80/20 stocks/gold portfolio

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hiddensee
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80/20 stocks/gold portfolio

Post by hiddensee » Thu May 01, 2014 5:51 am

Hello,

I am a 24 year old who already has an 80-20 conventional stock/bond ETF portfolio set up, so I'm not asking for specifics. Rather, I'd like to launch a pilot balloon for the concept of replacing my bonds with gold.

I propose to do this for the following reasons:

- Gold seems more anti-correlated with stock performance than bonds
- I live in Germany, where there is a poor selection of accumulating bond funds
- I am not a citizen of Germany and may leave at an indeterminate time for an indeterminate location for an indeterminate period; I therefore have no 'home' bond
- Both gold and TIPS (etc) should be expected to match inflation over the long term, so short term fluctuations aside there should only be the marginal cost of holding the gold ETF
- I have moral objections to subsidising the activities of states

One more, to take or leave as you will:

- Many people seem to have non-specific emotional problems with investing money in gold, which gives me greater confidence I am not just following the crowd or chasing returns

So please let me know all possible objections to this plan, and I will see where to go from there.

wesmouch
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Re: 80/20 stocks/gold portfolio

Post by wesmouch » Thu May 01, 2014 6:06 am

For US based investors an 60% stock, 20% gold and 20% long bonds seems to have better performance characteristics.

From http://www.peaktotrough.com/hbpp.cgi

80/20 portfolio (stocks, gold)
1971 - 2014 CAGR 10.29%, SD 11.59

60/20/20 portfolio (stocks, gold, long bonds)
CAGR 10.24% SD 9.22%

BY the way both look better than the classic 60/40 portfolio
CAGR 8.84%, SD 8.55

Jack FFR1846
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Re: 80/20 stocks/gold portfolio

Post by Jack FFR1846 » Thu May 01, 2014 7:36 am

I just used Fidelity's comparison chart and plotted S&P 500, FSITX (spartan advantage total bond) and TGLCX (gold fund) on top of each other and was a bit surprised that gold was smack in the middle for a 10 year comparison.

Next, I added FSRVX (REIT) and changed to 3 years (this fund is fairly new) and over the 3 years, gold faired far worse than all the other choices.

I hold a very, very small amount of physical silver (0.12% of my portfolio) more for fun than for investment. Oh....and I bought my wife a 1/4 ounce gold panda pendant for her birthday :)
Bogle: Smart Beta is stupid

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Re: 80/20 stocks/gold portfolio

Post by Call_Me_Op » Thu May 01, 2014 8:14 am

Back-testing can be hazardous to your wealth.
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staythecourse
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Re: 80/20 stocks/gold portfolio

Post by staythecourse » Thu May 01, 2014 8:23 am

I think 60/20/20 of stocks/ gold/ LTT is reasonable. As I said in another thread no allocation will determine success or failure, BUT not sticking to a plan will. So pick something you will stick with.

Sticking with a decent plan is MUCH better then having the access to the best plan and having doubts.

Good luck.
"The stock market [fluctuation], therefore, is noise. A giant distraction from the business of investing.” | -Jack Bogle

MrMatt2532
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Re: 80/20 stocks/gold portfolio

Post by MrMatt2532 » Thu May 01, 2014 8:24 am

Gold might not be a bad choice for diversification purposes, but make no mistake that a 80/20 stocks/gold portfolio is more risky than a 80/20 stocks/bond portfolio.

Instead, if you want to hold gold, take it out of the stock portion (of course i'm assuming you have picked the correct bond percentage in the first place).

wesmouch
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Re: 80/20 stocks/gold portfolio

Post by wesmouch » Thu May 01, 2014 9:24 am

MrMatt2532 wrote:Gold might not be a bad choice for diversification purposes, but make no mistake that a 80/20 stocks/gold portfolio is more risky than a 80/20 stocks/bond portfolio.

Instead, if you want to hold gold, take it out of the stock portion (of course i'm assuming you have picked the correct bond percentage in the first place).
Actually not so much
From portfoliovisualzer.com
80/20 (s&p, gold) 1972-2013
CAGR 10.83%
SD 14.32

80/20 (stocks, 5 yr bonds)
CAGR 10.10%
SD 14.69

Sharpe ratio better with gold too

MrMatt2532
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Re: 80/20 stocks/gold portfolio

Post by MrMatt2532 » Thu May 01, 2014 10:14 am

wesmouch wrote:
MrMatt2532 wrote:Gold might not be a bad choice for diversification purposes, but make no mistake that a 80/20 stocks/gold portfolio is more risky than a 80/20 stocks/bond portfolio.

Instead, if you want to hold gold, take it out of the stock portion (of course i'm assuming you have picked the correct bond percentage in the first place).
Actually not so much
From portfoliovisualzer.com
80/20 (s&p, gold) 1972-2013
CAGR 10.83%
SD 14.32

80/20 (stocks, 5 yr bonds)
CAGR 10.10%
SD 14.69

Sharpe ratio better with gold too
Well, I'll stick by what I said. SD isn't the only way to determine riskiness. Now I fully understand that you should analyze a portfolio in aggregrate, however, neither stocks nor gold are well behaved, low risk assets, whereas bonds are.

Edit: Just to clarify, my argument is that nobody should be replacing bonds for gold one to one. They have different purposes in a portfolio.

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Re: 80/20 stocks/gold portfolio

Post by ralph124cf » Thu May 01, 2014 2:22 pm

When you say gold, most people think of ETFs or physical metal in a safe deposit box.

Would you consider a mutual fund that invests in gold mine stocks? Keep in mind that these will always have a higher than average expense ratio due to the high incidence of fraud in the gold mine industry.

These gold mine mutual funds tend to move up and down in the same direction as gold, but with greater amplitude. On the other hand, the mining stocks held by the mutual fund tend to pay regular dividends from mining and refining gold, which ETFs do not.

Ralph

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LH
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Re: 80/20 stocks/gold portfolio

Post by LH » Fri May 02, 2014 12:06 am

hiddensee wrote:Hello,

I am a 24 year old who already has an 80-20 conventional stock/bond ETF portfolio set up, so I'm not asking for specifics. Rather, I'd like to launch a pilot balloon for the concept of replacing my bonds with gold.

I propose to do this for the following reasons:

- Gold seems more anti-correlated with stock performance than bonds
- I live in Germany, where there is a poor selection of accumulating bond funds
- I am not a citizen of Germany and may leave at an indeterminate time for an indeterminate location for an indeterminate period; I therefore have no 'home' bond
- Both gold and TIPS (etc) should be expected to match inflation over the long term, so short term fluctuations aside there should only be the marginal cost of holding the gold ETF
- I have moral objections to subsidising the activities of states

One more, to take or leave as you will:

- Many people seem to have non-specific emotional problems with investing money in gold, which gives me greater confidence I am not just following the crowd or chasing returns

So please let me know all possible objections to this plan, and I will see where to go from there.
Gold has the 1980 problem of dropping say 70 percent in value, and staying down for 20 years.

Gold is good for sovereign risk(unless the sovereign confiscates it), and pretty high inflation to hyperinflation. Its not good for say 5 percent inflation, or likely even 10 percent inflation. (this is a loose gestalt)

Gold may match inflation over 50-100 year periods or something, it may not do so in your lifetime.

bad idea imo.

bonds give you stability that gold and stocks will not.

I would have at least as much bonds as you have gold. You have to be able to take the hit with gold long term.

in 5 years if gold is down 70 percent.... still 10 years gold is down 70 percent..... still 15 years gold is down 70 percent.

Thats quite the deal in reality, especially for one who is now 80/20 stocks/bonds, who is going to just dump bonds, after what,...... less than 5-10 years of some good old fashion financial repression and ZIRP? Well heck, gold can trump that in length of suck.

Its quite the change, from one asset that you give money to the government for holding currently(bonds), to another that can plummet and stay down for 20years (hint, most people will sell during that time, just like you are planning on selling your bonds now).

Dont do it.

Good luck,

LH

PS I like gold, I may end up being 10 percent gold. Currently 3 percent gold. But gold can drop like a stone. There is not much safety in your stock/gold portfolio.

hiddensee
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Re: 80/20 stocks/gold portfolio

Post by hiddensee » Fri May 02, 2014 3:02 am

LH wrote:Gold has the 1980 problem of dropping say 70 percent in value, and staying down for 20 years.
However in this time the stock market ballooned, so my AA would still be working.
Gold is good for sovereign risk(unless the sovereign confiscates it), and pretty high inflation to hyperinflation. Its not good for say 5 percent inflation, or likely even 10 percent inflation. (this is a loose gestalt)
Gold ballooned during the financial crisis despite low inflation, or even deflation. It would have significantly offset stock losses.
Gold may match inflation over 50-100 year periods or something, it may not do so in your lifetime.
It may either under or over perform. But this is not a 100% gold portfolio, it's an 80-20, so the important metric is not gold performance in isolation, but whether gold anti-correlates with stocks. In the recent past, REITs and all non-government bonds have correlated with stocks. So if gold strongly anti-correlates with stocks, it seems unique in that respect.

That and lots of people react badly emotionally to gold, which to me is a mild positive. I also just don't like governments.
Thats quite the deal in reality, especially for one who is now 80/20 stocks/bonds, who is going to just dump bonds, after what,...... less than 5-10 years of some good old fashion financial repression and ZIRP? Well heck, gold can trump that in length of suck.

Its quite the change, from one asset that you give money to the government for holding currently(bonds), to another that can plummet and stay down for 20years (hint, most people will sell during that time, just like you are planning on selling your bonds now).
[OT comments removed by admin LadyGeek]

As for returns chasing, that's not my plan. If I were doing that I'd have bought gold in 2008, not today when gold is strongly down and either flatlining or still falling. My short term expected return is certainly more negative with gold than bonds. But I don't think my long term expectations on government bonds are actually much better than gold. Recently they've dropped to near-zero, but even in the good times with my tax arrangements (no US tax free savings pots) the bond yield was practically zero in real terms after taxes.
PS I like gold, I may end up being 10 percent gold. Currently 3 percent gold. But gold can drop like a stone. There is not much safety in your stock/gold portfolio.
All people who are saying they're 0.1-5% in gold or something - I'm struggling to see the point of that. No plausible movement is going to have gold much affect either your total return or volatility.

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Re: 80/20 stocks/gold portfolio

Post by MindBogler » Fri May 02, 2014 9:07 am

hiddensee wrote:Governments can plummet and stay down forever.
Well said.

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Re: 80/20 stocks/gold portfolio

Post by asha1001 » Fri May 02, 2014 2:57 pm

Gold over the long term would likely have a lower return than bonds (unless there are critical shortages of the metal or cost of production rises rapidly). But since you have a moral objection to subsidizing the state, government bonds are out. Why don't you think about replacing government bonds with very high quality (A- or above) corporate bonds? I would not consider gold an investment, its just a lump of metal that produces no cashflow and its value depends entirely on supply and demand. You might want to heed Warren Buffett's advice and skip gold and stick with bonds. You can even arguably replace bonds with high quality, low growth companies that have high dividend yield and strong business models.

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nedsaid
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Re: 80/20 stocks/gold portfolio

Post by nedsaid » Sat May 03, 2014 11:32 am

Over very long periods of time, Gold has a zero real return. In other words, it keeps its purchasing power over time and that is about it. I have never used gold in my retirement portfolios because of this.

Nevertheless, you might view Gold as an insurance policy for your portfolio. The ultimate hedge against currencies which tend to lose purchasing power over time. I don't think Gold will add to returns but it might reduce the volatility in your portfolio. I suppose if you kept it as a fixed percentage of your portfolio, you might get a rebalancing bonus.

In short, having gold in your portfolio is worth considering though I have not done it myself. In the 1980's, I did own Gold and Silver Maple Leaf coins in small amounts. They were beautiful coins. I sold them and put the funds into my IRA. In some ways, I regret selling them. If I were a wealthy person, I would probably buy some again. But I can be a business and property owner through owning stock funds and REIT funds. I think that is a better way to go rather than precious metals.
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galeno
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Re: 80/20 stocks/gold portfolio

Post by galeno » Sat May 03, 2014 5:43 pm

I'll keep this short and sweet. Gold is a volatile zero return asset. If you add in costs, it is a negative return asset. Same with commodities. Both are great for speculation for people who know what they're doing. It is not for long term investment.

Substitute equities for the gold. Equities are volatile like gold but they are a positive return asset class.
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hiddensee
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Re: 80/20 stocks/gold portfolio

Post by hiddensee » Sun May 04, 2014 2:17 am

The purpose of gold in the portfolio is to act as a counterweight to reduce total portfolio volatility, which is not the same as minimising the volatility of every individual asset. This is also the purpose of bonds in a mixed portfolio. Replacing equities with gold, rather than bonds with gold, misses the point.

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Re: 80/20 stocks/gold portfolio

Post by Valuethinker » Sun May 04, 2014 3:44 am

galeno wrote:I'll keep this short and sweet. Gold is a volatile zero return asset. If you add in costs, it is a negative return asset. Same with commodities. Both are great for speculation for people who know what they're doing. It is not for long term investment.

Substitute equities for the gold. Equities are volatile like gold but they are a positive return asset class.
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Re: 80/20 stocks/gold portfolio

Post by IlliniDave » Sun May 04, 2014 5:11 am

hiddensee wrote: - Many people seem to have non-specific emotional problems with investing money in gold, which gives me greater confidence I am not just following the crowd or chasing returns
Many people have an equally emotional fixation for acquiring/investing money in gold.

If a candidate "investment" does not have a reasonable expectation produce a return on it's own (interest from bonds, dividends and real capital growth from stocks, rents from real estate) I won't consider it for my investment portfolio. No emotion there, it's just my policy.

I can't give you reasons not to ditch bonds and buy gold.

Maybe it's different where you live but late night cable television advertisements have been hawking gold and silver here in the US for at least the last 5-6 years, and it's a frequent topic on the financial news channels and websites. Hordes of bogleheads may not be chasing more gold at the moment, but it's not some hidden treasure either. Your proposed tactic of using it in place of stable assets in a portfolio is one I hadn't heard before. Maybe you've unlocked the secret recipe. Good luck.
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Re: 80/20 stocks/gold portfolio

Post by InvestorNewb » Sun May 04, 2014 7:33 am

Gold can stay flat for years. I would not bother with it for that reason... at least with stocks you get continuous dividends.
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hiddensee
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Re: 80/20 stocks/gold portfolio

Post by hiddensee » Sun May 04, 2014 7:58 am

InvestorNewb wrote:Gold can stay flat for years. I would not bother with it for that reason... at least with stocks you get continuous dividends.
As stated gold is not proposed as an alternative to stocks.

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Re: 80/20 stocks/gold portfolio

Post by hiddensee » Sun May 04, 2014 8:03 am

IlliniDave wrote:
hiddensee wrote: - Many people seem to have non-specific emotional problems with investing money in gold, which gives me greater confidence I am not just following the crowd or chasing returns
Many people have an equally emotional fixation for acquiring/investing money in gold.

If a candidate "investment" does not have a reasonable expectation produce a return on it's own (interest from bonds, dividends and real capital growth from stocks, rents from real estate) I won't consider it for my investment portfolio. No emotion there, it's just my policy.
Currently government bonds have no expected return; in effect government financial and monetary manipulations mean that owning bonds just entitles you to get your money back, whereas those in cash will have their savings taxed via inflation.

Fine, but gold also promises my money back. So if gold is better at minimising volatility I will pick gold.

Moreover, even in good times for bonds I don't include them because they are offering the best expected return. If I were to do that I would be 100% in equities. I invest in bonds because my lifespan is finite and therefore I have to care about volatility too. So again if gold offers stronger anti-correlation with stocks than bonds, it would allow me to invest a greater percentage of my portfolio in stocks than others, and increase my expected return.

I am not set on this course emotionally or otherwise, but the arguments against have largely not engaged with the reasons I have stated for considering this.
I can't give you reasons not to ditch bonds and buy gold.

Maybe it's different where you live but late night cable television advertisements have been hawking gold and silver here in the US for at least the last 5-6 years, and it's a frequent topic on the financial news channels and websites. Hordes of bogleheads may not be chasing more gold at the moment, but it's not some hidden treasure either. Your proposed tactic of using it in place of stable assets in a portfolio is one I hadn't heard before. Maybe you've unlocked the secret recipe. Good luck.
And of course that's just timing: buy gold now (at a huge implicit fee) and sell it when it peaks. But I'm a Bogglehead, so my plan is much closer to the Permanent Portfolio concept, but without the cash and long term bonds. The main reason for that is I don't expect deflation to come back.

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Re: 80/20 stocks/gold portfolio

Post by normaldude » Sun May 04, 2014 8:08 am

hiddensee wrote:Of course my current country of residence also prized the gold out of its citizens' teeth at one point, so no asset class gives one true protection from the government threshing machine except canned food and ammunition.
Physical gold purchased with cash, stored in an anonymous safe deposit box, at a private vault firm in another country, would be a decent armageddon hedge. Das Safe (dassafe.com) in Austria offers anonymous safe deposit boxes. So once in a while, you could drive over to Austria with cash (whatever the cross-border legal limit is), buy some physical gold bullion, and store it legally & anonymously at Das Safe. Don't tell anyone. That way, there won't be any paper file, digital file, or human being out there that knows that you own physical gold.

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Re: 80/20 stocks/gold portfolio

Post by Valuethinker » Sun May 04, 2014 8:16 am

normaldude wrote:
hiddensee wrote:Of course my current country of residence also prized the gold out of its citizens' teeth at one point, so no asset class gives one true protection from the government threshing machine except canned food and ammunition.
Physical gold purchased with cash, stored in an anonymous safe deposit box, at a private vault firm in another country, would be a decent armageddon hedge. Das Safe (dassafe.com) in Austria offers anonymous safe deposit boxes. So once in a while, you could drive over to Austria with cash (whatever the cross-border legal limit is), buy some physical gold bullion, and store it legally & anonymously at Das Safe. Don't tell anyone. That way, there won't be any paper file, digital file, or human being out there that knows that you own physical gold.
Different countries have different laws. In London, the Met Police got a warrant that allowed them to go through several thousand safety deposit boxes. They find a few murder weapons (hurrah!). They also found jewelry cash etc. They were legally entitled to hold onto it under money laundering acts unless you could prove that it had come from legitimate sources on which you had correctly paid tax. (there were also civil suits that police had stolen from some of the opened boxes: it's certainly possible).

So much for safety deposit boxes.

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Re: 80/20 stocks/gold portfolio

Post by normaldude » Sun May 04, 2014 8:26 am

hiddensee wrote:All people who are saying they're 0.1-5% in gold or something - I'm struggling to see the point of that. No plausible movement is going to have gold much affect either your total return or volatility.
1) Physical gold can be seen as an armageddon hedge. So if a person has a $1 million portfolio, with 5% ($50,000) in physical gold, that bit of physical gold can be valuable if all paper & digital assets become worthless. And if that physical gold is stored anonymously in another country, it can be useful if a person has to flee a tyrannical home country with nothing but the shirt on their back.

2) A 5% holding of physical gold can certainly provide volatility & diversification benefits. I mean, a typical boglehead portfolio has 1% holdings in South Africa, 1% in REIT stocks, 1% in lots of areas, etc. As a whole, all those little pieces of diversification add up, so a disastrous price crash in one area has minimal effect on the overall portfolio.

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Re: 80/20 stocks/gold portfolio

Post by normaldude » Sun May 04, 2014 8:32 am

Valuethinker wrote:Different countries have different laws. In London, the Met Police got a warrant that allowed them to go through several thousand safety deposit boxes. They find a few murder weapons (hurrah!). They also found jewelry cash etc. They were legally entitled to hold onto it under money laundering acts unless you could prove that it had come from legitimate sources on which you had correctly paid tax. (there were also civil suits that police had stolen from some of the opened boxes: it's certainly possible).

So much for safety deposit boxes.
1) Can you provide a link? I'm not talking about bank safety deposit boxes (which I'd avoid like the plague). And I'm not talking about a safe deposit box in one's home country.

2) I was talking about a private vault safety deposit box in another country, for diversification purposes. I find it unlikely that the German police could get a warrant to open all of Austria's anonymous private vault safe deposit boxes. In other words, if Germany went completely tyrannical, he'd lose his German assets. And if Austria went completely tyrannical, he'd lose his Austrian assets. But in order to lose all his assets, both countries would have to go tyrannical at the same time.

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Re: 80/20 stocks/gold portfolio

Post by LadyGeek » Sun May 04, 2014 9:59 am

I removed some off-topic comments. As a reminder, see: Forum Policy
UNACCEPTABLE TOPICS

Politics and Religion

In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited...

Non-actionable (Trolling) Topics

If readers can't do anything with the content of a topic other than argue about it, it does not belong here. Examples include:
  • US or world economic, political, tax, health care and climate policies
  • conspiracy theories of any type including oil price manipulation
  • discussions of the crimes, shortcomings or stupidity of other people, whether they be political figures, celebrities, CEOs, Fed chairmen, subprime mortgage borrowers, lottery winners, federal "bailout" recipients, poor people, rich people, etc. Of course, you are welcome to talk about the stupid financial things you have done.
Gold is one of the most contentious points of disagreement in this forum. We're going down this path and I don't see how a solution can be obtained in this manner.

Please stay on-topic. Safe deposit boxes and related issues are off-topic.
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Re: 80/20 stocks/gold portfolio

Post by LadyGeek » Sun May 04, 2014 10:06 am

To help the OP, I believe that his reasons for owning gold and his desire to be independent of government influence align with the objectives of the Permanent Portfolio.

Please take a look at the recent blog post: Harry Browne’s Permanent Portfolio | Bogleheads® Blog, especially the two discussion threads (bottom of page).

I think your intentions will find a sympathetic ear in the Permanent Portfolio Discussion Forum, which is managed by: Craig Rowland Perhaps you can ask your questions there and get a different perspective.
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Re: 80/20 stocks/gold portfolio

Post by Valuethinker » Sun May 04, 2014 10:33 am

normaldude wrote:
Valuethinker wrote:Different countries have different laws. In London, the Met Police got a warrant that allowed them to go through several thousand safety deposit boxes. They find a few murder weapons (hurrah!). They also found jewelry cash etc. They were legally entitled to hold onto it under money laundering acts unless you could prove that it had come from legitimate sources on which you had correctly paid tax. (there were also civil suits that police had stolen from some of the opened boxes: it's certainly possible).

So much for safety deposit boxes.
1) Can you provide a link? I'm not talking about bank safety deposit boxes (which I'd avoid like the plague). And I'm not talking about a safe deposit box in one's home country.
http://www.telegraph.co.uk/news/uknews/ ... -guns.html

http://www.bbc.co.uk/news/uk-12248666

Note the difference in tone between the 2 articles-- the exuberant London press in on the close with our brave coppers, and the meagerness of the haul...
2) I was talking about a private vault safety deposit box in another country, for diversification purposes. I find it unlikely that the German police could get a warrant to open all of Austria's anonymous private vault safe deposit boxes. In other words, if Germany went completely tyrannical, he'd lose his German assets. And if Austria went completely tyrannical, he'd lose his Austrian assets. But in order to lose all his assets, both countries would have to go tyrannical at the same time.
Well yes. But the 2 countries are in the EU. And of course Germany and Austria *were* 1 country, under one tyrant ;-).

One can easily imagine an EU (in fact it exists now, more or less) where police in one country can subpeona the opening of a safety deposit box in another. Or, in the case of American clients, US authorities can require any bank to disclose its dealings with all and any American citizens.

Setting that aside, I am sure Italians keep safety deposit boxes in Switzerland. But bank secrecy rules are under attack pretty much everywhere.

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Re: 80/20 stocks/gold portfolio

Post by normaldude » Sun May 04, 2014 12:06 pm

Valuethinker wrote:Or, in the case of American clients, US authorities can require any bank to disclose its dealings with all and any American citizens.

Setting that aside, I am sure Italians keep safety deposit boxes in Switzerland. But bank secrecy rules are under attack pretty much everywhere.
Admin Lady Geek says we're not allowed to talk about safety deposit boxes, but I have to point out that I never said anything about storing gold at a "bank". I was deliberately talking about non-bank private vault firms (which are more like high security storage lockers), which are not covered under FBAR & FATCA rules, or the upcoming OECD Automatic Exchange of Information system.

For diversification purposes, having some of your portfolio stored outside the financial system can make sense.

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Re: 80/20 stocks/gold portfolio

Post by dl7848 » Sun May 04, 2014 12:51 pm

hiddensee wrote:
Gold ballooned during the financial crisis despite low inflation, or even deflation. It would have significantly offset stock losses.
In 2008:

- Total Stock Market lost 37.04%

- Gold gained 4.98%.

- Long-term Treasury fund (VUSTX) gained 22.52%

People thought gold would be a disaster hedge. It was anything but. Though it did provide some protection.
That and lots of people react badly emotionally to gold, which to me is a mild positive.
You apparently haven't seen a gold bull market. People love gold. They can't get enough of it. Even people who have sworn off gold in the past. :D
I also just don't like governments.
I think protection against governments who may be harming the economic interests of their citizens can be a worthy goal, but sometimes governments make it hard to protect against them. If they want investors to put their money in stocks and bonds, instead of gold, for the good of the economy or for less noble reasons, they may try to enforce that. The gold market is small enough to push around and if it's in a government's best interests to do so, I wouldn't rule that possibility out. They can also enact laws to accomplish the same thing. But if protection against governments is really your goal, and you don't fear confiscation, buy physical gold. Of course, then you're stuck with the problem of storage.
But I don't think my long term expectations on government bonds are actually much better than gold. Recently they've dropped to near-zero, but even in the good times with my tax arrangements (no US tax free savings pots) the bond yield was practically zero in real terms after taxes.
You're missing the tremendous capital appreciation that comes with long-term Government bonds. That's what caused the 23% spike in 2008, not interest payments.
All people who are saying they're 0.1-5% in gold or something - I'm struggling to see the point of that. No plausible movement is going to have gold much affect either your total return or volatility.
I agree with you there. Either put a significant percent of your portfolio in gold or don't use gold at all.

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LH
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Re: 80/20 stocks/gold portfolio

Post by LH » Sun May 04, 2014 1:17 pm

I largely agree with you but you are simply not diversified with only stocks and gold

There going to be times when both gold and Stocks will take serious hits and especially with gold and maybe prolong hits as well as with Stocks there may be prolonged hits there certain economic conditions that only bonds will work well

wesmouch
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Re: 80/20 stocks/gold portfolio

Post by wesmouch » Sun May 04, 2014 1:58 pm

In Argentina it is common for Argentine citizens to keep US$100 bills in safety deposit boxes in banks in Uruguay. I am not sure why the same thing would not work for gold. At this time US citizens are not required to disclose gold held in safety deposit boxes overseas.

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LH
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Re: 80/20 stocks/gold portfolio

Post by LH » Sun May 04, 2014 4:18 pm

Gold is not an either a lot or none proposition.

I am currently at 3 percent, which is small, but gold can jump up 4-5 times under right conditions, which would turn it into 12-15 percent. then if stocks tank 70-90 percent, and stay down, well, that 12-15 percent of original portfolio is a huge proportion of your remaining money. Thats a different way of looking at things, from protection of original percentage, to what you actually have after the bad event happens, but if the bad event actually happens, its where you will be.... in reality. And in that reality, if you have twice as much money as you would have remaining if you did not have any gold, that is significant.....

Look.

Say 97stocks 3 percent gold. you have 100 dollars.

Say stocks drop 90 percent and stay down ten years. gold goes up 5 times in this disaster.

97(.1)=9.70 dollars left in stocks.
3(5)= 15 dollars left in gold.
total 24.70 dollars left

100(.1) = ten dollars left if all stock.

That 3 percent, in the end, left you with much much much more money that you would have had in the actual reality you would be experiencing at that time.

Now, its a crappy reality, sure. And its an example without bonds. So 3 percent, I would agree, is marginal, but its not as marginal as it would be for some thing, due to golds real high volatility ability in the right conditions. Its also hard to look at it from that perspective, versus as a percentage of the assets you had in the past.

But hey, if I had 1 million dollars in the past, and then I am left with 200 thousand, versus 100 thousand. You can look at it like 1) You lost 80 percent versus 90 percent, or 2) you have TWICE the money at the actual end state you experience in reality.

I would posit, its the end state you experience that will actually count to you then. 200K is a lot better than 100K.

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now that aside, again gold at 3 percent is marginal still. I will grant.
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now to the 5-10 percent range. the same reasoning above still holds. Take ten percent. If gold jumps 5 times, you are up to 50 percent of your portfolio in gold. Thats a lot of protection.



Then:

Ignoring disaster insurance type stuff. 5-10 percent gold will expectantly smooth ones portfolio. There is no reason to go into large holdings of gold to get this benefit. You are getting expectantly a better sharpe ratio I would posit, as well as some disaster type insurance.

there is no reason to go big, or go none at all. 5-10 percent of gold is reasonable to hold. 3 percent is marginal.

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