[Eva]

Any tips/tricks/tools on how to best evaluate personalized portfolios? I’ve been toggling with existing “best practice” portolios whether Paul Merriman, what EF spits out, or ones covered on RPR.

I get the concept of Efficient Frontier (thanks to Joe Saul-Sehy for breaking down in a simple way last year but most recently on Afford Anything this week). I also get the general logic behind Risk Parity portfolios and have listened to 30+ episodes of Franks podcast.

However, where I do no feel confident is properly evaluating a portfolio I come up with based on bits on info.

It seems like everyone who explains the baseline tools assumes you have a certain level of financial literacy which takes years of digesting to acquire.

Additionally, I also don’t know what level of risk makes sense for our family given we hit FI last year but plan to work a bit longer.

It seams like a risk parity model would make sense and then any savings beyond our FI number can take a more aggressive risk level along the EF?

It’s been 2 months of me diving into these things, but since the onus is on me to analyze I struggle with confidence in knowing what I should move forward with so behaviorally it leads to inaction while I try to educate myself.

Thanks in advance for your thoughts, time, and suggestions!

[Frank]

First, you should define goals. A good portfolio for accumulating is no the same as for decumulation or for just have the shortest or shallowest downturns.

It is best to use multiple calculators with differing time frames. In this way you avoid overfitting.

But key questions are always “how does this perform in decades like the 1970s or early 2000s and can I live with that?”

Virtually ANY portfolio is ok in good times and more risky ones generally have higher yields then.

But if you optimize for that you are usually optimizing for greed.

[Bill]

Looks like you’re heading in the right direction. I’m an Uncle Frank Vasquez “Risk Parity Radio”, Paul Merriman, and Wade Pfau fan along with others.

I try to balance my capacity for risk of downturn & sequence of returns with desire to maximize safe withdrawal rate.

Found that I’ll never know what would have been the absolute optimal strategy until my last day on earth.

“Don’t let perfect be the enemy of good.” As tools and knowledge improve, I’ll adjust fire as necessary. Always be learning.

Semper Gumby!

[Peter]

Have you plugged this portfolio into the Drawdown chart? That will give you a sense of the worst historical depth and breadth you may experience.

There’s nothing wrong with this portfolio. There’s nothing wrong with an all stock portfolio if you’re still accumulating and years away from retirement.

What are you comfortable with in a recession or lost decade scenario for an all equity portfolio?

How comfortable are you with underperforming the S&P 500 or Nasdaq benchmarks if they decide to keep going gangbusters for the next 5 years and you’re stuck with a diversified portfolio?

This is the art part of the game. No one else can tell you what is right for you but you.

[Matt]

On sites like Portfolio Charts, you can discover the best portfolios **based on the historical time period of the data set.**
As always, past performance does not guarantee future results.

Other ways of gauging portfolios using simulations are only as good as the model the simulations are built upon.

Any portfolio, of any construction, will have periods when it underperforms an alternative.

(Believe it or not, the total US stock market will not be the darling of the investing world forever.)

Therefore, whatever portfolio you choose needs to be something you can invest in with conviction and stick with through extended periods of underperformance.

Changing portfolios on whims trying to chase performance will kill your long-term returns.

The ideal portfolio is the one you don’t abandon during hard times.

[Jeremy]

There is a point at which having someone manage your money is appropriate. When you get enough wealth that you want something more sophisticated, but don’t have the knowledge, time, or desire to execute it yourself, this could be an indicator that it’s time to hire a professional.

I’m an MBA, and I could do these things myself, but I don’t enjoy it enough to do it myself.

‘m also a Chemical Engineer, and I could change my own oil, but I don’t enjoy crawling under a car anymore, so I pay someone else to do it.

[Joel]

This is an area I struggle with as well. I am always looking to balance how much to rely on Backtesting vs. other approaches.
– Back testing is very, very sensitive to the starting date selection.

– It also ignores the huge differences in the financial markets from back then to now.

For instance understanding the impact of moving off the gold standard is essential to understanding Golds behavior in backtesting.

Similar stories with Small Cap Value, Dividend focused investing etc.
In our case, we shifted our thinking from finding the BEST portfolio to finding a portfolio that was GOOD-ENOUGH.

Key criteria:
– Is it likely to support our Plan, Goals, and Priorities

– Can I hold this through Good Times and Bad

– Can I explain it to my Wife and Daughter so they understand the reasoning

– How expensive (e.g. Fees) are the assets to own

Looking forward to reading others approaches.

[Trisha]

Can I ask what specific funds you’ve narrowed it down to? I have similar issues to what you’ve described with analysis, paralysis, and feeling literate until I’m not anymore.

I spent hours and hours last year, deciding which fund to use for each asset allocation, and often I found that the favorites shared by Merriman did not back test as well as others.

[Richard]

This is a good RP portfolio, but you may consider less LTT. I know Frank likes it and it backtests well, but that asset class has had very large tailwinds for the last 30+ years (except for the last two) that may not continue.

Moving more toward intermediate term might be prudent, but it likely won’t backtest quite as well.

[Author]

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