Permanent portfolio and asset allocation - Page 10
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Thread: Permanent portfolio and asset allocation

  1. #91
    Senior Member My Own Advisor's Avatar
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    Great. Very interesting results. I would have guessed XIU and VTI would be higher but I would take that in another 10 years

    Thanks for that James.


  2. #92
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    No problem, I'm surprised too actually. You'd think that with the tremendous performance of US stocks, that the stock portfolio must outperform the PP which is dragged down with cash.

    The reason this happens is because of the presence of withdrawals. You're seeing "sequence of return risk"... when you draw money out of a portfolio (even if it's dividends) you are vulnerable to volatility, and it really hurts the portfolio balance.

    Formulations like the balanced fund and permanent portfolio are greater than the sum of their parts. Adding more asset classes gets you more diversification -> reduces volatility -> creates advantages, like immunity to sequence of return risk. There is more going on than just CAGR.

  3. #93
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    Anything with over 30% Canadian stocks makes little sense to me. We are 3% of the world market and heavily skewed in terms of industries, so wildly uncharacteristic results are to be expected.

    In particular, if you start with a high oil price point and end with a low oil price point you are just cherry picking high and low points in the cycle.

    Mel Faber compares a whole range of diversified strategies in his Global Asset Allocation. Starting in 1973 and finishing in 2013 the best out of 8 strategies returned 5.67% per year in real terms. The lowest return was 4.12% per year. Remarkably close.

    Permanent Portfolio had the lowest return out of 8 diversified asset strategies over that period. In 1970s it was second best. And it did have the lowest volatility overall.

    1970s was a rather special set of conditions which is unlikely to be repeated but still... interesting experiment.
    Last edited by mordko; 2017-03-19 at 07:03 PM.

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  5. #94
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    The PP can really feel good at times like this -- it's rising while stocks fall! Here's a plot of total returns in 2017 so far. I'm using this PP index, with equal weight US & Canadian stock indexes.

    YTD performance of both stocks and PP is identical. But look at that volatility difference!

    2017-ytd.png

  6. #95
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    Quote Originally Posted by My Own Advisor View Post
    Great. Very interesting results. I would have guessed XIU and VTI would be higher but I would take that in another 10 years

    Thanks for that James.
    It's not a bad result actually, for any of those portfolios in my graph. Starting at 500k, and withdrawing a total of 200k out of the portfolio, you still end up with about 620k in each case. Remember that if there had been NO withdrawals, the stock performance would have been the highest. The amount you withdraw from a portfolio makes a huge difference.

    Attachment 14402

    For very volatile portfolios (high stock exposure), large withdrawals can be very detrimental under some market conditions. When withdrawals/dividends (doesn't matter) are large-ish, More volatility = more sequence of return risk = more likely to deplete your portfolio

    The balanced and permanent portfolios are more suitable when your intention is to draw any significant money out of the portfolio. From the simulations I've run, I'd say that above 2.5% withdrawal is the point at which you need a more diversified, lower volatility portfolio. One size does not fit all!

    That's why I mentioned in the other retirement thread that someone who only needs to withdraw 2.3% might as well just put the whole thing in XIU. But it's not the same answer if you need to withdraw 4.0% -- in that case you need a less volatile portfolio.

    It's also why, every few days, I say that it isn't as simple as "living off the dividends". In an all stock portfolio, if your dividends bring you 2.3% ... fine, it will last forever without depleting capital. But if your dividends are forcing 4.0% extraction from your portfolio, then there is significant risk your capital will run out. Here I'm talking about 4% initial withdrawal and increasing with inflation each year.
    Last edited by james4beach; 2017-03-22 at 03:25 AM.

  7. #96
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    I suspect that almost any portfolio feels great so far in 2017. A diversified all stock "world" portfolio delivered 5% YTD.

  8. #97
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    Permanent Portfolio Discussion Forum

    Some good discussion on how to best implement it, in case you have not seen this forum.

    Permanent Portfolio Discussion Forum
    Last edited by GreatLaker; 2017-03-22 at 07:39 AM.
    Eschew obfuscation. Espouse elucidation

  9. #98
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    Just a heads up, Questrade has started charging commission for MNT.TO trades, as of this month. Looks like I'll have to move to CGL.C.

  10. #99
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    Thanks, GreatLaker!

    Johnny -- you shouldn't have to trade MNT much, isn't this just one or two purchases a year? CGL.C is a far inferior fund. It only has $80 million in assets and charges 0.56% MER. There is strength in numbers... bigger funds are more likely to operate smoothly when large amounts of money flow in or out, so I always prefer larger funds.

    In comparison, MNT has $500 million in assets and 0.35% fee. From my calculations it has also tracked pure gold much better. Even if it means paying a trade commission, I would prefer MNT over CGL.C.

    For pure gold exposure with accurate tracking traded in CAD, the best option I see by far is MNT. Otherwise, CGL.C is a distant second, and CEF.A is a third (even though it's another favourite of mine) because of silver and premium/discount swings as mordko pointed out
    Last edited by james4beach; 2017-03-22 at 04:31 PM.

  11. #100
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    I purchase every two weeks from savings. Maybe it's time to rethink my contribution methods. It's just so difficult watching cash sitting there doing nothing.


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