Is it OK to tinker with the PP asset category percentages?

[StinkyToes]

First-time poster here. I know the pure PP is 25/25/25/25, but do you all think it's OK to tinker with the percentages based on our personal hunches? And where do TIPS fit into the PP?

I'm inclined to do something like this:

Cash: 10 (have always struggled with the idea of putting 25% of my assets in cash, which is historically a very low-performing asset)
Long-term TIPS: 10 (excellent protection against inflation; would keep these in a tax-deferred account to avoid taxes on phantom income)
Long-term treasuries: 20 (we have had a 40-year bull market in bonds. How much longer can it go on?)
Stocks: 25 (I'm agnostic about the future of stocks, so would just stick with the standard allocation)
Gold: 35 (was the best performing asset by far over the last 20 years and I believe this trend will continue due to fiscal and monetary stimulus; most investors are still underweight. My only hesitation is due to the poor tax treatment of gold relative to other asset categories.)

[Smith1776]

Above all else, think independently. If you think that Browne was wrong or his ideas can be improved upon, don't hesitate to make modifications. Trust your own judgement. I, for instance, think that Craig and Tex were wrong to shun factor tilting in the PP. I still think this way.

Having said that. There are some other ways to approach this.

You could simply have a canonical PP and then have all these additional allocations in the VP.

Or, we could take into consideration what Browne said in Best Laid Plans. He said that he hoped the investor would not have more than 35% or less than 20% in any given asset. If you're within those bounds it apparently still has Browne's "blessings."

Still, I think the high order bit is the independent thinking. If you're confident that your modifications are improvements or suit your needs better than the traditional PP, don't hesitate.

EDIT: Fixed a crazy bad typo.

[Libertarian666]

Above all else, think independently. If you think that Browne was wrong or his ideas can be improved upon, don't hesitate to make modifications. Trust your own judgement. I, for instance, think that Craig and Tex were wrong to shun factor tilting in the PP. I still think this way.

Having said that. There are some other ways to approach this.

You could simply have a canonical PP and then have all these additional allocations in the PP.

Or, we could take into consideration what Browne said in Best Laid Plans. He said that he hoped the investor would not have more than 35% or less than 20% in any given asset. If you're within those bounds it apparently still has Browne's "blessings."

Still, I think the high order bit is the independent thinking. If you're confident that your modifications are improvements or suit your needs better than the traditional PP, don't hesitate.

Fine, as long as the high-order bit doesn't flip the sign of the result.

[pmward]

The PP is more about the principles than it is the exact 4x25 ratios, imo. Browne himself had multiple variations of the PP. Tinker away. That being said, it's times like this that you learn to appreciate cash. It is very nice having a large chunk of liquid optionality to buy beaten down stocks.

[mathjak107]

Which aren’t so beaten down anymore ......

Some of The worst news in history today and stocks rally .....it shows how impossible timing all in or all out can be .....

Wall Street and Main Street have no real link ....they look at very different things ...Main Street looks at mass layoffs and goes how awful , Wall Street looks at mass layoffs and and goes nice ,that will balance the bottom line

[dualstow]

I'm inclined to do something like this:

Cash: 10 (have always struggled with the idea of putting 25% of my assets in cash
...
Stocks: 25 ...
Gold: 35 ...

(Smith) Or, we could take into consideration what Browne said in Best Laid Plans. He said that he hoped the investor would not have more than 35% or less than 20% in any given asset. If you're within those bounds it apparently still has Browne's "blessings."

This is what I go by. A caller on Harry's radio show said he was down to 10% in gold, and a few other things were out of whack. Especially cash, if I remember right. Harry said something to the effect of, "you don't really have a pp there."

If you want to have a portfolio with only 10% cash, why not just give up the idea of calling it a pp? All you're losing is a label, and the illusion that you have a Harry Browne Permanent Portfolio (HBPP). It's more important that you stick with your plan (once you have it) and not change it every year. That's far more important than exact percentages.

[Smith1776]

This is what I go by. A caller on Harry's radio show said he was down to 10% in gold, and a few other things were out of whack. Especially cash, if I remember right. Harry said something to the effect of, "you don't really have a pp there."

I can't imagine owning only 10% gold in my portfolio.

Saying that, it really hits home how different we all are in this forum. For most investors, it seems like 10% is something of a hard upper limit. To me, that's being awfully skimpy haha.

[dualstow]

This is what I go by. A caller on Harry's radio show said he was down to 10% in gold, and a few other things were out of whack. Especially cash, if I remember right. Harry said something to the effect of, "you don't really have a pp there."

I can't imagine owning only 10% gold in my portfolio.

Saying that, it really hits home how different we all are in this forum. For most investors, it seems like 10% is something of a hard upper limit. To me, that's being awfully skimpy haha.

It’s funny, I can’t imagine owning a full 25%, which is why I have to have a vp. (The absolutists at B’heads will say it’s mental accounting and that you have to add all the portfolios together, and they may have a point. But, this is how I am able to follow the rules with the pp portion).

Sadly, my reasons for not owning more gold are somewhat petty. I don’t like the different prices at different dealers and the fact that the price is always different at the moment I make an order official. I don’t like the spreads and, right now, the near-inability to order. I don’t like wondering what forms I need to fill out for paper and physical gold, and neither does my accountant.

My only non-petty reasons are a real fear that my gold will be stolen from my home or mishandled by the bank.

All this aside, it’s one of my favorite assets.

[Tortoise]

When I was a little kid, I remember my grandpa telling me to stop tinkering with my PP.

How he was able to predict which portfolio I’d be using decades later, I’ll never know.

[Libertarian666]

This is what I go by. A caller on Harry's radio show said he was down to 10% in gold, and a few other things were out of whack. Especially cash, if I remember right. Harry said something to the effect of, "you don't really have a pp there."

I can't imagine owning only 10% gold in my portfolio.

Saying that, it really hits home how different we all are in this forum. For most investors, it seems like 10% is something of a hard upper limit. To me, that's being awfully skimpy haha.

My crazy portfolio is looking better and better.
Which may be an example of the oft-stated maxim that it's better to be lucky than to be good!

[Smith1776]

My crazy portfolio is looking better and better.
Which may be an example of the oft-stated maxim that it's better to be lucky than to be good!

Definitely looking good.

Do you rebalance back to 2/3 gold and 1/3 T-bills as a target allocation? Or does it just happen to be 2/3 and 1/3 and you let the allocation float?

[Libertarian666]

My crazy portfolio is looking better and better.
Which may be an example of the oft-stated maxim that it's better to be lucky than to be good!

Definitely looking good.

Do you rebalance back to 2/3 gold and 1/3 T-bills as a target allocation? Or does it just happen to be 2/3 and 1/3 and you let the allocation float?

Mostly it floats unless I see a need for more cash or the gold price has gone up a lot.
BTW, it's actually 2/3 gold, 1/6 T-bills, 1/6 CHF annuity accruing 1.5% interest in CHF. Obviously the last of these isn't available anymore, but could you run that in the model too?

[Smith1776]

Mostly it floats unless I see a need for more cash or the gold price has gone up a lot.
BTW, it's actually 2/3 gold, 1/6 T-bills, 1/6 CHF annuity accruing 1.5% interest in CHF. Obviously the last of these isn't available anymore, but could you run that in the model too?

Swiss franc annuities -- very interesting stuff! I'll have to do a little bit of digging around to see if I can find a decent proxy for backtesting.

[Libertarian666]

Mostly it floats unless I see a need for more cash or the gold price has gone up a lot.
BTW, it's actually 2/3 gold, 1/6 T-bills, 1/6 CHF annuity accruing 1.5% interest in CHF. Obviously the last of these isn't available anymore, but could you run that in the model too?

Swiss franc annuities -- very interesting stuff! I'll have to do a little bit of digging around to see if I can find a decent proxy for backtesting.

How about a 1.5% CHF bond, which is what it pretty much is now. At one point they were paying bonuses from good earnings but not recently of course...

[jhogue]

tech,

Perhaps we should call this your "Flight to Safety Portfolio."

A few observations:
1. Do you hold all your T-bills directly? As FDLXX? As an ETF like BIL? They each have some (minor) differences.

2. Perhaps you might think of your Swiss Franc annuity as a T-bond held as an ETF such as TLT. The interest rate (1.5%) is low, but that seems to be more than compensated by the rise in the CHF against the USD. I think it has gone from 4 Swiss Francs per $ to 1 Swiss Franc per $ in the last 40 years (a rise of 400%!). A very successful long-term investment.

3. The 0% in US stocks, compared with your holdings in the other there HBPP would seem to mark you as a "perma-bear" on the American economy. Is that really your long term view? I recall Harry Browne's first several books in the 1970s emphasized Swiss francs, gold, and silver. By the late 1980s, his views shifted toward the balance found in the Permanent Portfolio.

[Smith1776]

The portfolio feels a little too keen... and even sly to be described as a simple flight to safety IMHO.

Tech's portfolio is like the guy in a battle Royale who isn't doing any fighting because he's waiting for everyone else to just take each other out. He waits in the shadows, then pounces.

A cursory investigation hasn't revealed any appropriate funds for backtesting purposes in regards to the CHF annuity. The closest I've found is FXF, which is a simple currency bet on CHF vs USD. No actual fixed income there.

[Smith1776]

Here's a screenshot of the Tech Portfolio's performance using FXF as a proxy for the Swiss asset component.

tech portfolio.png (165.96 KiB) Viewed 3003 times

[Libertarian666]

tech,

Perhaps we should call this your "Flight to Safety Portfolio."

A few observations:
1. Do you hold all your T-bills directly? As FDLXX? As an ETF like BIL? They each have some (minor) differences.

Some "directly" at Fidelity, some in FDLXX.

2. Perhaps you might think of your Swiss Franc annuity as a T-bond held as an ETF such as TLT. The interest rate (1.5%) is low, but that seems to be more than compensated by the rise in the CHF against the USD. I think it has gone from 4 Swiss Francs per $ to 1 Swiss Franc per $ in the last 40 years (a rise of 400%!). A very successful long-term investment.

IIRC, when it was purchased in 2007, the CHF was at roughly 60 cents. So add the interest, bonuses, and the appreciation of the CHF, and it has done pretty well.

3. The 0% in US stocks, compared with your holdings in the other there HBPP would seem to mark you as a "perma-bear" on the American economy. Is that really your long term view? I recall Harry Browne's first several books in the 1970s emphasized Swiss francs, gold, and silver. By the late 1980s, his views shifted toward the balance found in the Permanent Portfolio.

I haven't always been a bear on the stock market. Up until 1997 I had a fairly standard HBPP portfolio but then when I started getting worried about Y2K I shoved all my chips onto the square marked "gold". That turned out to be pretty good timing.

Of course that was quite awhile ago, but I never found a good time to get back into stocks. I don't trust public companies' accounting and think they are wildly overpriced in general. While I was working, my income was correlated with the stock market, so my portfolio acted to some extent as a counterbalance to bad economic times, although the dot-com crash almost made me dip into my gold at a low point. Add the Fed's perpetual money printing and it looks like gold is going to be the winner in the future too.