A.I.M. Users Bulletin Board

[ls7550]

[OT] Disco Dave thinks it's the 1970's over again.

Using data from PortfolioVisualizer and there's a element of resemblance between the 1970's and what we've seen since 2000





Both of those charts are after a 4% SWR i.e. 4% of the initial portfolio value drawn at the start as income, and where that income is uplifted by inflation as the amount drawn at the start of subsequent years (so a consistent/regular inflation adjusted income)

For all stock (red lines), after 4% SWR (out of total returns) and in both cases the portfolio value is down considerably in real (after inflation) terms. Gold in contrast has fared much better. 50/50 yearly rebalanced stock/gold has broadly seen portfolio value maintained in inflation adjusted terms after provision of the 4% SWR, whilst also tending to reduce the number of ounces of gold being held, to top up on the number of stock shares being held.

Over other periods it flips totally around, where stocks floated the portfolio (provided the SWR) along with sufficient surplus to top up on gold (reduced number of stock shares held to add more ounces of gold). Such as across the 1980's/1990's.

However 50/50 stock/gold during the 1980's/1990's saw gold being too much of a dead weight.



67/33 stock/gold along with a 4% SWR was much better.



Whilst 67/33 still worked OK during the 1970's



and since 2000



.. my take is that : 67/33 stock/gold is a better overall average choice compared to 50/50 stock/gold across combined periods of economic/monetary expansion and contraction. At least that was the case since the 1970's.

Unsurprisingly given that observation, that stocks tend to be the better asset in around two thirds of years, gold being best in around a third of years.

The above is all US based data. As a UK investor taking that back further with multiple caveats ... I'm seeing 2% SWR 50 year periods since 1896 having a minimum of 3.2% annualised real being apparent on top of that in the worst case. i.e. that ended 50 years with the same inflation adjusted amount as at the start, after 2% SWR withdrawals and a further 3.2% annualised real gain that might have also been top-sliced to supplement the 2% SWR income. Average case yielded a 7% income (2% SWR + 5% real CAGR), and where the final inflation adjusted value was the same as at the start date.

Caveats : UK based data (Pound, UK inflation etc.). Where holding a third each UK stock, US stock, Gold - but where 'Gold' was actually T-Bills up to 1931 (when the Pound was on a gold standard, convertible to gold at a fixed rate, then it was sensible to hold money that was deposited/lent in return for interest). Also, 1932 to 1971 held silver instead of gold, as the US still pegged the $ to gold, whilst silvers price was free-floating. Gold since 1972 in mind of it being free-floating since then. Yet another caveat is that during World War years (Great War and WW2) I assumed a investor, mindful of uncertainties of outcome, might have rotated entirely into physical silver holdings. One final caveat is that I assumed that in the worst case (and hence all cases) that instead of lumping all in at a single time point, a investor might instead have averaged in over two years, three timepoints, i.e. avoided having lumped all in at the worst possible time.





For US investors, I suspect just 67/33 US stock/gold would suffice given that the US$ is the primary reserve currency. This link reflects after 4% SWR and shows US data since 1972. 2020 chart data is obviously year to date (monthly granularity) ie to end of May (+0.87%)

Clive.