Harry Browne Permanent Portfolio Discussion (Cont'd)

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mjuszczak
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by mjuszczak » Tue Feb 06, 2018 9:29 pm

GratefulinNC wrote:
Sun Feb 04, 2018 7:33 pm
Gold is an excellent hedge because of its low to negative correlation with other asset classes. Because of this, its primary value is in rebalancing.

During the great recession of 2008, Gold (ETF symbol: GLD) performed great. While the S&P 500 (ETF symbol: SPY) zigged, gold zagged. I charted these two assets for the period of 11/15/2007 to 3/6/2009. See chart:

http://bigcharts.marketwatch.com/advcha ... e&state=12

Like bonds, gold is a hedge -- a form of insurance. Hold a little, then rebalance into other assets during down markets. My portfolio includes a 7% gold allocation in the form the ETF GLD. Just a 5% to 10% allocation will significantly reduce the duration of asset drawdowns, enabling your portfolio to recover years sooner than a similar portfio without gold. A website called http://www.portfoliocharts.com documents this characteristic very well.
Curious on your age. Are you aggressive while still holding 7%? I'm trying to be "mostly" aggressive, but would love to recover faster in a turndown.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GratefulinNC » Wed Feb 07, 2018 10:29 pm

mjuszczak wrote:
Tue Feb 06, 2018 9:29 pm
GratefulinNC wrote:
Sun Feb 04, 2018 7:33 pm
Gold is an excellent hedge because of its low to negative correlation with other asset classes. Because of this, its primary value is in rebalancing.

During the great recession of 2008, Gold (ETF symbol: GLD) performed great. While the S&P 500 (ETF symbol: SPY) zigged, gold zagged. I charted these two assets for the period of 11/15/2007 to 3/6/2009. See chart:

http://bigcharts.marketwatch.com/advcha ... e&state=12

Like bonds, gold is a hedge -- a form of insurance. Hold a little, then rebalance into other assets during down markets. My portfolio includes a 7% gold allocation in the form the ETF GLD. Just a 5% to 10% allocation will significantly reduce the duration of asset drawdowns, enabling your portfolio to recover years sooner than a similar portfio without gold. A website called http://www.portfoliocharts.com documents this characteristic very well.
Curious on your age. Are you aggressive while still holding 7%? I'm trying to be "mostly" aggressive, but would love to recover faster in a turndown.
I am 53. My portfolio is 70/30.

Gold is insurance, similar to a bond. Therefore, I consider it part of my fixed income allocation. Currently, I am 70% stocks / 30% fixed income [7% gold ETF, 23% bond funds].

I am not decreasing my equity/stock percenatage to have gold. I am decreasing my bond percenatage.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by czeckers » Thu Feb 08, 2018 8:03 am

Wondering whether a precious metal mining fund such as VGPMX would be a workable substitute for GLD. My money is in retirement funds and I have access to mutual funds but not ETFs.
The Espresso portfolio: | | 16% LCV, 16% SCV, 16% EM, 8% Int'l Value, 8% Int'l Sm, 8% US REIT, 8% Int'l REIT, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by czeckers » Thu Feb 08, 2018 8:07 am

I've always wondered whether a precious metal mining fund such as VGPMX would be a workable substitute for GLD. My money is in retirement funds and I have access to mutual funds but not ETFs.

So I took the chart provided by GratefulinNC substituting VGPMX instead of GLD. To my surprise I saw that VGPMX dropped 70% over the same time period. I'd say that I now have my doubts that VGPMX is a useful substitute for GLD.
The Espresso portfolio: | | 16% LCV, 16% SCV, 16% EM, 8% Int'l Value, 8% Int'l Sm, 8% US REIT, 8% Int'l REIT, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GratefulinNC » Thu Feb 08, 2018 11:47 am

czeckers wrote:
Thu Feb 08, 2018 8:07 am
I've always wondered whether a precious metal mining fund such as VGPMX would be a workable substitute for GLD. My money is in retirement funds and I have access to mutual funds but not ETFs.

So I took the chart provided by GratefulinNC substituting VGPMX instead of GLD. To my surprise I saw that VGPMX dropped 70% over the same time period. I'd say that I now have my doubts that VGPMX is a useful substitute for GLD.
+1 Don't worry about it. Gold is a nice to have, but not a have to have for your portfolio. You will be just fine with bonds instead of gold.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by foglifter » Thu Feb 08, 2018 1:39 pm

czeckers wrote:
Thu Feb 08, 2018 8:07 am
I've always wondered whether a precious metal mining fund such as VGPMX would be a workable substitute for GLD. My money is in retirement funds and I have access to mutual funds but not ETFs.

So I took the chart provided by GratefulinNC substituting VGPMX instead of GLD. To my surprise I saw that VGPMX dropped 70% over the same time period. I'd say that I now have my doubts that VGPMX is a useful substitute for GLD.
You're correct, precious metal funds include both gold bullion and miner stocks so they can't be considered a substitute for gold as they often behave like stocks. Also, you mentioned GLD - I believe this fund does some security lending which was discussed a few years ago. Also the expense ration is relatively high. IAU has lower ER (0.25%).

Here's Craig's original Gold FAQ If you'd like to learn more about gold in the context of HBPP:

Permanent Portfolio 25% Gold Allocation FAQ

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by czeckers » Thu Feb 08, 2018 3:28 pm

That was very informative. Thank you.
The Espresso portfolio: | | 16% LCV, 16% SCV, 16% EM, 8% Int'l Value, 8% Int'l Sm, 8% US REIT, 8% Int'l REIT, 20% Inter-term US Treas | | "A journey of a thousand miles begins with a single step."

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by mjuszczak » Thu Feb 08, 2018 4:10 pm

Quite informative, thank you!

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Sat Jun 09, 2018 5:06 am

Does anyone know why the Permanent Portfolio fund - PRPFX - is underperforming the pure "vanilla" Permanent Portfolio so much in recent years?

http://www.permanentportfoliofunds.com/ ... folio.html

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by DragonJoey3 » Sat Jun 09, 2018 6:03 am

There has been some discussion at length about that before over on the Permenent Portfolio forum run by mediumtex/craig here is a topic discussing some of the differences that lead to a delta in returns: https://www.gyroscopicinvesting.com/for ... .php?t=442

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by knpstr » Sat Jun 09, 2018 7:44 am

From my limited look at the PP it seems to do a good job of minimizing the downside and still gives and adequate (though lackluster) overall return.

Putting a portfolio in to portfolio visualizer of: 25% US Stock, 25% short term treasury, 25% long term treasury, 25% gold with 4% withdrawals adjusted for inflation and re-balancing annually $1M from 1972 became $9.5M today, WORST year was only -5.34% and best year 40.91%. Adjusted for inflation your portfolio didn't do much, but it provided a relatively smooth ride and gave you the income you needed over the last 46 years.

Also, the PP's US market correlation is only .56 (thanks to gold doing it's job).

Most stock/bond splits have US market correlations of .90+
Even putting 25% US stocks, 25% global-ex US and 50% total bond still yields a .89 correlation to US market. Gold, though it has unimpressive returns and holds back your portfolio in that respect, seemingly does a great job in limiting the downside in your portfolio.

I doubt that I would ever use a PP but it is an interesting idea and I think it could suit some people well. It seems to be even more conservative than a lot of stock/bond mixes.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Sat Jun 09, 2018 10:49 am

knpstr wrote:
Sat Jun 09, 2018 7:44 am
From my limited look at the PP it seems to do a good job of minimizing the downside and still gives and adequate (though lackluster) overall return.

Putting a portfolio in to portfolio visualizer of: 25% US Stock, 25% short term treasury, 25% long term treasury, 25% gold with 4% withdrawals adjusted for inflation and re-balancing annually $1M from 1972 became $9.5M today, WORST year was only -5.34% and best year 40.91%. Adjusted for inflation your portfolio didn't do much, but it provided a relatively smooth ride and gave you the income you needed over the last 46 years.

Also, the PP's US market correlation is only .56 (thanks to gold doing it's job).

Most stock/bond splits have US market correlations of .90+
Even putting 25% US stocks, 25% global-ex US and 50% total bond still yields a .89 correlation to US market. Gold, though it has unimpressive returns and holds back your portfolio in that respect, seemingly does a great job in limiting the downside in your portfolio.

I doubt that I would ever use a PP but it is an interesting idea and I think it could suit some people well. It seems to be even more conservative than a lot of stock/bond mixes.
Few things:

1) A portfolio with 25% US stocks, 75% intermediate treasuries does as well as the PP over the last 43 years with a market correlation of .67 and a smaller max drawdown. The advantage of the PP is completely attributable to the years 1972-1974, a period during which it was illegal to own gold in the US.

2) Also, results for the PP totally fail to account for the much higher management costs of maintaining such an allocation during the period in which you could only use physical gold.

3) Results touted for the PP are typically based on investing a lump sum at the beginning, rather than through periodic annual contributions, which is how most of us have to invest. Based on making equal annual contributions (inflation-adjusted), the returns from the PP and 25% stock/75% treasuries from 1972-2018 are virtually identical because you would have had a smaller amount invested at the start of the 1972-2018 period.

Taking these factors into consideration, there's really no evidence that the PP is any better than having a small allocation to stocks and a large allocation to US treasuries.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Sat Jun 09, 2018 1:42 pm

CULater wrote:
Sat Jun 09, 2018 10:49 am
knpstr wrote:
Sat Jun 09, 2018 7:44 am
From my limited look at the PP it seems to do a good job of minimizing the downside and still gives and adequate (though lackluster) overall return.

Putting a portfolio in to portfolio visualizer of: 25% US Stock, 25% short term treasury, 25% long term treasury, 25% gold with 4% withdrawals adjusted for inflation and re-balancing annually $1M from 1972 became $9.5M today, WORST year was only -5.34% and best year 40.91%. Adjusted for inflation your portfolio didn't do much, but it provided a relatively smooth ride and gave you the income you needed over the last 46 years.

Also, the PP's US market correlation is only .56 (thanks to gold doing it's job).

Most stock/bond splits have US market correlations of .90+
Even putting 25% US stocks, 25% global-ex US and 50% total bond still yields a .89 correlation to US market. Gold, though it has unimpressive returns and holds back your portfolio in that respect, seemingly does a great job in limiting the downside in your portfolio.

I doubt that I would ever use a PP but it is an interesting idea and I think it could suit some people well. It seems to be even more conservative than a lot of stock/bond mixes.
Few things:

1) A portfolio with 25% US stocks, 75% intermediate treasuries does as well as the PP over the last 43 years with a market correlation of .67 and a smaller max drawdown. The advantage of the PP is completely attributable to the years 1972-1974, a period during which it was illegal to own gold in the US.

2) Also, results for the PP totally fail to account for the much higher management costs of maintaining such an allocation during the period in which you could only use physical gold.

3) Results touted for the PP are typically based on investing a lump sum at the beginning, rather than through periodic annual contributions, which is how most of us have to invest. Based on making equal annual contributions (inflation-adjusted), the returns from the PP and 25% stock/75% treasuries from 1972-2018 are virtually identical because you would have had a smaller amount invested at the start of the 1972-2018 period.

Taking these factors into consideration, there's really no evidence that the PP is any better than having a small allocation to stocks and a large allocation to US treasuries.
Take a look at the chart below. Portfolio 1 is the PP, and Portfolio 2 is 25% total stock market and 75% intermediate term Treasuries. Both portfolios start with $10,000 and use $400 annual withdrawals in year 1 that are then adjusted upward for inflation every year (i.e. '4% rule' for retirees). The starting year is 2000. Ending portfolio values are $14,861 for Portfolio 1 and $12,617 for Portfolio 2.

Image

I'd say that's evidence that the PP has been "better than having a small allocation to stocks and a large allocation to U.S. treasuries," even when costs are taken into account, for at least one recent period.
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Sat Jun 09, 2018 2:26 pm

We can all cherry-pick various timeframes to prove the superiority of one portfolio over another, so that's an endless argument. Since, the period since 1972 based on starting with a lump sum is usually the classic benchmark that is used to support the PP I think it's important to scrutinize that more closely. It's clear to me that the case for the PP based on that time period has a few warts.

Is the PP better as a distribution portfolio than an accumulation portfolio? I don't really know. It is more diversified than a stock/bond portfolio which is a plus, but gold as a diversifier has a zero expected real return so that's not so great. I see gold more as insurance than an investment asset, and I own a little myself for that reason. But like insurance, I hope to never have to collect a claim and to forfeit the cost of my premiums. But I think that 25% of my nestegg in insurance is way too much, so the PP doesn't really enchant me.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Sat Jun 09, 2018 2:59 pm

Hello everyone. My CFA advisor was overhearing our conversation about the PP in class and he had some things to add the discussion that I found interesting. (He even apparently frequents this site! Small world.)

1) Even though a 75/25 split between bonds and stocks has performed similarly to the PP in many time periods, it shouldn't be necessarily be expected to do that in the future thanks to the now low bond yields.

2) The PP, thanks to its gold allocation vs the 75/25 portfolio, has better protection against "tail events" that many don't appreciate.

3) The vast majority of the world population doesn't even live in the U.S., so weight of the argument about illegal gold ownership in the U.S. during the early 70s and such isn't as strong as some might think.

4) Even an entire portfolio made up entirely of assets that have zero expected return call pull in consistent profits -- so as long as those assets are volatile and are not well correlated. If a portfolio consists of asset A and asset B and each have zero return over some period, a portfolio consisting of the two of them together can generate good returns via the regular rebalancing process. Asset A might go up on year one while asset B goes down, you rebalance back to, say, your 50/50 target allocation and you've automatically bought cheap and sold dear. Gold, to this extent is very relevant to such a discussion. The zero expected return of gold after inflation doesn't have to be viewed as a reason not to own it.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by nisiprius » Sat Jun 09, 2018 3:18 pm

One important issue about the Permanent Portfolio is that it has evolved and changed and gone through different versions. The original Permanent Portfolio was embodied in the Permanent Portfolio mutual fund, PRPFX. I think it is a fair example of "the" Permanent Portfolio--in real life, not in backtesting--over a period of 35 years, as implemented by professionals who were directly advised by Browne personally. Backtesting the 25x4 version of the Permanent Portfolio is 20/20 hindsight.

Compare

Portfolio 1 (blue), PRPFX, the Permanent Portfolio fund
Portfolio 2 (red), VWINX, the Wellesley Income fund

Source

Image

Both are very conservative funds. Both experienced less than a 20% drawdown in 2008-2009.

Nevertheless it is hard to make the case that PRPFX has been superior. It actually had a slightly worse drawdown in 2008-2009, somewhat higher standard deviation (a measure of volatility, an aspect of "risk"), very considerably lower return, and very considerably lower risk-adjusted return as measured by the Sharpe ratio (0.33 versus 0.92).

I don't know the expense ratio history, but PRPFX currently has an 0.82% ER--I think it used to be in 1.00% territory--while VWINX is currently at 0.22%. Notice that the difference in return is not explained by expenses. The CAGR of VWINX has been 3.50% higher while the difference in expense ratio has been less than 1%.

The Permanent Portfolio fund did look much better than Wellesley from 2001-2011, the period of time when gold was booming. So, that's ten years of excellent performance, but it didn't make up for the other twenty-five years of lackluster performance.
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Sat Jun 09, 2018 3:33 pm

An interesting discussion with Ray Dalio about balanced portfolios. Right around the time stamp I have the link set to, Dalio advocates a portfolio construction methodology that sounds an awful lot like the PP. He even gives his input on gold. Quite fascinating!

https://youtu.be/SFaRazMpxcM?t=47m

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Sat Jun 09, 2018 4:11 pm

GRP wrote:
Sat Jun 09, 2018 2:59 pm
Hello everyone. My CFA advisor was overhearing our conversation about the PP in class and he had some things to add the discussion that I found interesting. (He even apparently frequents this site! Small world.)

1) Even though a 75/25 split between bonds and stocks has performed similarly to the PP in many time periods, it shouldn't be necessarily be expected to do that in the future thanks to the now low bond yields. Don't forget that 50% of the PP is in bonds also. Is there a reason to suppose that gold will outperform bonds going forward?

2) The PP, thanks to its gold allocation vs the 75/25 portfolio, has better protection against "tail events" that many don't appreciate. And yet the largest drawdown for 75/25 since 1972 was less than for the PP, and there were lots and lots of "tail events" during that period.

3) The vast majority of the world population doesn't even live in the U.S., so weight of the argument about illegal gold ownership in the U.S. during the early 70s and such isn't as strong as some might think. What I care about as a US investor, is that it would have been problematical for me to own gold in the 1970s when it had it's big ramp up.

4) Even an entire portfolio made up entirely of assets that have zero expected return call pull in consistent profits -- so as long as those assets are volatile and are not well correlated. If a portfolio consists of asset A and asset B and each have zero return over some period, a portfolio consisting of the two of them together can generate good returns via the regular rebalancing process. Asset A might go up on year one while asset B goes down, you rebalance back to, say, your 50/50 target allocation and you've automatically bought cheap and sold dear. Gold, to this extent is very relevant to such a discussion. The zero expected return of gold after inflation doesn't have to be viewed as a reason not to own it. This a topic all to itself, but fundamentally there will be a "rebalancing bonus" if the ex post returns of the assets are similar - it's not sufficient that they are not well correlated. So, during periods when gold and stock returns were similar, there was a rebalancing bonus. But during periods in which one dominated the other, there was not; and over the long run the returns from stocks and bonds have dominated gold.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Sat Jun 09, 2018 4:58 pm

Does anyone know where to get a copy of Harry Browne’s old radio show segments? The old radio archive site links seem to be broken... or are they working for anyone else?

https://www.harrybrowne.org/Archives/Archives.htm

It would be nice to listen to them and get more of his perspective.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by AlphaLess » Sat Jun 09, 2018 5:03 pm

NiceUnparticularMan wrote:
Thu Apr 27, 2017 7:31 pm
... GOLD ...

Roulette wheels--sometimes they help, sometimes they hurt.
Well said!

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by AlphaLess » Sat Jun 09, 2018 5:04 pm

GRP wrote:
Sat Jun 09, 2018 4:58 pm
Does anyone know where to get a copy of Harry Browne’s old radio show segments? The old radio archive site links seem to be broken... or are they working for anyone else?

https://www.harrybrowne.org/Archives/Archives.htm

It would be nice to listen to them and get more of his perspective.
I thought politics was off-topic around here.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by AlphaLess » Sat Jun 09, 2018 5:07 pm

nisiprius wrote:
Sat Jun 09, 2018 3:18 pm
Compare

Portfolio 1 (blue), PRPFX, the Permanent Portfolio fund
Portfolio 2 (red), VWINX, the Wellesley Income fund
Thank you for a very sound and scientific analysis.
Overfitting is one of the biggest mistakes in quantitative analysis.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Sat Jun 09, 2018 5:08 pm

AlphaLess wrote:
Sat Jun 09, 2018 5:04 pm
GRP wrote:
Sat Jun 09, 2018 4:58 pm
Does anyone know where to get a copy of Harry Browne’s old radio show segments? The old radio archive site links seem to be broken... or are they working for anyone else?

https://www.harrybrowne.org/Archives/Archives.htm

It would be nice to listen to them and get more of his perspective.
I thought politics was off-topic around here.
Er, does anyone have a source for his investment radio show segments, then? :D

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Sat Jun 09, 2018 5:46 pm

CULater wrote:
Sat Jun 09, 2018 2:26 pm
We can all cherry-pick various timeframes to prove the superiority of one portfolio over another, so that's an endless argument.
Yes, the particular period I referenced was 'cherry picked', but that was done in order to make the point that the PP is not wholly reliant on the performance of gold in the 1970s; it has continued to perform reasonably well in more recent years.
CULater wrote:
Sat Jun 09, 2018 2:26 pm
Since, the period since 1972 based on starting with a lump sum is usually the classic benchmark that is used to support the PP I think it's important to scrutinize that more closely.
You seem to be honing in on one 'cherry picked' period (1972-current) while disdaining another period (2000-current).
CULater wrote:
Sat Jun 09, 2018 2:26 pm
Is the PP better as a distribution portfolio than an accumulation portfolio? I don't really know. It is more diversified than a stock/bond portfolio which is a plus, but gold as a diversifier has a zero expected real return so that's not so great. I see gold more as insurance than an investment asset, and I own a little myself for that reason. But like insurance, I hope to never have to collect a claim and to forfeit the cost of my premiums. But I think that 25% of my nestegg in insurance is way too much, so the PP doesn't really enchant me.
I agree that gold should be viewed more as an insurance policy of sorts than as an investment; from 1980 until now, it's actually had a slightly negative real return. That being said, its inclusion in portfolios within that period has not always had a deleterious effect on overall portfolio performance; the opposite has actually been true fairly often. I think the problem, if there is one, with many investors' views of gold in portfolios is that they are viewing gold as a standalone asset class and not as one piece of a bigger portfolio.

For instance, I could make a strong argument that T-bills are a horrid investment; their real return has historically been lower than almost any other 'investment' asset class. Yet that does not mean that investors should completely avoid them. T-bills and similar cash-equivalents can absolutely have a great part to play in a bigger portfolio. I think that the same might be true of gold, both historically and going forward.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by knpstr » Sat Jun 09, 2018 6:38 pm

CULater wrote:
Sat Jun 09, 2018 2:26 pm
We can all cherry-pick various timeframes to prove the superiority of one portfolio over another, so that's an endless argument.
I agree with your statement above, but Will did completely refute your point made in #1 to me saying: "The advantage of the PP is completely attributable to the years 1972-1974, a period during which it was illegal to own gold in the US. "

That statement is not true. I believe that was Will's point, nothing more.

The point I made was not to say one portfolio is ALWAYS better than the other, far from that, not even to endorse the PP. But that the PP does seem to achieve what it sets out to do: Maintain your portfolio size, giving you income, with minimal bad years. I'm also not saying that another portfolio can't also do that.
Very little is needed to make a happy life; it is all within yourself, in your way of thinking. -Marcus Aurelius

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Sat Jun 09, 2018 8:06 pm

knpstr wrote:
Sat Jun 09, 2018 6:38 pm
CULater wrote:
Sat Jun 09, 2018 2:26 pm
We can all cherry-pick various timeframes to prove the superiority of one portfolio over another, so that's an endless argument.
I agree with your statement above, but Will did completely refute your point made in #1 to me saying: "The advantage of the PP is completely attributable to the years 1972-1974, a period during which it was illegal to own gold in the US. "

That statement is not true. I believe that was Will's point, nothing more.

The point I made was not to say one portfolio is ALWAYS better than the other, far from that, not even to endorse the PP. But that the PP does seem to achieve what it sets out to do: Maintain your portfolio size, giving you income, with minimal bad years. I'm also not saying that another portfolio can't also do that.
:thumbsup Right on all counts.

And yes, there are many roads to Dublin. Boundless energy is spent on this forum debating portfolio composition, yet most of the widely publicized portfolios have had remarkably similar long-term performance.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by weltschmerz » Sun Jun 10, 2018 12:41 am

willthrill81 wrote:
Sat Jun 09, 2018 8:06 pm
Boundless energy is spent on this forum debating portfolio composition, yet most of the widely publicized portfolios have had remarkably similar long-term performance.
Yes that's true, but it is all in the context of the 30-year bull market for bonds, which is not to be repeated anytime soon. If you tell me that a classic 60-40 and a 25-75 has the same long term returns, then I'm going with the 25-75...same return, much less risk. But who knows what will work for the next 30 years? Thus, the final conclusion for me: backtesting is worthless.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Sun Jun 10, 2018 10:27 am

weltschmerz wrote:
Sun Jun 10, 2018 12:41 am
willthrill81 wrote:
Sat Jun 09, 2018 8:06 pm
Boundless energy is spent on this forum debating portfolio composition, yet most of the widely publicized portfolios have had remarkably similar long-term performance.
Yes that's true, but it is all in the context of the 30-year bull market for bonds, which is not to be repeated anytime soon. If you tell me that a classic 60-40 and a 25-75 has the same long term returns, then I'm going with the 25-75...same return, much less risk. But who knows what will work for the next 30 years? Thus, the final conclusion for me: backtesting is worthless.
I certainly wouldn't go so far as to say backtesting is worthless; remember that all of the safe withdrawal rate research, for instance, is based on backtested data. But backtesting must be used with great caution.

Regarding the bull market in bonds, I read an academic paper last year that I can't find now in which the authors estimated that declining interest rates over that period boosted TBM returns by about 1% beyond what they would have been otherwise. Even though we're in a rising rate environment now, few are expecting rates to go back into the double-digits. So we may see bonds return 1.5% less over the next 30 years than the last, but no one knows.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by halfnine » Sun Jun 10, 2018 2:55 pm

willthrill81 wrote:
Sun Jun 10, 2018 10:27 am
....I certainly wouldn't go so far as to say backtesting is worthless; remember that all of the safe withdrawal rate research, for instance, is based on backtested data. But backtesting must be used with great caution.....
I feel backtesting is quite worthless at predicting which of many good strategies will perform well in the future. However, I do think backtesting is quite worthwhile at detailing what risks have shown up in the past and eliminating those strategies from consideration.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Sun Jun 10, 2018 3:38 pm

I think you've articulated it quite well, halfnine.

Backtesting is "useless" in a sense that the future will never precisely replicate the past, but I think it provides us investors with useful food for thought in terms of how assets behave generally relative to the overall market/economic environment.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Sun Jun 10, 2018 3:49 pm

I'm very curious to know how many people on this forum still use the Permanent Portfolio strategy. Given its defensive nature, it's apparent that it becomes popular during 2008-style crashes but loses popularity in the depths of bull markets like we have today.

It seems it takes quite a bit of emotional stability to stick with a strategy that has large tracking error.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by invst65 » Sun Jun 10, 2018 4:06 pm

GRP wrote:
Sun Jun 10, 2018 3:49 pm
I'm very curious to know how many people on this forum still use the Permanent Portfolio strategy. Given its defensive nature, it's apparent that it becomes popular during 2008-style crashes but loses popularity in the depths of bull markets like we have today.

It seems it takes quite a bit of emotional stability to stick with a strategy that has large tracking error.
I use it but I've switched to a variant called "The Golden Butterfly". Instead of 4 allocation classes in equal parts (Stocks,Bonds,Gold,Cash), it adds an additional class of SCV (small cap value). So that bumps the stock allocation to 40%, instead of 25%.

The reason I switched is just as you have described. It's hard to watch the stock market go up while you are sitting on the sidelines with only a 25% allocation.

I've used it long enough to see the other classes pull the weight when stocks weren't doing well however, so I chose not to abandon the strategy altogether.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by AlphaLess » Sun Jun 10, 2018 4:18 pm

GRP wrote:
Sat Jun 09, 2018 5:08 pm
AlphaLess wrote:
Sat Jun 09, 2018 5:04 pm
GRP wrote:
Sat Jun 09, 2018 4:58 pm
Does anyone know where to get a copy of Harry Browne’s old radio show segments? The old radio archive site links seem to be broken... or are they working for anyone else?

https://www.harrybrowne.org/Archives/Archives.htm

It would be nice to listen to them and get more of his perspective.
I thought politics was off-topic around here.
Er, does anyone have a source for his investment radio show segments, then? :D
Sorry, half joking. When I tried to search for "harry browne", most of the links I got were political.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Sun Jun 10, 2018 5:07 pm

It's pretty difficult to stick with an offbeat portfolio allocation over the long term, when it's not performing well and that's a real behavioral challenge. Over the 20-year period from 1981 - 2000, gold ground relentlessly lower and lost a cumulative 54% over that time with a max drawdown of 57%. The 25X4 PP rebalanced annually produced returns that were lower than short-term treasury notes. Whenever one chooses to go rogue with their portfolio allocation, you should probably do a gut-check whether you think you can stick with that allocation over a possible worst-case scenario. We're now into another one of those; over the last 7 years gold has lost 32%.
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by columbia » Sun Jun 10, 2018 5:12 pm

CULater wrote:
Sun Jun 10, 2018 5:07 pm
It's pretty difficult to stick with an offbeat portfolio allocation over the long term, when it's not performing well and that's a real behavioral challenge. Over the 20-year period from 1981 - 2000, gold ground relentlessly lower and lost a cumulative 54% over that time with a max drawdown of 57%. The 25X4 PP rebalanced annually produced returns that were lower than short-term treasury notes. Whenever one chooses to go rogue with their portfolio allocation, you should probably do a gut-check whether you think you can stick with that allocation over a possible worst-case scenario. We're now into another one of those; over the last 7 years gold has lost 32%.

Mixing one’s politics ( the seeming - and only - basis for owning gold) with investing doesn’t necessarily lead to an optimal outcome.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Sun Jun 10, 2018 5:38 pm

columbia wrote:
Sun Jun 10, 2018 5:12 pm
Mixing one’s politics ( the seeming - and only - basis for owning gold) with investing doesn’t necessarily lead to an optimal outcome.
One can own gold for non-political reasons. See the Golden Butterly portfolio at Portfolio Charts for an example.
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by stlutz » Sun Jun 10, 2018 6:16 pm

Gold has a relatively fixed supply (growing about 1-2% per year). So, the price can go up over time to the extent that investors value it in the same way they have been. So, I think that makes it a very legitimate savings vehicle.

However, I also think the extent to which investors value it highly is highly dependent on those investors political understandings. If a lot of investors think that high deficits leads to "printing money" which leads to high inflation, well, then gold will do fine. If people with the money don't think that and they get interested in other types of assets, the gold won't do so well.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by invst65 » Mon Jun 11, 2018 11:48 am

willthrill81 wrote:
Sun Jun 10, 2018 5:38 pm
columbia wrote:
Sun Jun 10, 2018 5:12 pm
Mixing one’s politics ( the seeming - and only - basis for owning gold) with investing doesn’t necessarily lead to an optimal outcome.
One can own gold for non-political reasons. See the Golden Butterly portfolio at Portfolio Charts for an example.
Just so. One thing I've noticed about most discussions of the permanent portfolio is that they almost always get reduced to a discussion about the wisdom of holding gold in a portfolio, not whether the whole portfolio works or not.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by Dancer » Mon Jun 11, 2018 12:30 pm

GRP wrote:
Sun Jun 10, 2018 3:49 pm
I'm very curious to know how many people on this forum still use the Permanent Portfolio strategy. Given its defensive nature, it's apparent that it becomes popular during 2008-style crashes but loses popularity in the depths of bull markets like we have today.

It seems it takes quite a bit of emotional stability to stick with a strategy that has large tracking error.
Never went all in, but took aspects. My retirement portfolio is:

* Stocks: 50% (roughly 1/3 TSM, 1/3 SC with value tilt, 1/3 Intl)
* Fixed Income: 40% (mostly Barbell LTT & STT/MM, although some Intermediate and corporate as part of TBM)
* Gold: 10%

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by nisiprius » Mon Jun 11, 2018 1:05 pm

invst65 wrote:
Mon Jun 11, 2018 11:48 am
...One thing I've noticed about most discussions of the permanent portfolio is that they almost always get reduced to a discussion about the wisdom of holding gold in a portfolio, not whether the whole portfolio works or not...
That's because, if you look at my chart, compared to a traditional portfolio without gold, the Permanent Portfolio has done well during the times when gold has done well, and not very well during the times when gold has not done well. It's as simple as that.

Permanent Portfolio advocates often say "it's not about gold." But, comparing it with traditional portfolios that didn't include gold, I think it has been mostly about gold.

Portfolio 1, blue, is the Permanent Portfolio as originally defined (without hindsight). Portfolio 2, red, is the Vanguard Wellesley Income Fund, a combination of traditional securities (stocks and bonds, about 35/65).

If Browne and the fund managers had been able to start the fund in 1978 instead of 1983, the time period would include the big spike in gold circa 1979-1983, and I don't know how the whole time period would look. But, during the actual time period, there is only one time when the Permanent Portfolio was obviously beating Wellesley; that is, only one time when the blue line was closing the gap with the red line rather than the two spreading apart. And that was in the exact years that gold was experiencing the big run-up, 2001-2011--which, incidentally, was not only not a time of inflation, it actually included a year of deflation. Gold spiking in the absence of inflation is a good problem for gold investors to have, but nevertheless it undercuts the idea of gold as having predictable behavior.

Except during the 2001-2011 gold run up, I see no evidence that "the portfolio as a whole" was providing any extra benefit over a gold-free portfolio.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by invst65 » Tue Jun 12, 2018 9:50 am

nisiprius wrote:
Mon Jun 11, 2018 1:05 pm
invst65 wrote:
Mon Jun 11, 2018 11:48 am
...One thing I've noticed about most discussions of the permanent portfolio is that they almost always get reduced to a discussion about the wisdom of holding gold in a portfolio, not whether the whole portfolio works or not...
That's because, if you look at my chart, compared to a traditional portfolio without gold, the Permanent Portfolio has done well during the times when gold has done well, and not very well during the times when gold has not done well. It's as simple as that.

Permanent Portfolio advocates often say "it's not about gold." But, comparing it with traditional portfolios that didn't include gold, I think it has been mostly about gold.

Portfolio 1, blue, is the Permanent Portfolio as originally defined (without hindsight). Portfolio 2, red, is the Vanguard Wellesley Income Fund, a combination of traditional securities (stocks and bonds, about 35/65).

If Browne and the fund managers had been able to start the fund in 1978 instead of 1983, the time period would include the big spike in gold circa 1979-1983, and I don't know how the whole time period would look. But, during the actual time period, there is only one time when the Permanent Portfolio was obviously beating Wellesley; that is, only one time when the blue line was closing the gap with the red line rather than the two spreading apart. And that was in the exact years that gold was experiencing the big run-up, 2001-2011--which, incidentally, was not only not a time of inflation, it actually included a year of deflation. Gold spiking in the absence of inflation is a good problem for gold investors to have, but nevertheless it undercuts the idea of gold as having predictable behavior.

Except during the 2001-2011 gold run up, I see no evidence that "the portfolio as a whole" was providing any extra benefit over a gold-free portfolio.
Not looking to get into a discussion about gold so I'll just leave it with the comment that "extra benefit" isn't the point of holding it.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Tue Jun 12, 2018 11:39 am

That's because, if you look at my chart, compared to a traditional portfolio without gold, the Permanent Portfolio has done well during the times when gold has done well, and not very well during the times when gold has not done well. It's as simple as that.
Agree with this. It's all about the gold. You either think this is a good idea or not, and it seems to be more of an emotional decision more than a rational decision so debates get us nowhere.
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Tue Jun 12, 2018 3:23 pm

The gold is definitely the most contentious part of the portfolio. There was a time though that long-term bonds were just about as contentious of a subject in regards to the PP.

"That's just too low of a rate to lock in with a long-term bond!"

That seems to have died down quite significantly. Perhaps because the rate increases, now that they are actually happening, have had a more benign effect on our fixed income portfolios (so far) than people thought they would.

It's also amazing to me how people flock to the PP with such enthusiasm as a panacea during crisis.. and now a few years later there are almost no adherents. I am very interested in seeing whether there will be a similar change in the other direction during the next bear market.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by invst65 » Thu Jun 14, 2018 9:41 am

GRP wrote:
Tue Jun 12, 2018 3:23 pm
It's also amazing to me how people flock to the PP with such enthusiasm as a panacea during crisis.. and now a few years later there are almost no adherents. I am very interested in seeing whether there will be a similar change in the other direction during the next bear market.
That says a lot about investor behavior but not so much about the portfolio strategy. I could say the same thing about stock investing. Lots of people run for the hills when things go bad so it must be a bad strategy, right?

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by linenfort » Thu Jun 14, 2018 6:41 pm

GRP wrote:
Sat Jun 09, 2018 5:08 pm
Er, does anyone have a source for his investment radio show segments, then? :D
I’m pretty sure I have them on a hard drive.
I could send them to you via the Telegram app this week.
Or, if you prefer, I could burn a CD and mail it, but probably not until July or August.
On Vanguard's main page, you can just start typing your username to log in.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by GRP » Thu Jun 14, 2018 7:41 pm

linenfort wrote:
Thu Jun 14, 2018 6:41 pm
GRP wrote:
Sat Jun 09, 2018 5:08 pm
Er, does anyone have a source for his investment radio show segments, then? :D
I’m pretty sure I have them on a hard drive.
I could send them to you via the Telegram app this week.
Or, if you prefer, I could burn a CD and mail it, but probably not until July or August.
You have no idea how grateful I would be! All of the old links are dead, and I haven't been able to find copies as of yet. Whatever method is easiest for you I'm down for.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by linenfort » Thu Jun 14, 2018 8:55 pm

Ok, I’ll pm you tomorrow. Please get a free Telegram account. You can always get rid of it afterwards.
On Vanguard's main page, you can just start typing your username to log in.

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Fri Jun 15, 2018 9:49 am

invst65 wrote:
Tue Jun 12, 2018 9:50 am
nisiprius wrote:
Mon Jun 11, 2018 1:05 pm
invst65 wrote:
Mon Jun 11, 2018 11:48 am
...One thing I've noticed about most discussions of the permanent portfolio is that they almost always get reduced to a discussion about the wisdom of holding gold in a portfolio, not whether the whole portfolio works or not...
That's because, if you look at my chart, compared to a traditional portfolio without gold, the Permanent Portfolio has done well during the times when gold has done well, and not very well during the times when gold has not done well. It's as simple as that.

Permanent Portfolio advocates often say "it's not about gold." But, comparing it with traditional portfolios that didn't include gold, I think it has been mostly about gold.

Portfolio 1, blue, is the Permanent Portfolio as originally defined (without hindsight). Portfolio 2, red, is the Vanguard Wellesley Income Fund, a combination of traditional securities (stocks and bonds, about 35/65).

If Browne and the fund managers had been able to start the fund in 1978 instead of 1983, the time period would include the big spike in gold circa 1979-1983, and I don't know how the whole time period would look. But, during the actual time period, there is only one time when the Permanent Portfolio was obviously beating Wellesley; that is, only one time when the blue line was closing the gap with the red line rather than the two spreading apart. And that was in the exact years that gold was experiencing the big run-up, 2001-2011--which, incidentally, was not only not a time of inflation, it actually included a year of deflation. Gold spiking in the absence of inflation is a good problem for gold investors to have, but nevertheless it undercuts the idea of gold as having predictable behavior.

Except during the 2001-2011 gold run up, I see no evidence that "the portfolio as a whole" was providing any extra benefit over a gold-free portfolio.
Not looking to get into a discussion about gold so I'll just leave it with the comment that "extra benefit" isn't the point of holding it.
Even though I don't implement the PP, nor do I intend to, the point of the PP seems to be to have an allocation that is at least theoretically likely to provide some stability in a wide variety of market conditions (i.e. deflationary, inflationary, growing, stable). Will it or any other portfolio have the best returns over overall all such conditions? Of course not.

I personally prefer trend following as a means of providing downside risk protection, but I definitely see the appeal of the PP and its first-cousin, the Golden Butterfly, for long-term buy-and-holders.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by CULater » Fri Jun 15, 2018 10:10 am

Today the DOW is down 250, while gold is down and long term treasuries are up even though interest rates are going up. Over the last 9 years, the correlation between stocks and gold is .04 and between stocks and long treasuries is -0.47. Seems to me that if you want a diversifying asset for stocks it would be long treasuries, not gold.
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Re: Harry Browne Permanent Portfolio Discussion (Cont'd)

Post by willthrill81 » Fri Jun 15, 2018 10:16 am

CULater wrote:
Fri Jun 15, 2018 10:10 am
Today the DOW is down 250, while gold is down and long term treasuries are up even though interest rates are going up. Over the last 9 years, the correlation between stocks and gold is .04 and between stocks and long treasuries is -0.47. Seems to me that if you want a diversifying asset for stocks it would be long treasuries, not gold.
Long-term nominal bonds get hammered by unexpected inflation. Long-term treasuries lost a whopping 46.5% of their real value between Jan., 1977, and Oct., 1981. Stocks had a real CAGR of 3.24% over that period but had a cumulative real loss of 12% from 1972-1981. Diversification through nominal bonds didn't 'save the day'. TIPS can certainly help, but I don't see many Bogleheads putting 25% or more of their portfolio into TIPS.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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