Bogleheads

[craigr]

[purduepete]

[snowman9000]

This year I have really learned the hard way (again) that Harry Browne was right. Specifically, owning the VG Precious Metals & Mining Fund is not the same as owning gold or GLD.

OTOH I have reaped some big gains in the past couple of years in it, above what GLD would have gotten me. But the point is, I wanted the Permanent Portfolio for its stability, and instead of stability I got volatility.

Back to the drawing board, and closer to HB's prescriptions.

[ljblgb]

[craigr]

[oneleaf]

This is a very informative thread, and thanks especially to craigr for the very good explanation of the idea behind this portfolio.

I've always wanted something similar to a permanent portfolio. But I am still not comfortable with the volatility of gold, let alone putting 25% of my money into it. If there were good tax-efficient CCF funds (that don't require ETN credit risk), I would probably have at least 10% in commodities (i only have 5% now).

But if I had to choose between a typical buy-and-hold/age-in-bonds portfolio or a permanent portfolio, I would definitely choose the permanent portfolio. I decided awhile ago that I do not believe in an equity-heavy portfolio even for young people (i was in my late twenties when I came to that conclusion), so I opted for a 50/45/5 stock/bond/CCF portfolio, with a lot of TIPS in my bond portion and a global stock portfolio.

[Tramper Al]

[snowman9000]

[Lbill]

I see that Marc Faber is recommending owning some physical gold held outside the U.S. He feels that things in the U.S. could go bad in a big way and that the U.S. has shown it's willingness to restrict free markets, as in banning short selling recently. This indicates that the U.S. would not hesitate to ban gold ownership too. Anybody know how to own physical gold outside the U.S. if you are an average citizen residing in the U.S.?
_________________
"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

[Tramper Al]

[craigr]

[Elmer Fudd]

Anyone have the know how to figure out what Harry Brown's 25%, 25%, 25%, 25% portfolio would have down during the past several months?

[Tramper Al]

[craigr]

[ljblgb]

[G12]

Has anyone looked at utilizing PRPFX as a substitute or as an addition to a portfolio with higher equity allocations to reduce risk? The holdings are:

Portfolio Structure2
Gold 20%
Silver 5%
Swiss Franc Assets 10%
U.S. and Foreign Real Estate and
Natural Resource Stocks 15%
Aggressive Growth Stocks 15%
U.S. Treasury Bills, Bonds
and Other Dollar Assets 35%
Total 100%

[snowman9000]

I have never been able to reconcile the fund's allocations with the later 4x25 allocation of Harry's. I know he distilled his down to the 4x25 for simplification. But not only that, his seems to be more all-weather, while the fund seems to be more anti-inflation. Just my take on it.

[G12]

[midas3005]

Hello all.
I got directed to this thread from other thread which is currently active.
This thread is very informative and gives a new insight into investments.

Craigr - thanks for your continued patience in writing detailed posts.
Hope we can revive this thread.

I am unable to download any of the mp3 files from the webiste or from the direct links. Maybe someone can help.

Would be curious to know more. In a way, Craigr seems to have summarizes it all. However some specifics about how to execute the plan in an IRA remain - eg buying physical gold coins/bars. what "yield" to aim for...or do we have a choice?

best
M

[Pacific]

What is the best site for tracking the "price" of gold (physical, not ETF or mutual fund)? I am looking for a site in which I can look up the price of gold on a particular day.

[ljblgb]

[Pacific]

Thanks for the site Lawrence.

Why is there such a difference in the prices and which one should be used?

For example, the Mexican Peso troy oz is $1018.38 while the Austria Crown troy oz is $824.41.

[snowman9000]

[PedXing]

Thank you to all who have shared experiences on this thread.

Inexperienced bond investor here. Been reading, and listening, with interest to Harry's writings and radio programs. Have been reading in an attempt to try to understand the bond market, but haven't yet acquired the tools. I may have missed this point, or perhaps it doesn't matter: If one wanted to purchase long-term bonds for a Permanent Portfolio, would Harry advocate waiting for an auction of 25 or 30 year bonds (admittedly, I don't even know how often those come along) or just purchasing the longest bond currently available on the secondary market. If purchasing on the secondary market, I guess I need to do some more reading to assess the difference between 2 bonds of very similar duration, but differing purchase prices and yield.

[snowman9000]

I'm pretty sure the advice would be to simply buy them in the secondary market. Harry would say that you don't have to overanalyze the market, just buy them. That was an essential point of his plan. Whether you agree or not is up to you.

[dumbmoney]

An alternative (not endorsed by Mr. Browne as far as I know) that was mentioned earlier in the thread is to modify the portfolio to use 50% intermediate term treasuries instead of 25% ultra-long / 25% ultra-short.
_________________
I am pleased to report that the invisible forces of destruction have been unmasked, marking a turning point chapter when the fraudulent and speculative winds are cast into the inferno of extinction.

[snowman9000]

My take on that is that intermediates are like longs, just less of the upside and downside. It appears to have been important for HB that the portfolio contain enough volatility to have one quadrant pull the others along at the appropriate time. This is a key design feature. I found out the hard way that if you start trying to smooth things out, you are defeating the design. You end up with more of a run of the mill lazy portfolio then, and will end up with more typical market results, both up and down.

By trying to smooth out the treasuries and cash, you are tampering with the deflation protection and the tight money protection. But you offer a good possibility to consider, and maybe others will think about it and comment.

[craigr]

I would just follow the plan on long vs. short term bonds and not get fancy.

Here are some Treasury bond fund choices over 12 months as a comparison:

iShares Treasury Long Term (Ticker: TLT): +%6.96
iShares Treasury Intermediate Term (Ticker: IEF): +%5.25
iShares Treasury Short Term 1-3 Year Bonds (Ticker: SHY): +%3.01
iShares Treasury Ultra-Short Term Bonds (Ticker: SHV): +%0.51

Remember that the portfolio is supposed to have volatile assets at each corner. You don't want to smooth out the asset class returns because they may not have the pull you'll need to help balance out losses elsewhere. My personal preference is to hold LT bonds and, for my "cash" portion, a mix of ST 1-3 year bonds with a Treasury Money Market Fund for immediate/emergency cash needs. If deflation continues to be a concern I fully expect the gap between LT and IT bonds to widen further.

As for where to purchase the bonds. I bought mine initially on the secondary market. The important point is to just own the assets together and not try to time the market.

For example, earlier this year inflation was the worry, now it's deflation. If one had stalled on purchasing the LT bonds and worried about buying the gold allocation only then you'd be in more trouble right now. The iShares Gold ETF for instance is now -6.92% over the past 12 months where the ST and LT bonds have helped cushion the losses in the portfolio.

YTD the Permanent Portfolio is running about -12-13% depending on whether you used ST bonds or Ultra ST bonds in the cash allocation. Looks like we're on track to have a record year in the stock market for sure. The prior worst loss for the portfolio was -6% or so in 1981 when, like 2008, almost every asset class was doing horribly.

My Permanent Portfolio update:

Giving the conditions of the market I'm happy the portfolio has been able to limit losses for me. I'm currently in a tax loss harvest cycle (waiting 31 days to avoid wash sale rules) as the markets have created losses even in shares I've owned for many years. When my 31 days are over I'll be rebalancing back into stocks with money from by bond gains.

[oneleaf]

craigr,
you mention that you don't think swiss francs is as good as gold. But do you think it is an improvement to add some swiss francs to a portfolio that currently uses TIPS and CCF's to protect from inflation?

[craigr]

[oneleaf]

[stratton]

[craigr]

I'd just caution again that holding gold stocks is not the same as owning the actual metal in the Permanent Portfolio.

Gold ownership is a store of capital. Stocks and bonds are a bet on growing capital. Both have their place in a diversified portfolio, but they are not interchangeable.

As for owning CCFs over gold. I think an honest look at the debate shows they both perform largely the same in most cases. The advantage of gold is it is also a monetary metal which is significant during some types of market crises where I think CCFs fail. Because of this, if I've made the mental leap to own hard assets then I'd just buy gold and not worry about CCFs.

[Wonk]

Oneleaf,

I think it's important to emphasize what craigr said about gold and its use.

Gold is a store of value, although it has speculative investment potential because of its volatility. Those who reference the previous $850 bubble price in the early 80s and compare to todays prices and say it's a terrible inflation hedge are either disingenuous or misguided.

Just as houses have both intrinsic and speculative value, so does gold. Probably the most judicious use of gold is as hedge against currency problems. In the case of currency problems, good luck getting your gold out of an ETF. With physical ownership there's no counterparty risk.

As a side note about swiss francs--while a relatively stable currency which is positively correlated to the price of gold, the SCB has (along with every other central bank in the world) been adding liquidity to the international banking system. The scope might not be as great as in the US, but they are still devaluing the currency much like the US.

Investors such as Jim Rogers have referenced this recently, although he says he has not liquidated his positions.

I happen to be very comfortable owning gold because it holds a unique place in my portfolio. It's not the end-all-be-all, just a tool.

[ziggy29]

[snowman9000]

[oneleaf]

Thanks for the responses, everyone.

Yea, i have thought about gold stocks, but decided against it. It's either gold or commodities, I guess for me.

Wonk, thanks for the feedback regarding swiss francs. After thinking about it, I have decided against holding a position in swiss francs. If I want foreign currencies, I may just get BWX (foreign bond ETF).

[snowman9000]

[dumbmoney]

[snowman9000]

[Wonk]

Put into a safe deposit box? Oops....

http://www.youtube.com/watch?v=7T1o9G6rCqM

[snowman9000]

HB defined investing as accepting whatever return is achieved in the market, and speculating as trying beat that. One of HB's recommendations was that if you are inclined to speculate, you should NOT do it with your PP. In addition to your PP, you can have a Variable Portfolio with which to attempt to beat the market. One of the things I've done wrong, IMO, is to modify the PP for speculative reasons. I've also modified it for tax reasons but so far I'm still not apologizing for that one.

Anyhoo, the market madness has made me realize that A) the PP is a good thing, and B) I can't help but want to beat the market. For one thing, I have had some decent success beating the market prior to adopting the PP. So I'm now working on a decision of how much goes in the PP and how much to use as a VP. It's a personal decision so I'm not asking for advise on it.

I guess what I am saying is that I think HB was right: If you feel the need to speculate, you should first determine what amount of money is precious, and not speculate with it. That is the PP. Or at least your version of same. Heck, it might be CDs! (In fact, HB wrote that if the whole investing thing was just too much for you, put your money into CDs and get on with your life.)

[DP]

Hi,
As I have some funds in PRPFX, and it has done worse than I expected this year, I thought I would compare it to the standard Harry Browne version with 4 equal allocations. Using data from the fund website, Harry Browne's website, and for the YTD PRPFX and last few years of the Permanent portfolio, I used returns from Stockcharts using (25% each of VTI, VUSUX, VBIRX, GLD). Seems there is variance from year to year but little difference in the long run.

[Tramper Al]

Yes, the 25% X 4 is obviously the more pure form, though I think I'd be pretty happy with a loss of only 16% on the year.

Someday, I'd like to carve out maybe 30% of equities from my AA for 10% each cash, long term Treasurys, and gold, in the interest of capital preservation going forward. This doesn't seem like a great time to do that, however!

[oneleaf]

At some point, I can't help but feel valuations are still very important to consider, especially in regards to the LT treasury portion.

I fully understand that LT treasuries protect against deflation, and TIPS protect against inflation. So substituting LT treasuries for TIPS makes very little sense in the philosophy of the Permanent Portfolio.

However, at some point, when LT treasury yields get low enough, the deflation protection is not that much better than the deflation protection in TIPS.

For instance, TIPS protect very well against inflation, but only mildly well in deflation (in that it can't go below par). At today's prices, it might be argued that LT treasuries do not offer that much more deflation protection than TIPS, since yields are very low.

TIPS and LT treasuries are both longterm US government obligations, which have some similarities in that they can be quite attractive during flights to quality. Obviously this year has been a very abnormal year and the differences between TIPS and LT treasuries were probably magnified. However, going forward, it is hard to see LT treasuries performing a significant benefit over TIPS... even in the worst case scenario of longterm deflation, TIPS have a floor that is not much worse than LT treasuries (0% annual yield for TIPS compared with 2.71% annual yield for 10-yr treasuries if we experience longterm deflation that exceeds that of TIPS' real yields). Sure it's significant, but it's only significant in an extreme worst-case scenario. But in the opposite worst-case scenario (high inflation), LT treasuries will get slaughtered, and TIPS will do much better.

Now, I know this is sort of missing the point of the permanent portfolio. In times of inflation, the gold will compensate for the poor performance of the LT treasuries.

But this is still 25% of your wealth that you hold in an asset class that arguably is priced to perform very little benefit over an alternative asset class (TIPS) that, while doing a slightly worse job (but not too shabby) in the scenario that LT treasuries are most suited for, have characteristics that do very well in other scenarios in which LT treasuries get killed.

I think it is smart to still pay attention to valuations. For instance, during times when LT treasuries are pricing in significantly lower than average inflation, it might be wise to consider other asset classes. During times when LT treasuries are pricing in average or higher inflation, then go ahead and buy it for "deflation" protection.

Just some thoughts. I am still interested in the Permanent Portfolio, but just thinking outloud in regards to alternative ways to approach it. Criticisms welcome.

[snowman9000]

Oneleaf,

Only by going through the thought process and watching or trying can you see the effectiveness of the PP. No one accepts it right away, it doesn't seem. This year has been educational!

I had and have some of the same reservations. Specifically, it's extremely hard for me to buy whatever portion is currently high priced. But as HB always said, you are buying the whole package.

TIPS bother me, I can't help you there.

I'm a believer in having the PP as the majority of my money, but also having a variable portfolio (20%) so that I can see if I can spot opportunities, invest for extra income, or into stocks, etc.

BTW as of the November madmoneymachine.com results, the PP is still in first place and its loss has narrowed to 5% YTD. The way long bonds have gained this week, it might be at break even today.

[oneleaf]

snowman9000,
It will certainly be funny if sometime in the future, the permanent portfolio will be the most prominent portfolio discussed on this forum. Vanguard will merge all of their target retirement funds into a single "permanent portfolio".

[Tramper Al]

[snowman9000]

I wish someone would offer the 4x25 as a fund.

Al, you are right. When the stock market booms, the PP will not be highly regarded. That's fine with me. And it's why I have the variable portion too, so I can indulge.

[stratton]