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Multi-Region Permanent Portfolio

Index tracking funds and ETFs
Newroad
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Re: Multi-Region Permanent Portfolio

#339464

Postby Newroad » September 10th, 2020, 2:05 pm

Hi 1nvest.

Re your discussion of bonds above, whilst I understand them at a superficial level, I regard myself as less qualified to judge their relative merits than with stocks. This is not to say I am any kind of stocks guru ;)

Consequently, the mix of a conservative (in context) ETF, VAGP, with an investment trust which invests in racier, higher yielding fixed income assets. VAGP's bond portfolio has an average maturity of around 9 years as I recall - so there is certainly some interest rate sensitivity there - but not extreme. I judge that active management in trusts like HDIV, IPE and CMHY will do better than an ETF in the higher yielding market segment, but whether that's true at all (and if so, if it's sufficiently true to counteract the higher fees) only the very long term will tell.

Hence, not putting all my eggs in one basket and having the 50/50 split.

Regards, Newroad

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Re: Multi-Region Permanent Portfolio

#339500

Postby ignotus20 » September 10th, 2020, 4:09 pm

Thanks everyone for the very helpful replies, especially to 1nvest, dspp, mc2fool and Newroad for their detailed posts. To Adamski's point, I'd definitely regularly read any blog or book 1nvest has written (or plans to).

I am investing a reasonably significant lump sum and my main interest is capital preservation, low volatility and gains circa 2.5-3% after inflation - which would have sounded fairly easily achievable until six or seven months ago. I may or may not need to be drawing down from this portfolio to pay living expenses, but it's probably safest to anticipate that I will be. I don't mind whether the drawings are generated via dividends/coupons/interest, rebalancing or a combination thereof.

A further factor behind the attraction of the PP is that I don't want to have to tinker with this very often nor agonise a lot over capital allocation decisions, a simple rules-based approach that works most of the time is what I am looking for. I have other funds where I am prepared to get more 'creative', but not with this portfolio.

My main motivation for considering more than one region (outside UK) was diversify my risk and stabilise the returns. I acknowledge that I might stabilise them so much that I don't make any real post-inflation gains at all if I follow this path.

I will be spending some funds outside the UK, but I will live here for the majority of the time. As other posters have said, my concern over a UK-only portfolio is how things will play out here over the next decade or so as the potential for volatility seems quite significant. From what I've read of the PP theory, the different components should all hedge each other off to an extent (and inflation) so it maybe this is diversifying excessively. The point over sticking with gold in USD is a fair one. My main motivation for this post was to encourage a discussion of the relative pros/cons of regional diversification.

1nvest
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Re: Multi-Region Permanent Portfolio

#340114

Postby 1nvest » September 14th, 2020, 3:27 am

I'll also have a 'modest' (near 6 digit start of payment of occupational pension) lump sum to drop into the market soon. Throwing a spanner into the PP works I do like a Talmud asset allocation of a third each UK home, US stock, gold. To me a 50/50 US stock/gold barbell is a form central currency unhedged global bond bullet. Two extremes/opposites that is somewhat like holding a barbell of 20 year and 1 year gilt barbell that broadly compares to a central 10 year bond bullet. Higher volatility, and in some years both stocks and gold can drop, but usually when that is the case the years either side of that tend to see one or the other do relatively well.

Here's a more for fun (messing around with LibreOffice Calc) image I created, but that is highly subjective

Image

It's also somewhat more aligned with 'Old Money' - generational wealth mantra of a third, a third, a third (land, gold, art) but where art is instead replaced by stocks. Keynes art collection value was investigated by Dimson and others https://academic.oup.com/raps/advance-a ... 01/5716334 and observed to have yielded around comparable longer term rewards.

Conceptually you might rebalance infrequently, and perhaps include some UK stocks as a proxy for UK home value - for liquidity purposes. What appeals to me is that in including some of home value as part of the portfolio, the higher capital value of the portfolio means a lower SWR figure can be applied, and a great way to substantially reduce risk is to reduce the SWR figure. £333K in each of home, US stocks, gold, £1M total with a 2.5% SWR (£25K/year income), excluding imputed rent, is considerably safer than a 3.75% SWR applied to a £666K amount (that provides the same £25K/year).

Domestic £ currency, primary reserve currency (US$) and global currency (gold) currencies diversification; Land, stock, commodity asset diversification.

Looking at something like this is indicative of the higher volatility that endures. For some periods such as 1994 to 2004 in that link (and somewhat from 2012 onward also) the two can be quite similar in rewards, but at other times see that Talmud blend spike down, or up to a new higher/lower plateau.

It's a question of character/nature. Whether you see volatility as a risk, or just something that you ride through. Also many would hate having so much in gold, whilst others like having two thirds of 'in hand' assets (land and gold) just a third having counter party risk (stocks). Many in India look totally differently upon gold, as their domestic currency has at times been a lot less 'dependable' (lacks trust/faith).

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Re: Multi-Region Permanent Portfolio

#340138

Postby jonesa1 » September 14th, 2020, 9:22 am

1nvest wrote:Conceptually you might rebalance infrequently, and perhaps include some UK stocks as a proxy for UK home value - for liquidity purposes. What appeals to me is that in including some of home value as part of the portfolio, the higher capital value of the portfolio means a lower SWR figure can be applied, and a great way to substantially reduce risk is to reduce the SWR figure. £333K in each of home, US stocks, gold, £1M total with a 2.5% SWR (£25K/year income), excluding imputed rent, is considerably safer than a 3.75% SWR applied to a £666K amount (that provides the same £25K/year).



On the basis that it isn't practical to access the home value for most people, how does adding it into the portfolio de-risk the SWR, given that the assets generating realisable value are unchanged and the amount being withdrawn is unchanged?

Andrew

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Re: Multi-Region Permanent Portfolio

#341345

Postby 1nvest » September 19th, 2020, 11:07 am

jonesa1 wrote:
1nvest wrote:Conceptually you might rebalance infrequently, and perhaps include some UK stocks as a proxy for UK home value - for liquidity purposes. What appeals to me is that in including some of home value as part of the portfolio, the higher capital value of the portfolio means a lower SWR figure can be applied, and a great way to substantially reduce risk is to reduce the SWR figure. £333K in each of home, US stocks, gold, £1M total with a 2.5% SWR (£25K/year income), excluding imputed rent, is considerably safer than a 3.75% SWR applied to a £666K amount (that provides the same £25K/year).


On the basis that it isn't practical to access the home value for most people, how does adding it into the portfolio de-risk the SWR, given that the assets generating realisable value are unchanged and the amount being withdrawn is unchanged?

Andrew

Including home value, supplemented with some UK stocks/Pounds as a proxy for land (liquidity), has the potential to 'trade' more capital as different assets ongoing valuations swing around, and those swings can be very large. Somewhat like a 1.5x leveraging, without the overheads of borrowing costs, along with greater diversification, land, stock, gold third each versus 50/50 stock/gold

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Re: Multi-Region Permanent Portfolio

#341902

Postby Stonge » September 22nd, 2020, 10:48 am

Interesting article on HL

https://www.hl.co.uk/news/articles/how- ... d-ftse-100

may be relevant in some way


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