PP in today's world

[moda0306]

It's an investment portfolio, not a religion. If you feel more comfortable tweaking it a bit, I see no reason not to, as long as you're doing it for the right reasons (e.g. making you feel better, not chasing better performance this year/month/week). Personally I run with 4x25 standard PPs in my primary accounts, but have more typical stocky-and-bondy portfolios in IRA accounts where I can't easily or cost-effectively implement a PP.

+1

If you go with a PP in anything close to 4x25 you have a better portfolio than 95% of the US population.


Hell, if you go with 50% total stock market and 50% total bond market you probably have a better portfolio than 60% of the population.

[Alanw]

Decide how committed you are to the HBPP. If totally, go in 100%. If only half sure, go in 50% and use a VP for however you want the other 50%. You can decide the %. I have found the rebalancing easier if I keep my HBPP funds separate. Personally, I have a large % in HBPP and a smaller % in Wellesley. The reason, I want a smaller exposure to gold and a slightly higher exposure to stocks and bonds. Wellington will work just as well if you want more stocks or you can just go VTI and BND for a Boglehead approach. Don't over think it. Set it and forget it.

[I Shrugged]

Intuition tells us that the round-numbered 4x25 cannot possibly be the optimum allocation.  But there isn't any way to know what the optimum will be.  And 4x25 is respectably battle tested.  Most of us would like to think we are smarter than the average investor, and with enough reasoning or greed and fear, can figure out a better allocation.  Or substitutes for components we can't embrace.  But more than anything else, any incremental success with a variation is going to be about luck. So you pays your money and you takes your chances.

[I Shrugged]

PS:  As a beginner, I would do some money in a 4x25 PP, and some in whatever you might feel more comfortable in.  Call it your variable portfolio or not.  Over a period of years, you'll either see merit in the PP or you won't.  I think people who plunge all in, without enough other investing experience, will not be able to stick with the PP.  My investing experience is a lot like Craig Rowland's.  I'm sure he covered it in his earliest blog posts here.  Essentially, I came to realize that a typical stock-bond mix is good during periods of prosperity, but lacks protection in bad times.  But I needed the experience to really know what it feels like.

Everyone says they can live with a 35% drop in their portfolio.  Maybe they can and maybe they can't.  When they get one, that is when they find out.

[Longstreet]

Thanks for all of your comments.  I'm a little more settled.  I like the PP because year to year it seams to smooth out the losses.  I think I have enough dollars to live out my life, I just can't afford a big hit.  However, when I presented the plan to my wife, she felt it was much too conservative.  Therefore, we are keeping her 403Bas our variable portfolio (75% equities, 25% MMF), but will switch my IRA (vanguard) and Essop (Fidelity) to a PP distribution.  All funds are still tax sheltered.  I've rolled over the 401k to an IRA, but the ESSOP is still on the company plan.  We also have 10% of our total funds as cash in the bank.

I hate to break the rules before I even start, because I feel one of the keys to any investment plan is to make a plan and stick to it.  This is especially true with the time tested PP.  My greed is showing, and the market has certainly proven me wrong before (time and time again), but I'm going with an initial distribution in my PP of 45% equities, 25% cash, 20% LTT, and 10% gold.  I'm just hoping that if and when the bottom falls out, that I'll be able to quickly switch much of the equity share into cash, while at the same time keeping an eye on gold.  I've already lined up the assets in preparation of the PP start up, so basically all I need to do is exchange some mutual funds for LTT (funds) and Gold (paper to start).  Both Vanguard and Fidelity allow brokered accounts in the IRA with an $8 charge per trade.

Thanks again.   

[Pointedstick]

Therefore, we are keeping her 403Bas our variable portfolio (75% equities, 25% MMF)

[...]

I'm going with an initial distribution in my PP of 45% equities, 25% cash, 20% LTT, and 10% gold.

[...]

I'm just hoping that if and when the bottom falls out, that I'll be able to quickly switch much of the equity share into cash

While it's great that you've discovered the PP, I'm a little worried about some of those choices and I don't think you've quite internalized the concept. You seem to be very much into stocks, and I worry that not only are you likely to get burned during the next crash, but that it may be sooner than you think, and perhaps it's not a great time to be doubling down on stocks. While I don't think there's anything inherently wrong with tweaking the percentages to your preferences--especially if you don't have a VP--a "PP" that's nearly half stocks and and only 10% gold strains the boundaries of what you could really call a PP; it's more of a "stock-heavy Harry-Browne-flavored semi-conservative portfolio" (SHHBFSCP?). Coupled with a VP that's 75% stocks, It seems apparent that you are extremely hungry for gains, and I'm worried that you won't be adequately prepared for the next stock crash. I would NOT count on being able to get out before anyone else does. There are a million other people who think that, and they're all counting on beating you and each other. What edge do you have?

Have you considered instead moving your VP to 100% stocks and altering your proposed PP to be a little closer to equality among assets? Say, 30% stocks, 25% cash 25% bonds 20% gold? Or even the good old 4x25...

[LC475]

I'm confused.  I like what I've read about the HBPP and agree with the concept.  However, the suggested distribution is 4x25, yet I see many panel members with deviations to the recommended format.

I am one that would recommend you put 25% of your long-term savings into each of the assets, exactly as Harry Browne recommended.  That way, your savings is protected, no matter what comes.  We live in an uncertain world.  We should be prepared for whatever storms may come.

If you vary from the plan, what will happen if we find ourselves in the scenario in which the asset that you've reduced would have protected you, but you've reduced the percentage to such an extent that it no longer will give you that powerful protection?  Well, in that case you will just have to take a "big hit."  Yet taking a big hit is precisely what you say you do not want to do!

I don't know,... you have to decide what you want.  Keeping your wife happy is important, too.  Maybe that is important enough that it can be the #1 consideration in your investment allocation.  But think this all out clearly and explicitly so you know what it is you want, what it is you're doing, why it is you're doing it, and whether what you're doing makes sense.  That is, you should know whether what you're doing actually matches what you want and is likely to achieve your goals.

[I Shrugged]

I agree with the naysayers.  Stocks are at all time highs.  Not the time to be going overweight on them.  I realize I'm not giving the company line which is that HB says 4x25.  But if stocks were at lows and gold at highs, I would love your idea from a market timing point of view.  But not now.  It sounds like you are chasing recent past performance, and so is your wife.

[buddtholomew]

Maintain each portfolio separately as the mental gymnastics required to consolidate both allocations is both time consuming and unproductive. If you have enough money to live out your life, then why play the equity game? Inflation is your enemy and the PP is modeled to produce a 2-3% inflation adjusted return (real).

I personally have a love-hate relationship with the Permanent Portfolio, but would truly not invest in any other way for the money I can't afford to lose. Retirement assets are invested more aggressively (70/30) and under the premise that I will be compensated for the additional risk.

[Libertarian666]

Maintain each portfolio separately as the mental gymnastics required to consolidate both allocations is both time consuming and unproductive. If you have enough money to live out your life, then why play the equity game? Inflation is your enemy and the PP is modeled to produce a 2-3% inflation adjusted return (real).

I personally have a love-hate relationship with the Permanent Portfolio, but would truly not invest in any other way for the money I can't afford to lose. Retirement assets are invested more aggressively (70/30) and under the premise that I will be compensated for the additional risk.

Of course if you knew you were going to be compensated for the additional risk, then it wouldn't be risky!

[dualstow]

...
Retirement assets are invested more aggressively (70/30) and under the premise that I will be compensated for the additional risk.

Of course if you knew you were going to be compensated for the additional risk, then it wouldn't be risky!

There's the rub, as they say.

[buddtholomew]

...
Retirement assets are invested more aggressively (70/30) and under the premise that I will be compensated for the additional risk.

Of course if you knew you were going to be compensated for the additional risk, then it wouldn't be risky!

There's the rub, as they say.

Exactly, no guarantees. If I could somehow capture the 30% annual gains and sidestep the 20% losses...

[barrett]

Is anyone besides me feeling the love for the PP on a day like today when stocks are down and long bonds are picking up the slack? I realize it's only one day but it sure is nice to see that protection against stocks going south.

[dualstow]

Definitely.

[portart]

It took awhile but it is starting to look good for PP'ers. It's bonds now but the bigger jump will be in gold which is beaten down. Unlike the last time gold jumped, gold stocks will lead this time. Great for VP