Bogleheads

[MediumTex]

Put a little GLD or IAU in your IRA for rebalancing purposes and there is not necessarily a need to deal with the collectibles tax.

PRPFX can also be worked into the PP mix to take advantage of its tax efficiency (though it's strictly optional).

A little real-world practice will usually point you to the best mix of PP assets between taxable and non-taxable accounts.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[MediumTex]

For the Harry Browne fans, you may have seen the "Freedom Speeches, Volume 1" on his website.

It's an audio download of seven HB recorded speeches, totaling about five hours. It's $19.99.

I just purchased it and I am enjoying listening to his speeches very much. I recommend it to any HB fan.

There isn't much about the PP directly, but for those who are familiar with HB you know that the PP was the investment portion of a more or less complete worldview, and any discussion of that worldview is, to me, helpful in providing a more nuanced understanding of the thinking behind the PP.

I continue to find HB's thinking to be remarkably original, independent and sound. The fact that he also seems to have been a kind and warm person is just an added attraction for me.

If you have preconceptions about HB as a gold bug, anti-government sour-puss, you will be pleasantly surprised at his wit, charm and ability to connect with people in a simple and direct way.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[MarcDeMesel]

[MediumTex]

[Harvey Manfredjinsinjen]

This has to be the longest and most impressive side topic I've ever seen on a forum.

I've only been using the Permanent Portfolio for a few months, but I've known about it for years. I read Fail-Safe Investing when it came out, and I'm embarrassed to say that I did nothing with it until I stumbled across Craig R's blog a few months ago and started listening to HB's radio show archives and then reading this forum. I certainly knew who Harry Browne was (I was one of his delegates in 2000), but after reading the book, I just sort of...um...forgot about it.

But never mind that, I'm here now, and I've restructured my investments along PP lines. Here's what I've done, for anyone who might find the example interesting or useful.

I set up a brokerage window for my 401k. MediumTex mentioned it in an earlier post. I hadn't even known it was possible and had to ask around to find out how to do it, but it was very easy to set up. I highly recommend it to anyone who has the option available, even if you don't use the PP approach, because you can make the same investments with lower expense ratios (VTI at 0.09% versus DISFX at 0.30%, for example). That can save a lot of money over the years.

After the initial setup, I'm letting new contributions collect in the 401k in a stable value fund. When I'm ready to rebalance, I'll transfer the accumulated money to the brokerage account and rebalance using the new funds. The allocation I'm using is 25% VTI, 25% SHY, 25% TLT, and 5% IAU. The remaining 20% is in Krugerrands outside the 401k, kept in a secret vault and guarded by dragons.

My Roth IRA is simply split four ways between VTI, SHY, TLT, and GLD. I'd like to split the gold the same way as the 401k, but that would require saving more than I can currently manage, since I'm giving priority to maxing out the tax-advantaged accounts.

One question regarding gold: HB said several times that even though you pay a premium for gold coins, you typically recover that premium when you sell them (for example, p. 324 of Best-Laid Investment Plans). This doesn't seem to be the case for the coin dealers I've looked at. Their buy price is typically a little below spot. Is there some other way to sell gold coins that would recover some or all of the premium? I notice that the Wall Street Journal lists a Krugerrand wholesale price that does include a premium of about 3% over spot.
_________________
Any good investment, sufficiently leveraged, can lead to ruin.

[MediumTex]

Harvey, that sounds like a very nice setup you have.

The dragons guarding the gold is really outstanding. They do a great job (or so I hear).

You're going to lose a little on gold coin transactions, but I think that the gold ETFs provide the opportunity to engage in a lot fewer bullion transactions than might have been necessary in the past.

The 401(k) brokerage window is a great tool for investors in general (even those who don't like the PP). I encourage anyone who is interested to check it out.

Congratulations on your PP. With that setup you will sleep like an 18 year old cat.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[MarcDeMesel]

I am proud to present my new blog about the European permanent portfolio.

Follwing articles have been published recently:
The Permanent Portfolio Rescues Icelanders From Total Collapse
American or European Permanent Portfolio?
_________________
My blog about the European Permanent Portfolio: http://europeanpermanentportfolio.blogspot.com/

[MediumTex]

[MarcDeMesel]

[b007er86]

Hello!

I'm curious as to what your experience has been regarding the buying and selling of physical gold.

If I recall, the coin dealers only had intermittent supplies for sale last fall/winter when the price fell below $800/oz. And it seems that there was a steep premium when they were available. If I needed to re-balance in a situation like this, would it make sense to buy the GLD ETF and then cash it in to purchase the coins when they became available'' I know MediumTex recomends keeping some GLD for re-balancing purposes, but Harry and others object to anything but the coins.

And what about selling them when the prices spike? I know prices right now are at all time highs, but has anybody had any issues with this'' Some dealers have a bid price on their website, but unlike the purchases I can't lock in a price without a phone call to them. Is there some haggling involved when I want to sell? I have no experience with this and am wondering what to expect.

This is a great discussion and I hope we can keep it going!

Thanks for your help,

Jeff

[Kevin K]

I did a lot of research on this and for me the choice came down to Bullionvault or Goldmoney (.com). I chose Bullionvault due mostly to easier funding options (you don't have to pay for a wire transfer and can use online bill pay), and I use that for physical gold (40% of my gold allocation) and CEF for the rest.

With Bullionvault you can keep your gold outside the country (Switzerland or London) if you like, and CEF is in Canada, so both are in line with Browne's recommendation to keep some funds outside the U.S.

I don't think there is a perfect solution. I would have some bullion in my physical possession but as we live in Mexico it isn't a realistic option.

[MediumTex]

There are MANY good places to buy gold; you just have to spend some time shopping around.

The best dealers are not necessarily the ones that advertise the most.

Do your own due diligence, but keep an eye out for shops that have been around a while and are family owned. There are lots of these and they are often very nice to deal with.

I can't comment on any of the storage services.

Note, too, that PRPFX is basically a gold and silver storage service (sort of), and I think that part of the fund is a great resource for those who don't want to own physical metal.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[Kevin K]

A couple of unrelated question on the long-term Treasuries:

1. I can buy individual bonds in the aftermarket through Schwab without paying a commission. I assume I just buy a recent 30 year bond?

2. I have 50K tied up in a 30 year Treasury I bought long ago. It matures in 2023 so according to the PP formula I should have sold it awhile ago, but as it pays 7.125% interest I am loathe to do so. Any comments? I don't want to be a bond market timer, but.......

Thanks!

Kevin

[MediumTex]

[Kevin K]

Hi Medium Tex-

Yes, about 65K, which just makes me all the more reluctant to sell it. Still I know the PP strategy requires selling your 30 year bonds when they have 20 years left on them and this one has 14 years left.

Kevin

[Wonk]

For those looking to purchase physical gold/silver in the U.S., here are some companies to check out:

http://www.tulving.com/

**I have NOT purchased from them yet, but they appear to have some of the best prices around due to the higher purchase commitments.

http://www.golddealer.com/

**I HAVE purchased from them and they are excellent. Great prices & service.

http://www.bulliondirect.com/

**I HAVE purchased from them and no complaints here either. Good prices and excellent service.

Of course, you can always buy and sell on ebay....

[MediumTex]

I like these people, and I have done business with them.

http://www.ajpm.com/htbin/gold.cgi
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[Harvey Manfredjinsinjen]

I've also ordered from AJPM. Good phone service, their prices are listed on their web site (and continually updated), and I had my order within a week of mailing the check.
_________________
Any good investment, sufficiently leveraged, can lead to ruin.

[MarcDeMesel]

Verde, thanks for your Japanese study. That is very interesting and makes the pp case very well.

However, a reader of my blog informed me that you use different data for the returns of the Japanese 10 Year Bonds.

For example in your first post (page 11 of this thread, copied below) 10 Y Bonds returns in 1989 are 4.5% and in 2008 4.7%. However, in your next sheet posted a few posts after that (see below allso) returns for 10Y bonds are for 1989 only 0.2% and 2008 higher with 6.0%. The other years also differ.

Which data is correct? What data sources do you use for the 10Y bonds?

If anyone else knows the answer, very interested.

Best Regards,
Marc


First post:

[Verde]

Thanks for pointing that out. I went back to my calculations and found some errors. In my calculation of bond returns I used the same formula which I used for US 20y bonds without adjusting it for the fact that I only have data for 10y JPN bonds. I used a different (less accurate) data set for the 20 year analysis. I only found the Bank of Japan data at a later stage.
I have now corrected these mistakes and post the correct numbers.

Source for Japanese 10 year bond yields:

Source Dec 1971-Sep 1985
http://www.econstats.com/ |

Source Oct 1985 to date
http://www.boj.or.jp/en/theme/..../index.htm

[Tramper Al]

[Lbill]

I had the same decision with some zero coupon bonds I bought a few years ago when they were yielding 6% or so. When rates dropped I experienced large capital gains. By continuing to hold them at their current market value, I'm getting less than 1%. So, what to do? If I could have figured out where to invest the proceeds, I would have cashed them out and taken the gains. Why hold them when they have such a small yield? But, since I couldn't come up with a use for the funds that appealed to me, I just held onto them.
_________________
"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]

This bears keeping an eye on:

[Kevin K]

Thanks for the interesting comments, Tramper Al and Lbill. With respect to the T Bond I'm attached to, I think at a certain point I will just reclassify it as cash. It certainly seems ludicrous to cash it in given what MMs and CDs are paying.

RE: the gold and silver ETFs, it just underscores Browne's recommendation to own the real thing, preferably in a place removed from the prying eyes of government.

[MediumTex]

[SteveK]

I'm looking to convert my portfolio of to PP. I've gone over the data, calculated all kinds of rolling averages for 3,5,7, 10 year returns, statndard deviation and done the same taking out the first few years of golds run. The gold run in 73-74 had a minimal impact when you take the numbers out over the long term.

I'm very comfortable with the portfolio and range of returns. However, entry points are important and two of them are not good. Cash ST bonds pay you nothing. But more importantly, locking into 30 year treasuries at almost historic lows doesn't seem to give you much protection (except for total meltdown).

Markets tend to over react. That's what drove LT treasury yields down to about 2.7% at the end of 2008. Those bonds are way down this year as the markets have come back from that over reaction. What is the justification in taking the long term position? Where is the potential portfolio return (other than safety) by locking in now? I would think with the printing presses going and spending it's more likely that rates will go higher over time. There's only so long Fed can keep interest rates down and get mortgage rates down to help on housing. It's got to give at some point.

Right now the markets have not totally snapped back in the muni bond market. There are still opportunities to get a much higher after tax yield. I know this is against HB thoughts. But perhaps due to current market conditions this makes sense?

Thoughts on how to get through the long-term treasury portion of the portfolio in today's environment would be greatly appreciated.

Thank You!

[glaser1873]

[Tramper Al]

[SteveK]

I'm not trying to to cherry pick the individual parts of the portfolio and accept the reality that in a diversified portfolio of this nature you're looking for one part each year to make up for the sins of the laggart and the other two add some return.

However, every part of the portfolio has risk and return attributes. With a 4.2 LT treasury and the only thing that brought rates lower was the near collaspe of the global financial system, it seems like a very bad time to implement this part of the portfolio. We're looking at 1.5% down in a near collapse against unlimited on the upside. Especially if inflation kicks in or international rumblings of the weaker dollar causes a decline in buying interest as per some of the largest holders of our debt.

[Wonk]

[SteveK]

Thank you for your answers. I just reviewed the years that LT bonds had above normal performance throughout the years. You get the bang out of interest rates going down from year to year. 1989 went from 9.7 to 7.9, 1991 went 8.25 to 7.70 , 1993 went 7.44 to 6.25, 2008 went 4.45 to 2.69.

For most of the history of the PP you were getting paid to hold the LT bonds and the trend of declining interest rates gave extra return to provide a high total return through the years. But now, you're not going be getting paid a significant return to hold LT bonds and only the worst global financial circumstances brought rates to an extended low.

Therefore, I can't see how this asset class will be able to add return over the long term as it is not generating substantial income and the ability to appreciate is limited due to limits on how far down rates can go. Couple this with no return on short-term money and you have a portfolio return that is very dependent on gold and equity, which are typically the two most volatile asset classes, which sometime move together and sometime against each other.

With all this said. I'm still having trouble coming to the conclusion it makes sense to incorporate the LT bond section and maintain the 4X25. Is it possible that the model needs to be adjusted because of what has happened to LT treasury and short-term interest rates throught the 37 years?

[MediumTex]

If I could only pick one piece of the PP right now, I might pick LT bonds.

Look at the aftermath of other financial crises in history and a 4.25% yield with the potential for large gains (40%+) if rates drift down (as they did in Japan) looks pretty darn good.

Another way of thinking about it is this: ask yourself what would CAUSE the yield on long term treasuries to rise. It would almost certainly either be an inflation event, in which case gold would do well, or perhaps a continuation of this cyclical bull market in equities. In either case, you would be protected and would do fine.

I really can't convey how well I sleep with the PP, though. That's really what I like most about it. I don't have to worry about whether it will be deflation or inflation, prosperity or recession. I can discuss them all with calm detachment. I'm covered.

After 2008, we should all simply concede that ANYTHING can happen, and why not be prepared for the full range of possibilities?

Good luck.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[craigr]

[SteveK]

A very big difference is Japan had not been a debtor nation dependent on the generosity of others to help finance their consumption and spending. No other country to my knowledge has needed the financial support of others that the US has needed. I concede anything can happen and perhaps the US dollar will be the best of a lousy bunch of currencies. But a weaker dollar over time helps our exports and inflation helps our govt. pay back debt with funny money. A weaker dollar and or inflation will lead to higher interest rates.

My other take is that as US consumers continue to deleverage and the baby boomers continue to age they will not be the drivers of world consumption. Many of their discretionay dollars will be directed toward health related issues and items. However, the reduction in US consumption will be offset by developing countries such as China and India. Therefore, foreign markets will have more growth opportunity than domestic. This too is not taken into account in the portfolio unless you assume the companies making up the total market exposure are generating substanial sales overseas.

[MediumTex]

[SteveK]

Thanks everyone for your insight. I'm still having trouble with the fixed income part. I've run the numbers with and without 73/74 and the impact to the portfolio was only -.45% without the heavy gold run and starting gold out with a down year out of the box.

However, I can't see how having fixed income rates as low as they are and how much they've contributed to the portfolio over time in return and starting out with almost no income from the short-term and a low rate on the long-term cannot impact the portfolio in a bad way over time. I'ms still wrestling with it.

Is there a best HB publication/book to read that might address the portfolio dynamics in more detail? My education on this has been primarily from reading through this forum and a other online postings.

Medium Tex - I ran a 30 year bond scenario with 2 point up and 2 points down. In 1,2 and 3 years the impact of 2 points down would give appreciation of 40.4, 39.4 and 38.4 plus income and 2 points down would give you 26.6, 26.3 and 26 down plus income. Guess you could look at it over 3 years you'd be down 13 taking into account interest payments, which would hopefully be offset by one the other areas.

Still trying this on for size!!!

[MCSquared]

[MediumTex]

[MediumTex]

This is sort of a side note, but I wanted to mention the following:

I have never run across someone who started using the PP and then later stopped because they were dissatisfied (HB mentioned the same thing in one of his radio shows). I can't think of any other allocation method where I haven't seen at least some people get fed up and abandon it (including 100% cash when yields dropped near zero).

One of the beauties of the PP is that it is a program you can stick with through the ups and downs of the market, no matter how wild the volatility becomes.

If there are any former PPers who used it and then stopped because they weren't happy with it, please chime in. I would love to hear the thoughts of someone who actually tried it and found that they didn't like it. I think that would also be very helpful to someone who is currently considering it.
_________________
"A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity."
-Harry Browne

[SteveK]

I've been going through the learning curve on physical gold. It seems the gold dealers are marking up the bullion between 5-6% over spot and claim they are only making 1-2% as the gold banks buy directly from the mints mark-up the coins and have to cover striking costs. Is it possible to buy directly from the bullion banks and eliminate the additional mark-up? Is there a better way to buy the coins?

Dealer also suggested buying pre 1933 coins. Reason being that these coins can't be confiscated by the goverment as was done in 1933 as they are considered protected. At a minimim they are marked up at least 16% over the bullion. Broker stated the rarity factor of these coins over time will cause them to increase in value more as time goes by.

Does it make sense paying the premium for the extra insurance if times get really crazy you have coins the govt. can call at whatever price they want or confiscate? Does it make sense to split between the two? Anyone locate better places to buy coins?

Thanks for your input.

[MediumTex]

[MCSquared]

[Clive]

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[SteveK]

I just finished reading HB "Why teh Best-Laid Investment Plans Usually Go Wrong." For the stock market portion I've seen recommendations to use a total stock market, Russell 3000, etc. Yet HB states the equity portion should be highly volatile stocks and or funds and recommended 6 gorwth funds to choose from . Why are these investments being used instead of a high beta fund like CGM focus and foreign funds?

Thanks

[SteveK]

Where does the annual return data come from that is listed in the annual returns data going bact to 1973? Is data available for other assets classes in the same reference manual?

Thanks.

[craigr]

[Clive]

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[Clive]

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[Clive]

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[Clive]

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