Permanent portfolio - short/long bond ETF dilemma

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Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Thu Feb 13, 2020 5:47 pm

Hi Bogleheads,

I'm trying to build a permanent portfolio in the EU with this allocation: 25% Stocks, 25% short term bonds, 25% long term bonds, 25% gold. I have a couple of questions for you:

1) Since short term bonds are mostly negative in Europe, I've read that keeping 25% of the portfolio in a saving account (instead of short term bonds) could be a better option. Would you agree with that?

2) I have found good ETFs for both stocks and gold, but I've had some difficulties with (accumulating) bond ETFs. Here's why: if I wanna keep the short term bond 25% in a saving account, I need to put the long term bond 25% in an actual long term bond ETF. But most bond ETFs (including those advised here for the PP) have mixed terms. The only one I've found that could potentially work is this: iBoxx € Sovereigns Eurozone 25+ TR-ucits (ISIN: LU0290357846). Although I was looking for something more global (and hedged). Would you put the LT bond 25% on this one? Doesn't feel completely ok to me... Or would you prefer a mixed term bond ETF although you already have 25% in a saving account (which should cover the ST 25%)? Or would you just put 50% of the portfolio (both ST and LT) in a mixed term ETF and skip the saving account altogether?

Thank you in advance for your help

vilpk
Posts: 6
Joined: Mon Feb 10, 2020 7:38 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by vilpk » Fri Feb 14, 2020 3:12 am

Hey Matt,

Seems a new Harry Browne'r coming here :D . No worries, I am a fan of this stuff too (by the way those guys have their own forum too - https://www.gyroscopicinvesting.com/forum/index.php ). IMHO Permanent Portfolio was designed to be working in the context of US, having in mind that Gold is the next thing people have in mind when they loose their confidence in US-related artifacts (think of US-stocks, US dollars, etc.). Though in general, you do not have that relation between EU-related artifacts and Gold. Pure EU bonds (short, long, any) are a bit of pain, too. There is no need to keep short-term EU bonds and suffering losses, can just keep cash/CD.
Having said all that, I'd rather think of something more global (that anyway have a good % of allocation to US equities and bonds) than pure EU-implementation of the 25/25/25/25 allocation you mentioned.With this in mind the choice of ETFs differ as well.

Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Sun Feb 16, 2020 3:46 pm

Hi Vilpk,

Thank you for your answer. You are absolutetly right. I'm looking for global exposure. I picked a stock ETF that is global. Problem is I can't find any long term bond ETFs that are not just eurozone government bonds... I don't wanna buy too much of mixed term bond ETFs because I already have my short term 25% in a saving account... Will keep looking for one that is suitable for euorpean investors though (when it comes to bonds it is better to be hedged).

Schlabba
Posts: 351
Joined: Sat May 11, 2019 9:14 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Schlabba » Sun Feb 16, 2020 4:04 pm

matt_eu wrote:
Sun Feb 16, 2020 3:46 pm
Hi Vilpk,

Thank you for your answer. You are absolutetly right. I'm looking for global exposure. I picked a stock ETF that is global. Problem is I can't find any long term bond ETFs that are not just eurozone government bonds... I don't wanna buy too much of mixed term bond ETFs because I already have my short term 25% in a saving account... Will keep looking for one that is suitable for euorpean investors though (when it comes to bonds it is better to be hedged).
Hi,

I did a quick search on iShares and I found "DTLE iShares $ Treasury Bond 20+yr UCITS ETF", EUR hedged with a duration of 18 years. So if you combine that with the EUR fund you have 2 continents covered :happy

Can I ask you why you are choosing the permanent portfolio? Do you have any interesting links that I can read? I am just curious, I won't recommend the 3-fund portfolio, I promise!

Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Sun Feb 16, 2020 6:20 pm

Schlabba wrote:
Sun Feb 16, 2020 4:04 pm
Hi,

I did a quick search on iShares and I found "DTLE iShares $ Treasury Bond 20+yr UCITS ETF", EUR hedged with a duration of 18 years. So if you combine that with the EUR fund you have 2 continents covered :happy

Can I ask you why you are choosing the permanent portfolio? Do you have any interesting links that I can read? I am just curious, I won't recommend the 3-fund portfolio, I promise!
Hi Schlabba,

Thank you! This looks like an interesting ETF for my porpouse, but I am trying to avoid distributing ETFs and at the moment I am only buying accumulating ETFs for tax reasons. My investment is long term and I would really like to avoid giving up 26% (Italian rate) of the dividend without a good reason... But if nothing else comes up I might as well end up buying distributing to balance the portfolio.

Also it looks like this ETF is not available from my broker (maybe bacuse it is not listed in Italy, Germany, France or The Netherlands).

About the asset allocation of my portfolio, well... I reasearched a lot in the past, but I should carefully pick some links to share (if you are interested I'll do asap). If I understand well, you are not a big fan of gold, are you?

Schlabba
Posts: 351
Joined: Sat May 11, 2019 9:14 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Schlabba » Mon Feb 17, 2020 2:56 am

matt_eu wrote:
Sun Feb 16, 2020 6:20 pm
Schlabba wrote:
Sun Feb 16, 2020 4:04 pm
Hi,

I did a quick search on iShares and I found "DTLE iShares $ Treasury Bond 20+yr UCITS ETF", EUR hedged with a duration of 18 years. So if you combine that with the EUR fund you have 2 continents covered :happy

Can I ask you why you are choosing the permanent portfolio? Do you have any interesting links that I can read? I am just curious, I won't recommend the 3-fund portfolio, I promise!
Hi Schlabba,

Thank you! This looks like an interesting ETF for my porpouse, but I am trying to avoid distributing ETFs and at the moment I am only buying accumulating ETFs for tax reasons. My investment is long term and I would really like to avoid giving up 26% (Italian rate) of the dividend without a good reason... But if nothing else comes up I might as well end up buying distributing to balance the portfolio.

Also it looks like this ETF is not available from my broker (maybe bacuse it is not listed in Italy, Germany, France or The Netherlands).

About the asset allocation of my portfolio, well... I reasearched a lot in the past, but I should carefully pick some links to share (if you are interested I'll do asap). If I understand well, you are not a big fan of gold, are you?
I’d like to read them!

I am not a big fan of gold as my drawdown-phase is still some time off but maybe at some point I’ll be more conservative and concern myself more with protecting my assets instead of growing them.
I also looked at high dividend yield index investing for this reason (the thinking was along the lines of: dividends are more stable than share prices, so there is less risk from volatility).

Anon9001
Posts: 285
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Location: भारत

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Anon9001 » Mon Feb 17, 2020 9:18 am

matt_eu wrote:
Thu Feb 13, 2020 5:47 pm
Hi Bogleheads,

I'm trying to build a permanent portfolio in the EU with this allocation: 25% Stocks, 25% short term bonds, 25% long term bonds, 25% gold. I have a couple of questions for you:

1) Since short term bonds are mostly negative in Europe, I've read that keeping 25% of the portfolio in a saving account (instead of short term bonds) could be a better option. Would you agree with that?

2) I have found good ETFs for both stocks and gold, but I've had some difficulties with (accumulating) bond ETFs. Here's why: if I wanna keep the short term bond 25% in a saving account, I need to put the long term bond 25% in an actual long term bond ETF. But most bond ETFs (including those advised here for the PP) have mixed terms. The only one I've found that could potentially work is this: iBoxx € Sovereigns Eurozone 25+ TR-ucits (ISIN: LU0290357846). Although I was looking for something more global (and hedged). Would you put the LT bond 25% on this one? Doesn't feel completely ok to me... Or would you prefer a mixed term bond ETF although you already have 25% in a saving account (which should cover the ST 25%)? Or would you just put 50% of the portfolio (both ST and LT) in a mixed term ETF and skip the saving account altogether?

Thank you in advance for your help
I have a big warning for you that the tracking error in relation to the Stock Market will be very high. The PP will under-perform heavily when there is a prosperity and out-perform when there is a recession. The issue is that most of the time prosperity is the dominant economic climate and not recession so the allocation of 25% to Gold,Equities Cash and Bonds will make sure you under-perform most of the time. I would modify the allocation to 50% equities to alleviate this issue.

Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Mon Feb 17, 2020 1:51 pm

Schlabba wrote:
Mon Feb 17, 2020 2:56 am

I’d like to read them!

I am not a big fan of gold as my drawdown-phase is still some time off but maybe at some point I’ll be more conservative and concern myself more with protecting my assets instead of growing them.
I also looked at high dividend yield index investing for this reason (the thinking was along the lines of: dividends are more stable than share prices, so there is less risk from volatility).
I do understand. But I am getting a little concerned with the way Central Banks have been handling their monetary policies in the last few years. This is the main reason I'm holding gold. I don't see how they can reverse their policies at this point (it would be a catastrophe at least in the short term and politicians don't want be in charge during a bad recession, which is now long overdue, and have enough power to pressure the central bankers) and not keeping printing money out of nowhere... So far gold has been among the best performers in my portfolio if not the best performer (although I've just started building my portfolio a few months ago...).

I do agree with you on dividends, I've recently bought this: DE000A2AHL75 (it's part of my 25% allocated in stocks). What do you think about this ETF?

Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Mon Feb 17, 2020 1:55 pm

Anon9001 wrote:
Mon Feb 17, 2020 9:18 am
I have a big warning for you that the tracking error in relation to the Stock Market will be very high. The PP will under-perform heavily when there is a prosperity and out-perform when there is a recession. The issue is that most of the time prosperity is the dominant economic climate and not recession so the allocation of 25% to Gold,Equities Cash and Bonds will make sure you under-perform most of the time. I would modify the allocation to 50% equities to alleviate this issue.
Hi Annon,

Thank you for your advice. A few years ago I would have probably skipped the 25% gold and would have been more aggressive towards stocks, but... Well the way Central Bankers have been handling monetary policies recently is a big concern for me. I'm into politics and I think the situation will keep getting worse and worse at this point (I am talking about interest rates and QE). This is why I am holding 25% of my portfolio in gold, which has been among the best performers since I started investing again (although this happened only a few months ago). I know we shouldn't probably try to time the market, but I would feel extremely nervous putting 50% of my portfolio in stocks right now...

Anon9001
Posts: 285
Joined: Fri Dec 20, 2019 9:28 am
Location: भारत

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Anon9001 » Mon Feb 17, 2020 2:21 pm

matt_eu wrote:
Mon Feb 17, 2020 1:55 pm
Anon9001 wrote:
Mon Feb 17, 2020 9:18 am
I have a big warning for you that the tracking error in relation to the Stock Market will be very high. The PP will under-perform heavily when there is a prosperity and out-perform when there is a recession. The issue is that most of the time prosperity is the dominant economic climate and not recession so the allocation of 25% to Gold,Equities Cash and Bonds will make sure you under-perform most of the time. I would modify the allocation to 50% equities to alleviate this issue.
Hi Annon,

Thank you for your advice. A few years ago I would have probably skipped the 25% gold and would have been more aggressive towards stocks, but... Well the way Central Bankers have been handling monetary policies recently is a big concern for me. I'm into politics and I think the situation will keep getting worse and worse at this point (I am talking about interest rates and QE). This is why I am holding 25% of my portfolio in gold, which has been among the best performers since I started investing again (although this happened only a few months ago). I know we shouldn't probably try to time the market, but I would feel extremely nervous putting 50% of my portfolio in stocks right now...
You misunderstood I would keep the Gold at 25% but increase the Equities to 50%. The allocation should be this:

50% Equities
12.5% Cash
12.5% Long Term Bonds
25% Gold

You can split the Equities portion 25% in Low Volatility Equities and 25% in Global Market Cap Weighted Index if you are worried about recession as low volatility stocks will fell less than normal stocks when recession occurs.

Schlabba
Posts: 351
Joined: Sat May 11, 2019 9:14 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Schlabba » Mon Feb 17, 2020 2:44 pm

matt_eu wrote:
Mon Feb 17, 2020 1:51 pm
Schlabba wrote:
Mon Feb 17, 2020 2:56 am

I’d like to read them!

I am not a big fan of gold as my drawdown-phase is still some time off but maybe at some point I’ll be more conservative and concern myself more with protecting my assets instead of growing them.
I also looked at high dividend yield index investing for this reason (the thinking was along the lines of: dividends are more stable than share prices, so there is less risk from volatility).
I do understand. But I am getting a little concerned with the way Central Banks have been handling their monetary policies in the last few years. This is the main reason I'm holding gold. I don't see how they can reverse their policies at this point (it would be a catastrophe at least in the short term and politicians don't want be in charge during a bad recession, which is now long overdue, and have enough power to pressure the central bankers) and not keeping printing money out of nowhere... So far gold has been among the best performers in my portfolio if not the best performer (although I've just started building my portfolio a few months ago...).

I do agree with you on dividends, I've recently bought this: DE000A2AHL75 (it's part of my 25% allocated in stocks). What do you think about this ETF?
I didn't know that one. It says on "https://www.wisdomtree.com/index/wtddg":
WisdomTree Global Developed Quality Dividend Growth Index
WisdomTree Global Developed Quality Dividend Growth Index is a fundamentally weighted Index designed to provide exposure to dividend paying companies from the U.S. and the developed world with growth characteristics. The Index is comprised of the top 600 companies from the WisdomTree Global Dividend Index with the best combined rank of growth and quality factors. The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets. Companies are weighted in the Index based on annual cash dividends paid. The Index was established with a base value of 200 on March 31, 2016.
My first impression: It sounds like its trying to beat the market with a magic formula. Its also not a market-cap weighted , but instead "based on annual cash dividends paid", both of which don't sound attractive to me.

Before investing in it I would certainly try to read as much as possible about their method of selecting shares, because right now I don't really know what they are doing. I know some people love dividend growth investing but I don't know this specific index.


I myself was eyeballing the "Vanguard FTSE All-World High Dividend Yield UCITS ETF" (TER of 0.29%). Which says:
The Fund seeks to track the performance of the index, a free float adjusted market-capitalisation-weighted index of common stocks of companies, excluding real estate trusts, in developed and emerging markets that pay dividends that are generally higher than average.
So it is basically a market-cap weighted index buying the top half of the dividend payers. That is a lot closer to a regular total market fund and easier to understand :happy

Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Mon Feb 17, 2020 2:55 pm

Schlabba wrote:
Mon Feb 17, 2020 2:44 pm

I myself was eyeballing the "Vanguard FTSE All-World High Dividend Yield UCITS ETF" (TER of 0.29%). Which says:
The Fund seeks to track the performance of the index, a free float adjusted market-capitalisation-weighted index of common stocks of companies, excluding real estate trusts, in developed and emerging markets that pay dividends that are generally higher than average.
So it is basically a market-cap weighted index buying the top half of the dividend payers. That is a lot closer to a regular total market fund and easier to understand :happy
This one looks pretty good, I probably saw it while looking for dividend growth ETFs, but it is Distributing and I am only buying Accumulating ETFs :(

Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Mon Feb 17, 2020 3:17 pm

Anon9001 wrote:
Mon Feb 17, 2020 2:21 pm
You misunderstood I would keep the Gold at 25% but increase the Equities to 50%. The allocation should be this:

50% Equities
12.5% Cash
12.5% Long Term Bonds
25% Gold

You can split the Equities portion 25% in Low Volatility Equities and 25% in Global Market Cap Weighted Index if you are worried about recession as low volatility stocks will fell less than normal stocks when recession occurs.
Hi Annon,

Oh, ok, yes I did misunderstood you. This portfolio looks more interesting to me. I do believe, at least in this phase, that cash really is trash,... So only 25% in cash/bonds makes sense to me.

Although I have just recently started investing again so I'm slowly putting my cash into ETFs, but I'm afarid that I would be "timing the market" completely wrong abrutly putting 50% of my savings (of several years) in equities at this point. A correction (maybe a recession) is long overdue and I have missed the last few years' growth in equities.

So I'm slowling getting in, but I'm keeping a more conservative approach at the moment... but your portfolio definitely makes sense in a longer term prospective or if you had been costantly investing for the last decade or more...

Schlabba
Posts: 351
Joined: Sat May 11, 2019 9:14 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Schlabba » Mon Feb 17, 2020 3:26 pm

matt_eu wrote:
Mon Feb 17, 2020 2:55 pm
Schlabba wrote:
Mon Feb 17, 2020 2:44 pm

I myself was eyeballing the "Vanguard FTSE All-World High Dividend Yield UCITS ETF" (TER of 0.29%). Which says:
The Fund seeks to track the performance of the index, a free float adjusted market-capitalisation-weighted index of common stocks of companies, excluding real estate trusts, in developed and emerging markets that pay dividends that are generally higher than average.
So it is basically a market-cap weighted index buying the top half of the dividend payers. That is a lot closer to a regular total market fund and easier to understand :happy
This one looks pretty good, I probably saw it while looking for dividend growth ETFs, but it is Distributing and I am only buying Accumulating ETFs :(
There is an accumulating version as well :sharebeer

Topic Author
matt_eu
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Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Mon Feb 17, 2020 3:29 pm

Schlabba wrote:
Mon Feb 17, 2020 3:26 pm

There is an accumulating version as well :sharebeer
Oh no, it's only listed in GBP and USD in London, argh! Otherwise I would have picked it right away (well I mean tomorrow morning :D )... Thank you anyway!

Topic Author
matt_eu
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Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Mon Feb 17, 2020 3:30 pm

Anon9001 wrote:
Mon Feb 17, 2020 2:21 pm

You can split the Equities portion 25% in Low Volatility Equities and 25% in Global Market Cap Weighted Index if you are worried about recession as low volatility stocks will fell less than normal stocks when recession occurs.
Would you have any suggestions for good Low Volatility Equities ETFs, preferbly Ireland or Luxemburg domiciled? That would be much appreciated.

Anon9001
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Location: भारत

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Anon9001 » Tue Feb 18, 2020 1:03 am

matt_eu wrote:
Mon Feb 17, 2020 3:30 pm
Anon9001 wrote:
Mon Feb 17, 2020 2:21 pm

You can split the Equities portion 25% in Low Volatility Equities and 25% in Global Market Cap Weighted Index if you are worried about recession as low volatility stocks will fell less than normal stocks when recession occurs.
Would you have any suggestions for good Low Volatility Equities ETFs, preferbly Ireland or Luxemburg domiciled? That would be much appreciated.
https://www.justetf.com/uk/etf-profile. ... 00B8FHGS14

https://www.justetf.com/uk/etf-profile. ... 00BL25JN58

Either of the two should be fine. For full list of low volatility ETF's:https://www.justetf.com/uk/find-etf.htm ... gion=World

Anon9001
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Location: भारत

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Anon9001 » Tue Feb 18, 2020 2:50 am

matt_eu wrote:
Mon Feb 17, 2020 3:17 pm
Anon9001 wrote:
Mon Feb 17, 2020 2:21 pm
You misunderstood I would keep the Gold at 25% but increase the Equities to 50%. The allocation should be this:

50% Equities
12.5% Cash
12.5% Long Term Bonds
25% Gold

You can split the Equities portion 25% in Low Volatility Equities and 25% in Global Market Cap Weighted Index if you are worried about recession as low volatility stocks will fell less than normal stocks when recession occurs.
Hi Annon,

Oh, ok, yes I did misunderstood you. This portfolio looks more interesting to me. I do believe, at least in this phase, that cash really is trash,... So only 25% in cash/bonds makes sense to me.

Although I have just recently started investing again so I'm slowly putting my cash into ETFs, but I'm afarid that I would be "timing the market" completely wrong abrutly putting 50% of my savings (of several years) in equities at this point. A correction (maybe a recession) is long overdue and I have missed the last few years' growth in equities.

So I'm slowling getting in, but I'm keeping a more conservative approach at the moment... but your portfolio definitely makes sense in a longer term prospective or if you had been costantly investing for the last decade or more...
I did do a back-test back to 1986 of 50% Equities 12.5% Cash 12.5% Long Term Bonds 25% Gold Portfolio and the Max Drawdown I got was 23.75%:
https://www.portfoliovisualizer.com/bac ... tion5_1=25

If you are comfortable with losing Maximum 23.75% of your money you can use this portfolio.

vilpk
Posts: 6
Joined: Mon Feb 10, 2020 7:38 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by vilpk » Tue Feb 18, 2020 8:16 am

matt_eu wrote:
Mon Feb 17, 2020 3:30 pm
Anon9001 wrote:
Mon Feb 17, 2020 2:21 pm

You can split the Equities portion 25% in Low Volatility Equities and 25% in Global Market Cap Weighted Index if you are worried about recession as low volatility stocks will fell less than normal stocks when recession occurs.
Would you have any suggestions for good Low Volatility Equities ETFs, preferbly Ireland or Luxemburg domiciled? That would be much appreciated.
I am using IQQ0 and EUN0. Recently (yesterday) I received some update from my broker about those, but was not really able to understand it (should have a deeper look when I find some more time) - apparently something in the ETF usage conditions have changed.

EDIT: Just checked, oddly enough my broker stated that risk profile has changed. For IQQ0 I can definitely see in the older KID documents having risk 4 (out of 7), while the current one is having risk 5 (again out of 7). So, seems BlackRock consider the min volatility as riskier now :oops:

Regarding gold - I will tell you a short and personal story.. Half an hour ago, I was having a walk outside wearing a T-shirt (while in the not that distant past it was -5/-10 at this point of the "winter") - I would stick to PP, or any VP having substantial amounts of Gold :D I would not go further advising to buy land, gun, etc. but you get my idea ... Actually my worst worries are about the climate crisis causing (or coinciding with) the next bear market... I really hope that I am wrong and I would gladly accept any loses due to having Gold in my portfolio ...

Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Wed Feb 19, 2020 5:58 pm

Anon9001 wrote:
Tue Feb 18, 2020 2:50 am
I did do a back-test back to 1986 of 50% Equities 12.5% Cash 12.5% Long Term Bonds 25% Gold Portfolio and the Max Drawdown I got was 23.75%:
https://www.portfoliovisualizer.com/bac ... tion5_1=25

If you are comfortable with losing Maximum 23.75% of your money you can use this portfolio.
[/quote]

Not sure if I would be 100% comfortable with that... but that's a very interesting tool! Thank you

Topic Author
matt_eu
Posts: 16
Joined: Sun Feb 02, 2020 4:18 pm

Re: Permanent portfolio - short/long bond ETF dilemma

Post by matt_eu » Wed Feb 19, 2020 6:07 pm

vilpk wrote:
Tue Feb 18, 2020 8:16 am

Regarding gold - I will tell you a short and personal story.. Half an hour ago, I was having a walk outside wearing a T-shirt (while in the not that distant past it was -5/-10 at this point of the "winter") - I would stick to PP, or any VP having substantial amounts of Gold :D I would not go further advising to buy land, gun, etc. but you get my idea ... Actually my worst worries are about the climate crisis causing (or coinciding with) the next bear market... I really hope that I am wrong and I would gladly accept any loses due to having Gold in my portfolio ...
Definitely agree, my concern, as I said before, is about monetary policies in the next recession, which will come at a certain point... Especially in the eurozone the ECB is out of ammunitions... interest rates at a record low and QE alive and kicking... What will they do next? The situation is not much different in the USA or Japan, so... wouldn't know where to turn if not to gold when cash is trash and equities are going down...

By the way, gold is up more than 2% since my last message and it's only been a couple of days... Ironically I'm actually scared it's going up too fast (still need to increase my gold %)

PS: only good thing about a downturn is that global pollution could go down, it looks like it's already down (although it's likely going to be temporary) due to halt in economic activities in China after the coronavirus outbreak.

Valuethinker
Posts: 39440
Joined: Fri May 11, 2007 11:07 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Valuethinker » Thu Feb 20, 2020 4:33 am

vilpk wrote:
Tue Feb 18, 2020 8:16 am
matt_eu wrote:
Mon Feb 17, 2020 3:30 pm
Anon9001 wrote:
Mon Feb 17, 2020 2:21 pm

You can split the Equities portion 25% in Low Volatility Equities and 25% in Global Market Cap Weighted Index if you are worried about recession as low volatility stocks will fell less than normal stocks when recession occurs.
Would you have any suggestions for good Low Volatility Equities ETFs, preferbly Ireland or Luxemburg domiciled? That would be much appreciated.
I am using IQQ0 and EUN0. Recently (yesterday) I received some update from my broker about those, but was not really able to understand it (should have a deeper look when I find some more time) - apparently something in the ETF usage conditions have changed.

EDIT: Just checked, oddly enough my broker stated that risk profile has changed. For IQQ0 I can definitely see in the older KID documents having risk 4 (out of 7), while the current one is having risk 5 (again out of 7). So, seems BlackRock consider the min volatility as riskier now :oops:

Regarding gold - I will tell you a short and personal story.. Half an hour ago, I was having a walk outside wearing a T-shirt (while in the not that distant past it was -5/-10 at this point of the "winter") - I would stick to PP, or any VP having substantial amounts of Gold :D I would not go further advising to buy land, gun, etc. but you get my idea ... Actually my worst worries are about the climate crisis causing (or coinciding with) the next bear market... I really hope that I am wrong and I would gladly accept any loses due to having Gold in my portfolio ...
Bear markets are typically of the duration of 1-4 years. Japan is an obvious outlier, in essence a 30+ year bear market. But even the 1930s global stock market bear market ended in the 1940s.

The climate crisis is of duration of decades and centuries. Although it has shorter term investment implications in terms of stock selection, it's not going to cause the next bear market. Or if it does, by compelling individuals, companies and governments to spend more money on abatement & adaptation, it's probably on balance net good for the economy (depends on which model you use).

Just remember. Tobacco is a "dying" industry that sells a product that demonstrably kills, is highly taxed and of which consumption is discouraged. But it has been a tremendous money spinner for shareholders.

I think The Permanent Portfolio is nuts & its past success is based largely on the long term fall in interest rates. But I can certainly make a case for a 5% weighting in gold in the portfolio.

vilpk
Posts: 6
Joined: Mon Feb 10, 2020 7:38 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by vilpk » Thu Feb 20, 2020 9:28 am

But even the 1930s global stock market bear market ended in the 1940s.
At the end of the day, it all depends on whether one really think he\she would not need the invested money (or at least most of them :mrgreen:) in the foreseeable future. A good life/health insurance does not harm, too.

Schlabba
Posts: 351
Joined: Sat May 11, 2019 9:14 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Schlabba » Thu Feb 20, 2020 2:39 pm

Valuethinker wrote:
Thu Feb 20, 2020 4:33 am
...
The climate crisis is of duration of decades and centuries. Although it has shorter term investment implications in terms of stock selection, it's not going to cause the next bear market. Or if it does, by compelling individuals, companies and governments to spend more money on abatement & adaptation, it's probably on balance net good for the economy (depends on which model you use).
...
How is that good for the economy? Any money spent on climate change could have been spent on something else if you weren't forced to spend it there.
The same for government investments; at most it is a redistribution from the tax-payer to the companies that get benefits from those government investments.

Shorter term rules and regulations might make "our" European companies less competitive than foreign companies. Imposing a tariff on foreign goods and services just shifts that bill from the companies to the consumers.

Could you provide me the model where it is supposed to be good for the economy?

Valuethinker
Posts: 39440
Joined: Fri May 11, 2007 11:07 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Valuethinker » Thu Feb 20, 2020 5:15 pm

Schlabba wrote:
Thu Feb 20, 2020 2:39 pm
Valuethinker wrote:
Thu Feb 20, 2020 4:33 am
...
The climate crisis is of duration of decades and centuries. Although it has shorter term investment implications in terms of stock selection, it's not going to cause the next bear market. Or if it does, by compelling individuals, companies and governments to spend more money on abatement & adaptation, it's probably on balance net good for the economy (depends on which model you use).
...
How is that good for the economy? Any money spent on climate change could have been spent on something else if you weren't forced to spend it there.
If you use a Keynesian model there are slack resources in the economy. The additional spending not only displaces, it also increases total economic activity. I believe that businesses invest when they see an increase in demand so that the spending will have a positive effect on the total productive capacity of the economy.

Under current monetary conditions there is no evidence of crowding out taking place. The argument that labour or other factors of production is scarce may be true in some economies (the US comes to mind) but is almost certainly not true in Europe as a whole (over 25% of Spanish youth not in education are still economically inactive). It might not even be true of countries that are doing "well".

If the Eurozone were not trapped in German sado-fiscalism, it could stage a huge spending programme on public works and public goods, and drive unemployment down below the 2007 levels. The IMF has said as much. Get a proper running start on decarbonisation.

Floods are terrible things, but all that money spent cleaning up and reinforcing flood defences is net good for GDP.

This does not mean that I think climate change is a good thing. The costs are very unequally distributed - heavily skewed towards poorer, southern countries that did the least to cause the problem. And with "tail risks" that are huge - an uncontrollable shift in the climate that leaves much of the planet uninhabitable by human beings, or triggers off wars that lead to our nuclear destruction.
The same for government investments; at most it is a redistribution from the tax-payer to the companies that get benefits from those government investments.
Highways. Education. Primary health care? Mass vaccination? Medical research? Scientific research? These are simply redistributive? They don't increase the total wellbeing of the society?

How about faster broadband? More energy efficient homes?
Shorter term rules and regulations might make "our" European companies less competitive than foreign companies. Imposing a tariff on foreign goods and services just shifts that bill from the companies to the consumers.
How did we get onto tariffs? They are a bad idea and the UK's negotiating strategy on trade post Brexit is stupid.
Could you provide me the model where it is supposed to be good for the economy?
Any Keynesian model would do that.

Schlabba
Posts: 351
Joined: Sat May 11, 2019 9:14 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Schlabba » Fri Feb 21, 2020 5:37 am

Valuethinker wrote:
Thu Feb 20, 2020 5:15 pm
Floods are terrible things, but all that money spent cleaning up and reinforcing flood defences is net good for GDP.
This shows the core of our disagreement. If there is no flood, you could spend your money on buying a new car or starting a company. If there is a flood, you end up spending the money on repairs (whether through tax or personal spending).

Exaggerating a little: lets flood our countries every year and we will be an economic powerhouse!
Valuethinker wrote:
Thu Feb 20, 2020 5:15 pm
Highways. Education. Primary health care? Mass vaccination? Medical research? Scientific research? These are simply redistributive? They don't increase the total wellbeing of the society?
I am talking about slightly less co2 emissions. If the government forces us/companies to spend on slightly less co2, we cannot spend that money on something else.

As far as tariffs goes: if you add regulation to our companies, they become less efficient. So what you then need to do is add a tariff on foreign products because they have a competitive advantage. I didn’t make this up, this is part of the european green deal plan for 2050.

Valuethinker
Posts: 39440
Joined: Fri May 11, 2007 11:07 am

Re: Permanent portfolio - short/long bond ETF dilemma

Post by Valuethinker » Fri Feb 21, 2020 7:41 am

Schlabba wrote:
Fri Feb 21, 2020 5:37 am
Valuethinker wrote:
Thu Feb 20, 2020 5:15 pm
Floods are terrible things, but all that money spent cleaning up and reinforcing flood defences is net good for GDP.
This shows the core of our disagreement. If there is no flood, you could spend your money on buying a new car or starting a company. If there is a flood, you end up spending the money on repairs (whether through tax or personal spending).
There's plenty of excess savings out there or presumably we would not have interest rates as low as we do?

The evidence is the private sector cannot figure out what to do with all his money.

It's certainly true that if we give money to people on low incomes they are more likely to spend it (higher Marginal Propensity to Consume) - so taxing high incomes and savers more highly is likely to be stimulative.
Exaggerating a little: lets flood our countries every year and we will be an economic powerhouse!
Exaggerating a lot. Yes there is a situation where your marginal product of capital invested falls below zero. China staged the largest fiscal stimulus in world history, outside of wartime, post 2008. And it has led to those empty cities and massive overcapacity in basic industries. On the other hand, they may need those subways and high speed railways some day.

But consider. If we went to (conventional) war again, then the entire economy would be galvanised. This is precisely what happened to the US economy post 1939 as the western allies built up for WW2, and then the US lent the British more money to keep them spending, post May 1940. Once Churchill had persuaded the Americans that Britain would fight on, the taps were turned on, Roosevelt and Marshall found ways around the Neutrality Acts, and the Arsenal of Democracy geared up. Post Pearl Harbor, that took up another step again - with the entry of women into the workforce, significantly expanded the productive capacity of that economy, in effect greater than full employment. Think of the construction of the Alaska Highway through Canada and the USA - a land route to Alaska. Or the first oil pipeline from Texas and OK to the northeast USA. Or the Liberty Ships - the first one took them something like 12 months but by the end of the war they were building one in 30 days? The world's largest aircraft factory at Rouge River outside Detroit, etc. etc.

Making bombs and shells, many of which were later dumped in the Irish Sea (exactly where Boris wants to build his bridge), is not a productive economic activity. Marginal product of that is certainly zero or negative. But the prosperity of the USA was unprecedented for a wartime economy.

This is hardly to justify the most terrible war in human history (except for the next one ;-)) but simply to note that what was attained was incredible focus and deployment of resources.
Valuethinker wrote:
Thu Feb 20, 2020 5:15 pm
Highways. Education. Primary health care? Mass vaccination? Medical research? Scientific research? These are simply redistributive? They don't increase the total wellbeing of the society?
I am talking about slightly less co2 emissions. If the government forces us/companies to spend on slightly less co2, we cannot spend that money on something else.
The social cost of a tonne of CO2 runs anywhere from $100 towards infinity. Read William Nordhaus (Nobel prize winner for his work on environmental economics). "Climate Casino".
As far as tariffs goes: if you add regulation to our companies, they become less efficient. So what you then need to do is add a tariff on foreign products because they have a competitive advantage. I didn’t make this up, this is part of the european green deal plan for 2050.
If other parts of the world don't accept the damage of their activities, there is no reason to privilege their steel mills against ours.

net zero is going to change our societies. So did the Second World War, and the challenge is as titanically great.

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