I mean, if VIAC would just let me build Harry Browne’s Permanent Portfolio with 25% VT 25% Short-term treasuries 25% long-term treasuries and 25% Gold I’d just call it a day and use that.
Alas, govt. regulations prevent this so I have to wrangle allocations that mimic it.
If for some reason you don’t like that paper, why don’t you read this other one?
discusses Shannon’s Demon, Parrondo’s Paradox, the Rebalancing risk premium, and discusses special cases such as Samuelson’s critique, Warren Buffet, minimum variance portfolios and when to apply which weighting ex-ante.
We agree that Multi-Asset Portfolios make sense and I see the logic in the Permanent Portfolio. Personally, I don’t invest into it as it is too gold heavy for me but fundamentally that makes sense. For a 3A Investor that is interested in a Permanent Portfolio, I would just propose to deviate the portfolio to:
30% Global Shares: 15% MSCI World, 5% MSCI Small Caps, 5% MSCI EM and 5% SPI
This is an asset allocation that I would trust more. Swiss RE Funds are a very good diversifier and you take on less Gold Risks. From a risk point of view, this would roughly give you:
38% Shares
27% Intermediate-Long Term Bonds
10% Gold
25% Cash
BUT: This is a different topic than whether weekly/monthly re-balancing added any value. Asset Allocation matters (including band based or quarterly/annual re-balancing). Weekly or monthly re-balancing, I doubt it adds material value (vs. a quarterly one). So what shall we discuss - multi-asset investments or high frequency re-balancing?
the Bold part is why I think I don’t need to read the paper… indicates there is some speculation happening here and we are likely in an over-fitting scenario.
Have a look at nispirius‘ post and his Portfolio visualizer link. There is zero benefit in daily, weekly or monthly re-balancing. My reference there is pictet and their LPP indices where they, based on backtests, conclude that quarterly re-balancing was ideal to balance trading cost, deviation risk and absolute return.
There is a multi-asset premium but to tab on this one, re-balancing between quarterly to annually suffices… but there is no volatility premium as such you could tab on with mlre frequent re-balancing.
Can you explain why you would use that now? If I read all your sources correctly they don’t explain a certain market situation but rather, that you only need uncorrelated assets. I conclude this strategy should work in all timeframes?
According to simulations with the timeframe January 1986 - October 2023 you would have been better off with 100% stocks by a pretty big amount:
Positively we can see that standard deviation, worst year and max drawdown is greatly reduced with your portoflio which might suit certain risk profiles. It also shows that you don’t get this for free but you pay a pretty hefty performance forfeit for that.
ETF have a different tax treatment than Index Funds. Index Funds Captial Gain Tax is covered by the Index Fund, and not by the investor. Meaning that Index Funds constantly carry over accruals for anticipated capital gains tax. When you now leave the fund, the obligation to ensure equal treatment to a funds’ investors mandates that they need to cover your part of these accruals. You lose quite a bit on redemption charges.
CS is very transparent on this, just have a look at their funds summary (redemption charge currently at 0.76%):
The second aspect here is that, when we talk about Index Funds (not ETF) - CS Index Funds are older than the Swisscanto Index Funds / European Vanguard Index Funds. Therefore, the problem is less severe there and it will only become a problem in the future (as Indian’ shares rise).
You’re correct in that a permanent portfolio doesn’t quite do the same results as 100% stocks – but it’s much much easier to stick with and much easier to find it worthwile to continuously add funds.
What I’ve found in my own investigations published further up the thread is that 1) rebalancing premium is both real and significant, and 2) higher than Portfoliovisualizer would have you believe by an order of magnitude. This was 3) corroborated by a variety of peer-reviewed studies that all your PortfolioVisualizer links just can’t invalidate (see e.g. the very beginning, especially Pumping Vol in Swiss Retirement Portfolios - #5 by xmj )
And what I’ve found personally over the years is this one is much easier to always contribute to, as one of the major contributing asset classes will invariably outshine the others.
There’s also an anecdotal ~3kg benefit in not worrying too much when the shit does hit the fan.
How can you explain that difference? What has to be changed in Portfoliovisualizer to confirm your findings?
Similar point to above. So we have the problem that we don’t know who is correct. According to you Portfoliovisualizer is showing wrong data, which I personally doubt. It’s easy to confirm who is correct and who is wrong if you enter your portfolio with your parameters and send this link here on this forum.
If you meant to show that a portfolio with uncorrelated assets and rebalancing is outperforming the same portfolio with no rebalancing then yes, this is true and has been confirmed higher up in the thread.
Another guess; Maybe you claim that your strategy is only working forwards and can’t be confirmed with backtested data? Although your sources say otherwise this might be plausible aswell but is in my opinion just another bet and should not be advised.
Peer-reviewed studies posted further above show the same outperformance of an order of magnitude (10x+) higher than what all PortfolioVisualizer links in this thread come to. Trust them
NB: This refers to how often to rebalance (weekly/monthly/annually), not to portfolio composition. The optimal value here would be to lever up an all-stocks portfio to 200%–250% gross exposure, iirc.
Weekly Re-Balancing was better than e.g. quarterly / bi-annual re-balancing (where we have portfoliovisualizer backtracks that show this was not the case)
Multi-asset Portfolios (like Permanent Portfolio) delivered better risk adjusted returns that shares only (which I agree with)
What argument do you want to put forward? My confusion is that I read your posts somewhere between 1 and 2, and your references partially refer to point 3.
Nispirius post referred to above compares daily with annual re-balancing (of a 60/40) and concludes that it didn’t really matter. Hence busting point one of the above.
When even my Global 100 portfolio is up 16.94%… not so much. One of the few environments where buy&hold would triumph - includes sweet 35% returns in Gold. Bad moment to hold constant ratio rebalanced portfolios
For rebalancing to perform better two things are needed: volatility and no correlation. Now, stocks tend to have high correlation, specially in bear markets.
Another problem is that correlations cannot be foreseen. They can build up later even if there was no obvious correlation before.
I did some experiments many years (decades I think) ago and a stock-only portfolio did not perform good with rebalancing. Let’s check a chart of the rebalanced SP500 equal weight compared with the SP500. Short timeframe (10 years) the SP500 performed better:
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