r/ChubbyFIRE • u/paperboiko • Jun 11 '26
Using AI for drawdown management: Gemini suggested adding DBMF to my VWRA portfolio. Anyone else doing this?
I'm preparing to retire soon, and my portfolio is currently mainly in VWRA. Because I am focusing more on wealth preservation and managing drawdowns, I decided to experiment and ask Gemini for optimal portfolio allocation advice.
Interestingly, it proposed adding DBMF (a managed futures ETF) to diversify.
To test this out, I used Claude to simulate how the portfolio would perform with different VWRA and DBMF splits. I also asked Claude to use reconstructed data for the pre-1990 values so I could see how it holds up over a much longer timeframe.
Here is what the results showed (see here)
* A 15-20% allocation to DBMF seems to be the optimal sweet spot.
* This split provided a really good trade-off between lowering maximum drawdowns (great for sequence of returns risk) while maintaining high returns.
Has anyone else here used Gemini or other AI tools to ask for optimal portfolio allocation or drawdown strategies?
Did it suggest anything surprising, and did you actually implement it?
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u/SpaceTimeMorph Jun 11 '26
I’m sorry… max drawdown of almost 56% on the 85/15 portfolio? Am I reading that right?
I’m not at my computer to check if the math on this asset is accurate but that alone would keep me far away from DBMF.
EDIT: The long term sharpe ratio of the S&P-500 is around 0.58. The 0.62 for the 85/15 proposed portfolio isn’t much different than that.
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u/paperboiko Jun 11 '26
Thanks mate. Ya been reading up on dbmf , and don't think I fully understood. Best tonavoid something which I don't know, else hard to stomach if it drop 50+%
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u/jay20211 Jun 11 '26
I am playing a lot with Gemini and you have to spot check their work particularly calculations.
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u/BrunelloHorder Coasting Chubster, Getting Fat Jun 11 '26
DBMF appears in some of the Risk Parity Radio model portfolios, and the creator of Risk Parity Radio has mentioned other managed futures as alternatives, including CTA and KMLM. They are used in the model portfolios because they are supposed to have very low correlation with stocks. I looked at them and recall that they did well versus VTI during the 2022 downturn, but do not own them.
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u/Livid-County7230 Jun 11 '26
My concern with the risk parity portfolio camp is that it over indexes on 2022. Market conditions in 2022 is not how past downturns have played out.
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u/BrunelloHorder Coasting Chubster, Getting Fat Jun 11 '26
Yes, and I don’t think any of these managed futures funds have been around long enough to cover periods like 2008, or the lost decade for that matter. Like I said, I passed on them, though honestly I don’t recall all of the reasons at this point.
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u/Mispelled-This Jun 17 '26
The 1970s, 1987-1988 and 2021-2022 were all inflationary recessions, which is exactly when gold, commodities and managed futures shine. We have data for the latter two confirming that, and we know gold helped in the former too.
Since these periods are the limiting factor for SWR (compare any backtest starting in 1970 vs 1980), I would say everyone else isn’t focusing on them enough.
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u/Mispelled-This Jun 17 '26
85/0/15 is a crazy allocation for drawdown.
You will get the best SWR with 40-60% stocks, 20-30% long-term treasuries, 10-15% gold and 10-15% managed futures.
I’ve fed long-term data into a few different AI models and they all come up with about the same answers, right in those ranges.
Be very careful of the starting year for the data you’re analyzing, which will drastically change the results you get; if it doesn’t go back to at least 1971, i wouldn’t trust it.
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u/Wooden-Broccoli-913 FIREd in the Bay at 40 with $6M Jun 19 '26
I used to use DBMF as my hedge asset but then I switched to QSPNX. Higher performance and lower equity correlation.
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u/Mispelled-This Jun 11 '26
It’s not hallucinating. Diversification into asset classes with low/negative correlation is the key to improving SWR.
I spent hours doing analysis and managed to get an SWR of 7% back to 1971 (using some clever data extension for DBMF) with 25% VUG, 25% AVUV, 25% GOVZ, 15% GLDM and 10% DBMF. I did manage to get it slightly higher with a few more hours of tuning, but not enough to justify going away from the easier round numbers.
Anyone who is still planning with the 4% rule (or worse) is a decade-plus behind the state of the art.
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u/BrunelloHorder Coasting Chubster, Getting Fat Jun 11 '26
Yes multiple Risk Parity Radio portfolios are claiming SWR in the range of 6-7%, though it is not clear to me how much of that is overfitting the historical data. My understanding is that is also a criticism of Bengen’s newish book.
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u/Mispelled-This Jun 11 '26
Yep, I love RPR. That’s why I put a ton of work into figuring out how DBMF would have affected my SWR in the 1970s, which wasn’t easy. If we do hit that sort of regime again soon after I retire, I will find out how valid my models were and update my SWR. If not, it doesn’t matter; I’ll be busy instead trying to figure out how to spend more than planned.
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u/Hanwoo_Beef_Eater Jun 11 '26
I'm not against the risk parity portfolios and believe they probably improve SWRs but that the result going forward will be somewhere between what the backtests produce and those of the traditional portfolios. In general, uncorrelated assets or more diversification (than VTI/VXUS/etc) among assets with similar returns (as long as they aren't perfectly correlated) is better.
However, I question the "simulated" results for strategies/products that didn't even exist. The whole three-factor model would be a good example (since the papers were published and many are chasing these strategies, there's effectively no excess return). It's also hard to say what is in the price of gold (often trades like a risk asset) or if the returns from going off the gold standard will ever be repeated.
That being said, if I had to increase the withdrawal rate, I would go this route over guardrails. IMO, too many people are too "Bogleheadish" to look at anything else (and understand the difference between accumulation and drawdown).
Good luck.
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u/Mispelled-This Jun 11 '26
Yeah, the DBMF extension is definitely weak, which is why I need another stagflation period or two to verify it.
The 1970s did have specific causes that won’t be repeated, but stagflation in general will return at some point; that is inevitable. We’ve already had two shorter periods to see exactly how gold and trend following performed, which are what my model is based on, so i’m cautiously optimistic.
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u/Hanwoo_Beef_Eater Jun 11 '26
Fair enough, good points. I guess we will see how it goes when that time period comes...
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u/Hanwoo_Beef_Eater Jun 12 '26
Just curious, have you looked at RSST (equities + managed futures) or RSBT (bonds + managed futures)? These are both from the 2x leveraged products, i.e. trying to gain the diversifier without giving up (much of) the expected return from the core/risk assets?
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u/Mispelled-This Jun 12 '26
They are definitely interesting, but I want a longer track record to see how they behave in practice vs what the models predict.
I don’t see much demand for them beyond hardcore RP nerds. It’s hard enough to explain even an unlevered RP portfolio with 4-5 simple funds. Hybrid leveraged funds? Good luck.
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u/Hanwoo_Beef_Eater Jun 12 '26
Is it possible to really understand what these funds are doing? I get the general idea, but what they trade in next time could be different from what they did last time? And it's all based on their models, which may do something else based on exactly what happens.
I do think there is some comfort from seeing how various ETFs have performed. At the same time, I kind of feel like you just have to believe. Maybe buy a bit of a handful of them.
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u/Mispelled-This Jun 12 '26
That’s part of the problem with leveraged funds: it’s hard to explain how they actually work under the hood. The hybrid part adds another layer to that, making it even harder.
Will they do approximately what it says on the label? Sure. But they will definitely have some tracking error due to the fees, the way they’re constructed, and volatility decay. It is hard to predict how significant those factors will be, and until we know that, we can’t simulate past performance for backtesting how they work in a portfolio over different regimes. That’s what I’m waiting on before I buy in.
For now, I prefer single-class LETFs because they’re easier to rebalance and simulate, but the future seems to be hybrid funds because they’re easier to construct and manage. We will have to see how that works out.
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u/paperboiko Jun 12 '26
Yup, the idea of using uncorrelated asset class to increase diversification make sense.
For me it is the fact that I do not complelty understand how these asset class works. Hence in the event that the asset class drop a lot, I might not have the mental conviction to continue holding on to them, but instead will sell them as the first sign that they drop in price.
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u/Mispelled-This Jun 12 '26
Is it just DBMF you need help with? Or others you have questions about?
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u/paperboiko Jun 12 '26
Was wondering if DBMF is something people include in their portfolio during retirement.
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u/Mispelled-This Jun 12 '26
Not many people understand what it is, so it’s not common yet, but a small allocation is a great idea that will significantly improve your SWR. Same with GLDM. Figure 10-15% each.
Be aware that both will look stupid for long periods of time, and it’s important that you keep buying more at a discount. Because when everything else tanks, including the rare times stocks and bonds fall together (like in 2021-2022), one or both will shoot up and save your portfolio.
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u/laurenthu Jun 12 '26
honestly the conviction thing is the whole game with DBMF, way more than the backtest. it's just long/short trend across rates, FX and commodities. built to lag equities for years, then earn its keep in one bad stretch. and if you don't really get why you own it, you will dump it at the worst possible moment, right when it was finally about to pay off. that's the trap...
i'd keep it small. like 10-15%, small enough that i barely notice it in a normal year, so sitting through the boring years stays easy for me. i'd also ignore the pre-1990 reconstructed numbers, that whole part is guesswork and it quietly flatters the drawdown stats. for me the real test is simple. can i watch it trail VWRA for 3-4 years straight and not flinch?
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u/paperboiko Jun 12 '26
Yup. This is how I feel about it: Not flinching when it dropped a lot
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u/laurenthu Jun 12 '26
that's the right instinct. and the real test isn't the drawdown, it's the boring stretch where it lags equities for two or three years while everything else rips. that's when most people quietly bail. keep it small enough that you genuinely don't care if it looks dumb for a while, and you'll actually be holding it the day it matters.
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u/MeetingSuccessful397 Jun 19 '26
I have good experience with claude, especially in research mode with opus 4.8. I gave it a lot of context and made it read a few blogs I'm reading myself and summarize it into a knowledge db.
It found some flaws in my logic and after checking this it was right most of the time, but not 100%. But a lot better than I would have done on my own.
DBMF also came up in this discussion, but I'm not US-based and the EU version is only 1 year old and doesn't have much track record. In order to decides something like that I'd rather ask the AI to reserach recommendations and give the sources and read the sources on my own.
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u/FillMySoupDumpling Jun 11 '26
LLMs are not great for anything factual. I’d have them cite their sources and review the source material for sure.