Alternative Investments

[Matas]

With interest rates at rock bottom and the stock market at record highs, both bonds and equities might both take a hit in a market correction. What alternative investment/hedging strategies are there that might offer high liquidity, low cost, and a low correlation with equities in a down market? [Inappropriate language edited out by Mod Mel.]

Cash obviously is a potential option. Other thoughts? Thanks.

[lack_ey]

Cash, yes.

Though really, interest rates seem decently far from rock bottom right now. Where were we in mid-early 2013, if now is rock bottom? In the inner crust?

Anyway, there's, gold, kind of, via iShares Gold Trust (IAU, ER = 0.25%) or possibly if holding for longer where the lower liquidity and higher spreads will matter less and if you trust the new-on-the-block issuer, GraniteShares Gold Trust (BAR, ER = 0.20%). That's not low cost compared to broad index funds, but I'd have a hard time calling it high cost.

Most actual alternatives strategies charge high fees. One of the only ones that doesn't, that indeed has low equity and bond market correlation, would be Vanguard Market Neutral Fund (VMNFX, ER = 0.22% if not including costs of shorting). Through Vanguard the minimum initial investment is $250,000 which may be a lot for many. But in some other platforms you could get access for less, though maybe paying a commission to trade.

The fees in a sense (commissions) are not that low, and equity correlation is debatable and not tested that well, but there are P2P lending platforms. That's a different kind of credit risk than in the bond market for sure.

There are plenty of low-cost (in the sense of fees) hedging/trading strategies that you could run with options, futures, etc. For the right contracts the liquidity is pretty high, and many strategies would have the low correlation. Though of course if you have actually negative beta then expect negative returns on average. The profitable strategies like volatility selling would have positive correlation to equities in a down market.

[OkieIndexer]

The only asset class that really didn't take a hit in the "acute" part of the financial crisis in Sept-October 2008 was 30 day T-bills or cash (savings accounts/CDs). Money Market Funds have a risk of breaking the buck or redemptions not being allowed in such a scenario, and that's what happened to some MM funds in fall '08.

[livesoft]

A nice job.

[nisiprius]

1) Interest rates aren't at rock bottom.

2) The stock market is at "a record high" quite often. Using the "high" price from Yahoo! Finance ^GSPC, and starting with 1/1/1957 (the first day of the S&P 500), I calculate that the S&P 500 has set an all-time high 1,909 times.

[Matas]

A nice job.

Ha! I love it!
That is actually my current primary hedging strategy - just looking for something that would work with my retirement investment portfolio.

[Matas]

Cash, yes.

Though really, interest rates seem decently far from rock bottom right now. Where were we in mid-early 2013, if now is rock bottom? In the inner crust?

Anyway, there's, gold, kind of, via iShares Gold Trust (IAU, ER = 0.25%) or possibly if holding for longer where the lower liquidity and higher spreads will matter less and if you trust the new-on-the-block issuer, GraniteShares Gold Trust (BAR, ER = 0.20%). That's not low cost compared to broad index funds, but I'd have a hard time calling it high cost.

Most actual alternatives strategies charge high fees. One of the only ones that doesn't, that indeed has low equity and bond market correlation, would be Vanguard Market Neutral Fund (VMNFX, ER = 0.22% if not including costs of shorting). Through Vanguard the minimum initial investment is $250,000 which may be a lot for many. But in some other platforms you could get access for less, though maybe paying a commission to trade.

The fees in a sense (commissions) are not that low, and equity correlation is debatable and not tested that well, but there are P2P lending platforms. That's a different kind of credit risk than in the bond market for sure.

There are plenty of low-cost (in the sense of fees) hedging/trading strategies that you could run with options, futures, etc. For the right contracts the liquidity is pretty high, and many strategies would have the low correlation. Though of course if you have actually negative beta then expect negative returns on average. The profitable strategies like volatility selling would have positive correlation to equities in a down market.

Thanks.
What are your thoughts on multi-strategy hedge fund ETFs such as QAI?

[Random Walker]

The core of most Boglehead portfolios are TSM equity funds. The best diversifier is also the cheapest, high quality relatively short duration bonds. Improvements to portfolio efficiency come at increased marginal cost. Adding emerging markets and tilting to small and value cost a bit more. A cheap way to improve portfolio efficiency is to increase the tilt to SV and increase the bond allocation. I think alternatives can improve portfolio efficiency a lot. They can certainly be expensive, but a relatively small allocation to a relatively expensive fund can potentially have a disproportionately large positive effect on the portfolio. Typically the allocations to alternatives are small. A small allocation to an expensive fund will have a small effect on the overall weighted portfolio expense ratio. Some popular alternatives include style premia (value, momentum, defensive, carry across multiple asset classes), alternative lending, time series momentum, reinsurance, variance risk premium.

Dave

[lack_ey]

Thanks.
What are your thoughts on multi-strategy hedge fund ETFs such as QAI?

Awful, worse than a lot of the more expensive alternatives. It's a beta replicator, investing primarily in common ETFs. The top holding now is a Vanguard short-term bond index ETF. It isolates out the most useless parts of hedge funds for you: the underlying passive exposures. To the extent that you trust this to market time well for you by attempting to copy this component of hedge fund exposures as they change over time, I guess that's what it does.

The actually "alternative" part of the return from certain hedge funds, be it some well-known strat like making factor bets, trading on trend following, doing carry trade, etc., or investing in some not-so-standard assets or something you don't get in broad index funds like very junk bonds, reinsurance, direct real estate, something like that, or some kind of proprietary trading algo, maybe even manager alpha if you think it exists from some of the best-known names... that's exactly what you're not getting.

It's been good at making portfolios worse since inception:
https://www.portfoliovisualizer.com/bac ... tion4_2=10

Because guess what? It's just stocks and bonds, under a crappy wrapper:
https://www.portfoliovisualizer.com/fac ... sion=false

Okay, it's also doing some other things under the hood, but they haven't contributed that much (R^2 regressing on stock and bond factors is fairly high), and what they've contributed hasn't been net positive.

Rather than pay an ER of 0.76% for that on let's say a 5% allocation, better to use a more expensive fund that is actually providing true alternatives exposure, even at a higher ER, at say a 3% allocation (and not even paying higher total fees overall). Of course, many would say to just forget all alternatives in the first place. But if you want some, look elsewhere.

[H-Town]

A nice job.

Yes.

[Phineas J. Whoopee]

OP: what is your time frame?

Many of the alternative investments have a perfectly obvious risk one takes in hopes of reward: illiquidity. If you're a perpetual endowment you can commit capital to plant a forest and have it pay off decades from now, but until then enormous transaction costs mean you're pretty much stuck. It sounds like you feel you know when a market downturn will start, and when a recovery will begin. That's not what alternative investments are for. That's what market timing newsletters are for, and once you pay your $2000 subscription fee it's not only illiquid, it's a sunk cost.

I'd pick an asset allocation you can live with through thick and thin, set a saving and rebalancing policy you can actually accomplish, and turn the crank. As the saying goes, you make your real money during stock market downturns. You just don't realize it at the time.

PJW

[Matas]

OP: what is your time frame?
PJW

I'm 59 and plan to work full-time another 6-10 years.

[heyyou]

Some of the geezers here have seen so many crashes and recoveries that they are no longer intimidated by transient portfolio losses. They view them as intrinsic with portfolio gains, thus the losses are just aggravations, not something to be avoided. They expect that they will often not get to keep a few years of any recent bull market gains, so part of their portfolio balances are considered to be ephemeral. Some retirees have a decade of spending in bonds (4% x 10 years), maybe longer if they are careful, so equity losses bother them, but have no effect on their day to day lives.

My wife puts cow manure on her flower and vegetable gardens. It stinks for a while when it is first watered, but it does boost growth. How's that for an analogy? Or scatology? Equity risk with its positive and negative annual returns usually pays more long term, than lower risk, lower volatility bonds, so equity investors have to tolerate the scent of the negative volatility when it does occur.

Be aware that there is significant money to be made by those selling the illusion that portfolio losses can be avoided.

[bearcub]

Larry Swedroe put out a book a few years ago. I think it was called Alternative Investments: The Good,The Bad, + The Ugly. Talks about around 20 of these kinds of investments. If I remember correctly he wrote their were 3 most folks should have. Three more maybe. TIPs,SPIA, forgot the others.The other 14 are garbage. Maybe some others here remember the book better than I. It was very eye opening.

[Dead Man Walking]

No one mentioned bitcoins.

[blackbird]

+1 on Larry Swedroe's book. Definitely consider reading if you haven't already.

Blackbird

[Matas]

+1 on Larry Swedroe's book. Definitely consider reading if you haven't already.

Blackbird

Thanks. Just downloaded onto my Kindle.

[Theoretical]

What alternative investment/hedging strategies are there that might offer high liquidity, low cost, and a low correlation with equities in a down market?

It really depends why the market is down. Is it a liquidity crunch/flight to safety or an inflationary one? If liquidity, STRIP treasuries of 20 years or more are the ultimate winner, but t-bills are the risk free ultra-liquid safest haven. If inflationary, then TIPS and t-bills rock and are cheap. Commodities and gold are relatively inexpensive options now, but in both cases you're really targeting political/event risk more than inflationary risk.

Don't underestimate the power of a floating rate ultra short term tbill as a diversifier.

Only one asset that I can think of plays well in a big way in both types of crises, but it's not cheap and it's not passive in the slightest: managed futures. They tend to piddle around in flat or stop and start markets, but for extended bear markets, they have some real power.

My rules for managed futures funds as a cost-and-transparency sensitive investor:

1. The fund has a wholly owned subsidiary rather than investing in a 3rd party hedge fund. Paying 1-1.5% fees is bad enough, but adding a 2/20 weight on top of that is a big PASS. The wholly owned, "home cooking" funds tend to have far fewer costs hanging out outside the expense ratio, mostly because the fund and subsidiary share common goals.

2. The fund invests in equity, bond, commodity, and currency futures. You want it to be following trends in as many markets and corners of the market as it can. This means that you have an inherently variable asset allocation, at least as far as this part of the allocation goes. This tosses out the WisdomTree ETF.

3. Focus on funds with moderate to low assets under management, as commodity markets can get very congested due to physical limits. This is why I didn't include the AQR fund.

My favorite funds:

Pimco TRENDS Institutional class - PQTIX - 400 million AUM - 1.15% and available for $50 at Ameritrade once and then free purchases with a systematic investing plan. The D shares aren't bad at 1.55% and NTF at most brokers. I like PIMCO in this space due to the experience in derivatives, bonds, currencies and commodities.

Credit Suisse Managed Futures - CSAIX - 1.3% and $2B in AUM. This one is really interesting because it actually tries to track the Credit Suisse Managed Futures index, and does so fairly well. It's available at low minimums at both Fido and Ameritrade with their systematic investment programs.

The most recent fund I really like is a new ETF from JP Morgan that also does multi-asset carry in addition to the trend following momentum. It's available for a gross fee of 1% and a net fee of .59%. The ticker is JPMF and it started with 50 million in AUM. Trading is still thin, but it's less than a month old and the spreads are around .2% which is high for a regular stock fund but a drop in the bucket for a fund 2-3 times cheaper than its nearest competitor. The upside or downside depending on your perspective is that the fund also does carry, which is somewhat correlated to the equity markets.

[lack_ey]

+1 on Larry Swedroe's book. Definitely consider reading if you haven't already.

Blackbird

Thanks. Just downloaded onto my Kindle.

FWIW the book is kind of not really up to date with what the two authors would say now for some of the categories. Probably less high on REITs and commodities. I'm sure you could search for more recent articles. Even aside from that, I didn't think this book was that particularly good or worthwhile, though maybe it's because I had seen most of the arguments elsewhere (including from more recent writing by the authors).

These days with the rise of alt strategies available in mutual fund and ETF format, this kind of book should really go through a lot of the types available (e.g. equity market neutral and long/short equity more broadly, managed futures, etc.), but it doesn't. In their defense these weren't as big ten years ago, at least in the retail investor space.

Lists are

Good: REITs, TIPS, commodities (through futures), international equities, fixed annuities, stable value funds

Flawed: Junk bonds, private equity, covered calls, socially responsible mutual funds, precious metals equities, preferred stocks, convertible bonds

Bad: Hedge funds, leveraged buyouts, variable annuities

Ugly: Equity-indexed annuities, structured investment products, leveraged funds (context is long-only stock funds, leverage for > 1 market beta)

So many of the categories are actually just stocks and bonds, not what I would think of in terms of actual alternatives. These days, more options are available to retail investors, especially ones with financial advisors with the access, and the authors prefer some of those over a lot of these days. The upcoming update of the Reducing the Risk of Black Swans should be more up to date.

Another poster got permission to upload the table of contents and forward to that updated black swans book, which includes sections on alternatives. See this recent thread:
viewtopic.php?t=235660

[desafinado]

My job-to-be is basically a long vol position. It seems like a really good hedge to have early in the accumulation phase.

[Matas]

+1 on Larry Swedroe's book. Definitely consider reading if you haven't already.

So many of the categories are actually just stocks and bonds, not what I would think of in terms of actual alternatives. These days, more options are available to retail investors, especially ones with financial advisors with the access, and the authors prefer some of those over a lot of these days. The upcoming update of the Reducing the Risk of Black Swans should be more up to date.

Another poster got permission to upload the table of contents and forward to that updated black swans book, which includes sections on alternatives. See this recent thread:
viewtopic.php?t=235660

Thanks. I better read the first edition quickly!

[garlandwhizzer]

heyyou wrote:
Some of the geezers here have seen so many crashes and recoveries that they are no longer intimidated by transient portfolio losses. They view them as intrinsic with portfolio gains, thus the losses are just aggravations, not something to be avoided.

I am one of those geezers.

Garland Whizzer

[lack_ey]

And a lot of people, geezers and not, have a false confidence in markets rebounding that was reinforced by the behavior of a number of past crashes and may not be prepared for "transient portfolio losses" that are not so transient.

It's not just about shallow risk, here.


Of course, there's a very good chance the worst doesn't come to pass, or that alternatives do even worse than other assets even under these kinds of conditions. It's not like anybody really knows.

[CppCoder]

FWIW the book is kind of not really up to date with what the two authors would say now for some of the categories. Probably less high on REITs and commodities. I'm sure you could search for more recent articles. Even aside from that, I didn't think this book was that particularly good or worthwhile, though maybe it's because I had seen most of the arguments elsewhere (including from more recent writing by the authors).

These days with the rise of alt strategies available in mutual fund and ETF format, this kind of book should really go through a lot of the types available (e.g. equity market neutral and long/short equity more broadly, managed futures, etc.), but it doesn't. In their defense these weren't as big ten years ago, at least in the retail investor space.

Even though the recommendations and available investments may be out of date, I think the book still provides a good survey for non-finance professionals of the alternative investments it does cover. I learned a lot from reading the book just about the investment categories. In terms of recommendations, I essentially learned that I didn't want anything to do with any of the investment classes covered and prefer a three fund portfolio. I suspect my lesson would be the same even if I read an updated version.

[grayfox]

With interest rates at rock bottom and the stock market at record highs, both bonds and equities might both take a hit in a market correction. What alternative investment/hedging strategies are there that might offer high liquidity, low cost, and a low correlation with equities in a down market? [Inappropriate language edited out by Mod Mel.]

Cash obviously is a potential option. Other thoughts? Thanks.

One word: (and it isn't Plastics ) Platinum.

Name: Platinum
Symbol: Pt
Atomic Number 78
Atomic Mass: 195.084 u
Melting Point: 1,768 deg C
Electron Configuration: [Xe] 4f14 5d9 6s1
Density: 21.45 g/cm3
Discovered by: Antonio de Ulloa in 1735

White Gold. It has industrial uses and is used in electronics and as a catalyst in the chemical industry. E.g. there is Platinum in your automobile's catalytic convert. It is also used as monetary metal.

Watch: Platinum - The MOST PRECIOUS Metal on EARTH!

Look at the chart XPT. Platinum was over $2,000 per troy ounce back in 2008, and hit $1,900 in 2012. Today it is trading at 929.917. Platinum is more rare than Gold and historically has traded higher than Gold. But today Gold is about 1,300. Gold went up 22% last year, but Platinum only went up 4%.

Now personally I hope Platinum goes down. It was about 825 at the begin of 2016. I hope it goes back down there again so I can pick up some cheaper.

The only problem is that Platinum Bullion is not cheap to trade. There's a huge premium over the spot price.

But there is a Platinum ETF PPLT that would be lower cost and liquid. I'm guessing that Platinum Bullion has a low correlation with Equities.

[neilpilot]

Platinum

White Gold. It has industrial uses and is used in electronics and as a catalyst in the chemical industry. E.g. there is Platinum in your automobile's catalytic convert. It is also used as monetary metal.

I used to work with precious metals, and in the industry Pt is NOT considered white gold. White gold is usually an alloy of gold with nickel, manganese or palladium. Rhodium is the real precious metal.

[grayfox]

I used to work with precious metals, and in the industry Pt is NOT considered white gold. White gold is usually an alloy of gold with nickel, manganese or palladium. Rhodium is the real precious metal.

Thanks for the correction. I read that in a book. I see here White Gold is an obsolete term for platinum. But now it means an alloy of gold and at least one white metal. And its also an album by Barry White.

Do you have an opinion on Platinum trading below Gold?

[neilpilot]

I used to work with precious metals, and in the industry Pt is NOT considered white gold. White gold is usually an alloy of gold with nickel, manganese or palladium. Rhodium is the real precious metal.

Thanks for the correction. I read that in a book. I see here White Gold is an obsolete term for platinum. But now it means an alloy of gold and at least one white metal. And its also an album by Barry White.

Do you have an opinion on Platinum trading below Gold?

I was a manufacturing manager working with gold, pt, palladium and rhodium. I can discuss the chemistry and plating properties of the metals, but have no opinion on relative price or investment. I did buy physical gold as bullion, and was lucky to more than double my money, but considered that a speculation and not an investment.

[HEDGEFUNDIE]

According to modern portfolio theory, “true” diversification along the efficient frontier means the universe of investable assets, not just public equity and debt. Especially in the past decade or so we have seen the number of public equities decline as industries consolidate and companies of all sizes easily attract private funding. This is one reason why you see pension funds, sovereign wealth funds and endowments increasing their allocation to alternatives - they are becoming less and less “alternative”.

Of course, how the average Joe can take advantage of this is the harder question. You have to be an accredited investor to invest in private equity, hedge funds, etc.

[Valuethinker]

According to modern portfolio theory, “true” diversification along the efficient frontier means the universe of investable assets, not just public equity and debt. Especially in the past decade or so we have seen the number of public equities decline as industries consolidate and companies of all sizes easily attract private funding. This is one reason why you see pension funds, sovereign wealth funds and endowments increasing their allocation to alternatives - they are becoming less and less “alternative”.

Of course, how the average Joe can take advantage of this is the harder question. You have to be an accredited investor to invest in private equity, hedge funds, etc.

There are a few quoted PE vehicles?

The London-listed investment trusts would trigger US PFIC rules I believe so I suspect are inappropriate.

However Blackstone etc. also have listed their management companies (sort of) on NYSE? Main issue there is most of the goodies are going to go to employees.

I hold Brookfield Asset Management, which is more of a real estate play. They also have an infrastructure fund listed, I believe.

If you hold equity index funds, you do hold all of these.

[Taylor Larimore]

Bogleheads:

This is a current Morningstar article about "Liquid Alternatives":

https://www.morningstar.com/articles/87 ... long-.html

Don't look for the needle. Buy the haystack. -- Jack Bogle

Best wishes.
Taylor

[jhfenton]

Don't look for the needle. Buy the haystack. -- Jack Bogle

Best wishes.
Taylor

Where exactly can I buy the haystack (i.e., the global market portfolio)? Because if you're not buying that, you're just deciding which needles to buy.

Disclaimer: I am not saying that the existing retail liquid alt funds are worthwhile, just that there's a good reason people look.

[antman50]

1) Interest rates aren't at rock bottom.

2) The stock market is at "a record high" quite often. Using the "high" price from Yahoo! Finance ^GSPC, and starting with 1/1/1957 (the first day of the S&P 500), I calculate that the S&P 500 has set an all-time high 1,909 times.

[GaryA505]

My only alts are IAU and IVOL, and they're both a very small percentage of my portfolio.

[antman50]

My only alts are IAU and IVOL, and they're both a very small percentage of my portfolio.

What % to those "alts" ? The next question would be, what are you looking to get out of that small %?

One of the biggest challenges I've found is that if I have too small of an allocation, it will never be enough to make a difference. On the flip side, there's not a whole lot out there that's particularly exciting when you isolate performance and focus on the recent 5-10 year stretch where a simple 3 fund portfolio had a legendary run. So what to do?!

Would love to hear your answers and learn more about your thought process!

[GaryA505]

Seems like SWAN and IVOL might make a nice pair?

[GaryA505]

My only alts are IAU and IVOL, and they're both a very small percentage of my portfolio.

What % to those "alts" ? The next question would be, what are you looking to get out of that small %?

One of the biggest challenges I've found is that if I have too small of an allocation, it will never be enough to make a difference. On the flip side, there's not a whole lot out there that's particularly exciting when you isolate performance and focus on the recent 5-10 year stretch where a simple 3 fund portfolio had a legendary run. So what to do?!

Would love to hear your answers and learn more about your thought process!

I wouldn't be comfortable putting to high of a % in each alt. However, I would be comfortable putting, let's say, 5% or 10% in each one, with the total amounting to maybe 30% of portfolio. So, starting with a more "conventional" 50% stock/50% bond portfolio, maybe we end up with 35% stock, 35% bond, 30% alts.

Of the alts, maybe some are on the stock-ish side, like NTSX, SWAN and PSLDX.
Maybe some are on the bond-ish side, like IVOL (inflation/rates hedge).
And then there's gold, and merger arbitrage, and ...

More thoughts are welcome.

edit: I forgot to mention RPAR and Meb Faber's GAA.

[guyinlaw]

Seems like SWAN and IVOL might make a nice pair?

I think a SWAN like implementation could be used to make room for alternatives.

SWAN - 10% SPY Leaps and 90% Treasuries
~SPY leaps give - 70% exposure to SP500.
- replace 90% Treasuries with a mix of Treasuries, GLD, Cash and other alternatives
- One could use SPY, IWM, EFA, EEM Leaps to get exposure to SP500, small cap, Int, EM. You could also look at leaps for GLD and TLT.
- one can convert 60-40 portfolio into a 60-35-15 (stocks/bonds/alt) or other possiblities. Need a large enough portfolio for this to work, won't recommend doing this with Leveraged EFTs.

SWAN ETF has ER 0.5% and uses options that are more expensive. One can implement cheaper by themselves.

viewtopic.php?p=5529055#p5529055

[DesertDiva]

I was thinking of going to Costco and Total Wine and stocking up on some Napa wines, anticipating a shortage in the near future.

[GaryA505]

I was thinking of going to Costco and Total Wine and stocking up on some Napa wines, anticipating a shortage in the near future.

You could be on to something there ...

[guyinlaw]

I was thinking of going to Costco and Total Wine and stocking up on some Napa wines, anticipating a shortage in the near future.

You could be on to something there ...

I am way ahead of you.

https://m.youtube.com/watch?v=hPUYuwSRwB8

[aristotelian]

Unfortunately, "rock bottom" interest rates would seem to have the same effect on other risk assets as on stocks. You are not the only investor thinking about ways to enhance return when safe assets are overpriced.

[White Coat Investor]

With interest rates at rock bottom and the stock market at record highs, both bonds and equities might both take a hit in a market correction. What alternative investment/hedging strategies are there that might offer high liquidity, low cost, and a low correlation with equities in a down market? [Inappropriate language edited out by Mod Mel.]

Cash obviously is a potential option. Other thoughts? Thanks.

Real estate.
Reinsurance.
Peer to peer lending/credit card/consumer lending.
Speculative investments like currencies, precious metals, cryptocurrencies.
MLPs.

[GaryA505]

Unfortunately, "rock bottom" interest rates would seem to have the same effect on other risk assets as on stocks. You are not the only investor thinking about ways to enhance return when safe assets are overpriced.

How would "rock bottom" interest rates affect the price of gold. Up or down?

[aristotelian]

Unfortunately, "rock bottom" interest rates would seem to have the same effect on other risk assets as on stocks. You are not the only investor thinking about ways to enhance return when safe assets are overpriced.

How would "rock bottom" interest rates affect the price of gold. Up or down?

I would think low interests rates would push money into all assets other than bonds, all things being equal. I have no idea how significant the effect compared to all the other factors that determine demand for gold but I would think gold would be more attractive than an imaginary world where everything else was the same but bonds had higher yields.

[GaryA505]

I like to try unconventional portfolios on PV just for curiosity. I focus on portfolios that would be more appropriate for a near-retired person (like me) or people in retirement. The other day I was thinking about the Ray Dalio's "All Weather" and also the "Desert" portfolio.

All weather:
30% Total Stock Market (VTI)
40% Long-term Treasuries (TLT)
15% Intermediate-term Treasuries (IEF)
7.5% Commodities (DBC)
7.5% Gold (GLD)

Desert
30% Total Stock Market (VTI)
60% Intermediate-term Treasuries (IEF)
10% Gold (GLD)

To me, these are very similar. The Desert portfolio just looks like a simplification of the All-Weather, with a shorter duration on the bond side.

So ... now I'm thinking, could I come with a portfolio with additional assets to produce something with past performance similar to VWINX or VTINX, but with smaller drawdowns? I'm thinking, let's keep it simple and easy to balance. Wait, what about a 30/30/30/10 stock/bond/alts/gold? But wait, could we make it 10 assets, 10% each?

I now present, for your entertainment and amusement, the Three30Ten10 portfolio!

30% stock:
10% Total US stock - VTI
10% Small-cap Value - VBR
10% Foreign stock - VXUS (note that this provides a 33% non-us equity allocation)
30% bonds:
10% Short-term Treasuries - SHY
10% Intermediate-term Treasuries - IEI or IEF
10% Long-term Treasuries - TLT
30% alternative:
10% Merger and Arbitration - MERFX, ARBFX, or MNA
10% Intermediate-term TIPS plus 2-10 swap interest rate hedge - IVOL
10% Intermediate-term Treasuries plus S&P500 LEAP options (70 delta) - SWAN
10% Gold

I know some of you are going to say it's simpler to just use VWINX or VTINX, which of course is true. However, I think something like this would provide a smoother ride, it provides many opportunities for rebalancing bonuses, you wouldn't need an allocation to cash for disbursements.

I'm not that smart so I can't imagine that nobody has thought of a similar portfolio. Have you seen any?

[nedsaid]

These are the Four much discussed Alternatives recommended by Larry Swedroe. A very nice
idea but in practice have not worked out. The first three funds are semi-liquid interval funds and the AQR Style Premia Alternative Fund is a true liquid alternative fund. I have soured on the interval funds and the liquid Alts. These were quite controversial when Larry recommended them.

The data comes from Bloomberg.

Stone Ridge All Asset Variance Risk Premium Fund AVRPX

3 Month Return 0.86%
YTD Return -25.05%
1 Year Return -22.74%
3 Year Return -11.32%
5 Year Return -3.43%

Stone Ridge Alternative Lending Risk Premium Fund LENDX

3 Month Return 2.85%
YTD Return 1.73%
1 Year Return 2.79%
3 Year Return 4.32%

Stone Ridge Reinsurance Risk Premium Interval Fund SRRIX

3 Month Return 2.72%
YTD Return 5.35%
1 Year Return -0.20%
3 Year Return -2.46%
5 Year Return -1.84%

AQR Style Premia Alternative Fund QSPIX

3 Month Return -2.77%
YTD Return -22.58%
1 Year Return -26.05%
3 Year Return -13.73%
5 Year Return -6.61%

[GaryA505]

I'm still hoping for someone to take a whack at critiquing/analyzing my idea of pairing SWAN and IVOL.
We all know about the fees so there's no need to go there again.
I would propose this pairing as a possible part of a retirement portfolio (withdrawal phase) due to small drawdowns.

October data is available. There's only 17 months of data available at this time, but it includes one market "panic" due to COVID-19.
When I looked at this in PV, I'm saying to myself, "what the heck?"
As we all know, there's no free lunch (except diversification and rebalancing), so what would be the risks here?

https://www.portfoliovisualizer.com/bac ... tion5_3=20

[protagonist]

OP said that he means "instead of cash".

But what alternative investment is going to have as little potential correlation (positive or negative) with stocks than cash?

I probably would not have said this when OP started this thread in 2017. Cash, imho, is beginning to look pretty good these days as a hedge against potential stock market losses. Well, not pretty good really, but better and safer than most if not all of the alternatives. Bonds seem dicey to me at best with record low interest rates and the possibility of lots of business failures due to the pandemic. At least in the short run cash seems like it should be strongly considered, until we have an idea where things are headed post-COVID.

Most things touted as "alternative investments" and based on internally consistent hypotheses that cannot be tested probably are doomed to fail, just as they have so often in the past. Anybody can come up with a good rationale for almost anything and find some past data that will make their theory look good. A true skeptic should be even more skeptical about alternatives than mainstream ideas. I would recommend sticking with something simple and mainstream that requires no convolution to understand and costs little to buy.

[GaryA505]

OP said that he means "instead of cash".

But what alternative investment is going to have as little potential correlation (positive or negative) with stocks than cash?

I probably would not have said this when OP started this thread in 2017. Cash, imho, is beginning to look pretty good these days as a hedge against potential stock market losses. Well, not pretty good really, but better and safer than most if not all of the alternatives. Bonds seem dicey to me at best with record low interest rates and the possibility of lots of business failures due to the pandemic. At least in the short run cash seems like it should be strongly considered, until we have an idea where things are headed post-COVID.

Most things touted as "alternative investments" and based on internally consistent hypotheses that cannot be tested probably are doomed to fail, just as they have so often in the past. Anybody can come up with a good rationale for almost anything and find some past data that will make their theory look good. A true skeptic should be even more skeptical about alternatives than mainstream ideas. I would recommend sticking with something simple and mainstream that requires no convolution to understand and costs little to buy.

It seems that what is mainstream now is what has worked well in the last 40 years. I am skeptical that what has worked in those last 40 years will work as well in the next 40.