Harry Browne was a man who lived mostly in the last century. He was an author, investment adviser, newspaper syndicator and Libertarian. He ran twice for president on the libertarian ticket in 1996 and 2000. He set up a portfolio for “all conditions” His portfolio consisted of 4 assets stocks bonds cash and gold in equal amounts.
If you Monte Carlo this you can withdraw 4% for 30 years with 97.55% success
If you have 3 bad years of SORR up front (the worst stress) you survive 94% of the time.
For reference a BH3 survives 3 yr bad SORR for 30 yr at 4% withdrawal 38% of the time.
So Harry Browne’s Portfolio is pretty damn safe. It does just what it says it will do. The Harry Browne does’t hit a home run, no 9M value at the 90% level, but it gives you reliable 4% come rain or shine. The HB looks like this on the EF plane.
It is not on the EF so lets adjust the AA and place it on the EF
Lets Monte Carlo that AA
With 3 years of bad SORR and 4% inflation adjusted withdrawal you survive 99.92% of the time and have half a mil left at 30 years in the worst case
5 YEARS BAD SORR:
This post is a radical demonstration of the power of diversity using the EF as a guide. If your goal is set it and forget it 4%/yr year in year out the EFPP is the ticket (efficient frontier permanent portfolio). The reason it works is a relatively high rate of return (7%) and a low SD (5%) . The BH3 (7%return 12% risk) fails 80% of the time at 5 yr bad SORR. The trick to the EFPP is don’t change anything. If the market is up one year do not be tempted to move some cash into stocks.
BTC badly distorts the EF
because of it’s out sized return and vol over the last 8 years but you can still do the calculation
This is my portfolio simplified around 58% VTI as the stock, 9% BND as the bond 7% EDV as the bond (total 16%), 16% as the cash in a high yield represented as BIL and 7% GLD. As you can see the portfolio sits on the EF. I can’t Monte Carlo this portfolio because the MC needs 10 years of data to run but I’m willing to give this a try. Disclaimer: I do not recommend this portfolio. If you do it don’t blame me. I think it’s constructed on sound Modern Portfolio Theory principles of maximal non correlated diversity. Do I expect 16% return? No. What I expect is smaller loss in a more robust portfolio, similar to the EFPP, if there is Armageddon. It amounts to that I’m substituting a source of high volatility and high return that is transparent and not open to market manipulation and completely non correlated to stocks for a portion of the vol and return normally allocated to stocks. The BTC bet is small only 3%. Notice the ratio of return to risk is like (not the same number but the same direction) as the risk and vol in the EFPP. with a greater than 1 Shape’s ratio. If you look at the BH3 risk is 12 return is 7. EFPP risk is 5 return is 7, less than 1 Sharpe’s In this portfolio risk is 10 return almost 17, so this portfolio and EFPP are “the same” Sharpe’s type vs BH3 which is different.
There has been a ton of analysis done on Harry Browne PP plus a lot of biased commentary. It’s worth studying but comparisons are often not logical but replete with bias discounting HB for whatever the author is hawking.