frugal wrote:
Pointedstick wrote:
And Frugal, margin is NOT the "only way to increase the turnover of this small risk and small return PP". You can loosen your rebalance bands. You can use pseudo-leverage by swapping your 30-year bonds with zeroes and total market fund for an SCV fund. You can reduce or remove the cash allocation, or replace it with higher-yield commercial paper (i.e. online savings account or a "total return" fund). You can replace both cash and LTTs with a 50% exposure to moderate-duration bonds (4-7 yrs). You can arbitrage between GLD and GTU with your gold allocation. Juicing returns is dangerous, but if you must do it, there are far safer, saner ways to do it than investing with borrowed money.
where can I read more about this idea?
Or can you explain please.
Regards
You just read about it.
But to expand a but further, the idea is to magnify volatility
inside the portfolio without using leverage or fundamentally altering what makes it a permanent portfolio. The portfolio works because the individual assets are volatile, smoothing each other out in the aggregate due to the closed nature of macro capital flows (one trader's sale of gold is another's purchase of it, for example, and you always hold some of whatever asset people are falling all over themselves to buy). You can increase the average return by substituting the individual assets with more volatile versions of themselves.
For example, zero-coupon bonds are basically more volatile versions of 30 year treasuries. Small-cap value funds are more volatile than the broad market. Gold is hard to increase in volatility without resorting to a levered ETF, but it's already the most volatile asset, and you can do some simple and safe arbitrage by investing in the GTU fund in addition to another gold ETF, which is a closed-end fund, so it often trades at a premium or discount. The idea there is that you buy some when its trading at a discount relative to the other fund, and sell some when it's trading at a premium. Cash exists mostly to smooth the portfolio out since the situations where it is the most popular asset are less frequent, so you can put your cash in a high-yield savings account or shorter-duration "total return" fund rather than T-bills, or even get rid of it entirely if you're feeling brave! Getting rid of cash is dangerous though, as you can get destroyed during tight-money recessions, and times when interest rates are slowly rising but remain strongly positive in real terms (your bonds and gold will get clobbered, and will collectively fall faster than your stocks can save you). Another option is to replace both the bonds and cash with a single 50% allocation of moderate-duration bonds, which pack more punch than cash, but less than long bonds.
frugal wrote:
melveyr wrote:
I second everything that Pointedstick just said. There is leverage embedded in the market closer to the risk-free rate than you will be able to get on your own. Grab that first before turning to margin.
1) Remove Cash
2) Use 30 year STRIPs
3) Use SCV and EM for equities
None of this is a financial recommendation of course, but this would be the order of operations I would use.
Do you put ALL your savings in PP?
What means point 2)
Thank you
Harry Browne said to put the money you can't afford to lose in your PP. I have cash in checking and savings account that are for short-term uses, but all my truly indispensable money is in a PP of some sort (I maintain three separate ones with different funds, bonds, and brokerages)
30-year STRIPS = zero coupon bond. You should at a minimum learn what all these things are before you even
THINK about using leverage. I do not want to see you destroy yourself like poor Market Timer did!
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