Portfolio Charts

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Kipling
Posts: 38
Joined: Fri Mar 17, 2017 11:10 am
Location: London

Re: Portfolio Charts

Post by Kipling » Wed Jul 17, 2019 5:15 pm

@Seppia- the UK bias towards UK listed companies has much more recent historical reasons than that. As so often, lurking in the background there is a tax reason. Remember most peoples' pensions investments were invested though funds until very very recently. Until 1997 UK pension fund vehicles could get cash refunds on otherwise unusable (given that pension funds didn't pay tax) dividend tax credits from UK shares. This led them to be very significantly overweight UK equities, as opposed to ROW. Unfortunately this advantage was a significant cash cost to the UK treasury and the new Labour government decided to remove it (the removal of this perk was known as 'Brown's raid on pension pots'). It was also an impermissible restriction on the freedom of movement of capital from an EU law POV so had to go in any event. (See, a whole bunch of tax cases.) It is notable that the proportion of UK equities held by UK pensions funds roughly halved in the decade afterwards, going from 2/3 to 1/3. I agree that there is still at an individual investing level a slight illogical home bias, but that is mainly due to (i) familiarity ("I buy their goods, I buy their shares"); (ii) currency risk fears; (iii) the risk of tax complications; and not to do with the Imperial past.

Tyler9000
Posts: 1554
Joined: Fri Jun 01, 2012 11:45 pm
Location: Austin, TX

Re: Portfolio Charts

Post by Tyler9000 » Sat Aug 17, 2019 7:03 pm

I saw a comment about Portfolio Charts donations around the forum today, and for those following along you may not be aware that I finally have an option in place for that. I'm not going to link it because I don't want to create any confusion about my motivations for posting here, but if you're truly interested it shouldn't be too hard to find.

All money aside, thanks for many years of support and inspiration!

slowtraveler
Posts: 772
Joined: Sun Jan 11, 2015 10:06 pm

Re: Portfolio Charts

Post by slowtraveler » Fri Aug 23, 2019 8:19 am

Hey Tyler, I've really appreciated the Portfolio Charts site but I have found something confusing when comparing the results to CFireSim. Inputting gold to complement equities into CFireSim seems to always lower the swr, whereas 10-20% gold increases the withdrawal rate in Portfolio Charts.

Is this a result of different data, different time frames, different calculation methodology, or something else?

Thank you Tyler.

Tyler9000
Posts: 1554
Joined: Fri Jun 01, 2012 11:45 pm
Location: Austin, TX

Re: Portfolio Charts

Post by Tyler9000 » Fri Aug 23, 2019 8:57 am

I can't speak to CFireSim's methodology, but when it comes to gold I imagine the discrepancy is largely due to the fact that the gold market fundamentally changed quite a bit over the years.

1) The Bretton Woods agreement pegged most of the major global currencies to gold between 1944 and 1971. Think of it as basically eliminating gold's diversification benefits by government fiat.

2) Gold was illegal for individuals to hold in the US in any investable form between 1934 and 1964.

The combined effect is that any portfolio backtested with gold prior to 1970 or so (CFireSim starts in 1871, PC starts in 1970) doesn't really model the effect of gold as it works today on an asset allocation. It actually models the effect of taking that much money out of the market for decades at a time. So it doesn't surprise me that CFireSim suggests that gold lowers SWRs, but I personally wouldn't put much stock into it because we live in a completely different economic system than CFireSim studies.

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