100% SPX - 60/40 - 80/20 - Portfolio Performance - GOLD

Below are three charts, the first depicts what i call the "Robinhood Investor" or the "Millennial Investor" which consists entirely of long equities, in this case the SPX . The second chart depicts a classic "60/40" allocation to stocks and bonds (in this case TLT , which i will come to in a moment). The final chart visualizes a portfolio of 80% equities and 20% physical gold .

100% SPX

60/ 40 SPX /TLT

80/20 SPX /GOLD

The first thing you will notice is "well, look at that the classic 60/ 40 portfolio, glad i listened to my financial adviser, yes it isn't as good as the 80/20 portfolio, but heck, 157% is pretty dang good!"

Well...yes and no...

As i said, the bond component of the 60/ 40 portfolio was TLT for simplicity.

BUT, not all bonds are created equal, and unless 40% of your portfolio consisted entirely of long-dated US treasuries, you did not get that return.

In fact, you may in fact be underwater in some of your bond holdings, depending on what variety they are.

Broad Bond performance

Above we have a variety of bond options, TLT (Long-dated US Treasuries) , HYG (high yield "junk" bonds), LQD (Investment grade bonds) and BND (global bond index fund).

It is true that TLT has done incredibly well of late up over 103%, but HYG is DOWN over 23% since 2008! BND is up around 16% and LQD is up 2nd only to TLT at 28%.

A 60/ 40 portfolio would most likely hold LQD , or something akin to it, a more aggressive portfolio may even hold HYG , and most would likely hold some kind of bond benchmark, such as BND . Therefore, the 60/ 40 portfolio performance is HEAVILY skewed in favor of bonds. Yet still fails to best Gold .

80/20 SPX /GOLD

The 80/20 portfolio achieved returns of over 173%, but more importantly, note the "Robinhood" performance, there are significant periods of draw-down, in fact, there are 13 YEARS during which the portfolio failed to do anything!

100% SPX

I don't know about you, but having you money do NOTHING for 13 years seems like poor financial management.

So what are the take aways of this exercise?

Firstly, blindly "buying and holding" equities over the long run is not a good idea (i am waiting for the FAANG fanboys to show up, what i have to say to that crowd is, if you think you can pick the next moonshot stock, please hit me up, i have some magic beans to sell you).

Secondly, the 60/ 40 portfolio does perform better than 100% equities, but you will sacrifice gains as a result, largely because bonds tend to do very little most of the time, therefore the 40% capital allocation to them, in my opinion, is better used elsewhere, i would even prefer to you that capital, or some of it, to hedge a long equity portfolio and go to cash rather than buy and hold during a downturn.

Finally, the best performer, the 80/20 SPX / Gold portfolio, this portfolio did experience more volatility than the 60/ 40 portfolio. But that should not scare anyone off, the period of draw-down from 2000 to 2005 was more to do with the time period i selected (post tech wreck) and the subsequent fall in the 80% of the portfolio that was long equities, NOT the 20% of Gold which had the portfolio consistently in the green from November 2005 to today.



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