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5% drawdowns are very frequent. ...

... I think that a 10% drawdown is pretty routine and will be seen once in a while. It should not surprise any of us to see a 10% decline this year even in this conservative portfolio.
I would agree & note 2 key factors.

First, my purchases this year will likely be at the lower prices - which is good.

Second, If the PP/PP+ is up to a -10% loss consider that most other balanced funds could be double that....

By the nature of the PP/PP+ my volatility is controlled. Yet, my opportunity to buy low is the same as all the other types of portfolios. Plus, over a 20+ year average my performance is basically the same as the Balanced Port without the pitfalls.
 

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Discussion Starter · #562 · (Edited)
First, my purchases this year will likely be at the lower prices - which is good.

Second, If the PP/PP+ is up to a -10% loss consider that most other balanced funds could be double that....

By the nature of the PP/PP+ my volatility is controlled. Yet, my opportunity to buy low is the same as all the other types of portfolios. Plus, over a 20+ year average my performance is basically the same as the Balanced Port without the pitfalls.
I wholeheartedly agree! Very good points. I am eager to buy some more this year at depressed levels.

The losses and volatility will happen, but it's all relative as you point out. I did a quick check yesterday and it now looks like my PP's performance over multiple years has matched Mawer Balanced Fund, which you'll recall is the star 60/40's. It seems the PP is doing as well over 5 yrs, but with half the drawdown this year so far.

And that is what I've always hoped the PP can do. Long term results similar to 60/40 but with milder volatility.


[ The numbers, if you're curious.]
Mawer Balanced, 5 years @ 4.7% CAGR, and YTD loss -11.9%
My PP+ formula, 5 years @ 5.2% CAGR, and YTD loss -6.0%
 

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Discussion Starter · #563 ·
What a crazy time. The PP/AW is losing money just like everyone else is. Still, there is a slight improvement over balanced funds.

PP variant #1, equal weights XAW, ZFL, CGL.C, cash/GIC
PP variant #2, my own formula

Year to date performance is
  • -17.5% in Mawer Balanced
  • -15.2% in VGRO
  • -14.7% in VBAL
  • -10.7% in PP variant #1, closest to Harry Browne's formula
  • -10.7% in PP variant #2, obviously quite similar to the original

That's an improvement over 60/40 and it's been less volatile as well. I'm not happy about losing money, but I'd still call this a win during market turmoil.

Additionally, -10% is still in the ballpark of a pretty typical and routine drawdown for the PP.
 

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-10% is still in the ballpark of a pretty typical and routine drawdown for the PP.
According to lazyportfolio.com, -10% is quite extreme since 1973? I am buying PP every week.

Slope Plot Rectangle Line Font
 

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My Net Worth Y2D which is mostly PP+, is -9.91%. I am saddened by this, yet I am content when compared to most Balanced Funds. I am still ahead of a lot of deployed money and buying the depressed items.... it makes sense to me ! So far to date, we have added 2.51% back in as new cash and thus are really only 'down' 7.4%. Accepting that there are down years this really doesnt bother me, as I said, sad that I am not up 10%, yet happy I have 92.5% of my Investable Net worth in tact. I'll probably deploy another 2.5% and likely be down +/-5% by year end. This IMHO is not a bad year despite the major losses and problems for many. This year is a great example of the importance in diversify & diversify.....

One of the girls at my work is into investing and she is 100% equities and her thought is that over time 'I will win despite the large losses'. While she might be right over a 50+yr timeline, I don't like the massive volatility '100% equities' gives or the chance that there could be a lost decade if inflation/interest rates/war/ect ect ect dont pan out well. I'm happy, contributing, and watching. I have been pretty hands off most of this spring/summer with investing stuff - very busy.
 

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We are in times of high inflation and rising int rates . So TLT bonds is down ~18%, QSP is down 20%. Gold is supposed to do well in times of high inflation now to offset but it hasn't and is down -5.5% this year. Gold is supposed to do well in time of war too. Seems there is no diversification w the PP any longer now if all the classes move down together.
 

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We are in times of high inflation and rising int rates . So TLT bonds is down ~18%, QSP is down 20%. Gold is supposed to do well in times of high inflation now to offset but it hasn't and is down -5.5% this year. Gold is supposed to do well in time of war too. Seems there is no diversification w the PP any longer now if all the classes move down together.
I think everything can move together but as things settle they can separate

For example look at how everything including gold crashed together in 2020 and then recovered very differently

Putin could demand gold instead of fiat and then we know why gold is supposed to do well in times of war
 

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Discussion Starter · #570 ·
For example look at how everything including gold crashed together in 2020 and then recovered very differently
Gold didn't exactly crash in 2020, unless you're talking about the span of about 3 weeks when both stocks & gold declined at the same time. It held up very well as an alternative / flight to safety asset that year as you can see in the chart below.

But in any case, there's no assurance about how gold moves. The main idea with gold is that it "dances to its own tune" and trades differently than stocks and bonds. That helps diversify the portfolio and reduce volatility, generally.

There will be times when gold moves the same way as stocks or bonds, but history has shown that it often moves differently.

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Gold didn't exactly crash in 2020, unless you're talking about the span of about 3 weeks when both stocks & gold declined at the same time. It held up very well as an alternative / flight to safety asset that year as you can see in the chart below.
That's what I mean

Things can crash together when there's an unexpected black swan or a period of uncertainty and then recover very differently. Doesn't have to be the exact same every time. We're in a period now where many things are uncertain, unstable and eventually things will settle into some kind of new norm

I think people get way to wrapped up in thinking things will behave exactly like the last time. This also creates massive opportunities.
 

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Discussion Starter · #573 ·
In case this helps anyone, remember that you can mix GICs into your "bond" allocation. They're all fixed income after all and GICs are really just like short term bonds. In my asset allocation, what I call "bonds" is a mix of XBB + some individual government bonds + GICs

The GICs will reduce the volatility of your bond segment. There is also a flip side to this, though. I was tracking my portfolio in detail since July 8, and the bond benchmark (using XBB) is up +1.8% whereas my own "bond" allocation is only up +1.1%

But I think there is some appeal in reducing the volatility of the bond component, at least for me. I guess you just have to remember that volatility can be both down, and up.
 

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In case this helps anyone, remember that you can mix GICs into your "bond" allocation. They're all fixed income after all and GICs are really just like short term bonds. In my asset allocation, what I call "bonds" is a mix of XBB + some individual government bonds + GICs

The GICs will reduce the volatility of your bond segment. There is also a flip side to this, though. I was tracking my portfolio in detail since July 8, and the bond benchmark (using XBB) is up +1.8% whereas my own "bond" allocation is only up +1.1%

But I think there is some appeal in reducing the volatility of the bond component, at least for me. I guess you just have to remember that volatility can be both down, and up.
GICs are insured and IMO are at the credit rating of the insuring institution, so they are more of a retail government bond, as such they should pay slighlty less than corporates.
Also an individual bond/GIC is not the same as a bond fund. I think for most purposes they can be considered interchangage, and often a bond fund is appropriate, they actually behave in slighlty different ways.
 

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Well, a quick update from Excel, we are down 9.88% this year. We have purchased 2.81%, which is a net change of 7.07%. We still have some more to contribute, so our net change should be less than 7% - likely 5 or 6% providing that Chicken Little doesn't fall from a tree.

I have been using CLF and CBO as my cash proxy - simpler to use for me vs shopping rates on GICs. I do understand and value the differences but I just dont think the market will collapse and thus the short term bond funds will suffice over time. If I was within 5 Yrs of retiring I would be using GICs... we just are not there yet.

I am helping my older mother with her finances and will be buying her a large GIC in the next month after the BoC raises rates next week. I hope to find 5.5% or 5.75% for a 5 yr for a quarter million. Thats a good guarantee for income for a retiree. @ 5.5% thats 69,000 for the 5 yrs and @ 5.75% thats $72,000 !!! You cant get better for a pensioner. Remember the last 10 years where we were scavenging for 1.5 % ?
 

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Discussion Starter · #577 ·
I am helping my older mother with her finances and will be buying her a large GIC in the next month after the BoC raises rates next week. I hope to find 5.5% or 5.75% for a 5 yr for a quarter million. Thats a good guarantee for income for a retiree. @ 5.5% thats 69,000 for the 5 yrs and @ 5.75% thats $72,000 !!! You cant get better for a pensioner. Remember the last 10 years where we were scavenging for 1.5 % ?
Boy how times have changed since those awful low rates!

Keep in mind though, that GIC rates are related to the 5 year government bond and may not respond directly to the BoC raise. Like you, I'm hoping for higher yields but there's no guarantee that yields will go up, even if the BoC raises.

I'd also suggest making sure that your GIC deposits have full deposit insurance.
 

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I'd also suggest making sure that your GIC deposits have full deposit insurance.
I've been using Hubert Financial and it is 100% insured by Manitoba. I know that provincial insurance commitments are not as good as federal, but I seriously dont think Manitoba will default. Also, since most of these credit unions lend within their home province, and real estate in Manitoba doesnt have a current large overvaluation I feel that it is pretty safe since most of this cash will probably be within MBS.
 

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I've been using Hubert Financial and it is 100% insured by Manitoba. I know that provincial insurance commitments are not as good as federal, but I seriously dont think Manitoba will default.
It is not clear what you mean by "Manitoba." If you mean the province, that is not correct.
The deposit insurance is provided by the Deposit Guarantee Corporation of Manitoba, which assesses credit unions quarterly to make sure its guarantee fund is sound.

Does the Government of Manitoba also cover deposits?
No. There is no legislated requirement for the Manitoba government to guarantee deposits.
Now, the DGCM is a Manitoba government agency. Some might feel like the distinction between "Manitoba" and "Manitoba government agency" is splitting hairs. Personally, I am comfortable with the Manitoba insurance. But I accept that it is not fully backed by the provincial government.
 
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