Backtesting some robo-advisers asset allocations

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jbolden1517
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Re: Backtesting some robo-advisers asset allocations

Post by jbolden1517 » Wed Aug 09, 2017 12:59 pm

siamond wrote: Remember, this is ONE time period though, where bonds did pretty good overall. If there is one type of assets where past returns can be especially misleading when trying to guesstimate the future, this would be bonds...
Let me augment that by saying I think past returns over a few decades are misleading. Bond bulls and bears are rather predictable in the western world. They have repeated over and over again since the high middle ages and the invention of bonds. It is just that the cycle lasts a human lifetime. People generally backtest their portfolio against their parent's investing world. They would be far better off to test against their grandparent's investing world when it comes to bonds.

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drummerboy
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Re: Backtesting some robo-advisers asset allocations

Post by drummerboy » Thu Aug 10, 2017 8:25 am

jbolden1517 wrote: People generally backtest their portfolio against their parent's investing world. They would be far better off to test against their grandparent's investing world when it comes to bonds.
So is there a potential benefit to Schwab's SIP large cash positions? Protection from bond-bear and a form of emergency fund?

jbolden1517
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Re: Backtesting some robo-advisers asset allocations

Post by jbolden1517 » Thu Aug 10, 2017 8:51 am

drummerboy wrote:
jbolden1517 wrote: People generally backtest their portfolio against their parent's investing world. They would be far better off to test against their grandparent's investing world when it comes to bonds.
So is there a potential benefit to Schwab's SIP large cash positions? Protection from bond-bear and a form of emergency fund?
Yes. I think STB work better than cash, I'd never recommend cash. The reward for that little bit of duration risk is too high. Certainly though if you have an "emergency fund" rolling that fund into SIP drastically boosts returns. The more serious the bond bear the better cash will have been in retrospect. Take for example a situation where the (not allowed to use political words, party that starts with an R that controls congress) congress decides to default, which they keep threatening to do. Still unlikely but STB could be down 20% in a day. Or a serious sell off the dollar where the Fed feels it just has to raise short term rates to create a short squeeze. STB gets hit along with stocks.

In a crisis cash is king. The more serious the crisis the more cash like you have to be.

David Scubadiver
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Re: Backtesting some robo-advisers asset allocations

Post by David Scubadiver » Wed Oct 04, 2017 3:59 pm

This thread is amazing. I was curious whether Wisebanyan which charges no fees has been compared to Schwab. (WB does charge a maximum of $20 a month for Tax loss harvesting, but that pretty much washes out with a large portfolio).

My concerns, expressed elsewhere, is that they lack the bank security that Schwab has and what other have said, which is that they may not be around for the long term, because they are so small. Moving brokerage accounts involuntarily can be a huge pain in the neck...

drummerboy
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Re: Backtesting some robo-advisers asset allocations

Post by drummerboy » Wed Oct 04, 2017 5:27 pm

SIP still seems incomplete to me, but it has many potential benefits.

Pros of SIP:
  • Makes a complex tilted portfolio easy to manage
  • Good Returns when backtested
  • Cash Drag can potentially be a benefit if we are about to enter a bond-bear market. Cash isn't zero, it will earn something. And I believe this is an FDIC Schwab Bank sweep account.
Cons of SIP:
  • Questionable tax efficiency. REITs and other tax-generating assets would sit in your taxable account.
  • Too bad you can't identify mulitple accounts (e.g. your Taxable, IRA, Roth) to SIP and it builds a tax-efficient portfolio across all three.
One nice thing about SIP is handing it off to my heirs. If I die, will my wife be able to mange my self-directed portfolio easily. With SIP (in a perfect world), she establishes a monthly withdrawal rate (perhaps including RMD) and it is almost automatic.

Yes, Schwab is making money off the spread on cash. As long as the cash allocation doesn't get too crazy, and if cash helps it avoid large "fat tails" or "deep risk", then cash should be seen as a benefit.

David Scubadiver
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Re: Backtesting some robo-advisers asset allocations

Post by David Scubadiver » Wed Oct 04, 2017 5:37 pm

The only reason i am contemplating moving to robo is for my wife. I am sure it will have other benefits given my haphazard approach to wealth building. But I really want something she doesn’t have to think about or involve anybody else in.

Working2notWork
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Re: Backtesting some robo-advisers asset allocations

Post by Working2notWork » Tue Oct 31, 2017 10:42 am

Can we test the "Ultimate Buy and Hold"?

viewtopic.php?t=38374

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siamond
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Re: Backtesting some robo-advisers asset allocations

Post by siamond » Tue Oct 31, 2017 11:14 am

Working2notWork wrote:
Tue Oct 31, 2017 10:42 am
Can we test the "Ultimate Buy and Hold"?

viewtopic.php?t=38374
This thread is about robo-advisers, not about predefined fixed portfolios, so let me just give you a short pointer (feel free to open a separate thread if you'd like more information & discussion).

The Merriman Ultimate Buy & Hold is modeled in the Simba spreadsheet (in v16f, Lazy_Portfolios tab, column Q), and you can check results yourself while varying the time periods (or maybe tweaking the portfolio itself).

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