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And all of these assume the classic AA, meaning rebalancing to hold a steady allocation.
James, In those studies, they had to make a lot of assumptions. One of them was to rebalance annually. Not because it was the right thing to do. But just because they had to assume something. As you know, computer demand that sort of thing! In the real world, rebalancing might have been completely the wrong thing to do. At end of each year investors would have decided.

In the original study, you are right - the AAs used were nor arbitrary. They were specific - 0%, 25%,50%, 75% and 100%. 50% equity worked best, but then they found that 75% was just as good. But really, what do those numbers really mean? The exact same portfolio could change, for example, from 60% to 40% or vice versa if you just started the study a year earlier or later.

I had some trouble with the term "Classic". I have a couple of Classic cars. There is a definition of Classic for cars. I know financial industry people use the term classic, but does it really mean anything at all? Maybe just sounds good when selling a product?

Anyway, snowy day/night here. Time to go read a book :)
 

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Similarly, the kind of things I do (permanent portfolio / risk parity) have not been thorough studied either for withdrawal and capital depletion. I can't say conclusively that it's a good idea, or that it's any better than classic asset allocation for living off capital.
I don't know what the studies show on the withdrawal phase of the PP, but given it has had comparable returns with less volatility, my guess is that the SWR should be similar to a 50/50.
 

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Discussion Starter #263
I don't know what the studies show on the withdrawal phase of the PP, but given it has had comparable returns with less volatility, my guess is that the SWR should be similar to a 50/50.
That's where I landed too. I think PP can be a substitute for 50/50 including for living off capital.

If for some reason I suddenly saw a huge flaw in gold, I'd happily fall back to 50/50.
 

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Discussion Starter #264
Another example of the low volatility of the PP... I'm using a slight variation: 30% stocks, 50% bonds, 20% gold

On today's market panic, various things plunged. Even some conservative funds are down, mainly driven by sharp international losses

VBAL -0.7%
VCNS -0.4% ... certainly milder

I logged in to see what happened to my RRSP, since it's invested precisely at my asset allocation targets. The result: +0.2%

Surely there is some value in that? I am still happy "sacrificing" 0.4% CAGR long term performance for this kind of stability. By the way, long term return stats of my allocation can be found in this other thread which also compares to 60/40.
 

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Another example of the low volatility of the PP... I'm using a slight variation: 30% stocks, 50% bonds, 20% gol

On today's market panic, various things plunged. Even some conservative funds are down, mainly driven by sharp international losses

VBAL -0.7%
VCNS -0.4% ... certainly milder

I logged in to see what happened to my RRSP, since it's invested precisely at my asset allocation targets. The result: +0.2%

Surely there is some value in that? I am still happy "sacrificing" 0.4% CAGR long term performance for this kind of stability. By the way, long term return stats of my allocation can be found in this other thread which also compares to 60/40.

How did it end the day?
 

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I have a 15+% Gold allocation and I will tell you that YTD I am up....

I don't have the ability from this computer to do a bunch of easy math BUT I am guessing that I am up 2.5% overall..... not bad with 1 month of growth and a 'topsy turvy' stock market....

Last year my growth was 10.3% !!! It was actually higher, but we have a piece of land that just sits, and doesn't show growth - so it just drags down the numbers.

I'm still happy with 10.3% though....
 

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Discussion Starter #267
How did it end the day?
Ended the day +0.2% and in fact, new all time high value. Some others for comparison

VCNS -0.2%
VBAL -0.7%
XBAL-0.5%

Of course one can't read too much into one day but from this brief sample, the permanent portfolio and VCNS both look like pretty mild reactions on a bad day.
 

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Discussion Starter #268
Just one quick post before I stop posting today. Today's market crash really shows the value of the permanent portfolio as a method to preserve capital.

The theory of the permanent portfolio / all weather was that it can smooth volatility by diversifying between different assets so that you aren't overly concentrated in stocks. Today I logged in to look at my RRSP, which precisely follows my variation of PP. Before the TSX quote feeds kicked the bucket and stopped working (around 09:45), I saw that my account value is basically flat. Yes, during the market crash, my value is unchanged.

How is this possible? Stocks are down 7%, bonds are up 2.5%, gold is up 3%

Using my own allocation, overall PP move = (0.30 * -7.0%) + (0.50 * +2.5%) + (0.20 * +3.0%)
= -0.25% ... virtually unchanged

Q.E.D.
 

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Discussion Starter #269
This early morning post ^ was over optimistic, but my losses by end of day were more significant. Can't believe the TSX ended down 10% in a single day.

Looks like my PP was down 2.1% today

Certainly did not prevent losses in a crash, but I think it's fair to say that it softened the blow. Compare this result to similar portfolios
VCNS -3.1%
XBAL -4.1%
VBAL -4.5%
 

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Well despite lots of volatility and equities being down and bonds taking a beating, Gold today turned out almost 10% - WOW...... Good thing its 20% of my portfolio !

Looks like when govts decide to start the printing press the currency value drops and the limited supply / scarcity of gold really shines through.

Our economy is in a death spiral and our govts are effectively buying the debt and equity markets with fake cash.... nice.... (yes the nice is sarcasm).

Oh yah with govts about to quarantine everyone and not let them go to work - govts will have to supplement the populace with free cash until they can get back to work.... it will only get better for gold given the current climate !
 

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Looks like gold is up today too, almost 5%. Thats almost 15% in 2 days ! Nice results for us gold owners....

Honk, Honk (tooting a horn here)
 

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Well Gold ironically has outperformed the TSX60 and SP500 for the last week, month, 3 months, 6 months, 1 year and even 5 years right now. It doesnt beat the sp500 for the 10 year but it does beat the TSX60 on the 10 year. Nothing to complain about.

I am happy that equities did well today, I hope they can hold the momentum !
 

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Right. These are the parameters of the problem as it has been studied so far.

This isn't to say that other methods cannot work. Maybe different rebalancing strategies, or living off dividends, are completely viable alternate solutions. However, these studied did not consider them.

Similarly, the kind of things I do (permanent portfolio / risk parity) have not been thorough studied either for withdrawal and capital depletion. I can't say conclusively that it's a good idea, or that it's any better than classic asset allocation for living off capital.

And if I was a professional, I would absolutely not be able to advise anyone to use these methods on just a hunch and my amateur analysis.
You can find a thorough study of PP together with other popular portfolios at Permanent Portfolio. According to the author of this website, the SWR(safe withdraw rate) is as high as 5.3% for 30-yrs retirement.
 

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@J4B, I just spent two days reading this whole PP thread. I found them very helpful and practical. Thank you for writing up all the good thoughts and sharing it with us over the years.

Could you please comment on the following implementation of the PP in Canada? I have done some comparison and backtest in the past months. It seems US PP has outperformed CA PP for >1% CGAR in the past 20 years.

XUS.TO (CAD unhedged) 25%
ZTL.F (CAD hedged) 25%
ZFS.TO and GIC/CD ladder 25%
MNT.TO and Physical Gold 25%

My main questions are:
1) Currency hedge. After reading many articles, I tend to believe that I should not hedge S&P 500 ETF but should hedge US Long Term Bonds. Do you think so and why?
2) ZTL.F is newly released by BMO in Feb. this year, right at the start of the Covid-19 market crash. It's the first CAD hedged TLT in Canada. I was excited the first but when I looked at its performance in the past month, actually it behaved quite differently with TLT. I also found its trading volume is very low. I am hesitating to buy it for the bond part of PP now. Any alternative bond ETFs you would suggest?

Thank you in advance.
 

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For Bond ETFs I'm using ZFL and ZPL... I was using VAB and XLB, BUT with their Corp exposure they were in a real BOG when the markets were stressed and thus I was not impressed. I will stick with ZFL for security and ZPL for a bit better yield. I am ~60% ZFL and ~40% ZPL (for my bonds - at this time). I know this is CAD and not US exposure but I don't feel that matters as much. Your MNT will basically work as USD exposure in my mind since the gold market operates on USD.
 

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For Bond ETFs I'm using ZFL and ZPL... I was using VAB and XLB, BUT with their Corp exposure they were in a real BOG when the markets were stressed and thus I was not impressed. I will stick with ZFL for security and ZPL for a bit better yield. I am ~60% ZFL and ~40% ZPL (for my bonds - at this time). I know this is CAD and not US exposure but I don't feel that matters as much. Your MNT will basically work as USD exposure in my mind since the gold market operates on USD.
I just compared the return of these bond ind ETFs. It seems that TLT(US) is much better than its canadian alternatives. US long term gov bonds(>20 yrs) is much more sensitive to interest rate cut and has better hedge to US stock crash. Thoughts?
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I wonder whether the PP makes sense when you have debt (mortgage etc). I always struggle with the idea of holding bonds/cash while having a mortgage.
 

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I wonder whether the PP makes sense when you have debt (mortgage etc). I always struggle with the idea of holding bonds/cash while having a mortgage.
That depends. Given the historically low-interest rate, the PP has a good chance to outperform the mortgage interest rate. My mortgage rate is 1.55% variable. The PP's CGAR is >6%. In addition, if the mortgage is for your investment(rental) properties, the interest is income tax-deductible.
 
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