Permanent Portfolio concept continues to live on

General Discussion on the Permanent Portfolio Strategy

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Hal
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Re: Permanent Portfolio concept continues to live on

Post by Hal » Tue May 04, 2021 8:46 pm

dockinGA wrote:
Tue May 04, 2021 9:35 am
I will now return to lurking the forums.....
Good to hear from you dockingGA. Feel free to post more, the greater the number of participants the better!

The great thing about the PP concept is that if you think you can do better than the 4X25% portfolio, you can implement a Variable Portfolio.
Mathjak, have you considered doing that? If you are correct you won't lose as much, and if you are wrong..... you won't lose as much ;D

Always happy to hear opposing views backed up by evidence.
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Re: Permanent Portfolio concept continues to live on

Post by I Shrugged » Tue May 04, 2021 9:16 pm

The thing I see the least value in is the cash component. In HB's times it would be earning several percent interest.
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Re: Permanent Portfolio concept continues to live on

Post by doodle » Tue May 04, 2021 9:37 pm

I Shrugged wrote:
Tue May 04, 2021 9:16 pm
The thing I see the least value in is the cash component. In HB's times it would be earning several percent interest.
One really has to work extra hard for cash returns nowadays....deep cash in I and EE bonds is no brainer...both yielding about 3.5%...perhaps slightly extending out the curve to the five year for some of the cash...trusted short term hard money loans with good collateral....perhaps promotional CD offerings at some banks or credit unions...it's tough. I'm glad to have liquidity though if any particular asset takes a big dump though...obviously one would need about 10% completely liquid to take advantage so those other vehicles would be considered deep cash...
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Re: Permanent Portfolio concept continues to live on

Post by vnatale » Tue May 04, 2021 9:41 pm

I Shrugged wrote:
Tue May 04, 2021 9:16 pm

The thing I see the least value in is the cash component. In HB's times it would be earning several percent interest.


But was it a real return? How does the real return from then compare to now?
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Re: Permanent Portfolio concept continues to live on

Post by Xan » Tue May 04, 2021 10:56 pm

vnatale wrote:
Tue May 04, 2021 9:41 pm
I Shrugged wrote:
Tue May 04, 2021 9:16 pm
The thing I see the least value in is the cash component. In HB's times it would be earning several percent interest.
But was it a real return? How does the real return from then compare to now?
Especially considering that you have to pay income taxes on nominal gains, even if there are no real gains.
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Re: Permanent Portfolio concept continues to live on

Post by mathjak107 » Wed May 05, 2021 3:51 am

Hal wrote:
Tue May 04, 2021 8:46 pm
dockinGA wrote:
Tue May 04, 2021 9:35 am
I will now return to lurking the forums.....
Good to hear from you dockingGA. Feel free to post more, the greater the number of participants the better!

The great thing about the PP concept is that if you think you can do better than the 4X25% portfolio, you can implement a Variable Portfolio.
Mathjak, have you considered doing that? If you are correct you won't lose as much, and if you are wrong..... you won't lose as much ;D

Always happy to hear opposing views backed up by evidence.

Nah , if I am not believing in something I rather not do it ….I much prefer what I was using with some gold over using the pp …this is just not the time anymore for the pp in my opinion and I believe it’s time came and went with the change in rate cycle.

Zero on cash and heavy losses in long term bonds make this portfolio no longer desirable to me and one big speculation on rates which I don’t care to make because that is what I see the pp turned in to.

When i Decided to give the pp a spin I never imagined it would be down over a 100k in just a few weeks time . It was actually a pretty violent fall …that showed me it’s reaction to rising rates is going to be more a speculation then what I was doing previously.

It has left me so far behind my other conservative choices that it just became not a good fit for me and I just have no faith in it anymore as a safe haven.

In fact I view it as spending more for insurance eventually then I would likely collect in an event .

With most of my bonds not interest rate sensitive now and stocks not needed to eat for decades god willing I fail to see what I am mitigating for while paying a stiff price for that mitigation and speculating so heavily on interest rates in the pp.

The whole point of my switch was less volatility, and I certainly didn’t get that
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Re: Permanent Portfolio concept continues to live on

Post by Kriegsspiel » Wed May 05, 2021 7:45 am

Hal wrote:
Tue May 04, 2021 8:46 pm
The great thing about the PP concept is that if you think you can do better than the 4X25% portfolio, you can implement a Variable Portfolio.
Bingo. The PP + VP suits my psychology.
You there, Ephialtes. May you live forever.
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Re: Permanent Portfolio concept continues to live on

Post by mathjak107 » Wed May 05, 2021 8:13 am

That is a fine choice ….

Mentally though I find it hard to do something as a long term plan that I am not believing in so keeping the pp intact at all is not going to be a longer term plan …..

If anything it worked better for me with components of the pp being the variable portfolio and not the permanent component which means basically trading them but even that is hard in a down trend when there are not many up days
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Re: Permanent Portfolio concept continues to live on

Post by Mountaineer » Wed May 05, 2021 10:08 am

Screen Shot 2021-05-05 at 11.02.12 AM.png
Screen Shot 2021-05-05 at 11.02.12 AM.png (238.92 KiB) Viewed 4492 times
Actually, since I'm well into the drawdown phase, a portfolio of about 10% cash and 90% VTINX would seem to meet my needs and comfort level.
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Re: Permanent Portfolio concept continues to live on

Post by Kevin K. » Wed May 05, 2021 10:54 am

Mountaineer wrote:
Wed May 05, 2021 10:08 am
Screen Shot 2021-05-05 at 11.02.12 AM.png

Actually, since I'm well into the drawdown phase, a portfolio of about 10% cash and 90% VTINX would seem to meet my needs and comfort level.
Very possibly, but VTINX along with all of the other Vanguard Target Retirement and LifeStrategy funds has significantly under-performed simple 3 Fund portfolios with the same stock and equity percentages, while charging you a higher expense ratio AND burdening you with the tax costs of constant automatic rebalancing. 40% in international equities has further dragged down performance, while the large chunk of dollar-hedged international bonds has done nothing but add useless complexity.

Here's a quick comparison of VTINX with the Wellesley+Gold and a straight 3-fund VTINX substitute with far lower cost funds, the ability to benefit from rebalancing and all Treasuries vs. Total Bond Market's mixed bag of bonds that'll do nothing for you in a market crash.

https://www.portfoliovisualizer.com/bac ... tion7_3=10
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Re: Permanent Portfolio concept continues to live on

Post by I Shrugged » Wed May 05, 2021 11:28 am

those funds might be better inside of a tax advantaged account.
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Re: Permanent Portfolio concept continues to live on

Post by mathjak107 » Wed May 05, 2021 12:15 pm

Kevin K. wrote:
Wed May 05, 2021 10:54 am
Mountaineer wrote:
Wed May 05, 2021 10:08 am
Screen Shot 2021-05-05 at 11.02.12 AM.png

Actually, since I'm well into the drawdown phase, a portfolio of about 10% cash and 90% VTINX would seem to meet my needs and comfort level.
Very possibly, but VTINX along with all of the other Vanguard Target Retirement and LifeStrategy funds has significantly under-performed simple 3 Fund portfolios with the same stock and equity percentages, while charging you a higher expense ratio AND burdening you with the tax costs of constant automatic rebalancing. 40% in international equities has further dragged down performance, while the large chunk of dollar-hedged international bonds has done nothing but add useless complexity.

Here's a quick comparison of VTINX with the Wellesley+Gold and a straight 3-fund VTINX substitute with far lower cost funds, the ability to benefit from rebalancing and all Treasuries vs. Total Bond Market's mixed bag of bonds that'll do nothing for you in a market crash.

https://www.portfoliovisualizer.com/bac ... tion7_3=10
Vtinx underperformed the insight models too.

I like the Wellesley and gold idea .

As far as comparing vtinx , to Wellesley, vtinx is only about 30% equities while Wellesley is about 40
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Re: Permanent Portfolio concept continues to live on

Post by Mountaineer » Wed May 05, 2021 1:21 pm

I Shrugged wrote:
Wed May 05, 2021 11:28 am
those funds might be better inside of a tax advantaged account.
Agree. That’s what I was thinking too. Cash in Bank savings, CDs, or money market in taxable. RMD then flowing to cash.

1 year return 12.7%. 10 year about 5%. As John Bogle’s book says, Enough.
Last edited by Mountaineer on Thu May 06, 2021 6:34 pm, edited 2 times in total.
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Re: Permanent Portfolio concept continues to live on

Post by flyingpylon » Thu May 06, 2021 4:35 am

Buy a less expensive house. Different size, different area, different features, etc.

Start a side business related to something you enjoy.

But I hear ya, it’s a frustrating situation.
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Re: Permanent Portfolio concept continues to live on in cas

Post by D1984 » Thu May 06, 2021 5:58 am

tomfoolery wrote:
Thu May 06, 2021 1:28 am
Xan wrote:
Sat May 01, 2021 6:14 pm

Somewhere in-between is a great place to be. If you had a choice between:
a) flipping a coin between being filthy rich and being dirt poor
b) being reasonably well-off for certain

wouldn't you take b?
There’s another alternative that I find myself in. I want to buy a house in cash without a mortgage. Housing prices have gone up faster than the combination of my portfolio and my 6-figure job can keep pace.

My portfolio is up 40% in the last 18 months. At the time 18 months ago my total portfolio could buy 2 small single family houses in my city. But I didn’t not want to spend half of my portfolio at the time on one, because my goal is financial independence and owning a house debt-free. If I had to choose, I’d rather be financially independent in an apartment than be required to continue working but own a house.

Well it’s 18 months later and my portfolio has grown 40% and back in December 2019 I could buy 2 houses in my city with my portfolio and now I can buy 1.5

So my effective purchasing power of the most important asset has dropped significantly in spite of substantial portfolio growth between my job and investment returns.

At this point, I have two options:

1) invest prudently and wisely, cautiously. But, I’ll never be able to keep up with housing prices way and perhaps next year my portfolio will only buy 1.25 houses and in a decade only buy 0.75 houses in spite of double digit portfolio returns.

2) take a decent amount of risk, if I lose half of my money in the process, my life is no different than it was last year, I’ll still be financially independent as a renter with half of my current net worth. But if I can roll the dice and get a substantial return, I can afford to buy a house. And that would change my life.

So, for me it’s not like Xan’s scenario, for me, if my risk doesn’t pay off, I don’t really change my lifestyle, but if my risk does pay off, my lifestyle can change for the best.

This is a result of the government ZIRP and now NIRP policies. It forces people like me to move further down the risk curve.

I suppose a third option is I remain cautious and prudent with my investments and hope there is a drop in the housing market. Because if I am super risky and I lose half of my portfolio at the same time the housing market drops in half, then I’ll feel bad.

So my current portfolio is 45% stocks, 25% cash and 30% gold.

My nominal cash allocation (25%) was enough to buy 0.75 houses 18 months ago, and now will buy about 0.4 houses. So with this allocation it’s possible for me to take more risks, such as holding a higher percentage of stocks, and hold riskier individual stocks, and still be able to buy a house if both the stock and housing markets crash in tandem because I have enough cash to nearly buy a house, along with selling some gold, without needing to sell stocks at the bottom.

Of course that’s not what will happen. The stock market will likely crash while the housing market stays flat. Because everyone did cash out refi’s at 2.6% last year and no one will sell those houses ever. The interest rates are too low. I predict the next 30 years we will have higher interest rates, because we’ll have to, the fed can’t stop it, and stocks will crash and remain down, and housing will remain flat, but still completely out of reach in most cities for anyone who didn’t get in before mid-2020.

And housing inventory will remain at record lows for 30 years. Imagine if interest rates rise to 10% on a mortgage in 3 years. Who will sell their house with a locked in 2.6% rate, if it means buying a new house with a 10% rate?

And if they don’t need the house anymore, they would keep it to rent Out forever. Because rents will keep going up but their 2.6% mortgage will last 30 years and as inflation hits 10%, it will be a negative real mortgage rate. No one will get rid of those and there won’t be any housing inventory so only the wealthy will be able to afford houses, or people who got in pre-covid.

Of course, I hope my bleak prediction is wrong because it means I’ll be able to afford a house in cash and still remain financially independent.

And for those who might suggest I work longer and then buy a house, I don’t believe that’s necessarily true. I make well over $200k a year when I work full-time in consulting and in spite of my portfolio having double digit returns and me grossing 250k last year, my purchasing power of homes went from 2 down to 1.75.

So unless I can find a job that will pay me $500k a year, extending my career at the expense of my personal health and well-being will not guarantee a house in cash.

So earlier this year I cut back to a very part-time role at 50k a year so I can focus on health and happiness but still have some income. And I’m semi-retired in an apartment and can stop working at any time and be financially independent but I like the people I work with and it’s not bad if only working a few hours a week from home at my own schedule.
I may be wrong but don't you (still) live in California? I recall you (I may be wrong here) mentioing that a few months ago.

Does California not still have laws that make non-FHA and non-VA (in other words, if it's a "conventional" Fannie Mae/Freddie Mac loan and not an FHA/VA/USDRD/HUD loan) loans non-recourse? That means that if you do default the worse they can do is seize the home in foreclosure and (temporarily) ding your credit. They can't get a deficiency judgment against the borrower (barring actual fraud on his/her part like lying about income or falsifying loan documents).

Given that you seem to expect continued ZIRP/inflation/QE/monetary debasement that will lead to even more ridiculous housing prices, why would you NOT want a mortgage? If the mortgage is non-recourse why not take a loan with only 3.5% or 5% down--or even less down if you can find a bank that'll make such a loan--and if housing continues to skyrocket (or at least slightly increase or at least not decrease), great....if not (or if housing prices actually start to fall instead), oh well, screw the dumb bank that made the loan in the first place; given that the loan is non-recourse you simply stop paying, wait the 3-9 months the whole foreclosure process takes not making any payments in the meantime and living rent free, strip the house of anything of value (hey, copper pipes and wiring are saleable as scrap) the last day or so before you leave, take a giant deuce in the kitchen sink, and finally mail the bank the keys and walk away. With a non-recourse loan it's "heads I win; tails somebody else loses".

Even if you aren't in California IIRC 18 or 19 states (most of them west of the Mississippi River) have similar non-recourse laws.
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Re: Permanent Portfolio concept continues to live on

Post by doodle » Thu May 06, 2021 8:11 am

On the topic of housing...for the last two years more or less I've been working in construction and from my perspective the industry is way overdue for a massive evolution. I've worked everything from custom mansions to cookie cutter developments and the inefficiency across the board is staggering. No wonder housing costs so damn much...if we built cars like we build houses we'd all be riding the bus. There is no doubt in my mind that housing will transition to an assembly line factory style method of production that will have a major effect on driving down new construction prices. Unfortunately for Tom, this won't be something that happens in his time frame but believe me once you've seen how much time is wasted shipping, unpacking and moving materials and tools, Losing them and looking for them, weather delays, material waste, cordination of crews, out of sync production requiring backtracking, it's unbelievable. The efficiencies gained by modern power tools has been amazing..drywall routers, automatic screw guns, cordless pneumatic nailers etc....but factory assembly line production will dwarf those.
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Re: Permanent Portfolio concept continues to live on

Post by doodle » Thu May 06, 2021 8:14 am

This is what's coming..



https://youtu.be/hU4rp-efn-I
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Re: Permanent Portfolio concept continues to live on

Post by vnatale » Thu May 06, 2021 8:42 am

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Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Permanent Portfolio concept continues to live on in cas

Post by Xan » Thu May 06, 2021 9:11 am

tomfoolery wrote:
Thu May 06, 2021 1:28 am
I want to buy a house in cash without a mortgage.
This preference seems to be what's hamstringing you.
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Re: Permanent Portfolio concept continues to live on

Post by Cortopassi » Thu May 06, 2021 11:26 am

On the cash portion and SHV current lack of dividend (which I just noticed!), has anyone ever done an IRA CD?

Most of my cash portion is in mine and my wife's IRA, currently in SHV. Getting 0%, and dinged by the expense fee.

I am asking Ally if I can buy CDs in my "regular" IRA, vs. having to open another second "IRA CD"

Anyone have experience with this? Current 12 month CD rates at Ally are 0.55%
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Re: Permanent Portfolio concept continues to live on

Post by mathjak107 » Thu May 06, 2021 12:37 pm

I would never waste valuable ira space with a cd at these rates ….
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Re: Permanent Portfolio concept continues to live on in cas

Post by I Shrugged » Thu May 06, 2021 3:21 pm

Xan wrote:
Thu May 06, 2021 9:11 am
tomfoolery wrote:
Thu May 06, 2021 1:28 am
I want to buy a house in cash without a mortgage.
This preference seems to be what's hamstringing you.
I agree with that. A 3% fixed mortgage is like stealing.
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Re: Permanent Portfolio concept continues to live on

Post by I Shrugged » Thu May 06, 2021 3:21 pm

doodle wrote:
Thu May 06, 2021 8:14 am
This is what's coming..



https://youtu.be/hU4rp-efn-I
Probably eventually. But that's been predicted for a long time.
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Re: Permanent Portfolio concept continues to live on

Post by Hal » Thu May 06, 2021 5:21 pm

I Shrugged wrote:
Thu May 06, 2021 3:21 pm
doodle wrote:
Thu May 06, 2021 8:14 am
This is what's coming..



https://youtu.be/hU4rp-efn-I
Probably eventually. But that's been predicted for a long time.
Not if you live in Germany. 8) Video from 10 years ago....
https://www.youtube.com/watch?v=inyjfMkq_VA

Also, on the PP front, I find this guy amusing.
https://www.youtube.com/watch?v=FtdWSWDTzAI
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Re: Permanent Portfolio concept continues to live on in cas

Post by glennds » Thu May 06, 2021 11:23 pm

D1984 wrote:
Thu May 06, 2021 5:58 am


Given that you seem to expect continued ZIRP/inflation/QE/monetary debasement that will lead to even more ridiculous housing prices, why would you NOT want a mortgage? If the mortgage is non-recourse why not take a loan with only 3.5% or 5% down--or even less down if you can find a bank that'll make such a loan--and if housing continues to skyrocket.....
I agree with this. Under normal circumstances I like the no-mortgage approach to life, but if you are convinced of inflation and monetary devaluation, then debt makes a lot of sense because you are buying an appreciating asset today, and paying back the debt with inflated dollars. In other words, the house is appreciating, the debt is depreciating, you win both ways. And as D1984 says, if the housing market collapses, then you can leave the bank holding the bag.
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