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ltangel,

Just to give you a flavor, (and you to Gordon) here is a sample of what 20% Precious metals would have done to a 30 year retirement portfolio. Picking two very different years. a recent one - 1980 which was a good year for the retiree, and 1967 which was one of the poorest (and sadly as a 30 yr would have ended in 1996 it was not in the trinity study for 30 yr performance but may make some folks rethink 3% means 100% survival for all 75/25!!)

The portfolio on the left is the typical Equity/Fixed Income portfolio and its associated withdrawal rate that adjusted for inflation would last ~30 years. The portfolio on the right is if you allocate 20% to precious metals and then split the remaining in the same EQ/FI as the left side portfolio. In the middle you can compare the withdrawl rates for the two portfolios!


EQ FI PM WR 1967 WR EQ FI PM
100% 2.3 3.0 80% 20%
75% 25% 2.7 3.5 60% 20% 20%
50% 50% 3.2 3.9 40% 40% 20%


EQ FI PM WR 1980 WR EQ FI PM
100% 6.9 6.1 80% 20%
75% 25% 6.8 6.0 60% 20% 20%
50% 50% 6.6 5.8 40% 40% 20%


So - for the extremes of withdrawal rates, adding the precious metals does two things. One is reduce the volatility (not shown here but it does) and most importantly it smoothes out and flattens* the SWR curve where the higher withdrawal rates are brought down and -- the lower end are brought up

*(makes the SWR less steep when x-axis is no PM and y-axis is with PM)

Is 20% the optimal number???? - again MPT or flying monkey butts, depends on where you like to pull your numbers from..

CAVEAT - not advice just saying!
IMHO 20% is probably a good number for commodities if just looking at the three asset classes but should include others not just precious metals. This is on the high side for PM in my allocation. I include base metals as mentioned at around 10-15% in total metal. I am also on the low side now cause I am starting to feel Au-bubbleitis!! It is also reduced in general from the 20% in part because I have other commodities and an allocation for Real Estate (20%), Hedge funds(10%), and Vodka (1%)! Had to leave some room for S&P

Very simple way to get your dose of metals is to find the equities you like associated with miners etc. So, out of the 75% or whatever in the S&P just make sure 20% is tied to metal. Individual stocks, ETFs or Mutual Funds... I believe that these instruments would have higher correlation with the market in general than directly owning the metal so you would loss some of the diversification, so maybe bump up the percentage which is why I think 20 is good, but with the ETF you dont have storage costs!!!

d(PM)/dT

PM = Precious metal: 40% AU,20% AG/PT/PD, prices from KITCO, USGS and NMA
FI = Bonds: UST 10yr and 1 yr CD rates from Shiller, Bloomberg, Ibbotson
EQ = S&P500: Shiller.
Vodka from Idaho!!
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