glad you own gold.

Anyway a real expected return of zero isn't bad these days.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
megabad
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Re: Help me find the weakness in this FIRE Portfolio

Post by megabad »

fredflinstone wrote: Fri Apr 24, 2020 8:29 pm ...and avoids stock picking...
Does it? I might suggest looking at the market cap of Small Cap Value index as compared to the total market. Just because you “stock picked” more than one stock doesn’t really change the fact that you are stock picking. SCV is certainly not representative of the broader market.
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tvubpwcisla
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Re: Help me find the weakness in this FIRE Portfolio

Post by tvubpwcisla »

I see a couple ways to improve.

1. Reduce expenses. You will get crushed with FIRE if your living expenses are too high. Always find creative ways to lower your bills!
2. More equities! Over 50% of this portfolio will not make much money over time.

:moneybag
Last edited by tvubpwcisla on Fri Apr 24, 2020 8:50 pm, edited 1 time in total.
Stay invested my friends.
MarkRoulo
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Re: Help me find the weakness in this FIRE Portfolio

Post by MarkRoulo »

RovenSkyfall wrote: Fri Apr 24, 2020 2:28 pm TLDR: I think I found an ideal FI(RE) portfolio for all times of accumulation and retirement -- show me where I am wrong

...
My Proposed FIRE Portfio:
50% SCV - IJS
30% Long Term Treasuries - TLT
20% Gold - IAU
...
To summarize:
  • 50% of your portfolio will be stocks making up, in aggregate, about 1% of the US market.
  • 30% of your portfolio will be bonds with a nominal coupon return over the next 30 years of about 2%
  • 20% of your portfolio will be gold with a long-run expected real return of about 0%
Sounds good.
HawkeyePierce
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Re: Help me find the weakness in this FIRE Portfolio

Post by HawkeyePierce »

I hope to hit FIRE in ten years so I've done some thinking on this.

My tentative plan to split equities as such:
  • 60% S&P500
  • 20% US Small Cap Value
  • 10% Intl Small Cap
  • 10% Emerging Markets
Then I'd build a rolling TIPS ladder to cover 5-7 years of living expenses by buying individual TIPS.

That said, I'm still a decade off so this is nothing more than spitballing at this point.
1130Super
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Re: Help me find the weakness in this FIRE Portfolio

Post by 1130Super »

Everything,
Mega caps have pulled the weight of the gains for the last decade.
Gold really???
Long term treasuries at 1.xx% really?

Switch treasuries for total bond
Switch gold for QQQ

I almost feel like OP is trolling
pkcrafter
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Re: Help me find the weakness in this FIRE Portfolio

Post by pkcrafter »

rovenskyfall,

It appears you have done a lot of homework/research in coming up with this portfolio, but do you really have much experience investing? You are 34? and looking at FIRE.

Your portfolio may outperform a Boglehead type of portfolio, but you will get extended periods of underperformance from small and lots of market tracking error. Not easy to hold a portfolio such as the one you propose. Also, you haven't said anything about amount of assets and proposed withdrawal rate.

https://www.longtermtrends.net/large-cap-vs-small-cap/


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.
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Re: Help me find the weakness in this FIRE Portfolio

Post by dru808 »

RovenSkyfall wrote: Fri Apr 24, 2020 3:05 pm
galeno wrote: Fri Apr 24, 2020 2:56 pm Better:

50% TSM + 25% LT Treas + 25% LT TIPS.

Even better.

50% TSM + 50% LT TIPS.
I will try and look at these, do you have a fund name for the LT TIPS?
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galeno
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Re: Help me find the weakness in this FIRE Portfolio

Post by galeno »

I consider myself as an expert in old-school FIRE.

If I were the OP with a true interest in FIRE I'd allocate like this: X% VTI + Y% BND. X% = 60-80%.

The most importanthing thingbyou can do if you REALLY want sucess in FIRE is to be FRUGAL. If you can live on an AWR < 3% you are golden.
anonsdca
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Re: Help me find the weakness in this FIRE Portfolio

Post by anonsdca »

RovenSkyfall wrote: Fri Apr 24, 2020 2:28 pm TLDR: I think I found an ideal FI(RE) portfolio for all times of accumulation and retirement -- show me where I am wrong
No, you havent. Any FI, or FIRE, or ER portfolio needs to be predicated on income. Income to cover your expenses. The mere idea of any withdrawal rate to be successful is just too risky, worrisome and just flat out a no-go.

If you can get your portfolio to provide enough income (dividends + interest) to cover your expenses---and some sort of margin of safety. That, my friend, is the "ideal" portfolio. It is worry free at that point. Auto pilot.
retired@50
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Re: Help me find the weakness in this FIRE Portfolio

Post by retired@50 »

fredflinstone wrote: Fri Apr 24, 2020 8:38 pm Over long periods of time (hundreds of years? thousands of years?) gold is expected to have a real return of zero because it is a non-productive asset. However, during my lifetime and probably during your lifetime, gold has had real returns much greater than zero. In times of war, civil instability, or high inflation, you will likely be glad you own gold.

Anyway a real expected return of zero isn't bad these days.
fredflinstone,
I'm wondering about gold in your portfolio...

When was the last time you had to re-balance and sell gold because it had become too large a part of your portfolio?

Regards,
This is one person's opinion. Nothing more.
dru808
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Re: Help me find the weakness in this FIRE Portfolio

Post by dru808 »

You won’t know if it’s weak till 30 years after deploying the plan. Deploy, get back to us in 30 years, inform us if it worked out.
60% SCHK | 25% VIGI | 15% ILTB
DonIce
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Re: Help me find the weakness in this FIRE Portfolio

Post by DonIce »

bloom2708 wrote: Fri Apr 24, 2020 3:46 pm
RovenSkyfall wrote: Fri Apr 24, 2020 3:02 pm My understanding was that the LT bonds are acting as a ballast more than anything here. https://portfoliocharts.com/2019/05/27/ ... convexity/
It WAS a ballast. Stock market rallies coinciding with interest rates dropping over a long time period.

To repeat, you need high-ish rates again. To get there is bumpy ride for long bonds.
For all we know, in 20 years, 1.2% yield on 30 year treasuries could seem like a very high-ish rate indeed. While the intuitive sense is that rates probably won't go much below zero and won't stay there long if they do, and will probably rise from their historic lows, that result is far from guaranteed. Negative rates could become the norm over the coming decades, and continue to fall further and further into negative territory.
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Re: Help me find the weakness in this FIRE Portfolio

Post by DonIce »

RovenSkyfall wrote: Fri Apr 24, 2020 2:28 pm
My Proposed FIRE Portfio:
50% SCV - IJS
30% Long Term Treasuries - TLT
20% Gold - IAU
I would strongly advise against a portfolio that does not include the economic powerhouses of the world economy: US large/megacaps. While SCV is the current fad; no one knows if it will perform better or worse in the long run. What you do know is that the stocks in SCV funds are generally the out of favor companies with poor prospects, falling profits, and few good products in the pipeline. That's the reason why they sell cheaply, hence "value". Often the badness of these companies is exaggerated and they regress to the mean, outperforming the low expectations set for them. That's what drives the theoretical value premium.

But it is far far from guaranteed. Including companies that are currently successful and profitable and have generated good returns for years and are the drivers of the world economy is a far safer option. The majority of even the most dedicated factor believers still only "tilt" to SCV, meaning they still have some substantial allocation to total market / large caps.
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fredflinstone
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Re: Help me find the weakness in this FIRE Portfolio

Post by fredflinstone »

retired@50 wrote: Fri Apr 24, 2020 11:41 pm
fredflinstone wrote: Fri Apr 24, 2020 8:38 pm Over long periods of time (hundreds of years? thousands of years?) gold is expected to have a real return of zero because it is a non-productive asset. However, during my lifetime and probably during your lifetime, gold has had real returns much greater than zero. In times of war, civil instability, or high inflation, you will likely be glad you own gold.

Anyway a real expected return of zero isn't bad these days.
fredflinstone,
I'm wondering about gold in your portfolio...

When was the last time you had to re-balance and sell gold because it had become too large a part of your portfolio?

Regards,
have not done so as yet.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
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fredflinstone
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Re: Help me find the weakness in this FIRE Portfolio

Post by fredflinstone »

tvubpwcisla wrote: Fri Apr 24, 2020 8:48 pm
More equities! Over 50% of this portfolio will not make much money over time.
How can you be so sure? Over the last 20 years, both gold and long-term treasuries handily outperformed stocks.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
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fredflinstone
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Re: Help me find the weakness in this FIRE Portfolio

Post by fredflinstone »

1130Super wrote: Fri Apr 24, 2020 9:20 pm Everything,
Mega caps have pulled the weight of the gains for the last decade.
Gold really???
Long term treasuries at 1.xx% really?

Switch treasuries for total bond
Switch gold for QQQ

I almost feel like OP is trolling
OP, do you see how much people here despise gold and long-term treasuries? These were probably the same people who mocked those of us expressing alarm about coronavirus in early February. They may well be the same people who panic sold stocks in mid March. In investing, the herd is usually wrong, a contrarian indicator. The more they hate small cap value stocks, gold, and long-term treasuries, the more reassured you should feel that these will continue to be strong performers going forward.
Last edited by fredflinstone on Sat Apr 25, 2020 7:48 am, edited 1 time in total.
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tvubpwcisla
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Re: Help me find the weakness in this FIRE Portfolio

Post by tvubpwcisla »

fredflinstone wrote: Sat Apr 25, 2020 4:20 am
tvubpwcisla wrote: Fri Apr 24, 2020 8:48 pm
More equities! Over 50% of this portfolio will not make much money over time.
How can you be so sure? Over the last 20 years, both gold and long-term treasuries handily outperformed stocks.
That's interesting! I never would have guessed that Treasuries would outperform stocks? :confused
Stay invested my friends.
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Re: Help me find the weakness in this FIRE Portfolio

Post by fredflinstone »

tvubpwcisla wrote: Sat Apr 25, 2020 5:45 am
fredflinstone wrote: Sat Apr 25, 2020 4:20 am
tvubpwcisla wrote: Fri Apr 24, 2020 8:48 pm
More equities! Over 50% of this portfolio will not make much money over time.
How can you be so sure? Over the last 20 years, both gold and long-term treasuries handily outperformed stocks.
That's interesting! I never would have guessed that Treasuries would outperform stocks? :confused
Most Bogleheads have a deep and abiding belief that stocks will outperform gold and long-term treasuries over the long run. They can cite whatever data to support their case, but it certainly is not supported by data over the last 20 years. The reality is that over the next 10, 20, or 30 years we have no idea which asset category will perform best. That is a fact. And that's why it's a good idea to own all the major asset classes rather than put all eggs in one or two baskets.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
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Re: Help me find the weakness in this FIRE Portfolio

Post by retired@50 »

fredflinstone wrote: Sat Apr 25, 2020 4:20 am
tvubpwcisla wrote: Fri Apr 24, 2020 8:48 pm
More equities! Over 50% of this portfolio will not make much money over time.
How can you be so sure? Over the last 20 years, both gold and long-term treasuries handily outperformed stocks.
If this is true, then why haven't you had to sell gold and buy stocks to re-balance?

This is the source of my curiosity. If gold is so great, then you shouldn't you be reaping those profits and pouring them into poor downtrodden stocks?

Alternatively, if gold is always the "dud" in your portfolio, then you're always selling something else to buy more gold during re-balancing.

Which is it?

Regards,
This is one person's opinion. Nothing more.
BigJohn
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Re: Help me find the weakness in this FIRE Portfolio

Post by BigJohn »

fredflinstone wrote: Sat Apr 25, 2020 4:25 am
1130Super wrote: Fri Apr 24, 2020 9:20 pm Everything,
Mega caps have pulled the weight of the gains for the last decade.
Gold really???
Long term treasuries at 1.xx% really?

Switch treasuries for total bond
Switch gold for QQQ

I almost feel like OP is trolling
OP, do you see how much people here despise gold and long-term treasuries? These were probably the same people who mocked those of us expressing alarm about coronavirus in early February. They may well be the same people who panic sold stocks in mid March. In investing, the herd is usually wrong, a contrarian indicator. The more they hate small cap value stocks, gold, and long-term treasuries, the more reassured you should feel that these will continue to be strong performers going forward.
Wow, that’s quite a leap from not wanting to invest in gold and LTTs to virus denial and panicked selling. While this guilty by association argument may make the OP feel better, it actually has nothing whatsoever to do with his investment decisions. Like always, there are many opinions on these topics all of which have some merit. My advice is to read the pros/cons of all the choices with an open mind and then make the best decision you can. There is no perfect answer and certainly no guarantees no matter what you choose.

Just FYI, I would never personally invest in either gold or LTTs but was not a virus denier and bought stocks last month to rebalance to my target AA :beer
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galeno
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Re: Help me find the weakness in this FIRE Portfolio

Post by galeno »

Me neither. No gold or LTT. Also I over rebalanced equities. On Mar 31.

"Just FYI, I would never personally invest in either gold or LTTs but was not a virus denier and bought stocks last month to rebalance to my target AA."
jibantik
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Re: Help me find the weakness in this FIRE Portfolio

Post by jibantik »

Weaknesses? One your basing things on past performance. Two you have 20% in gold. Need I list more?
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