New PPer needs guidance.

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
Matthew19
Full Member
Full Member
Posts: 80
Joined: Fri May 29, 2015 9:50 pm

New PPer needs guidance.

Post by Matthew19 » Wed Jun 03, 2015 11:53 pm

Hi everyone. I'm 32 years old with a wife and two kids. We have 750k in liquid assets. The PP is fascinating to me, I've read Craig's book as well as ' the best laid  Investments'. Up until now iv been a Peter schiff fan who bought lots of gold miners. Big mistake. Harry's book lopened my eyes!

I'm self employed and own an LLC filing as an S-corp. I've been avoiding IRA contributions for the past few years. It seems like a solo 401k through my LLC would be the best way to catch up, but I'm not sure. What's the consensus on the best way to own bonds? Will treasurydirect accept a solo401k account? Would I do better just buying TLT?

Thanks for any help pointing me in the right direction!
User avatar
MediumTex
Administrator
Administrator
Posts: 9083
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

Re: New PPer needs guidance.

Post by MediumTex » Thu Jun 04, 2015 12:44 am

Matthew19 wrote: Hi everyone. I'm 32 years old with a wife and two kids. We have 750k in liquid assets. The PP is fascinating to me, I've read Craig's book as well as ' the best laid  Investments'. Up until now iv been a Peter schiff fan who bought lots of gold miners. Big mistake. Harry's book opened my eyes!

I'm self employed and own an LLC filing as an S-corp. I've been avoiding IRA contributions for the past few years. It seems like a solo 401k through my LLC would be the best way to catch up, but I'm not sure. What's the consensus on the best way to own bonds? Will treasurydirect accept a solo401k account? Would I do better just buying TLT?

Thanks for any help pointing me in the right direction!
Congratulations on having so much saved at your age.  Nice work!

There is a lot of information out there about single participant 401(k) plans.  Just pick a service provider you like and get it set up.

As far as buying bonds (and gold) in your new 40(k) account, I would tell the plan service provider that you want to have the equivalent of a "brokerage window" in your plan so that you can buy individual securities for your account.  That will allow you to at least buy funds like TLT, EDV, GTU, IAU for your 40(k) account.  I wouldn't try to buy individual bonds in a 401(k) account.  It can probably be done, but TLT should work fine for now.

Good luck with your PP experience.  I hope it ends up being a good fit for you.
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

Re: New PPer needs guidance.

Post by ochotona » Thu Jun 04, 2015 5:24 am

At the risk of PP heresy, I say wait for Treasuries to go down more and bounce before starting a buy program. I have set a bunch of limit buy orders at prices ranging from 25% to 40% off of the recent peak. Will it get that low? No clue, but trip wires are set. Doing same for gold... trying to buy more below $1000. With the Dollar so strong now, buy a slice of foreign stocks as part of your stock plan.
iwealth
Executive Member
Executive Member
Posts: 409
Joined: Thu Apr 26, 2012 5:45 pm

Re: New PPer needs guidance.

Post by iwealth » Thu Jun 04, 2015 7:26 am

ochotona wrote: At the risk of PP heresy, I say wait for Treasuries to go down more and bounce before starting a buy program. I have set a bunch of limit buy orders at prices ranging from 25% to 40% off of the recent peak. Will it get that low? No clue, but trip wires are set. Doing same for gold... trying to buy more below $1000. With the Dollar so strong now, buy a slice of foreign stocks as part of your stock plan.
It's not the heresy that's the problem as much as the inappropriateness of advising market timing to a first time poster who wants to use the PP partially because of a failed prior attempt at market timing. Just my opinion of course.

Statistically speaking it's best to just go all-in and ride out short term volatility because at his ripe old age of 32, short term volatility just doesn't matter. If one was to employ any form of market timing when entering the PP, the only one that makes sense is dollar cost averaging into every asset equally until 100% cash becomes 25% cash.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

Re: New PPer needs guidance.

Post by ochotona » Thu Jun 04, 2015 7:55 am

32 is a good age. My opinion is, "don't try to catch a falling knife" with respect to bonds or any other asset. Be a little patient, wait for the dust to settle.
barrett
Executive Member
Executive Member
Posts: 1608
Joined: Sat Jan 04, 2014 2:54 pm

Re: New PPer needs guidance.

Post by barrett » Thu Jun 04, 2015 8:05 am

ochotona wrote: 32 is a good age. My opinion is, "don't try to catch a falling knife" with respect to bonds or any other asset. Be a little patient, wait for the dust to settle.
I don't disagree with this but I don't know how to identify which knife is falling, by how much and how soon. Are stocks not a falling knife candidate as well?

Yes, great job with the savings, Matthew. I think you'll see a bias from several PPers toward cash right now which may or may not be a good choice going forward. Just remember that the PP is a real return portfolio. If we figure that inflation is basically zero right now, over the next little while (I am being deliberately vague on the timeframe) we should expect to see returns of about 4-5%. An annual 4.5% return still doubles your money every 16 years. Again, that is in real terms, not nominal.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

Re: New PPer needs guidance.

Post by ochotona » Thu Jun 04, 2015 8:37 am

Falling knife - look at TLT during Feb / Mar / Apr / May / June 2015
dutchtraffic
Executive Member
Executive Member
Posts: 242
Joined: Sat Apr 11, 2015 7:28 am

Re: New PPer needs guidance.

Post by dutchtraffic » Thu Jun 04, 2015 9:25 am

Would wait a bit or go slow.

My EU PP has not ever been positive since i started, despite me putting more and more cash in it when it dropped, got 100K in now but am going to pause now for a bit untill something positive happens. Down a bit more than 5% atm, which was worse but i bought more as it dropped.

It's somewhat expected ofc. as everything is totally in bubble territory, so just wait a bit or go in slowly.
iwealth
Executive Member
Executive Member
Posts: 409
Joined: Thu Apr 26, 2012 5:45 pm

Re: New PPer needs guidance.

Post by iwealth » Thu Jun 04, 2015 9:33 am

ochotona wrote: Falling knife - look at TLT during Feb / Mar / Apr / May / June 2015
ochotona wrote: At the risk of PP heresy, I say wait for Treasuries to go down more and bounce before starting a buy program. I have set a bunch of limit buy orders at prices ranging from 25% to 40% off of the recent peak. Will it get that low? No clue, but trip wires are set.
So which is it...do you wait for a bounce before getting back in or do you set limit buy orders? By definition, don't limit buy orders catch falling knives? Also, how about that TLT bounce in March from about $123 to $133? Is that enough of a bounce? How does one know?

Market timing can work, but not with loosely defined rules like "don't catch falling knifes" or "wait for a bounce." As far as buying at 25% or 40% declines, that's great, not much different from rebalancing bands. So a good, well-defined rule would be "rebalance when an individual asset declines 25% and again at 40%."
User avatar
dualstow
Executive Member
Executive Member
Posts: 11781
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: New PPer needs guidance.

Post by dualstow » Thu Jun 04, 2015 9:53 am

One thing I've always liked about the pp is that I feel free to make regular contributions without worrying about market timing at all.
traveling...
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

Re: New PPer needs guidance.

Post by ochotona » Thu Jun 04, 2015 10:00 am

The issue really for me is not as one who is in the portfolio and on the rebalancing plan which is automatic buy low, sell high... the issue is for the new investor, or you have a pile of new cash, will you hate yourself if you just buy the non-cash assets and they take a tumble? I don't think I'm overstating it when I say, as others have, that the non-cash assets all face simultaneous risks, which is probably a bit rare.
mukramesh
Executive Member
Executive Member
Posts: 163
Joined: Fri Sep 12, 2014 3:27 pm

Re: New PPer needs guidance.

Post by mukramesh » Thu Jun 04, 2015 11:34 am

MediumTex wrote:
Matthew19 wrote: Would I do better just buying TLT?
I wouldn't try to buy individual bonds in a 401(k) account.  It can probably be done, but TLT should work fine for now.
I buy individual bonds directly in my Fidelity 401(k) through their brokerage window (BrokerageLink) commission free. It's actually quite easy and I recommend it as a way to avoid the expense ratio of TLT.
User avatar
Tyler
Executive Member
Executive Member
Posts: 1995
Joined: Sat Nov 12, 2011 3:23 pm
Contact:

Re: New PPer needs guidance.

Post by Tyler » Thu Jun 04, 2015 11:56 am

I would personally worry less about a falling knife in the PP since it has three other bandages at the ready.  And don't forget it sounds like the OP is not sitting in cash but is heavy on miners.  A timely transition may be prudent.

FWIW, with that level of assets I'd primarily be concerned with the tax implications of changing allocations.  Before you do anything, put together a transition plan to minimize taxes.  Tax loss harvesting, saving some gains for next year, etc.
User avatar
dualstow
Executive Member
Executive Member
Posts: 11781
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: New PPer needs guidance.

Post by dualstow » Thu Jun 04, 2015 1:13 pm

Tyler wrote:   And don't forget it sounds like the OP is not sitting in cash but is heavy on miners. 
Well he said "liquid assets". I thought that meant cash or something close to it. Maybe the miners are in the rear-view mirror? Not sure.
traveling...
glennds
Executive Member
Executive Member
Posts: 663
Joined: Mon Jan 28, 2013 11:24 am

Re: New PPer needs guidance.

Post by glennds » Thu Jun 04, 2015 1:36 pm

At the risk of being accused of market timing, it may not be a bad idea to take the funds you've allocated for a Permanent Portfolio and ease in, perhaps over 3 or 4 quarters (in 33% or 25% increments). It just seems like markets are very volatile in recent times and phasing in may blunt some  of the effect the volatility could have.

Looking back on my own experience in 20/20 hindsight, it would have been better to have phased in instead of jumping all in like I did. I ended up buying gold at a comparative peak and the other assets were not in a trough enough to offset as it declined it so I feel like I started my PP journey with the wind in my face. Not the end of the world over a long enough holding period, but it would have been better to have eased in.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

Re: New PPer needs guidance.

Post by ochotona » Thu Jun 04, 2015 2:12 pm

glennds wrote: At the risk of being accused of market timing, it may not be a bad idea to take the funds you've allocated for a Permanent Portfolio and ease in, perhaps over 3 or 4 quarters (in 33% or 25% increments). It just seems like markets are very volatile in recent times and phasing in may blunt some  of the effect the volatility could have.

Looking back on my own experience in 20/20 hindsight, it would have been better to have phased in instead of jumping all in like I did. I ended up buying gold at a comparative peak and the other assets were not in a trough enough to offset as it declined it so I feel like I started my PP journey with the wind in my face. Not the end of the world over a long enough holding period, but it would have been better to have eased in.
One thing that really puzzles me is that this odd little social group out here puts pressure on others for suggesting anything not strictly in "the HBPP canon". Of course it's a good idea to dollar cost average into a set of new investments, even if "The Books" say jump in at once.

If assets are near 52 week highs... don't whip out your wallet and get ready to buy a whole sh**load. Then people will ask, "Well how will you know?" Well, I don't know, I just know they're expensive now. Everything goes on sale eventually. "Well, how will you know it's on sale? What algorithm will you use?"

The algorithm is whatever is in the DNA of my Mother and my Wife, and it's probably missing from most men, that allow them to find great sale rack deals on a dress or whatever.
iwealth
Executive Member
Executive Member
Posts: 409
Joined: Thu Apr 26, 2012 5:45 pm

Re: New PPer needs guidance.

Post by iwealth » Thu Jun 04, 2015 2:47 pm

ochotona wrote: One thing that really puzzles me is that this odd little social group out here puts pressure on others for suggesting anything not strictly in "the HBPP canon".
Given my other posts in this thread, I'm sure I'm considered a member of this "odd little social group" so I'll respond again. When a new user reads Harry Browne's book, comes to the HBPP discussion forum, posts in the "Permanent Portfolio Discussion" board about buying bonds directly or using TLT, and instead gets advised to market time bonds instead of establishing the full portfolio, admittedly I feel inclined to chime in and "pressure" him to stick with his original plan.
Then people will ask, "Well how will you know?" Well, I don't know, I just know they're expensive now. Everything goes on sale eventually. "Well, how will you know it's on sale? What algorithm will you use?"

The algorithm is whatever is in the DNA of my Mother and my Wife, and it's probably missing from most men, that allow them to find great sale rack deals on a dress or whatever.
So you don't know when to buy. But you know it's expensive now. And being able to spot the sale is as subjective as spotting a "deal" on a clothing sale rack? Strikes me this is exactly what the original poster is trying to avoid. And for that matter, ALL passive investors.

I'm not trying to be antagonistic, honestly. But if you go ahead and look at the SPY ETF from oh March, 2009 through today...at what point along that journey would it have been a bad time to invest in stocks? Obviously the answer is none; however, the predictions of doom and gloom were in full force during the dips in 2010 and 2011. Heck, even in July 2009 there were plenty of people screaming to get out. Investors who got out and stayed out waiting for that 25%-40% correction NEVER got in. That's a lot of money to leave on the table. Maybe that DNA driven impulse to buy would have hit you sooner, I dunno. But you can't offer "follow your gut" as if it was real advice.
User avatar
MediumTex
Administrator
Administrator
Posts: 9083
Joined: Sun Apr 25, 2010 11:47 pm
Contact:

Re: New PPer needs guidance.

Post by MediumTex » Thu Jun 04, 2015 2:53 pm

ochotona wrote: One thing that really puzzles me is that this odd little social group out here puts pressure on others for suggesting anything not strictly in "the HBPP canon". Of course it's a good idea to dollar cost average into a set of new investments, even if "The Books" say jump in at once.
As I recall, what we said in the book was that there is little danger in jumping in all at once, but if it makes you more comfortable to go in a little at a time, that's fine too.

Harry Browne did suggest just jumping in all at once, but I don't recall him saying that moving in gradually would somehow cause the strategy not to work.

The important thing for most new PP investors is to just get started and see if the strategy is a good match for them.

At least one PP asset will almost always look like a terrible investment.
Only strength can cooperate. Weakness can only beg.
-Dwight Eisenhower
User avatar
dualstow
Executive Member
Executive Member
Posts: 11781
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: New PPer needs guidance.

Post by dualstow » Thu Jun 04, 2015 2:56 pm

You're being a bit disingenuous here, Ochotona, and I feel bad that iwealth is doing all the work on calling you out. (Edit: I see MT posted while I was typing this). I'd have more to say, but I'd rather have more eloquent people say it for me.
ochotona wrote: Of course it's a good idea to dollar cost average into a set of new investments, even if "The Books" say jump in at once.
I don't think dollar cost averaging is market timing. I don't see any difference between that and regular contributions. But that's not what you said. You said to wait.
ochotona wrote:I say wait for Treasuries to go down more and bounce before starting a buy program.
That is market timing.
traveling...
mukramesh
Executive Member
Executive Member
Posts: 163
Joined: Fri Sep 12, 2014 3:27 pm

Re: New PPer needs guidance.

Post by mukramesh » Thu Jun 04, 2015 3:02 pm

mukramesh wrote:
ochotona wrote:
glennds wrote: At the risk of being accused of market timing, it may not be a bad idea to take the funds you've allocated for a Permanent Portfolio and ease in, perhaps over 3 or 4 quarters (in 33% or 25% increments).
Of course it's a good idea to dollar cost average into a set of new investments, even if "The Books" say jump in at once.

@ochotona: I think everyone is okay with dollar-cost-averaging into the PP. I think many take issue with you advising timing the individual components of the PP.

Regardless, you must at least agree that your posts and the subsequent conversation is off topic? I believe you have already started at least one other topic about your idea such as this one.-

http://gyroscopicinvesting.com/forum/go ... tion-rule/


@Mathew: To directly answer your question, I'd say the best way to own bonds is in a 401k/IRA due to tax efficiency. Like I said in my previous post, I have no problem doing this commission free in my Fidelity 401k through their BrokerageLink. If you prefer to do this in a taxable brokerage account, this should be equally easy.

I am not sure if you can access the secondary market in TreasuryDirect so I recommend using an actual brokerage to handle your Permanent Portfolio. I only use TD for I-Bonds which go under the 'cash' category. Besides, an actual brokerage service gives more flexibility in terms of using directly held bonds, ETFs, etc.
User avatar
dualstow
Executive Member
Executive Member
Posts: 11781
Joined: Wed Oct 27, 2010 10:18 am
Contact:

Re: New PPer needs guidance.

Post by dualstow » Thu Jun 04, 2015 3:43 pm

Kbg wrote: Slight and friendly rant here...this is a stupid thread (not the question, but the answers).

No one but no one can answer this question accurately unless they can predict the future. So here is the only accurate and correct answer I've seen.

1. All assets go straight up or basically up from here...buy now, do not delay.

2. All assets go straight down or basically down from here...do not buy now and don't invest a dime unless you think something has stabilized/is basing, then buy.

3. Assets go nowhere for awhile (you determine how long "awhile" is)...dollar cost average as it will lower your overall basis.

...
I thought the question was
OP wrote:What's the consensus on the best way to own bonds?
traveling...
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: New PPer needs guidance.

Post by MachineGhost » Thu Jun 04, 2015 5:45 pm

ochotona wrote: Falling knife - look at TLT during Feb / Mar / Apr / May / June 2015
What about the other assets?  Were they not rising fluffy pillows?
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: New PPer needs guidance.

Post by MachineGhost » Thu Jun 04, 2015 5:49 pm

MediumTex wrote: Harry Browne did suggest just jumping in all at once, but I don't recall him saying that moving in gradually would somehow cause the strategy not to work.
A robust strategy would work whether or not you went in all at once, averaged in or market timed.  Fortunately, the PP works with all three!

And the consensus is to go with TreasuryDirect.
Last edited by MachineGhost on Thu Jun 04, 2015 5:52 pm, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
LC475
Executive Member
Executive Member
Posts: 427
Joined: Tue Oct 08, 2013 4:23 pm

Re: New PPer needs guidance.

Post by LC475 » Thu Jun 04, 2015 6:18 pm

Matthew19 wrote: What's the consensus on the best way to own bonds?

Will treasurydirect accept a solo401k account? Would I do better just buying TLT?
The gold standard is to own the bonds themselves directly.  That way you eliminate various unlikely but possible risks.  Also you can get a longer duration -- you'll start out with virtually a full 30 years.  Also you can exercise direct control over your bonds, rather than the ETF controlling them.  You also avoid the drain of the expense ratio and fees charged by the ETF, fees that seem somewhat ridiculous and disproportionate, to me, considering the extreme ease of buying US Treasury Bonds and keeping the average duration above (in the case of TLT) 20 years.  There's virtually no management required!  What are you paying them for?  Why pay them for what you can trivially do yourself?  That's my perspective anyway.

I wish I knew more about solo 401ks.  A quick Google search, however, seems to show unequivocally that one *can* indeed purchase bonds in a solo 401k, no problem.  And so that is what I would recommend.
LC475
Executive Member
Executive Member
Posts: 427
Joined: Tue Oct 08, 2013 4:23 pm

Re: New PPer needs guidance.

Post by LC475 » Thu Jun 04, 2015 6:24 pm

Also, Matthew, welcome and congratulations!  Yes, it is weird that so many of those here have encouraged you to not get into the PP, when the title of the forum is "Permanent Portfolio Discussion Forum".  Well, maybe they have lost confidence in the PP, but you know the real story, having read the book, so again congratulations, and come on in, the water's fine!
Post Reply