<p>Dadx, you make an interesting point about market weighting indexes. </p>
<p>EMM1, are you interested in buying 20 to 30 year US treasuries? Is your son?</p>
<p>If you asked me “Do I want to buy long treasuries today?” I would say that the answer is no. But the object is to set up a portfolio that will perform well under a variety of different conditions and needs only to be rebalanced once a year. The Permanent Portfolio, which is based on a similar concept has generated an average annual return of 9.7% over the last 40 years with only three down years.</p>
<p>Again, I am influenced by my perception that neither I nor most people who hold themselves out as “experts” are very good at predicting the future.</p>
<p>Well…I have this strong feeling that treasuries are not going to produce very good returns in the long run with interest rates where they are. If you wouldn’t buy the securities that make up the etf, I wouldn’t buy the etf.</p>
<p>Your gold allocation is quite large.</p>
<p>[The</a> Best Bond ETFs for 2013 | InvestorPlace](<a href=“http://investorplace.com/2012/12/the-best-bond-etfs-for-2013/]The”>The Best Bond ETFs for 2013 | InvestorPlace)</p>
<p>" sensitivity to interest rate movements. A prime example is iShares Trust Barclays 20+ Year Treasury Bond Fund (NYSE:TLT). While it offers a 30-day SEC yield of just 2.72%, it has a duration of 17.1 years. This means if long-term Treasury yields were to climb just a half-percent in the year ahead, the fund would lose about 8.6% on a price basis.</p>
<p>One thing that I have learned is that you are right a lot more often than I am. In fact, unlike most money managers, you could probably add value as a financial advisor.</p>
<p>In terms of the allocation, it might be viewed as an application of my rudimentary understanding of modern portfolio theory, which emphasizes the importance of having non correlated assets. But mostly, it simply reflects past performance, which can be found here.</p>
<p><a href=“NameBright - Coming Soon”>NameBright - Coming Soon;
<p>I have changed the basic allocation of the Permanent Portfolio in two ways. First, I have eliminated the cash component for two reasons: a) that a long term investor should be willing to deal with some additional short or medium term volatility in order to increase returns and b) for the foreseeable future, cash is yielding nothing. Second, I have moved away from a purely U.S. focus.</p>
<p>Do you see any differences in the bond market and gold market in 1972 compared to now?</p>
<p>I should be careful because Ray Dalio likes a portfolio like the permanent portfolio. :)</p>
<p>To begin by answering your question, I barely remember 1972, but suspect that conditions were quite different then. But with due respect, I think that we are talking about two different things. You are saying that you have assessed market conditions, and that based on that assessment you don’t think that long treasuries are a good investment and that the proposed allocation to gold is too large. That’s fine, and your assessment may very well be correct in the short or intermediate term.</p>
<p>The idea behind the proposed allocation (like the allocation proposed by psychomom) is to create a portfolio that does not require periodic reassessments of market conditions. By using the long bond, gold and stocks, you get three volatile asset classes whose performance is not closely correlated to one another.</p>
<p>What I really wish that I had done was invest in zero coupon treasures in the early 1980s. Then I wouldn’t have to worry about any of this stuff.</p>
<p>Well, I understand what the performance portfolio is trying to do and I like it in theory.</p>
<p>Are you putting 25 percent of your investible assets in gold?</p>
<p>Gold was just coming off fixed prices in 1972.
I don’t like gold, but I am not sure what gold prices are going to do in the future. Personally, I would rather own income generating assets than gold. </p>
<p>Bond Yields were a little higher in 1972.
Here is a chart of 10 year treasuries.</p>
<p>Yeah…I wish I bought zeroes in the early 80’s. What was I going to use for money? :)</p>
<p>[Fearful</a> Symmetry: Six Decades of Treasury Yields — The American Magazine](<a href=“http://www.american.com/archive/2012/april/fearful-symmetry-six-decades-of-treasury-yields]Fearful”>http://www.american.com/archive/2012/april/fearful-symmetry-six-decades-of-treasury-yields)</p>
<p>In the long run, you are not going to make more than 2.7+ percent with the money you invest in tlt today. </p>
<p>That is why I don’t like TLT. The long term upside is limited at a level that is
unsatisfactory, at least to me.</p>
<p>I like psychmom’s lazy portfolio.</p>
<p>The point about gold in 1972 is certainly correct, but even start with 1975 (after the initial explosion in the price of gold) the average annual gain on the Permanent Portfolio is, I think, about 9.2%. If you eliminated the cash component, the return would have been significantly higher but you would have had two more down years.</p>
<p>Gold has done well despite my dislike of that asset class. :)</p>
<p>With respect to choices like these, that’s what makes horse races. My only observation would be that because psychomom’s portfolio contains three volatile asset classes that are fairly closely correlated and one noncorrelated asset class that is not volatile (AGG), over time the overall volatility of the portfolio should be higher than one that contains three volatile, noncorrelated asset classes.</p>
<p>I like to use cash as a hedge against the volatility.</p>
<p>What percentage of your lazy person’s portfolio do you recommend to be in cash?</p>
<p>Also, these classes may be more correlated than you think, EMM1. </p>
<p>This isn’t 1972.</p>
<p>Context does matter.</p>
<p>Psychmom, which etfs do you like? I also like to use cash to lessen volatility.</p>
<p>I am copying NJres. I sold some spy puts. If spy closes below 140 today, I will be long spy.</p>
<p>FWIW, and it may not be worth very much, here is my limited intervention portfolio allocation:</p>
<p>2% Cash
34% Bonds (average duration 4.1 years, since I think eventually rates will rise)
46% Total Stock Market Index
14% Total International Index
4% REIT Index</p>
<p>Since this is a taxable account, 85% of the bonds are in tax free bond funds, 15% in High Yield Corporate Bond fund.</p>
<p>I like your portfolio, dadx.</p>
<p>Are you using etfs for your international and reit exposure?</p>
<p>Right now I am in individual stocks (mostly large cap div), so I haven’t as yet broken down the percentages for the theoretical lazy portfolio. I’ve only recently started a REIT ETF position, which I will add to over time and hold for the long term. (I picked VNQ.) The China ETF I mentioned earlier is the FXI…just have a small position in it that I picked up a month ago and will not be a long term play.</p>
<p>Ok Psychmom, thanks.</p>
<p>I’m not a big fan of ETFs - since I’m a long term investor I don’t see the benefit of being able to trade intra-day. I generally use Vanguard mutual funds since their expenses are very low, especially if you have enough $ to get one of their Admiral funds. So my limited intervention portfolio is all in Vanguard funds, with an average management expense of 11 basis points (that’s 0.11%).</p>