Bogleheads

[MediumTex]

[MediumTex]

[Kevin K]

With respect to MarcMyWord's question:

I've just instituted the PP and yield completely to CraigR, Medium Tex and the other vastly more knowledgeable posters here about the details, but I humbly disagree with using PRPFX because its allocation is NOT the Permanent Portfolio. Not only will the ER eat you alive in the long run but you'd have lost nearly as much money as a well-constructed conservative slice-and-dice equity:bond portfolio last year with PRPFX, while the real PP made money.

I'll quote Craig R on doing the whole thing with four ETFs:

If you wanted to make the Permanent Portfolio using just ETFs you could do:

25% Stock - iShares Russell 3000 (Ticker: IWV) or Vanguard (Ticker: VTI). You could also add in some broad based Intl. index such as EFA or VEU to the mix.

25% Long Term Treasury Bonds - iShares Long Term Treasury (Ticker: TLT). I haven't seen any other long-term funds that really are 20+ year treasuries other than this fund. The Vanguard LT Bond fund has too short of duration and is not suitable. You could also just purchase 25-30 year treasuries on the market or from the treasury directly to save on expenses.

25% Cash/Short-Term Treasury Bonds - A treasury money market fund or you could us iShares 1-3 Year Treasury (Ticker: SHY). Harry Browne advocated holding it in a MMF. I found that you could substitute the MMF for a short-term bond fund and not affect volatility but could boost CAGR by almost 1% a year over the past 35 years. FWIW.

25% Gold - iShares Gold Trust (Ticker: IAU)

Keep in mind that optimally, Harry Browne would have you in some type of physical control of the gold and not using an ETF. He considered it a special asset that should be nobody's promise to you. He advocated having physical control in a safe deposit box or segregated storage at a bank somewhere.

In my mind that is "as simple as possible but no simpler." Personally I have chosen a bit more complexity: gold allocation via a mixture of physical bullion at Bullionvault and the closed-end fund GTU, and a stock allocation that respects the (IMO) proven value of equal weights based on worldwide market capitalization and the value of small-cap and value tilts.
Even with these tweaks I consider it a simple portfolio to manage. I've used Vanguard funds and ETFs as much as possible. Doubtless it seems simple to me since I am a recent refugee from a DFA portfolio where the equities alone were diced into 11 funds.

Kevin

[WileECoyote]

I think the PP definitely falls under the category of what Keynes used to say about it being better to fail conventionally than to succeed unconventionally. I'll admit that I haven't fully committed to the PP because it is so at odds with my fundamental views of how complicated things are supposed to be to produce strong risk adjusted returns. My search for an "all weather" type portfolio over the last few years had led me to not commit to any one AA because I couldn't find something that was satisfactory.

A few interesting ones I found were the PP, Gerry Perritt's All Weather portfolio from the 80s I believe which has also produced strong results used 20% allocation to US Equity\Foreign Equity\Real Estate\Gov't Bonds\Gold. Sort of a 'when Harry met Swensen'.... Swensen like assets with gold added in per the HB portfolio.

I'm also looking at a pseudo Bridgwater portfolio tha is really unconventional:
~26% Equities
10% Emerging Market Debt
10% Commodities
27% Nominal Gov't Bonds
26% Global Inflation Linked Bonds

It's really odd but from what I can tell from my own research pretty effective.

Emerging Market Debt is really interesting, equity-ish returns, equity-ish volatility, but pretty low correclation to other assets.

[meckaneck]

Does anyone have a ytd return for HB's PP portfolio?

[zoot]

I see several references to using SHY for the cash portion of PP. Would BIL work? Or is the overall return a little better with SHY? What am I missing?

[SquawkIdent]

[Tramper Al]

[Lbill]

Thinking about a Japanese-style deflation (which I think we are tracking pretty well so far), nothing they have tried had any success in "re-inflating" assets over a 30-year period: interest rates near zero (failed), quantitative easing (failed), public spending (failed), numerous attempts to drive down the value of the yen (failed). One thing that I and others may have missed is that nothing does well in this environment. You cannot even assume that bonds will do well. Recessions are bullish for long dated government bonds but a collapse of the entire credit system is not. The big gains in bonds happens at the beginning of the deflationary slide and then they are "dead money."

If this scenario unfolds, it looks like it might unfold globally - no place to hide and no asset classes that do particularly well: stocks, long treasuries, gold, or cash. Some have said that commodities might still be OK because of demand in emerging market countries such as China. Contrary to common belief, rising commodity prices can in fact be deflationary so long as demand for such commodities is relatively inelastic, which is usually the case for basic necessities such as heating oil, gas, food, etc. So it is possible that commodity prices could go up even though there is general deflation. For that reason, I plan to continue to include a significant chunk of energy/commodity stocks in my stock allocation. But I wouldn't be surprised if the PP and everything else languish for years. Of course, if I could predict the future I would be fabulously rich and wouldn't need to be reading Bogleheads.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[matt]

LBill wrote:

[Lbill]

For the recond, these are the comments taken directly from the article. Should have placed them in quotes - sorry.

[meckaneck]

[Wonk]

[Rose21]

I'm not sure I grasp the concept of deflation in terms of its practical sequelae. For purposes of designing a portfolio capable of weathering such an event, would the strategy not be the same as in the case of inflation?

[MediumTex]

There are still cyclical equity bull markets in a deflationary setting, they just don't last.

The PP should perform fine as people wander from one asset to another looking for cover.

Stocks will rally from time to time. Capture the gains when you rebalance.

Gold will rally from time to time. Capture the gains when you rebalance.

Your LT bonds will still pay you a nice dividend.

Your cash will be worth more and will pay a small dividend as well.

The PP is permanent. That's the key. There is no economic setting where it doesn't work, so long as you have a functioning economy and basic protections of property rights.

We will probably travel a road similar to Japan, but the U.S. is FAR more likely to get into large scale military operations at some point in the next 10-20 years that will be inflationary, which will cause our experience to diverge from that of Japan.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[meckaneck]

All,
I have been trying to solicit third party opinions on HB's PP and have received the following responses from well known advisors and would appreciate your comments/feedback:

1) "I've looked at static ideas like the Harry Browne "Permanent Portfolio" and others. I'm not a fan of passive or static. A dynamic and active world requires dynamic and active action. Long only stocks and long only gold to total 50% is too risky. Nothing is permanent so I prefer skilled strategies that can adapt to changing economic situations."

2) "a few caveats
#1 you have to rebalance this every year - to create lower costs you'd probably want to rebalance every 366th day so you are only getting long term cap gain taxes instead of short term

#2 past is not future

#3 the returns are similar to "all stock", keep in mind we had the best 17 year period for 50-60 years there in 83-99. So the destination was not much different but its a lot LESS volatile. If this trend continues into the future you'd get "just about" the same return as stocks (and more than bonds) but with less years down. This is not quite so important for young people or those who dont sell at the bottom, but more important for those who apt to panic sell and/or want to sleep easier at night. It also doesnt have any huge years of drawdowns (big negatives) which is more important for someone in the latter 10-15-20 years of investing. Because if your investmnet goes down 28% at age 31 thats different than at age 58. You dont have time to recover in the latter.

#4 this is the big one, much of that time frame was dominated by lowering US bond yields - which means bond prices ROSE. Many called this the golden age of US bonds. Now we are as low as they can go on the short term (at the height of the panic in 2008 3 month yields went negative meaning people were paying the US govt to hold their money for 3 months!) and with the fiscal irresponsibility the long term trend will be that to fund the US debt people will require higher and higher YIELDs to compensate for the higher risk. That would be the complete opposite situation to whats been going on for 25+ years.

So you can see column 3, LT bonds has only been negative 4 times since 1981. That generated a lot of gains in the good year and stabilization in the bad years. Now compare that to how that column looks in the 1970s where LT bonds were negative half the time.

So if our theories that the future will be bearish for US bonds (honestly it cant be bullish because there is almost nowhere lower to go!) column 3 will be more of a hinderance. Column 2, short term bonds are more under the sway of the Federal Reserve but again - they are essentially at 0% right now. But when the Fed raises rates you will see performance akin to 2003-2005. But actually I have less of a beef with that column than I do with the long term bonds - that is the risky one.

All i am saying there is the next 30 years might look differnent then the last but its interesting methodology not to outperform but to have similar performance to "all stock" with a lot less volatility!"

[craigr]

Heather,

The PP is not trying to predict the future. LT bonds for instance get a lot of grief about the threat of rising rates. However we just don't know what is going to happen and the pp has assets that have been able to cope with bad markets for bonds. Eventually the bond bears will be right, but they've been just as wrong as stock pickers that I wouldn't pay them much mind.

As for active vs. passive. I think history has conclusively shown that when it comes to investing being active just doesn't work as well as passive. I know it's tempting to think that an advisor will be able to apply their knowledge to move from asset to asset but it really doesn't work out well in practice.

Finally with rebalancing I agree that it is imperative to do this with the pp. I personally use rebalancing bands. But if you really felt better about doing it each year, and could contain transaction costs, doing it yearly probably is fine as well to capture LT gains.

[MediumTex]

[Lbill]

I'm curious about the size of the PP portfolios that people are holding. If you have a total port value of $1M, you need to hold $250K in gold. Anybody sinking that kind of money into the barbarous relic? I believe in holding some - but a quarter mil???
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[Lbill]

Relating to the subdiscussions about the gold ETFs, there has been a filing with the SEC to offer a new gold ETF backed by physical gold, with the bullion held in Switzerland. Hope this hasn't already been mentioned. The ETFS Physical Swiss Gold shares will trade on NYSE ARCA under the symbol “SGOL”. Expense ratio has not yet been announced. For those who wish to diversify the location of their gold security holdings, you can soon split between U.S., Canada, and now Switzerland. I personally believe that larger value holdings should probably be diversified as much as possible, which might also include other vehicles that have been discussed as well.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[craigr]

[MediumTex]

If you trust the allocation method, it shouldn't matter the number of dollars involved.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[Lbill]

[Quasimodo]

[DP]

Hi,

[MediumTex]

[Lbill]

[freeman]

One aspect of investing in gold as part of a PP I don't remember being discussed is the following.

Could you tax loss harvest your losses should the spot price be reduced significantly by switching say from GLD to IAU or would GLD and IAU be considered "substantially identical" for reporting purposes? (Or is such concept moot for gold ETFs are considered a collectible?) Would GTU be considered "substantially identical" to either GLD or IAU as well (which I doubt though would appreciate your thoughts)? I would think you could always switch the gold portion to the cash portion and wait for 30 days (or is it 31, to avoid a "wash sale", again if such concept applies to gold ETFs?) before moving assets back to GLD if you aren't afraid of major changes in price within that period.

Also, I am wondering how to report gains or losses on either the ETFs or physical gold holdings (by you or in a system like GoldMoney). Is there a specific form to use? Am I right to assume sch. D can't be used for the ETFs since they're considered collectibles?

Freeman

[daniel]

The PP is interesting since it is designed in such a way that each slice behaves well (or neutral) in certain specific economic conditions (stock - prosperity, cash - recession (tight money), long bonds - deflation, and gold - inflation). The assumption is that the losses in the other slices are more than offset by the gains in the slice that does well in that economic situation -- which has been true for at least the last thirty years

Saurabhec made the following interesting remark in the thread on asset classes:

[craigr]

[MediumTex]

It's also useful to know WHICH interest rates you are talking about.

Rising corporates and falling treasuries suggest different conditions than rising corporate and rising treasuries.

Assuming that we are talking about rising treasury rates, I assume that would normally be good for gold, since the market is asking for a higher yield to compensate for potential future inflation.

It will be interesting to see how the TIPS market will interact with the rest of the treasury market when (and if) we do begin to actually see inflation.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[daniel]

Just to clarify, yes, rising treasury rates.

[craigr]

[Lbill]

This new article discusses the performance of stocks, treasury bonds, cash, and precious metals in deflation. A primary conclusion is that cash is likely to be king. No surprise: stocks and commodities are not the place to be in deflation. A somewhat unexpected conclusion is that long-dated treasury bonds are not a slam-dunk in deflation:

[MediumTex]

Lbill, I think most of those points are sound.

One item that is worth noting is that gold should be viewed more as cash than as a commodity when thinking about deflationary scenarios. I am surprised at the number of people (not you Lbill) that say things like "gold will crash along with the rest of the commodities in a deflationary spiral."

The thing that will kill gold will be a healthy stock market that is sucking up all of the available capital available for investment. In my view, the worst possible conditions for gold would be (as craig noted) about 3-5% inflation, rising corporate profits and rising stock values. Who would want to own gold in such an environment? That would be like wearing a life jacket on a dinner cruise.

To extend the nautical analogy, though, the PP allows you to approach a solo Atlantic crossing with the same relaxed cool that you might have on an afternoon fishing trip because you are already protected against every imaginable contingency that the sea might throw at you, whether or not such protection is actually needed in a particular situation.

The important thing about the PP, to me, is that it positions you well for disaster, but also positions you well for everything to work out fine, which it often does.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[Lbill]

It is well worth reading the article I linked to in the previous post. Interestingly, the author suggests that a "barbell" of 1-3 Yr treasuries and long-term treasuries might be a good choice to hedge deflation, just as you would be holding in the classic PP. I hadn't considered the possibility that Cash/STT Treasuries are a key deflation hedge, as I assumed that LTT would take care of that. HB might have pointed that out, as Craigr might know.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[Lbill]

Here's a pretty detailed article expressing several concerns with the GLD and SLV precious metals ETFs. Here are some of his points:

Conflict of interest: JP Morgan and HSBC, the custodians of SLV and GLD respectively, are consistently one of the largest holders of short trading positions against the metals.

Opaque and unverifiable prospectuses: it is literally impossible to discern whether the information contained in them is factual. There is a disclaimer stating that the SEC has not determined if the prospectuses are factual or complete.

Physical holdings are not segregated: This being the case, the gold and silver holdings are subject to multiple claims, such as delivery against the shorts held by the custodians.

Physical holdings are unverified: No clear statement about where the physical metal is held and no provision for the trustee to inspect and verify holdings.

How much gold is there really? From the prospectus "the physical commodity need only be substantially the economic equivalent [whatever that is] of the futures contract being exchanged.”

Trusts operate outside of regulatory oversight. Essentially stated in the prospectuses.

The author states that there will always be plenty of "paper gold and silver" ginned up to meet investor demand. But the real stuff remains in short supply. He speculates that might be the reason that investors recently found it difficult to find and purchase physical gold bullion, while there was no corresponding spike in the prices of GLD. One left to wonder if - when the unique benefits of PM ownership are needed most in a financial crisis - what will happen to GLD and SLV? I stated in a earlier post that I have substantial concerns that the historical data for gold represent a period of time when gold was a highly illiquid asset - it was difficult to buy, store, and sell and it was available primarily to investors with the knowledge, means, and capitalization to trade it. At most, Joe Sixpack only held a couple of gold coins under a loose floorboard in his home. David Swensen at Yale made a name for himself by allocating a large portion of Yale's endowment to illiquid assets, based on his belief that they would provide greater diversification and higher returns because of limited access by other investors (who didn't happen to have a few billion dollars lying around). When an illiquid asset is converted to a highly liquid asset via securitization is it really the same asset? This article rekindles all those concerns for me.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[Clive]

-- deleted --

[Wonk]

Clive, thanks for the charts. I see an interesting divergence starting around 1913.

[Lbill]

What is the "optimal" gold allocation, based on backtesting? I used Simba's spreadsheet to look at this in a limited way. I required that there be equal weight allocations to stocks, LTT, and STT and then varied the allocation to gold. There are two time periods studied: 1972-1984 and 1985-2008. I was interested in the Sharpe ratio, which is a measure of risk-adjusted performance: higher ratios mean you got higher returns relative to risk (measured in terms of volatility, or SD), which is a desirable goal. Here's a brief summary of what I found:

For 1972-2008:

Stock/LTT/STT/Gold.........Avg..........SD...........CAGR.......Sharpe
25%/25%/25%/25%..........9.92%......8.49%......9.62%.......0.48
28%/28%/28%/16%..........9.68%......7.33%......9.45%.......0.53

For 1985-2008:

Stock/LTT/STT/Gold.........Avg..........SD...........CAGR.......Sharpe
25%/25%/25%/25%..........8.36%......6.10%......8.19%.......0.61
32%/32%/32%/6%............9.41%......7.45%......9.16%.......0.64

For the full time period 1972-2008, the best risk-adjusted return was obtained with gold was weighted about 16%, when the other 3 assets were equally weighted (28% each). Compared to the 25 x 4 PP, this portfolio had a lower CAGR (9.45% vs. 9.62%) but had a higher Sharpe ratio (.53 vs .48 ). The maximum annual drawdown was -.1.8% in 1981 vs. -4.1% for the 4x25 in that same year. This timespan includes the years from 1972-1981 in which gold had very substantial gains, while stocks and bonds performed poorly.

For the time period of 1985-2008, the best risk-adjusted return was obtained when gold had a lower weighting of just 6%, with the other 3 assets equally weighted (32% each). Compared to the 25 x 4 PP, this portfolio had a higher CAGR (9.16% vs. 8.19%) and a higher Sharpe ratio (.64 vs. .61). The maximum drawdown was -2.6% in 1994 vs. -2.5% for the 4x25 in that same year. This timespan excludes the years from 1972-1981 when gold had high returns and stocks/bonds had low returns.

What are the takeaways? You have to look at the effect of including gold - in a portfolio of equally weighted stocks, LTT, and STT - on (a) average returns, and (b) risk (volatility). It is clear that including some allocation to gold moderated portfolio volatility whichever time period you look at. This is true because of the persistent low/negative correlations between gold and both stocks and bonds over just about any time period you look at. If you are concerned about volatility, including at least a small allocation to gold (5%) seems to be a slam-dunk conclusion.

However, gold's effects on returns per se was different. It helped returns over the full 1972-2008 time period, because this included 1972-1981 in which gold took off. It hurt returns in the 1985-2008 time period because it languished from 1985-2002. Over 1985-2008, the less gold you held the better your returns. Risk-adjusted returns were generally very high during this period compared to the historical norm; even so, just a touch of gold (6%) improved Sharpe a little.

Except for the period of 1972-1981 you got an "optimal" effect on risk-adjusted returns if your allocation to gold was less than the 25% recommended in the PP. If you think that 1972-2008 is a representative timeframe, you would probably want about 15% in gold, assuming that the other 3 assets are equally weighted.

If you think that 1972-1981 was "anomalous" for gold, and is not likely to be repeated, you would probably want to have only 5%-10% in gold. However, if you are concerned that 1972-1981 was not anomalous, and could happen again, you would want to hold the full 25 x 4 PP allocation. Using Simba's spreadsheet, I discovered that the 25 x 4 allocation actually was the "optimal" portfolio over that decade. Here are the data:

CAGR = 13.15%
SD = 11.78%
Sharpe = .66

By comparison, if you had 100% in gold during that period, here are the data:

CAGR = 25.7% (wow!)
SD = 51.1% (wow, wow!)
Sharpe = .56

You would have gotten rich if you could have held on for the wild ride! The 4 x 25 PP was wild enough for me.

That was indeed the "golden decade" for the 4 x 25 PP.

So, indeed if you want to have an "all-season" portfolio that holds up over all the extremes that were enountered during the 1972-2008 time period the 4 x 25 fits the bill. If you are willing to trade off having the best all-season portfolio against trying to squeeze out the best CAGR and risk-adjusted returns, then you might consider having 5% - 15% in gold. If 1972-1981 (or worse) happens again, you won't have as much insurance but maybe - for you - insuring against a Cat 3 hurricane instead of a Cat 4 or 5 is good enough.
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[Kevin K]

Thanks Lbill for all the backtesting!

To me there are at least two questions about the % allocation to gold going forward. One, as you say, is accounting for the one-time effect of gold becoming legal for private citizens to own starting in 1974. We've seen a more than 35x increase in the value of an ounce of gold since then.

The other thing I'm not clear on is how much of an effect the securitization (if that is the correct word) of gold through ETFs such at GLD and IAU is having or is likely to have on the market price. [I AM clear, however, that those funds are no way to own gold!].

Switching gears, I'm a bit surprised at the statements by some that the PP doesn't deserve to be one's only portfolio. Harry Browne did suggest only keeping money you can't afford to lose in the PP and putting anything extra into a variable portfolio, but personally after last year "extra" doesn't exist.

Amazing how much discussion a 4 asset portfolio can generate. Makes me want to just put everything in Wellesley and call it a day!

Kevin

[MediumTex]

I think it's just part of human nature to want to tinker, especially when the object of our attention is deeply counterintuitive.

There is that part of our brains that just looks at the PP and says "that's a pretty good idea, but I'm sure I could make it better by untangling its counterintuitive-ness."

Tinkering is normally an excellent way of disovering unknown efficiencies and improvements, unless you are starting with something that is already in an optimal state.

Whether the traditional 4x25% PP is an optimal allocation is something each individual has to decide for himself, but I think there is wisdom in knowing when to tinker and when to let something that works just keep working.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[Lbill]

[Lbill]

[Lbill]

Here's the data for 1985-2008:

____________Wellesley______4 X 25
CAGR....................9.77%.....................8.19%
SD........................9.90%.....................6.23%
Sharpe..................0.56.......................0.60
Max Drawdown....-9.7%.....................-2.5%
$10K value..........$93,639.................$66,168
_________________
"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587

[MediumTex]

Regarding VWELX, note that its allocation and investment style (large doses of corporate debt and financial stocks) did well during what is likely to be seen as a sort of golden age of finance and financial wizardry (1983-2007).

I'm a big fan of VWELX and I like its stability, income and track record. When I look under the hood, though, I see an undersized engine without much torque.

If, however, a person were going to do a Rip Van Winkle and needed some place to leave his money on his way to the woods, I think VWELX would probably be okay (as would PRPFX and OAKBX).

The key, to me, is that VERY few allocations are built to handle deflation. A fund with 65% bonds (most of which are non-treasury) and 35% stock (much of which is in the financial industry) might find some tough sledding in a long-term deflationary scenario such as Japan.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[Kevin K]

Thanks MediumTex for your thoughts (and for so many great posts in this thread - I'm truly grateful!).

I've had similar thoughts, especially because the stock allocation is entirely dividend oriented, and as we know dividends are pretty much a thing of the past unless you get into exotic sector stuff. The historic returns of Wellington do indeed seem to reflect a golden age that has passed.

I'm clear that the allocation to LT Treasuries is the deflation hedge, but the notion that gold is an inflation hedge seems to be mistaken. This excerpt from a very recent piece on Safehaven is part of a larger argument in favor of holding both silver and gold:

July 03, 2009

Summary of Inflation and Deflation the United States
by David Morgan


The following is an excerpt from the March issue of The Morgan Report. This followed a lengthy discussion of how silver and gold both performed during inflationary and deflationary periods. Most of what I wrote was based upon the work of Roy Jastram and his work on Silver the Restless Metal and the Golden Constant.

Excerpt starts here...

Since 1800, the U.S. has had more years of inflation than deflation, 92 versus 53. The record for the two precious metals is remarkably similar. Both lost purchasing power in every inflation in the United States until the last period mentioned, 1951 to 1979, where silver out-performed gold. What adds interest to this similarity is that silver was effectively demonetized in 1834, whereas the gold standard prevailed a century longer. It is true that the U.S. Congress was fiddling with the silver market from 1807 through 1920, but the effect was to put a floor under the silver price, with the gold price being strictly set. And from 1933 until 1975, U.S. citizens could not buy gold.

However, precious metals have a long-standing reputation as hedges against inflation. Jastram writes, "This is not valid based on evidence of a century and a half in the United States and more than three centuries in England. The truth is, in most cases, the two metals, yes, both silver and gold, gained operational wealth in deflations." From a long-term perspective, gold has held its purchasing power very well in the United States.

The long-term view of silver is different. Silver did fairly well, relative to gold, until 1890. After that, the purchasing power has been erratic. At times, silver's performed poorly, compared to gold, until the last period mentioned in Jastram's book, where the silver outperformed the gold by a very wide margin. However, we must be cautious here because so much of the upward move in both gold and silver took place in such a small timeframe.

I guess one could go with CEF but that, again, is tweaking the PP.

[Clive]

[Roy]

[Kevin K]

Thanks for this Roy. I'm sorry I even brought up Wellesley but at least it gave you a great opportunity to remind us of just how easy it is to choose a simple index fund portfolio that will do the same job without style drift or manager interference.

Thanks!