Yeah, I'm very familiar with Desert since I've been on those Permanent Portolio forums for many years but the portfolio shown on Portfolio Optimizer is NOT his portfolio (and I also note that the backtesting there only goes through 2021 and so avoids the 2022 bond bloodbath).Kevin, there is actually another lazy portfolio that is very close to what you are proposing. It's called the Desert Portfolio, and it was posted to the forums on the Gyroscopic Investing Forum, as well as reviewed on OptimizedPortfolio.com: https://www.optimizedportfolio.com/desert-portfolioYour thoughts certainly echo my own: we're both admirers of the Portfolio Charts site, and we have the same concerns about gold and SCV in such high percentages.
Ern's Safe Withdrawal Rate series (@ the Early Retirement Now site) has a good post on using gold to hedge against SORR and he discusses the Golden Butterfly, Permanent Portfolio and All Seasons towards the end. Here's his comment about the GB:
"The Golden Butterfly Portfolio (with small-cap-value) will give you a decent improvement in the SWR stats relative to the 75/25/0 portfolio. But not noticeably better than the 60/25/15 portfolio. But notice that all of the improvement of the GB portfolio comes from the stellar historical performance of Small-Cap-Value stocks and not so much from the gold allocation. Without the boost from small-cap-value, the SWR stats are actually worse(!) than under the baseline portfolio without gold!"
But while I can see the value in the argument that the small and value factors largely disappeared as soon as they became widely known and exploitable, I know from online conversations with Tyler over the years that his decision to use SCV is based not on historical alpha but on wanting to have a stock allocation that''s not totally dependent on a few giant tech stocks for its long-term returns. When you run half each VTI and VBR on Portfolio Visualizer the exposures pie chart is almost a perfect one-third each of large, mid and small cap stocks.
I was all-in on the GB myself for years but used 30% 5 year Treasuries (VGIT) and 10% T-bills in lieu of the bond barbell (the LTT's stopped making sense, risk:reward wise, long ago). But like you I never felt comfortable with the big bets on SCV or gold. If I were going to implement an iteration of the GB today I'd use a barbell of VTIP and VGSH for the bond and "cash" portion, something like VT for the equities and 10% gold max.
It is 30% TSM, 60% Intermediate Treasury Bonds, 10% Gold. Seems to outperform the Permanent Portfolio.
The actual Desert Portfolio is 10% each Total U.S. Stock Market, U.S. Small Cap Value, Emerging Markets and gold and 60% Intermediate Treasuries. So it's basically an iteration of the Larry (Swedroe) Portfolio with a slice of gold being the only nod to the PP.
Statistics: Posted by Kevin K — Wed Apr 10, 2024 4:55 pm — Replies 135 — Views 28592