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"Permanent Portfolio" v. HYP

General discussions about equity high-yield income strategies
1nvest
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"Permanent Portfolio" v. HYP

#390662

Postby 1nvest » February 27th, 2021, 4:20 pm

pyad wrote:Interesting results G.

[Deleted.]

Marshmallows are 75% dearer over the 20 years - assuming Marshmallow prices paced inflation, so a 4.41 total return (accumulation) gain factor relative to 1.75 multiple higher prices, over 20 years = 4.7% annualised real reward total return. Near-as the exact same as a Permanent Portfolio that has just 25% stock exposure. But where the worst year for the PP was less than a -5% decline, whilst the HYP endured a -40% hit in year 8.

Many consider volatility to be a risk factor, and generally the same reward with less volatility is considered as being the better risk-adjusted reward. Or put another way - uncompensated risk. Allowing tilt towards high concentrations in a few stocks is yet another risk factor that might otherwise be diversified away. But some like the thrill from taking unnecessary risks - at least until that backfires. If for instance you were drawing a 4% inflation adjusted income out of total returns, and then in year 8 saw a -40% decline in total return value ... well that's a experience you'd have to actually live through in order to determine whether you were hard core enough to 'stay the course' or whether you were the capitulator that many are after seeing a substantial part of their lifetime savings/investments vaporised. Many hereabouts are more of the hard-core nature as the capitulators are less inclined to stick around such boards or are less able to access such boards from soup kitchens.

Moderator Message:
Moved here from HYP Practical as this has nothing to do with the practical running of an HYP. - Chris

monabri
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Re: "Permanent Portfolio" v. HYP

#390681

Postby monabri » February 27th, 2021, 5:42 pm

I wasn't sure what the PP was so I looked it up...here's a link for anyone else who might be reading with interest.

https://www.investopedia.com/terms/p/pe ... tfolio.asp


"The permanent portfolio was constructed by Harry Browne to be what he believed would be a safe and profitable portfolio in any economic climate. Using a variation on efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds, and Treasury bills would be an ideal investment mixture for investors seeking safety and growth."

The link above discusses the pros/cons of a PP approach.

Or a 2 minute video.. https://www.youtube.com/watch?v=nk_0itdyr5E

I highlighted the word "growth" with respect to to "stock" - I wonder if now would be a time when the "value" stocks start to gain attention (shares as discussed on the HYP-P board) where the 25% stock holding is not all 25% in growth but perhaps 12/15% in high yield shares?

1nvest
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Re: "Permanent Portfolio" v. HYP

#390695

Postby 1nvest » February 27th, 2021, 7:01 pm

There are threads already within TLF about the Permanent Portfolio

viewtopic.php?f=8&t=12360

Applied to Japan and other markets and historically its also held up well. No Japanese lost decades for instance. Does what it says on the tin, and is primarily intended to invest money you cannot afford to lose.

For stocks Harry advocated holding a domestic stock index, as the assets work as a collective engine. Foreign stocks would put that engine out of timing. So FT250 for instance. For long dated Treasury bonds he suggested the longest dated possible, ideally 20 years or more. For the UK that can extend out to very long maturities, so I'd suggest buying a 30 year and holding that series for a decade before rolling into another 30 year.

For cash, a high street bond ladder of 1 to 3 or even 5 years can work well.

A 50/50 stock/gold barbell works relatively well. For periods when for instance a 8% withdrawal rate against stocks failed, often gold did well; And vice versa ... i.e. there's a degree of multi-year inverse correlation between the two. If you hold 1 year and 20 year gilts in a barbell that compares to a central 10 year bond bullet.

The assets were selected in order to more often have one asset doing well/OK across all economic cycles/conditions, and where the one good-un more often offsets and more the bad-uns. And broadly that works.


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