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Hacked ERN sheet with Custom series for 10 MMA variable asset allocation (a.k.a. market timing) and Simple Bonds-Gold mashup


andyg42
Posts: 27
Topic starter
(@andyg42)
Eminent Member
Joined: 5 months ago

Re: response to ERN’s Timing Leverage in Retirement – SWR Series Part 52.

 

The attached sheet has two custom series.

 

The first is a simple mashup of Bonds and Gold, using Bonds before August 1971, gold thereafter. The cutover date is when Nixon took the dollar off the gold standard and the price of gold became truly variable. [Of course gold was illegal to directly own from 1933 through 1974, but I decided it was more sensible to use gold from Aug 1971 through December 1974 for this mashup purpose; others are free to modify the series to only use gold from 1975 on, when gold ownership restrictions for U.S. citizens were removed.]

Use this series in the percentages the exact way you would use bonds and/or gold.

 

The second is a variable asset allocation based on the Meb Faber 10 month moving average (10 MMA) for stocks.  It keeps 100% of the portfolio in stocks except when the current stocks value is below the 10 MMA. For what to put your portfolio in when there is a sell signal, I have a flag where you either use the Bonds-Gold mashup described above, or else use purely gold. Note that the 10 MMA works notably better with the simple B-G mashup than purely with gold (or purely with bonds)

It only really makes sense to uses this series set at 100% allocation

 

So using a 25% Final Value (FV) throughout, with this hacked sheet I note: 

  • As ERN notes, with a 75/25 stocks/bonds, portfolio, you get a SWR of 3.58% (the low being Nov 1965)

 

  • Using a 60-27-13 Stocks-Bonds-Gold portfolio, you get a post-1925 SWR of 4.04% (the low being Mar 1937)
  • Using a 65-0-35  Stocks-Bonds-Gold portfolio, you get a post-1925 SWR of 3.90% (the low being Mar 1937) and a 4.92% post-1949 SWR
  • Using 65-35  Stocks and Bonds+Gold-mashup portfolio, you get a post-1925 SWR of 3.93% (the low being Sept 1929) and a 4.94% post-1949 SWR
  • Using the 10 MMA with Gold as the ballast, you get a                                           SWR of 3.69% (the low being Mar 1937)

But…

  • Using the 10 MMA with Bonds+Gold-mashup as the ballast, you get a SWR of 4.09% (the low being Mar 1937)

 

 

Of course, all of these are better than the results from using leverage on the 75/25 stocks/bonds portfolio.

 

[Note that with a more tuned variable asset allocation than the simple 10 MMA, even higher SWRs are possible, but that’s beyond the scope of this post]

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3 Replies
andyg42
Posts: 27
Topic starter
(@andyg42)
Eminent Member
Joined: 5 months ago
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andyg42
Posts: 27
Topic starter
(@andyg42)
Eminent Member
Joined: 5 months ago

Since someone asked about it, attached is a slight modification to the hacked sheet which allows the use of bonds as the ballast for stocks for the 10 MMA.

  • Using the 10 MMA with Bonds as the ballast, you get a SWR of 3.88% (the low being December, 1968 - November 1965 is slightly better)
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andyg42
Posts: 27
Topic starter
(@andyg42)
Eminent Member
Joined: 5 months ago

Small fix to the above sheet to:

a) remove a bug where fees were double counted with the MMA calculation. This improves all SWRs by about 0.02%

b) label the flag allowing bonds as the ballast for MMA more clearly

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