Minimizing Loss Portfolio

[lillo9546]

Hi there! I'd like to share this post about asset allocation
https://valuestockgeek.medium.com/the-w ... c0154d1c4a

What do you think about this portfolio, vs a traditional vanguard VWCE 80% + Bonds 20% and other methods? Which would be the real difference between the two? Would it be a good pick for investing from Italy?

[Cam]

As I'm still new to investing, I don't have a whole lot of personal input. But portfolio charts has a page about the Weird Portfolio that I found helpful. If you read through the article (or any on portfolio charts) you'll have a much better understanding of the strengths and weaknesses of different portfolios and approaches to investing.
https://portfoliocharts.com/portfolio/weird-portfolio/

[PhoneticNachos]

I love talks about asset allocation!

I build my Roth IRA from a modified style that is a modernization and personalization of what the famous investor Walter Schloss used to invest with.

My 401k is a pretty simple four ETF fund split (s/m/l/intl.-USA, 30/30/30/10-cap %).

My HSA is a nice dividend growth ETF solo fund.

I have a separate old rollover IRA with only $3k that I am using for a fun super high yield experiment. Currently 100% in USOI, that I am going to use to grow based on generating high current yield that will accumulate each year and then be allocated into a new different company to start another "income tree".

People can get overly focused on a part of a system, and lose sight of the bigger picture and lifestyle.

I was an old school blogger before FIRE was even an acronym back from around 2006-2009, about dividend stock(non div's too) investing, personal finance habits, and sustainability saving versus spending habits, living a "renaissance man"/polymath lifestyle.

This was before the overall movement really picked up steam, and IIRC, the website early-retirement.org was one of the few places I recall finding people talking about this stuff.

I came up with a few concepts and investment allocation strategies, that I have explained in various places to varying degrees, the most popular idea was my concept to help motivate people to invest more for the future income replacement from dividend paying stocks.
This was the invention of the term/concept FDDI Number (Future Daily Dividend Income Number) where you add up your yearly dividend payments and then divide them into a set 30/360 month/year day number.

So if you had say $15,000 invested into a collection of stocks, that in total paid out $150 a year, your FDDI number would be $0.4167 rounded up.

Blogging is a lot of work, and chasing engagement is almost another job on top of the writing and curating of content. It was causing a large imbalance in my work/life and time commitments, and I had to stop in order to free up more time for other social activities.

Nowadays, I am even busier at work, and so my "online presence" is very limited, usually only an hour or two in the mornings or late at night.

I have the material from all my old articles, writings, podcasts, etc. standing-by for when I have the time to write them into a few books.

[banker22]

I find this and anything using portfolio charts data highly misleading

He claims based on portfolio charts data that the max drawdown was 19% in 2008

This is simply not true

The portfolio charts data is just based on calendar years - so the worst calendar year was -19%

However the actual peak to trough drawdown in 2008 was -33%

This is so irresponsibly misleading

[conwy]

The only kind of asset that approximates a risk-free return is duration-matched inflation-linked bonds.

In the US - TIPS. In the UK - Indexed Gilts. In Australia - eTIBs. In Europe - French OATS *

( * No, not the food, though that's probably also a good idea for frugality and health )

You need something that provides a principle and/or interest guarantee in real purchasing power, and only inflation-linked bonds approach that.

Even inflation-linked bonds aren't a perfect hedge against inflation.
* Taxes on interest and principle adjustment
* CPI may either exceed or underwhelm personal inflation
* Re-investment risk at longer horizons if interest rates go down

Low-cost, internationally diversified equity index funds are historically very safe and even in the 100th percentile worst case, you're still extremely likely to maintain at least 50% of your original purchasing power in real terms.

A loss-minimisation portfolio might look like 50% in index funds and 50% in an inflation-linked bond ladder. In the worst case, you'd probably maintain 75% of your original purchasing power (or close). Assuming you save a large enough sum (with an extra buffer to cover the bullet points above) and keep your spending rate low enough, you could fairly safely fund your expenses over a 50-year period even in the worst case (and rely on a government pension after that).

The beauty of having a lot in equities is that you get a massive upside if the worst-case doesn't occur, so you're not necessarily sacrificing safety for reward. But the bonds help you to smooth your consumption during rough periods, making your lifestyle more stable and planning easier.

In a weird extreme freak event such as stocks and bonds going to zero overnight, and assuming we're not in WWIII, you can probably cover your living costs with part-time paid employment especially if you're frugal.

(This is all based on my listening to the Rational Reminder podcasts, especially the ones with Scott Cederburg and John Campbell)

[loutfard]

I see a few very large holes in this "inflation-linked bonds are almost risk-free" point of view. My wife's grandmother has always lived in the same area. In this are, she has lived through 7 currencies, 5 countries, at least two instances of total currency devaluation, total confiscation of assets by the state, and one instance of hyperinflation. These things are not as rare as many people think.

Skills are obviously the most important. On top of that, I see strong arguments for physical control of at least some assets. Control of a piece of arable land, plus some woodland, would largely protect someone with ere skills from total currency devaluation and hyperinflation.

[conwy]

I see a few very large holes in this "inflation-linked bonds are almost risk-free" point of view. My wife's grandmother has always lived in the same area. In this are, she has lived through 7 currencies, 5 countries, at least two instances of total currency devaluation, total confiscation of assets by the state, and one instance of hyperinflation. These things are not as rare as many people think.

I don't disagree, but...

On top of that, I see strong arguments for physical control of at least some assets. Control of a piece of arable land, plus some woodland, would largely protect someone with ere skills from total currency devaluation and hyperinflation.

Land would not be a bad thing to have in a hyperinflation specifically, but I'm not confident that land would sufficient in any kind of disaster scenario, e.g. confiscation. Land ownership is after all just a title-deed and depends on the government being able and willing to enforce it. You could, of course, continue to squat on the land after confiscation and maybe defend it with weapons. But you could do the same thing with rented land or even public land.

What I would want is some land as well as some valuable portable possessions, including both fungeable assets (gold, diamonds, etc) and long-lived gear that's useful in an emergency evacuation (quality footwear, all weather jacket, durable portable battery, etc). Then I would want to try and get out of the country by any means possible, assuming there was somewhere better to emigrate to

It's not inconceivable that an economic catastrophe could strike while Internet connections and foreign banking and brokerage accounts remain available. So for that purpose I would want to have some equities and fixed income domiciled in one or more foreign countries that are geographically nearby and/or easy to immigrate to.

E.g. if I was a US investor, maybe Canada-domiciled ETFs and GICs, plus the equivalent in New Zealand, the UK and Sweden.

Ideally the foreign domicile would be a country that has some measure of geopolitical independence from my home country, so that my home government cannot seizure those foreign assets.

The escape itself could be the most difficult part, but I have a feeling money (especially foreign money) could turn out to be very handy for getting help...

[zbigi]

Skills are obviously the most important. On top of that, I see strong arguments for physical control of at least some assets. Control of a piece of arable land, plus some woodland, would largely protect someone with ere skills from total currency devaluation and hyperinflation.

It does not protect from land confiscation though, which is what also was happenning in that area. The truth is that, if you want high levels of long-term safety, you don't live in a small state in the Central European Plain, between much larger Germany and Russia. Some areas of the world are just not prone to security.

[7Wannabe5]

Carol Deppe, author of "The Resilient Gardener:Food Production and Self-Reliance in Uncertain Times" makes the very good point that "hard times" and "catastrophes" happen at all scales:

They (hard times) come in all shapes and sizes. They may affect just you, or they may affect your entire neighborhood, country, or planet. They may be temporary, requiring only survival until things get better. Or they may be permanent, and require transition to a dramatically new and different way of life.
Hard times are often individual, personal, and private. They can be primarily physical, emotional, spiritual, or some combination of all three. Or they may be primarily financial. Hard time in the garden sometimes simply represent a time of change in which the garden sufffers because people have other priorities. This book is about all these situations.

IOW, there is little use planning for whether your portfolio will survive WW3, if you don't also plan for whether it will survive the three years of major depression you suffer after your spouse leaves you, your dog dies, and you lose all your hair.

[chenda]

Some areas of the world are just not prone to security.

+1. Location location location are the three most important rules for security.

[loutfard]

Land would not be a bad thing to have in a hyperinflation specifically, but I'm not confident that land would sufficient in any kind of disaster scenario, e.g. confiscation.

As long as the maffiosi governing Russia don't steal our land, we have almost free hyperinflation insurance. We paid under 8k€ for 2ha of land in a somewhat accessible area with a large garage and woodshed both in good condition, a dilapidated house, a good quality well, a pond, an overgrown fruit garden, some woodland, a meadow, some farmland, and a high quality connection to the electric mains. All this with good friends experienced living off the land for neighbours, in a LCOL/low tax EU and NATO member country.

[thef0x]

You could consider a strategy of portfolio construction called "risk parity portfolio management".

Instead of defining its weighted assets by allocations to capitalization size, sectors, factors, fixed income, etc, a risk parity balanced portfolio weights assets based on their comparable risk.

The end goal is to construct a portfolio that is the perfect "when this zig's the other zags, but it all goes up in sum over time".

I don't implement this strategy myself so I cannot speak to what to use, how to do it, but I do think John Williamson at Optimized Portfolio does a great job of summarizing a variety of simple to construct "lazy portfolios" aimed at being set and forget. Link: https://www.optimizedportfolio.com/lazy-portfolios/ There are a few considered "all weather" or "permanent" portfolios that may pique your interest.

Hope this provides some value / more to chew on!

[PhoneticNachos]

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