How do "you" trade physical gold in a PP?

[Cortopassi]

Hi,

Newbie to PP here.  Since 2008, I have been mainly in cash and physical gold, and while I feel generally more secure, obviously it has been a bumpy road without having the other elements in place as I have found out.

I have two questions for more experienced PPers. 

1) Most all my gold holding is physical.  Per HB (and my feelings) I suppose that is a good thing.  However, I am having a mental block when it comes to a rebalance event.  Say 2014 is good for gold, and I need to sell it down.  It seems like it would be way more difficult for me to walk some coins to my local shop and exchange for cash vs. having instead having to sell off say, some IAU.  Anyone of the "gold is a very important physical asset, how can I ever be selling it?" have similar problems/thoughts and maybe what have you done about it?

2) I am about to start a PP across multiple accounts.  I am truly in sync with what it is going to accomplish vs. my poor past 25 years of "investing."  However, I have the nagging feeling that all markets, stock, bond, and gold, will tank the minute I set this up.  I know the book says to go all in, and backtesting with peaktotrough at high and low points gives very similar return results after a few years.  How have some of you gotten over that initial anxiety of going all in?

Thanks,

Mike

[Early Cuyler]

Welcome to the forum!

1. I divide my gold into two parts, what folks around here might call "deep" and "shallow" portions. The deep portion is obviously gold coins. The shallow portion is held in IAU to make rebalancing easier, as you alluded to.

2. I had feelings similar to yours when first starting my PP. My advice would be to ask lots of questions so you are comfortable with the PP from the get go. In other words, make sure it's a good fit before you buy in, then let the chips fall where they may.

All the best,
Ryan

[Cortopassi]

Makes sense on both points, thanks.

My issue is am overweight on physical as it might relate to setting up a PP.  There's no way I can create a 25/25/25/25 portfolio, if I am to allocate all my physical holdings into the PP mix, it would end up being 50/16.6/16.6/16.6 if I were to "count" all my physical toward a PP

I don't want to sell any at this point, so I may just need to consider some portion as separate from any PP I setup.

Regards,

Mike

[barrett]

Hello Cortopassi,

I am not exactly a veteran of the PP having only set mine up two months ago. It seems that all folks when they first set up a PP tend to monitor the four asset classes quite closely at first and I am no exception. But what I have noticed is that a terrible day for stocks, gold or LTTs is almost always at least partly offset by a jump in one of the other assets (we can figure that cash is flat for the time being). I think it always feels like you are buying one asset you don't like when you jump into the PP, but if you try to time it (and you are like me), you will still be thinking about it five years from now. I thought buying LTTs was a terrible idea but they have done well so far this year. I am starting to get bored with checking it every day which seems to be the norm. The "set it and forget it" idea takes a little getting used to but it sure beats worrying that the one asset you are loaded up on might crash.

Maybe just set it up as best you can and put any new money into stocks, LTTs & cash so that you gradually move toward 25/25/25/25.

I think plenty of folks on here would love to have a stash of physical gold, me included. But it's better to hold it in an ETF than not at all. Unless you know about the PP at the beginning of your career, there is always going to be some imperfection with setting it up.

There are some smart people on here who will correct me if I am wrong about any of the above. Good luck!

[Ad Orientem]

Makes sense on both points, thanks.

My issue is am overweight on physical as it might relate to setting up a PP.  There's no way I can create a 25/25/25/25 portfolio, if I am to allocate all my physical holdings into the PP mix, it would end up being 50/16.6/16.6/16.6 if I were to "count" all my physical toward a PP

I don't want to sell any at this point, so I may just need to consider some portion as separate from any PP I setup.

Regards,

Mike

Hi Mike, and welcome aboard. If your current holdings are over-weighted in gold, and you aren't comfortable selling any right now, my premium (5 cents) advice is just take whatever would exceed the 25% allocation and call it your "variable portfolio." Keep it separate from your PP and don't mix the two until/unless you feel comfortable selling off some of your VP gold. But remember that the relationship between a PP and a VP is a one way street. You can take money from your VP and add it to the PP but don't send any funds in the other direction. The PP is for safety. The VP is for speculating.

If your VP is much larger than your PP you might want to dedicate any new funds earmarked for investment to your permanent portfolio. And lastly if you doubt your ability to sell gold at all, that can actually be a real stumbling block to implementing the PP. A lot of gold enthusiasts love the PP because it holds gold... until the day comes when they are supposed to sell some to restore balance. Then their prejudices kick in and it's game over. The only advice I can give in that case is to know your own strengths and weaknesses when it comes to this sort of thing. We all have favorite asset classes that can be hard to sell down when they are hot. If you think this is going to be a problem maybe you should look at one of the funds like PRPFX where it all happens automatically and you don't need to actually do anything. Or alternatively don't do the PP and try a different portfolio that suits your investment philosophy and temperament better.

Anyways I hope this helps.

[Cortopassi]

barrett and AO,

Thanks to both of you.  The VP idea is perfectly acceptable.  I am not married to the gold, and as I see the PP behaving more consistently over time, I certainly can see myself having a perfect split 25 each in the PP and no VP.  God knows I am tired of watching the market.

Boy, I sure wish I knew about this at the beginning, 25 years ago.  At least my kids will be more educated!

Regards,

Mike

[jason]

Hi,

Newbie to PP here.  Since 2008, I have been mainly in cash and physical gold, and while I feel generally more secure, obviously it has been a bumpy road without having the other elements in place as I have found out.

I have two questions for more experienced PPers. 

1) Most all my gold holding is physical.  Per HB (and my feelings) I suppose that is a good thing.  However, I am having a mental block when it comes to a rebalance event.  Say 2014 is good for gold, and I need to sell it down.  It seems like it would be way more difficult for me to walk some coins to my local shop and exchange for cash vs. having instead having to sell off say, some IAU.  Anyone of the "gold is a very important physical asset, how can I ever be selling it?" have similar problems/thoughts and maybe what have you done about it?

2) I am about to start a PP across multiple accounts.  I am truly in sync with what it is going to accomplish vs. my poor past 25 years of "investing."  However, I have the nagging feeling that all markets, stock, bond, and gold, will tank the minute I set this up.  I know the book says to go all in, and backtesting with peaktotrough at high and low points gives very similar return results after a few years.  How have some of you gotten over that initial anxiety of going all in?

Thanks,

Mike

Mike,

Regarding the anxiety of going all-in, all at once, it made me a little nervous, but the alternative made me even more nervous.  Inflation could start climbing at any time, so cash in the bank is not that safe.  The stock market could crash any moment. And so on.  By going all-in, I felt relieved because, for the first time ever, I felt like my investments were fail-safe (as HB put it), and would be in good shape no matter what the future holds.  So, once I really learned about the PP and understood it, I actually deployed my PP as quickly as I could.

-Jason

[ns3]

The plan I've been following is buy gold (physical) in taxable, sell (etf) in non-taxable.

Also, I went all-in myself. My thinking is if you aren't convinced of the strategy then maybe you shouldn't be doing it at all.

[Cortopassi]

Again, thank you all for the comments.

It is not at all that I'm not convinced -- my issue is that since first coming upon the PP, then I also came upon Ivy, GTAA, Second Grader's portfolio, etc., etc.  All these slightly different ways to approach things started making my head spin.  One day I was convinced GTAA Aggressive 13 was the way to go, but then I sat and thought about the whole 10 month MA to buy and sell and on the surface, while that sounds reasonable, and would have done great the past few years, deep down it is against what I believe is right, because it is buying high and selling low.

I do see how it can work, but then I could see a lot of whipsawing, and I am more comfortable with rebalancing to buy out of favor positions and sell ones doing very well.

With that said, does anyone out there implement PP with timing?  Such as shown here:  http://investingforaliving.wordpress.co ... ve-to-ivy/

As you can probably tell, I am still a bit waffly on the exact style I want to setup:

--PP straight
--PP with timing
--PP with different rebalancing schedules

Aargh!

Mike

[Pointedstick]

Cortopassi, I think you first need to figure out your overall goal. Is it to maximize gains? Prevent nominal losses? Prevent real losses? Sacrifice the potential for some gains in order to minimize most losses? Reduce worry? Increase the robustness of your investment portfolio?

The PP is an interesting beast. It's far too conservative for many, and far too volatile for others. It really asks you to know yourself before you put your money into it.

We had a member last year who pulled out after 6 months last year because his new PP had gone down about 3%. 3%! I think he was in all cash before. On the other side of the coin you had stock bugs drinking margaritas to their 30% gain and laughing at us rubes with our stupid gold and government bonds. Even if the portfolio fits your goals, it takes a bit of a contrarian streak to really get the PP, IMHO.

[Cortopassi]

Pointedstick,

My overarching goal is to reduce worry and stop the stupid investing mistakes I've made over many years.  If PP tempers market drops and gains, which it seems to do, riding somewhere in the middle but generally on a positive upslope, that is worlds better than where I've been.  I can stomach downturns, but as I get closer and closer to retirement age, you start running out of time trying to beat the market and realize the market has been beating you, both financially and emotionally!

If I can get 6-8% CAGR over the next 20-30 years with much reduced volatility, that is all I am looking for.  PP seems the best vehicle to try and deliver that.

Thanks,

Mike

[ns3]

Pointedstick,

My overarching goal is to reduce worry and stop the stupid investing mistakes I've made over many years.  If PP tempers market drops and gains, which it seems to do, riding somewhere in the middle but generally on a positive upslope, that is worlds better than where I've been.  I can stomach downturns, but as I get closer and closer to retirement age, you start running out of time trying to beat the market and realize the market has been beating you, both financially and emotionally!

If I can get 6-8% CAGR over the next 20-30 years with much reduced volatility, that is all I am looking for.  PP seems the best vehicle to try and deliver that.

Thanks,

Mike

If you're nearing retirement age then you are in the same boat as me so welcome to the club. My calendar reminds me to sign up for Medicaire in 10 days (even though I am still working and have health benefits on the job).

The 2008 meltdown led me to look for greener pastures and that's how I came to adopt the PP, first with the PRPFX mutual fund and not long afterward with the help of this forum, the pure HBPP.

In hindsight, I could have held onto everything I was holding in 2008 (mostly a target date retirement fund with stocks and bonds) and might even be slightly better off according to today's snapshot.  I actually did hold onto it until it recovered because I have at least learned enough about investing to avoid panic selling.

The thing about the PP for me though is, at our age, what if there had not been a recovery from the 2008 debacle, and things had just continued to spiral downward? Everyone assumes that what we have going now will have its ups and downs but will always win out in the end but how do we know that will continue to be true forever (we don't and can't)? I think the PP just does a better job as an all-weather portfolio covering all bases no matter what happens, as much as any portfolio can do that. No guarantees of course, but I don't know of anything else like it. After about 3 years I think I have actually reached the nirvana of only looking at it once a year as HB suggested- but it does take a while.

[stuper1]

I think the PP just does a better job of covering all bases no matter what happens. No guarantees of course, but I don't know of anything else like it. After about 3 years I think I have actually reached the nirvana of only looking at it once a year as HB suggested- but it does take a while.

To me, the real beauty of the PP is that you have all your financial bases covered, and you don't have to monitor all the time, freeing you up to do better things.  I've done a bunch of backtesting, and it seemed to me that if you didn't look at it for 2 years, you would still be fine.

[Cortopassi]

Thanks all.  I have one more question that I will pose in a new topic.

Mike