Today I want to discuss what I consider to be the best alternative to the IVY timing portfolio. For those of you new to the blog, I think that most investors default portfolio should be the IVY timing portfolio. For background see here. It gives investors good returns and great risk management automatically. But there are many broadly diversified alternatives to the IVY portfolio that have been proposed. In my book the best alternative to IVY is the Permanent Portfolio. Lets take a look at the Permanent Portfolio and how it compares to the IVY portfolio.
The goal of all broadly diversified portfolios is to provide good returns in any market condition while limiting risk. And many such portfolios have been proposed and are followed by investors. Just a few besides the IVY and Permanent Portfolio are; Coffeehouse Portfolio, Coward’s Portfolio, David Swensen’s Lazy Portfolio, El-Arian Portfolio, and the Arnot Portfolio. You can learn more about these and others here. Based on my research I consider the Permanent Portfolio to be the best alternative to the IVY portfolio because of its similar simplicity and historical results. The Permanent Portfolio was first introduced in 1981 by Harry Browne (yes, the former libertarian political candidate) and was further refined and simplified in 1987. The best place to find out all the details of the Permanent Portfolio is here. This is a great site on all things Permanent Portfolio. The Portfolio consists of investments in 4 asset classes; US stocks (SPY), Long Term US Treasury Bonds (TLT), Gold (GLD), and Cash (SHY). Now, for the magic question – how well has the Permanent Portfolio done compared to the usual suspects? The table below shows the results starting from 1973.
Pretty impressive results for the Permanent Portfolio. Compared to the IVY buy and hold portfolio it has slightly less returns but a good deal less risk and a worst year performance of -4.1%. Having cash and long term bonds making up 50% of the portfolio does a lot for reducing risk. From this data, a very risk averse buy and hold investor is better off in the Permanent Portfolio than the IVY portfolio. But you can see that the timing version of the IVY portfolio still has the best results. So how about a timing version of the Permanent Portfolio you ask? Of course, great idea. Unfortunately I do not have access to the data sets to run these numbers through 2011. The best data I’ve found is from the creator of the IVY portfolio, Mebane Faber. In October 2010 he published two graphs that tell the story. This one…
And this one……
Put simply, timing the Permanent Portfolio provides better returns than the standard buy and hold Permanent Portfolio. Also, the IVY timing portfolio outperforms the Permanent Timing Portfolio. The IVY timing portfolio is the better choice. Of course, this is no guarantee of future performance but it’s a good guide.
In summary, there are many broadly diversified portfolios that are alternatives to the IVY portfolio. Probably the best one of the lot is the Permanent Portfolio. For buy and hold investors who haven’t bought into timing portfolios to increase returns and lower risk then it is a great alternative to a buy and hold IVY. However, for investors who are willing to put in the little effort it takes to run a timing portfolio then the IVY timing model is the best choice.
12 Comments
Jim · October 8, 2012 at 8:17 pm
What is the best way to invest in the IVY portfolio. Let’s sat you had 100k to invest. Would you plunk it all down at once or slowly invest over several months?
libertatemamo · October 9, 2012 at 9:44 am
Jim, the best way is to wait for the buy signals to enter each of the ETFs. Of course, the hard part of that is that the portfolio is currently fully invested. See my Sept update here. So, ideally you need to wait til there are sell signals and then new buy signals. This requires patience but it is the best and safest way and the only way that adheres to the model.
Paul
Andrew · January 19, 2015 at 12:59 pm
As a follow-up – would the best way to start the GTAA6 aggressive be to split the total (say 120k) into 6 parts (20k each) and only allocate one block at a time as a asset class enters the top-6 buy list for a new month?
paul.novell@gmail.com · January 20, 2015 at 8:19 am
In his paper, Faber recommends just jumping right in and investing in the top 6 at the end of a given month. In my experience, I agree with this approach.
Paul
Jim · October 9, 2012 at 6:57 pm
OK, makes sense! Thanks!
paul · October 14, 2012 at 12:25 pm
Great info. Glad your posting regularly again. I got aggressive this year and got my wings clipped a few times. I think the Ivy Timing model and the discipline it creates may be worth implementing for me.
libertatemamo · October 14, 2012 at 3:07 pm
The built in risk management and its automatic nature are two of its biggest strengths.
Paul
raindance · November 22, 2012 at 6:57 am
Isn’t the GTAA based on the Ivy timing method? Comparing the GTAA to PRPFX (Permanent Portfolio) on Yahoo Finance, it does not look like GTAA did all that well over 2-3 years.
libertatemamo · December 5, 2012 at 8:39 am
Hey Raindance. Sorry for the late reply. You ended up in Spam for some reason. Yes, GTAA is loosely based on the IVY timing method and you are right that it has done poorly since inception in late 2010. It’s been killed by very high fees and not so great returns. I recommend investors stay away from GTAA until it has at least a 5 year track record and the fees come down. Implementing IVY on your own is super easy and cheap with readily available ETFs.
Paul
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