I'M OUT!

General Discussion on the Permanent Portfolio Strategy

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Maddy
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I'M OUT!

Post by Maddy » Wed Mar 22, 2023 8:00 pm

For over a year now, I've been asking the question, "Could Harry have anticipated this?" I'm referring primarily to the extraordinarily reckless manner in which the dollar's reserve status has been abused, to the resulting distortions in the financial markets, and to the chaotic bufoonery by which the Fed and the Treasury have attempted to prevent out-and-out collapse of the financial system.

I've finally decided that Harry did not, and could not, have imagined a scenario where the financial system is being run by a criminal cartel that has siphoned off most of the country's wealth, where the country's debt load is so high that default (or functional default) is the only option, where diversification no longer matters because everything is wildly inflated, and where the usual inverse correlations no longer work.

I've held out much longer than was probably prudent and am going into 100% defensive mode. Short-term treasuries, real estate with timber value, maybe a few old fashioned dividend-paying stocks with certificates. I'm not sure what else to do. Fishing hooks by the case, maybe.

Has anyone else come to a similar realization? This is seriously upsetting, and I'm fit to be tied.
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Re: I'M OUT!

Post by Mark Leavy » Wed Mar 22, 2023 9:05 pm

Nothing wrong with taking a step back when you feel that things are out of whack. Best move in that situation is to move your net worth to risk free assets that will return the risk free rate - and then reconnoiter.

If you have the suspicion that the system is broken, but you don't yet know how or why, then - risk off - until it makes sense to you again.

Best of luck - and I agree that we are in uncharted waters. I haven't thrown in the towel yet - and continue to be optimistic, but I don't discount your impressions. Something to watch.

Mark
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Re: I'M OUT!

Post by boglerdude » Wed Mar 22, 2023 9:24 pm

Now you panic, after martial law was lifted?

We've done inflationary defaults before. Nixon shock, 2009 bailouts. It is concerning that they're bailing out banks again before the "covid emergency" is even over.

Anywho, the Fed defended the dollar, 30 year is 3.6%. PP holds up in theory until long bonds are 0.
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Re: I'M OUT!

Post by Hal » Wed Mar 22, 2023 9:35 pm

For my pennies worth....

It's always good to have a plan B. For me, I plan to switch over to the BelangP portfolio when I consider the PP is no longer viable.

HB said himself in his radio show, that if everything went to to pieces you would still have 25% Gold. What he didn't say was how not to rebalance into oblivion.

Have a look at Marc Fabers interview, you may get some ideas. https://www.youtube.com/watch?v=ePdDmcQaRC8
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Re: I'M OUT!

Post by Tortoise » Thu Mar 23, 2023 1:30 am

Ditto to what Mark said: No shame in taking a time-out with your investing if things don't feel right or don't make sense.

In fact, that's exactly what Harry Browne recommended in Fail-Safe Investing in Rule #9 ("Do only what you understand") and Rule #17 ("Whenever you're in doubt, err on the side of safety").

I've had the good fortune most days of being so busy with my full-time job and chasing my 2-year-old daughter around that I simply don't have much time to keep up with the crazy goings on in Clown World.

For what it's worth, I'm still 100% invested in the 4x25 PP (12 years so far). I've thought long and hard about bailing on long-term Treasuries on more than one occasion due to their historically low interest rates, but so far I haven't done it. The US has declined in some ways, but to me it still looks like the best horse in the glue factory. It will survive and, perhaps after stumbling for a bit, it will find its footing and rise again.
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Re: I'M OUT!

Post by ppnewbie » Thu Mar 23, 2023 2:07 am

I’m worried about our reserve status and how quickly we will lose it. Also, I would recommend reading or listening to Ray Dalio’s “Changing World Order” book.
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Re: I'M OUT!

Post by barrett » Thu Mar 23, 2023 5:31 am

Mark Leavy wrote:
Wed Mar 22, 2023 9:05 pm
Nothing wrong with taking a step back when you feel that things are out of whack. Best move in that situation is to move your net worth to risk free assets that will return the risk free rate - and then reconnoiter.

If you have the suspicion that the system is broken, but you don't yet know how or why, then - risk off - until it makes sense to you again.

Best of luck - and I agree that we are in uncharted waters. I haven't thrown in the towel yet - and continue to be optimistic, but I don't discount your impressions. Something to watch.

Mark
Totally agree with all of the above except that I might make a slower transition to "risk free" if there were large tax consequences to doing so all at once.

I do find it interesting, Maddy, that you list short-term treasuries as part of your allocation, but not gold. Do you mind sharing your thoughts on gold? I've been pleased with its reaction to the current banking issues (if that is, in fact, what it's actually reacting to!).

Personally I have been out of long bonds for several years because their periods of outperformance tend to be so short lived (I'm assuming the 1981-2011 period is not going to repeat anytime soon). But I still hold stocks, gold and lots of short-term treasuries as well as I-Bonds. Land with timber value sounds great if one can swing it.

I think the recent Fed/Treasury/FDIC coordinated moves to save banks were absolutely necessary to keep the whole system from crashing and making us all a lot poorer almost overnight (unless gold shoots up to $10,000). But there absolutely has to be more stringent oversight and enforcement going forward.

A big difference in how you and I view the USG, Maddy, is that much of what you see as evildoing by elites, I see as incompetent bumbling. So maybe the end results are the same with only our interpretations of intentions differing.

I guess ultimately, we all have to have 100% of our net worth in *something* and there are hopefully different ways to preserve what we've worked hard to accumulate.
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Re: I'M OUT!

Post by vnatale » Thu Mar 23, 2023 7:14 am

barrett wrote:
Thu Mar 23, 2023 5:31 am

I see as incompetent bumbling.


Yes. Or, fallible humans trying to manage extremely complex issues.
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Re: I'M OUT!

Post by dualstow » Thu Mar 23, 2023 7:45 am

Good luck, Maddy. I’m kind of surprised that you’re not interested in holding gold. I would never have bought bullion if it weren’t for the pp and I’m grateful I did.
Long term Treasury bonds are painful to hold, finally, and it felt like a miracle that they’ve done so well since I began in 2008 or 2009.
Cash is another asset I’d hold less of if it weren’t for the pp.

My stock-only friends aren’t any happier.
I like your timber idea.
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Re: I'M OUT!

Post by sophie » Thu Mar 23, 2023 10:00 am

Take heart, Maddy, all is not lost!

In one of his books, Harry Browne made it very clear that he designed the Permanent Portfolio to deal with exactly the disruptions to the market & economy caused by the Fed and other central bank "planners" that you describe. If it weren't for them, a simple cash and stocks portfolio, like how our parents and grandparents used to invest, would be fine.

Another point to keep in mind: the government can't mandate how different investment assets will react to their handiwork. The PP's assets were chosen so that there will always be one asset that will come in to save the day. For example, they jack up interest rates which props up short term interest rates, but they can't control what happens with long bonds, thus we now have a fully inverted yield curve. So the "defensive" assets, i.e. gold, cash and bonds, are more important to hold now than ever.

The exception to this may be long bonds....I have the same issue with them that you do right now. I'm simply not able to bring myself to buy a 30 year bond with a yield that's half the inflation rate, even knowing that those yields could drop further which would increase the value of the bond. So, temporarily at least, I'm splitting my new retirement savings between cash and gold.

Anyway, I totally understand why you're frustrated and nervous about putting money into investments that look like they're about to crash. Your plan for cash, real estate, and blue chip, income producing stocks isn't a bad one at all. But, I would advise you to consider buying gold to "insure" those assets if you haven't already, because all three of those could do badly if the Biden administration keeps on with its current plan. It is a real achievement that they took a healthy, productive economy and brought it to its knees in just two years - and we have two more years of those clowns still to go, at least. Gold is the best defense you can have against scenarios like the US defaulting on its debt or losing reserve currency status. Feel free to message me, or another of the experienced gold buyers on the forum, if you want some private tips!
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Maddy
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Re: I'M OUT!

Post by Maddy » Thu Mar 23, 2023 10:13 am

I'm really sorry, you guys. I'm just feel incredibly defeated about what's happening, and last night it was really getting to me. It's the long bonds that are the real nut-buster. They're down over 30 percent, and even after reading Tyler's piece, I still don't see a plausible path to recovery. And when I see the BRIC alliance picking up more countries every day, all bent on freeing themselves of the tyranny of the U.S. Treasury, there's no way I can bring myself to buy more.

The way I see it, there are worse things than sitting in cash that's depreciating 10-15 percent a year. And one of them is owning depreciating financial assets denominated in a currency that's depreciating 10-15 percent a year.

You know, you work your ass off all your life and shouldn't have to be constantly responding to the threat that it will, in one way or another, get taken away from you. I'm going to go out and prune fruit trees this morning, and maybe things will look brighter later on.

P.S. I am very much a fan of hard assets. I have held CEF for a long time and will probably continue to do so.
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Re: I'M OUT!

Post by glennds » Thu Mar 23, 2023 11:12 am

Your particular concerns make a good case for hard assets. Including gold coins or bars that you store in the secure location of your choice.

In terms of investments a case could be made for commodities that have had a bad time in the past decade but may be poised to take advantage of many of the issues you're raising.
Some energy companies and miners are offshore based and have a global enough footprint to be fairly hedged against your US currency concerns. Examples would include Rio Tinto and BHP Billiton. These companies are over 140 years old. Probably not a growth play, but for capital preservation and offshore diversification, they might be interesting.

Or just hold your nose on the long bonds and stay faithful to the PP. In theory the PP investor should be agnostic on predicting the future and just stay re-balanced and prepared for pleasant and unpleasant surprises in an unpredictable world.

HB also advocated keeping some money in another country that you trust more than you trust the US. I think that signals similarities in his thinking and yours. Plus it's much easier to do now than in his day. I recall his (pre-EU) choice in one of his books was Swiss Francs.

Sometimes the right choice is the one that lets you sleep peacefully at night, even if it isn't "best" by other people's definition.
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Re: I'M OUT!

Post by joypog » Thu Mar 23, 2023 2:54 pm

Tortoise wrote:
Thu Mar 23, 2023 1:30 am
The US has declined in some ways, but to me it still looks like the best horse in the glue factory. It will survive and, perhaps after stumbling for a bit, it will find its footing and rise again.
I might not be as optimistic about rising again, but frankly I see no other option. Where else would one put their cash? And who will take the Reserve Status from the USA?

China? Not that apocalyptic youtube is a good indicator of anything, but I find a catastrophic collapse of their economy more plausible than the next Michael Burry prognostication for us. Europe? Will they suddenly become a libertarian utopia and a dynamic economy?

I don't see how the worst case scenario is much worse than an extended decline in stagnation like the UK. They don't have a great economy but that place is still a pretty damn good place to set one's tent even after big drop from the heights of empire.
Last edited by joypog on Fri Mar 24, 2023 8:32 am, edited 1 time in total.
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Re: I'M OUT!

Post by whatchamacallit » Thu Mar 23, 2023 6:07 pm

I think long term treasuries may actually have the most short term potential so I like them again as of right now.


If you absolutely don't want long bonds, then you can still stick with the 1/n portfolio strategy and get very comparable results using the other 3 assets without long bonds.

You can do cash, gold and stocks in three equal parts or you can take a small amount of duration risk with short term treasuries instead of cash for potentially higher return.

https://portfoliovisualizer.com/backtes ... tion5_1=25
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Re: I'M OUT!

Post by barrett » Fri Mar 24, 2023 3:49 am

joypog wrote:
Thu Mar 23, 2023 2:54 pm
Tortoise wrote:
Thu Mar 23, 2023 1:30 am
The US has declined in some ways, but to me it still looks like the best horse in the glue factory. It will survive and, perhaps after stumbling for a bit, it will find its footing and rise again.
I might not be as optimistic about rising again, but frankly I see no other option. Where else would one put their cash? And who will take the Reserve Status from the USA?

China? Not that apocalyptic youtube is a good indicator of anything, but I find a catastrophic collapse of their economy more plausible than the next Michael Burry prognostication for us. Europe? They're in even more debt and way less libertarian than we are.

I don't see how the worst case scenario is much worse than an extended decline in stagnation like the UK. They don't have a great economy but that place is still a pretty damn good place to set one's tent even after big drop from the heights of empire.
Yeah, China is about as dystopian a place as there is right now, so totally agreed that the Renminbi is not going to unseat the USD anytime soon. They've lost a lot of their manufacturing, I believe (sources around our house are mostly from Taiwan now, so maybe to be taken with some salt grains). My wife's family members have not been able to work for well over a year. I see their official GDP numbers reported with a straight face and have to laugh. It's all Xi all the time there now with him having surrounded himself with people who are afraid, or just not allowed, to disagree. For all our system's flaws, having an independent Fed, for example, is light years better.

joypog, do you have a good source for your claim of European debt levels? Every source that I find online seems to indicate that on average the Eurozone has lower debt to GDP ratios than the US. Not at all saying that the Euro is going to take over. My limited travels to Europe in recent years (Italy & Spain) seem to indicate that their economies are stagnant compared to ours.
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Re: I'M OUT!

Post by joypog » Fri Mar 24, 2023 8:34 am

barrett wrote:
Fri Mar 24, 2023 3:49 am
joypog, do you have a good source for your claim of European debt levels? Every source that I find online seems to indicate that on average the Eurozone has lower debt to GDP ratios than the US. Not at all saying that the Euro is going to take over. My limited travels to Europe in recent years (Italy & Spain) seem to indicate that their economies are stagnant compared to ours.
Thank you for the correction. I looked around online and realized it's only southern Europe (Spain, Greece, Italy, Portugal) that are in bigger debt than the US. I revised my post accordingly.
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Re: I'M OUT!

Post by dopplerdave » Sat Mar 25, 2023 12:58 pm

whatchamacallit wrote:
Thu Mar 23, 2023 6:07 pm
I think long term treasuries may actually have the most short term potential so I like them again as of right now.
I would really like to hear your reasoning on this.
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Re: I'M OUT!

Post by whatchamacallit » Sat Mar 25, 2023 8:58 pm

dopplerdave wrote:
Sat Mar 25, 2023 12:58 pm
whatchamacallit wrote:
Thu Mar 23, 2023 6:07 pm
I think long term treasuries may actually have the most short term potential so I like them again as of right now.
I would really like to hear your reasoning on this.
Just going off the history of the last 30 years. I am not sure anything has changed enough to change the trend yields were on.

Here is one thing going for lower yields:

Historically the Fed funds rate follows the 2 year treasury up and down. The 2 year treasury is now 100 basis points lower than the Fed funds rate.

Here is a chart showing the history of treasury yields vs fed funds rate.

https://en.macromicro.me/collections/51 ... bonds-rate

Here I posted an article that successfully predicted the last yield crash that started in the second half of 2019 based on correlation of 2 year treasury yield going below the fed funds rate.

viewtopic.php?f=3&t=12948
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Re: I'M OUT!

Post by seajay » Sun Mar 26, 2023 10:54 am

Nothing new.

Mid 1980's and you could buy 30 year treasuries with double digit yields. More recently (excluding recent increases) very low yields, less than 1%.

1980 you could buy a Dow stock index share with a single ounce of gold (stocks cheap/gold expensive), in 1999 it cost over 40 ounces (stocks expensive/gold cheap).

Thing is do you stick with fixed weightings through thick-n-thin, or try and time the market. Often when you try and time the market it backfires. Dump long dated treasuries when yields were at 2% lows, only to see yields more than halve and LTT prices soar. Dump gold when it required just 2 ounces of gold to buy a Dow stock index share, only to see stocks decline further to requiring just a single ounce of gold. Dump stocks in mid 1990's when prices looked high, only to see prices rise considerably more.

The PP already 'trades' those swings, rebalancing tending to reduce out of one asset that has perhaps doubled, to add to another than has halved. Individually assets might halve and then double, compound to 0%, the geometric outcome. The PP benefits by targeting some of the arithmetic average benefit, that without trading is otherwise lost.

Two barbells, a one and 20 year, that combine to a central bullet and is domestic currency based, another barbell of stocks and gold, again two polar opposites that combine to a central bullet but is more inclined to be global currency based (stocks have foreign earnings, gold is a form of global currency).

The old adage ... today's floor can become tomorrow's ceiling. As can today's ceiling becomes tomorrow's floor.

You might do the Irish/Kerry/Cornish/Redneck mans extension of doubling the size of their living room by removing the ceiling, but live to regret that come a downstairs flood and you have no upstairs floor to stand upon.
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Re: I'M OUT!

Post by vnatale » Sun Mar 26, 2023 11:08 am

seajay wrote:
Sun Mar 26, 2023 10:54 am

Nothing new.

Mid 1980's and you could buy 30 year treasuries with double digit yields. More recently (excluding recent increases) very low yields, less than 1%.

1980 you could buy a Dow stock index share with a single ounce of gold (stocks cheap/gold expensive), in 1999 it cost over 40 ounces (stocks expensive/gold cheap).

Thing is do you stick with fixed weightings through thick-n-thin, or try and time the market. Often when you try and time the market it backfires. Dump long dated treasuries when yields were at 2% lows, only to see yields more than halve and LTT prices soar. Dump gold when it required just 2 ounces of gold to buy a Dow stock index share, only to see stocks decline further to requiring just a single ounce of gold. Dump stocks in mid 1990's when prices looked high, only to see prices rise considerably more.

The PP already 'trades' those swings, rebalancing tending to reduce out of one asset that has perhaps doubled, to add to another than has halved. Individually assets might halve and then double, compound to 0%, the geometric outcome. The PP benefits by targeting some of the arithmetic average benefit, that without trading is otherwise lost.

Two barbells, a one and 20 year, that combine to a central bullet and is domestic currency based, another barbell of stocks and gold, again two polar opposites that combine to a central bullet but is more inclined to be global currency based (stocks have foreign earnings, gold is a form of global currency).

The old adage ... today's floor can become tomorrow's ceiling. As can today's ceiling becomes tomorrow's floor.

You might do the Irish/Kerry/Cornish/Redneck mans extension of doubling the size of their living room by removing the ceiling, but live to regret that come a downstairs flood and you have no upstairs floor to stand upon.


Also, unlike The Permanent Portfolio which is a mechanical system, other investing philosophies require constant judgement - when to sell, when to buy, what to buy, what to sell. Of course, all subject to subjective emotions.
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Re: I'M OUT!

Post by Maddy » Sun Mar 26, 2023 4:26 pm

Do geopolitics matter?
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Re: I'M OUT!

Post by joypog » Sun Mar 26, 2023 7:04 pm

Geopolitics always matter….to the point where it doesn’t really matter.

If the system collapses (especially with the US as the worlds reserve currency) we’re all fucked no matter the portfolio.

If you got a safety deposit box in another country, there is a chance you’ll be less fucked than the rest of us-if you can get out.

For less dramatic circumstances - let’s say a UK slide into irrelevance - the gold and international stock holdings will cushion the decline and maybe you’ll consider switching some of your LTTs to the new reserve currency (though it seems that general practice is to keep STT and LTT in one’s local paper).
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Re: I'M OUT!

Post by boglerdude » Sun Mar 26, 2023 7:23 pm

+ the news is infotainment and propaganda, and tech will continue making that worse.

Fed raised rates and defended the dollar, 30 year at 3.64%. There will be some pain but not hyperinflation. In the next flight to safety ima dump it all @1.5%
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Re: I'M OUT!

Post by ppnewbie » Mon Mar 27, 2023 3:22 am

dopplerdave wrote:
Sat Mar 25, 2023 12:58 pm
whatchamacallit wrote:
Thu Mar 23, 2023 6:07 pm
I think long term treasuries may actually have the most short term potential so I like them again as of right now.
I would really like to hear your reasoning on this.
I am going with the following reasoning:

Cash and long bonds - protect against deflation. When the market crashes it is a deflationary event so interest rates drop which means long duration bonds move up (fast).

To me a huge wild card is the one that Maddy mentioned - which is will anyone want my green pieces of paper or bonds paying me in greenbacks in the near future.
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Re: I'M OUT!

Post by Kevin K. » Tue Mar 28, 2023 10:17 am

Maddy wrote:
Wed Mar 22, 2023 8:00 pm
For over a year now, I've been asking the question, "Could Harry have anticipated this?" I'm referring primarily to the extraordinarily reckless manner in which the dollar's reserve status has been abused, to the resulting distortions in the financial markets, and to the chaotic bufoonery by which the Fed and the Treasury have attempted to prevent out-and-out collapse of the financial system.

I've finally decided that Harry did not, and could not, have imagined a scenario where the financial system is being run by a criminal cartel that has siphoned off most of the country's wealth, where the country's debt load is so high that default (or functional default) is the only option, where diversification no longer matters because everything is wildly inflated, and where the usual inverse correlations no longer work.

I've held out much longer than was probably prudent and am going into 100% defensive mode. Short-term treasuries, real estate with timber value, maybe a few old fashioned dividend-paying stocks with certificates. I'm not sure what else to do. Fishing hooks by the case, maybe.

Has anyone else come to a similar realization? This is seriously upsetting, and I'm fit to be tied.
Well, the principal at a leading asset management company I used to have all our investments with (they're in the DFA/Modern Potfolio Theory universe and mostly handle money from foundations and ultra-rich tech folks) has his personal money these days in 50% short-term Treasuries, 50% gold. Kind of the doomsday Buffett Portfolio (I'm referring of course to the way Buffett has things set up for his wife: 80% S & P 500, 20% T Bills).

I agree with others in this thread that it's not a matter of the Fed doing anything truly new but rather the degree of the abuse. And much as I dislike and disrespect Powell I don't think he deserves all of the blame. Massive tax cuts for the rich, gutting of the few regulations we had in place to prevent abuse (and make banks have reserves, etc.), endless stock buy-backs...the list goes on.

The same financial advisor I referenced above also has a long article on how the powers-that-be regularly distort the price of gold and that is arguably an even bigger problem with the PP these days than the once-in-a-lifetime LTT debacle we just lived through.

Personally, as a retiree with very modest assets I'm sticking to my modified Golden Butterfly (said modification consisting of replacing the STT/LTT barbell with STT/ITT's that are half nominal, half TIPS. But my wife has instructions to just move everything into Tyler's very simple and cool 80% Wellesley/20% gold portfolio if I kick the bucket first and she doesn't want to deal with things. If I were younger and still earning I'd be looking at something dead simple like Jonathan Clement's portfolio: 60-70% VT (Total World Stock), the rest in half VTIP (Vanguard short-term TIPS) and VGSH (Vanguard Short-Term Treasuries) with some emergency cash held locally or in iBonds at Treasury Direct. In the same situation (long time horizon, younger) I would also strongly consider Tyler's PInwheel Portfolio, which has a really cool mixture of real assets with globally-diversified equities and bonds:

https://portfoliocharts.com/portfolio/p ... portfolio/

That said, there's no way I'd feel comfortable holding a 4 x 25% PP. The total stock market component depends entirely on 5 FAANG stocks for its returns (thus the value of the SCV in the GB which together with the TSM component gives you something much more like a *real* TSM fund). LTTs are potentially lethal as everyone who holds them has learned of late and I don't think Browne would have recommended holding them for most of the past decade, at a minimum. The arguments for them: that they will zig when they stock market zags, and that they provide deflation protection - don't hold water. They've tanked in unison with stocks just as often as they've rebounded but people have short memories and somehow think what happened in '08 is the norm. And as William Bernstein points out in his book "Deep Risk" (which is required reading for any PP'er) devoting a full 25% of one's assets to protection against the least likely as well as least harmful of the economic scenarios Browne identified in building the PP is absurd. Then we're on to gold, which Browne included because he said it offers inflation protection - which is simply wrong, as Tyler himself proves in his excellent article on gold (see link below). Gold is great for SHTF scenarios and times of currency debasement/money printing/rapid interest rate increases and is also invaluable in hedging against sequence-of-returns risks in retirement. And while super-thoughtful writers like Ern over at Early Retirement Now have shown that the minimum stake in it required to confer these benefits is 15%, being dogmatic about 25% is silly. As for cash...well, TBills are looking like (to steal Medium Tex/J.M. Lawson's inimitable quip about Treasury bonds as a whole) "the best horse at the glue factory." Anyway, hard to see anything permanent about a portfolio that consists of 25% mega-cap-dominated U.S. stocks, 25% 30 year bonds exposed to limitless losses when interest rates spike, 25% metal with no inherent rate of return and 25% cash guaranteed to return less than the rate of inflation. You'd be better off putting the whole nest egg in a 30 year TIPS ladder (see link below).

https://portfoliocharts.com/2020/08/21/ ... e-of-gold/

https://www.advisorperspectives.com/art ... lot-easier
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