Debate Over 60/40 Allocation Continues … It depends. Someone who mostly buys and holds and what most should do, has no issues. Trading markets since Covid started is harder. Risk/volatility is elevated, market changes have been faster. I changed too because of it. I trade more often, think weeks instead of months. I stay more in MM. But, volatility makes it easier to trade. Sideways is harder.
Basically, I tell investors to stay within their skills. If trading worked for you which means, you look at your portfolio risk-adjusted performance over 3-5-10 years and it's better than the indexes, keep doing it. Otherwise, stop. Most should just use only 3-5 funds with a mix of indexes and managed funds and hardly do anything.
M* Portfolio Will be Around Through 2023 I can still access my M* portfolios and watchlists through their app, but not if I go through their website. When I try to access portfolio view through their website, it goes to a page showing their membership fees. Sorry M*, but your content is not worth the fees you charge.
I mainly use M* to track various portfolios and watchlists. I can do that on the Fidelity site for free. FWIW, over my many years of using M*, I have little correlation between their funds picks/evaluations and actual performances going forward.
reading some statistics. Check the operating performance tab. I'm guessing the little numbers are a reflection of change from previous years or quarters.
Debate Over 60/40 Allocation Continues … [snip]
The more you diversify, the chances are your portfolio will not beat the indexes and why Buffett said "Diversification is a protection against ignorance".
[snip]
Warren Buffett speaking to MBA students:
"If you are not a professional investor; if your goal is not to manage in such a way that you get a significantly better return than the world, then I believe in extreme diversification.
I believe that 98 or 99 percent —maybe more than 99 percent—of people who invest should extensively diversify and not trade.
That leads them to an index fund with very low costs.
All they’re going to do is own a part of America.
They’ve made a decision that owning a part of America is worthwhile.
I don’t quarrel with that at all. That is the way they should approach it."
Why not use the full quote, which is exactly what you said " Buffett said "Diversification is a protection against ignorance". Other than that,
Buffett recommended the SP500BTW, I held several funds in the past that beat the SP500. During 2000-2010, the SP500 lost money, I owned each of the following about 8-9
years SGIIX/SGENX,FAIRX,OAKBX, see (
https://schrts.co/Cwpbphqk). I also owned PIMIX which beat the SP500 for several
years too, see (
https://schrts.co/eFdkpeJf)
Debate Over 60/40 Allocation Continues … First, 60/40 is just an idea, an investor can be in 50/50 and all the way 100/0. It depends on someone's age and goals.
PRWCX is a unique go-anywhere fund. It's not your typical 60/40. PRWCX excels in risk-adjusted performance and can be measured by the Sharpe ratio. Most investors don't have the patience to hold funds for many
years. Another good idea is to use only 3-5 funds. The more you diversify, the chances are your portfolio will not beat the indexes and why Buffett said "Diversification is a protection against ignorance". Other than that, Buffett recommended the SP500, not even 5 funds.
BTW, PRWCX beat 60/40 (SPY/PIMIX) since volatility peaked up in 2018. It had better performance, Sharpe, Sortino + close SD. see results (
link).
Debate Over 60/40 Allocation Continues … It's easy to beat PRWCX on a raw return basis. VOO/VFIAX will do. The question is whether you can do it with an only moderately volatile investment.
VOO beats BRK.A over ten
years with less volatility. Thus a better Sharpe ratio (higher returns divided by lower volatility).
PRWCX beats both of them on risk adjusted return (as measured by Sharpe ratio or Sotrino ratio).
Comparison at Portfolio Visualizer
By Sharpe and Sortino,
QQQ is the winner.
I like to look things up. :)
TCAF, an ETF Cousin of Closed Price PRWCX @Roy,
If you are adding to your fixed income holdings and are concerned about inflation,
you may want to consider TIPS. The upcoming auction on Thursday, 06/22 seems attractive.
"The U.S. Treasury on Thursday will offer $19 billion in a reopening auction of CUSIP 91282CGW5, creating a 4-year, 10-month Treasury Inflation-Protected Security.""This TIPS had its originating auction on April 20, 2023, when investors got a real yield to maturity of 1.32%. Its coupon rate was set at 1.25%. CUSIP 91282CGW5 now trades on the secondary market and at the close Friday it had a real yield to maturity of 1.81% and a discounted price of $97.43 for $100 of value.""If the real yield holds above 1.8% through Thursday’s auction, it would be the highest auctioned real yield for a TIPS of this term since October 2008."Link
Debate Over 60/40 Allocation Continues … If only I had a dollar for every time someone proclaimed the death of the 60/40 portfolio!
LinkBoth stocks and high-quality bonds experienced double-digit losses in 2022 which is very rare.
Some historians claim 2022 was the worst-ever year for U.S. bonds.
LinkBond yields have increased significantly since the start of last year
and the Fed funds rate appears to be nearing its peak during this cycle.
In the coming
years, high-quality bonds will provide
"ballast" for equities
and generate greater returns than in the recent past.
Debate Over 60/40 Allocation Continues … It's easy to beat PRWCX on a raw return basis. VOO/VFIAX will do. The question is whether you can do it with an only moderately volatile investment.
VOO beats BRK.A over ten
years with less volatility. Thus a better Sharpe ratio (higher returns divided by lower volatility).
PRWCX beats both of them on risk adjusted return (as measured by Sharpe ratio or Sotrino ratio).
Comparison at Portfolio Visualizer
Debate Over 60/40 Allocation Continues … Someone on Big Bang! recently started a thread titled "How can we match or beat PRWCX?"
.
Looks like Berkshire has managed to beat it. I’m getting average annual returns for 10
years as follow: +11.53% for BRK.A / +11.43% for BRK.B / +10.79% for PRWCX. Double-check my numbers before buying. They’re from different sources and could be based on somewhat different time spans or criteria. Each has a unique set of risks of course. With the former you could move in and out pretty much at will (tax deferred accounts anyway), possibly skimming profits on the high end. With the latter you get much broader diversification but are limited to an extent by TRP’s prohibitions against frequent trading as well as any restrictions / fees your brokerage may impose in that regard.
TCAF, an ETF Cousin of Closed Price PRWCX I haven't opened a position in TCAF as of yet, though I had fully intended to. Doesn't mean I won't, but with us coming to within 5 years or less until retirement I find myself not wanting to add to risk assets and am considering adding to our fixed income holdings to bring our equity allocation down from its current ~57%---even though inflation is still an issue eating away at purchasing power.
Debate Over 60/40 Allocation Continues … My Roth IRA is mostly with T Rowe Price but I’ve gradually been moving from TRP to Fidelity funds. I’m ticked at TRP for not letting me invest in PRWCX even though I’ve invested with them for 30+ years.
A very long time ago (more than 30+
years), there was a Winston cigarette jingle: It's not how long you make it (30+
years), it's how you make it long (building assets in T. Rowe Price).
PRWCX is open to investors who have more than $250K invested with T. Rowe Price.
https://www.troweprice.com/personal-investing/about/client-benefits/index.html
Larry Summers and the Crisis of Economic Orthodoxy ”If the Federal Reserve follows Summers’s advice and keeps raising interest rates until the economy hits “five years of unemployment above 5 percent,” then millions of people will suffer for absolutely no reason other than as human sacrifices to a discredited economic theory.”
Yes. I’ve long felt that way (”Federal Reserve Wrecking Crew”). Somewhat surprisingly, the overly restrictive stance hasn’t yet thrown us into a deep recession. Summers? Uhh! / I have a lot of trouble stomaching both him and Er-Erian. Both sound like a wet rag (financially speaking) 90% the time.
I have a hunch that a part of the inflation issue is the bundle of savings amassed by the boomers over decades of economic growth and market outperformance. In a sense. inflation may “taking back” much of what has been given over those years. Would help explain why the economy stays hot despite the efforts of the Fed to cool it. As I said, just a hunch and haven’t found anyone who agrees with me on that point.
Larry Summers and the Crisis of Economic Orthodoxy Worth reading:
https://thenation.com/article/economy/summers-weber-economic-orthodoxy/
But inflation proved the perfect issue to enable Summers to regain the spotlight. Intellectually, Summers had been deeply formed by the monetarist revolution instigated by Milton Friedman in the 1970s—which held that a key way to hold down inflation was to raise interest rates in order to increase unemployment (and thereby keep wages in check). In early 2021, Summers began sounding the alarm that the stimulus spending Biden and the Democrats had used to keep the economy afloat during Covid was going to lead to a sharp rise in inflation. When inflation did in fact rise, Summers basked in the role of the prophet vindicated.
But Summers’s rehabilitation rested on an illusion. As Eric Levitz notes in a recent New York magazine article, all evidence suggests that while Summers was right to predict inflation, he was completely wrong about both the causes of that inflation and the best means to fight it. Speaking at the London School of Economics in June 2022, Summers said that “we need five years of unemployment above 5 percent to contain inflation—in other words, we need two years of 7.5 percent unemployment or five years of 6 percent unemployment or one year of 10 percent unemployment.” This is the standard Friedman prescription of a short, sharp shock of unemployment to defeat inflation—the same remedy followed by Paul Volcker in the late 1970s and early ’80s. Those policies, of course, led to the long-term defeat of American labor unions and the rise of Reaganite neoliberalism.
But that scenario was not repeated under Biden. As Levitz reports, Summers’s "call for austerity was premised on the notion that only a sharp increase in unemployment could prevent a ruinous wage-price spiral. In reality, both wage and price growth have been slowing for months, even as unemployment has remained near historic lows. Summers’s failure to anticipate this outcome should lead us to reconsider just how prescient his analysis of the post-Covid economy ever was."
The core problem, Levitz adds, is that from the beginning, [Summers’s] analysis was predicated on the idea that excessive stimulus would lead to unsustainably low unemployment and thus wage-driven inflation. There has never much reason to believe that the labor market was the primary driver of post-Covid price growth. And at this point, it’s abundantly clear that, in 2023 America, a tight labor market will not inevitably trigger a wage-price spiral.
If the Federal Reserve follows Summers’s advice and keeps raising interest rates until the economy hits “five years of unemployment above 5 percent,” then millions of people will suffer for absolutely no reason other than as human sacrifices to a discredited economic theory.
Far from vindicating Summers, inflation is yet another case where he got a big issue wrong. It joins a long list of such errors. As Binyamin Appelbaum documented in his fine book The Economists’ Hour (2015), while serving as deputy Treasury secretary in 1998, Summers took it upon himself to bully staffers who were pushing for the regulation of credit derivatives—the banking practice that led to the housing bubble and 2008 crash. Summers even called one staffer, Brooksley Born, the head of the Commodity Futures Trading Commission, into his office to scream, “I have 13 bankers in my office who tell me you’re going to cause the worst financial crisis since the end of World War II.” Ironically, it was Summers’s own failure to heed Born’s advice that caused that very crisis. In 2005, Summers derided critics of the deregulated credit default swap market as “slightly Luddites.”
Debate Over 60/40 Allocation Continues … FBALX is not far behind PRWCX and it’s open to new investors, has a low expense ratio, and has very consistent returns. I’m considering opening a position in TCAF, would prefer a fund rather than ETF for various reasons.
My Roth IRA is mostly with T Rowe Price but I’ve gradually been moving from TRP to Fidelity funds. I’m ticked at TRP for not letting me invest in PRWCX even though I’ve invested with them for 30+ years. Their other choices for balanced and allocation funds at TRP are mediocre at best. PRWCX’s returns are meaningless for other investors who can’t own it, and it’s returns are not matched by other TRP funds.