Gyroscopic Investing

Hello PP-fellows,

what must happen to you PERMANENT PORTFOLIO or to the world that makes you quit from having a PP ?

3-4 years falling?




Regards!

Even if I see my PP fall for three or four years, I'd still have to make a choice about either going all cash or some other asset mix that I like going forward. Right now I see gold, bonds and stocks all more or less as fairly priced given how low rates are here in the US. So to me the PP seems fundamentally sound. I guess in the next year or so I can easily imagine gold, stocks and bonds going up by 20% or falling by 20%. I just don't think those rises and falls will all happen at the same time. We are in a period of low investment returns so maybe the best outcome is that the PP just kind of treads water until the conditions are right for one asset to really take off.

barrett wrote: Even if I see my PP fall for three or four years, I'd still have to make a choice about either going all cash or some other asset mix that I like going forward. Right now I see gold, bonds and stocks all more or less as fairly priced given how low rates are here in the US. So to me the PP seems fundamentally sound. I guess in the next year or so I can easily imagine gold, stocks and bonds going up by 20% or falling by 20%. I just don't think those rises and falls will all happen at the same time. We are in a period of low investment returns so maybe the best outcome is that the PP just kind of treads water until the conditions are right for one asset to really take off.

I think one of the biggest mistakes people make is changing strategies.  In the end, probably just about any strategy can work out over a long enough time period and with the proper timing for drawing down.  There's not much that would make me abandon what I've built and stuck with this long (8 years) b/c I recognize that there's no perfect portfolio and anything I switch into could just as well lose money and potentially even more, for even longer.  I'm not smart enough to know how to time which strategy will do best when, so I've just picked one I'm comfortable with and sticking with it.

I don't really understand why this is such a commonly discussed topic. 

Tom wrote: I don't really understand why this is such a commonly discussed topic.

Greed.

No reason to quit it.  Maybe small tweaks at most.  Every asset it holds is a superstar or stinker at some point, and it is much easier for me to rationalize that since I can't predict which will be doing well or poorly I should just stay diversified across them.

stuper1 wrote:

Tom wrote: I don't really understand why this is such a commonly discussed topic.

Greed.

Personally, it's fear and not greed that motivated me to invest in the PP.

buddtholomew wrote:

stuper1 wrote:

Tom wrote: I don't really understand why this is such a commonly discussed topic.

Greed.

Personally, it's fear and not greed that motivated me to invest in the PP.

The topic under discussion is "why to quit the PP" not "why to invest in the PP".

I think the reason to quit the PP would be if you realize that your investment goals and volatility tolerance are substantially different from what the PP delivers.

Desert wrote: Wouldn't 3-4 years of falling lead to one of the best times to ENTER a portfolio?  Buy low, sell high...

I've been thinking the same thing!!  I've been hoping the PP stays low for at least several months, because I'm not going to be buying any new assets for a while yet.

And therein lies the problem with getting out of portfolios when they're doing badly, and into ones that are flying high.  That makes the most sense psychologically but it's disastrous for investment returns.  Unfortunately, psychology and investing just don't mix.  You have to pick the strategy that meets your goals the best and then stick with it.  If you have to quit looking at the markets and your portfolio in order to do that, then that's what you should do.

frugal wrote: what must happen to you PERMANENT PORTFOLIO or to the world that makes you quit from having a PP ?
3-4 years falling?

The PP has never had 2 back-to-back years of negative returns.  So put 3 of them together and I would be very, very concerned.  Of course, that would also mean that there were likely to be much bigger and more serious problems occurring in the economy, so I'd have to look at the big picture. 

Also, if the PP's overall rolling returns keep sloping downward as they've done over the past 30 years or so, that will concern me as well.  I'm hoping it stabilizes around 8%.  See the charts I posted here:

http://gyroscopicinvesting.com/forum/pe ... #msg129953

stuper1 wrote:

buddtholomew wrote:

stuper1 wrote: Greed.

Personally, it's fear and not greed that motivated me to invest in the PP.

The topic under discussion is "why to quit the PP" not "why to invest in the PP".

I understand what the topic under discussion is.  I'm saying I don't understand why that is a topic so commonly discussed amongst people that picked a strategy that is meant to be stable.  It doesn't guarantee a positive return every single year and no portfolio can do that.  It's down 3% and people are acting like it's the end of the world and wanting to abandon it.

rocketdog wrote: Also, if the PP's overall rolling returns keep sloping downward as they've done over the past 30 years or so, that will concern me as well.  I'm hoping it stabilizes around 8%.  See the charts I posted here:

http://gyroscopicinvesting.com/forum/pe ... #msg129953

rocketdog, Don't you think that downward slope is almost entirely due to the PP staying 3% to 6% ahead of inflation? In real return terms it's been doing just fine. In other words, it has preserved wealth just as well over the last 20 years of your graph as it did in the first 20.

Edit: Ah, I see that koekebakker already addressed this in the cool PP charts section.

Tom wrote: ... I'm saying I don't understand why that is a topic so commonly discussed amongst people that picked a strategy that is meant to be stable.  It doesn't guarantee a positive return every single year and no portfolio can do that.  It's down 3% and people are acting like it's the end of the world and wanting to abandon it.

I think the main reason is that investors tend to have expectations that are too high based on what the underlying portfolio assets are capable of. If their PP isn't cranking out 9% to 10% nominally, they think something is wrong.

Unlucky entry timing also plays a roll. I jumped into the PP at the beginning of 2014 and everything started going up. I got lucky. People who got in at the beginning of 2013 had to deal with the gold shock. Someone going all in in February of this year might be down 6% to 7%.

You've seen up close how this asset mix does over a longer period so you have more faith than some others.

In theory  you would think if it was working as expected you wouldn't have to worry about timing your buys and hitting that unlucky time frame that leads to losses or poor performance.

The only reason I can think of to quit is if I found something that I was convinced would do what I wanted the PP to do, only better. Otherwise what would be the point? I haven't done anything to become a market timing, investing genius lately.

I don't know where the rest of you are in regards to how close you are to retirement but I was planning to retire in two years but hoping maybe to even do it next year (when I turn 67). I was very hopeful after the good (normal) return last year. Another year like that and I might very well have been able to go for it next year.  Needless to say, this year is a downer and another year like it in succession might even put my retirement plan in jeopardy for the following year. Been a little depressed about it lately but a good ale helps.

So I probably have more emotionally invested in it than most of you but I'm still sticking with it.

I plan to hold the 4 assets at all times - stocks, gold, treasuries and cash. I still have concerns with the amount allocated to each asset.

Fred wrote: The only reason I can think of to quit is if I found something that I was convinced would do what I wanted the PP to do, only better. Otherwise what would be the point?

I agree with that.  Unfortunately I do go off the reservation now and then, such as lately, trying to come up with a better PP mousetrap.  But the PP is still doing its job.

Fred wrote: I don't know where the rest of you are in regards to how close you are to retirement but I was planning to retire in two years but hoping maybe to even do it next year (when I turn 67). I was very hopeful after the good (normal) return last year. Another year like that and I might very well have been able to go for it next year.  Needless to say, this year is a downer and another year like it in succession might even put my retirement plan in jeopardy for the following year. Been a little depressed about it lately but a good ale helps.

So I probably have more emotionally invested in it than most of you but I'm still sticking with it.

I can really relate. Being close to retirement really changes the way you look at your investments. I am almost 57 and hoping to pull the plug on paid work in the next few years. The thing for me is that it's hard to not get fixated on a nice, sweet, round number for retirement. And when you are close to the end of your working years a bad portfolio day WAY outweighs current income. Sophie looks at the same dip and hope it lasts a bit longer so she can sneak in some purchases at lower levels.

A good ale definitely helps... as does a flexible spending plan those first few years in retirement. Wish you luck with it all, Fred.

Tom wrote:
I think one of the biggest mistakes people make is changing strategies.  In the end, probably just about any strategy can work out over a long enough time period and with the proper timing for drawing down.  There's not much that would make me abandon what I've built and stuck with this long (8 years) b/c I recognize that there's no perfect portfolio and anything I switch into could just as well lose money and potentially even more, for even longer.  I'm not smart enough to know how to time which strategy will do best when, so I've just picked one I'm comfortable with and sticking with it.

I don't really understand why this is such a commonly discussed topic.

If you take this post and substitute the word "spouse" for "strategy" and "portfolio", the advice is equally sound.

But many times divorces are the best thing that can happen. It takes having something you are not totally happy with to understand what does work for you.
my second wife is a gem and we are so perfect for each other it is scarey.

glennds wrote:

Tom wrote:
I think one of the biggest mistakes people make is changing strategies.  In the end, probably just about any strategy can work out over a long enough time period and with the proper timing for drawing down.  There's not much that would make me abandon what I've built and stuck with this long (8 years) b/c I recognize that there's no perfect portfolio and anything I switch into could just as well lose money and potentially even more, for even longer.  I'm not smart enough to know how to time which strategy will do best when, so I've just picked one I'm comfortable with and sticking with it.

I don't really understand why this is such a commonly discussed topic.

If you take this post and substitute the word "spouse" for "strategy" and "portfolio", the advice is equally sound.

Hmm, I'm not sure about that. Maybe some spouses are like day trading and others are more like the PP?

As for me, I changed spouses about 20 years ago and the results have been much better. 

My friends,

This is a US forum.

I live in Europe and I have a EUPP.

I am a little bit more concerned because all I hear about Europe end.

Frugal, nobody knows if and when the Eurozone will breakdown. It might be next year or it might not happen in our lifetimes.

A EU-PP already has quite a lot of built-in protection by having 25% gold.
During the Eurozone troubles in 2011 gold was up 15% in euros, in 2014 it was up 12%.

If you feel that gold alone isn't enough protection/diversification, here are a couple of options to think about:

- split your stocks between a global unhedged etf and a eurozone etf. The exact etf's don't really matter. MSCI World and Eurostoxx 50 or MSCI EMU will do. This will add some currency risk but that's exactly what you want if you're worried about a collapsing eurozone.
- Add some foreign bonds and/or cash. Maybe add 5% TLT and 5% short term US treasuries.
- some like to split between a US-PP and a EU-PP but this is too complicated for me.

I choose to split my equity 50/50. Coupled with gold I believe this is pretty robust setup.
Why 50/50 and not 25/75 or 75/25? I don't know. 50/50 feels good I guess. It's easy to overthink the exact percentages. In the end the differences will be minimal.

Hope this helps.

barrett wrote:

Fred wrote: I don't know where the rest of you are in regards to how close you are to retirement but I was planning to retire in two years but hoping maybe to even do it next year (when I turn 67). I was very hopeful after the good (normal) return last year. Another year like that and I might very well have been able to go for it next year.  Needless to say, this year is a downer and another year like it in succession might even put my retirement plan in jeopardy for the following year. Been a little depressed about it lately but a good ale helps.

So I probably have more emotionally invested in it than most of you but I'm still sticking with it.

I can really relate. Being close to retirement really changes the way you look at your investments. I am almost 57 and hoping to pull the plug on paid work in the next few years. The thing for me is that it's hard to not get fixated on a nice, sweet, round number for retirement. And when you are close to the end of your working years a bad portfolio day WAY outweighs current income. Sophie looks at the same dip and hope it lasts a bit longer so she can sneak in some purchases at lower levels.

A good ale definitely helps... as does a flexible spending plan those first few years in retirement. Wish you luck with it all, Fred.

This is where I am.  Luckily, the retirement I'm considering is "early retirement," so there's no reason I can't just work longer to make up the investment losses.  But it would have been nice to have had net positive returns the last three years (as mentioned in another thread, this doesn't track the PP exactly because of my DCA)

barrett wrote:

Fred wrote: I don't know where the rest of you are in regards to how close you are to retirement but I was planning to retire in two years but hoping maybe to even do it next year (when I turn 67). I was very hopeful after the good (normal) return last year. Another year like that and I might very well have been able to go for it next year.  Needless to say, this year is a downer and another year like it in succession might even put my retirement plan in jeopardy for the following year. Been a little depressed about it lately but a good ale helps.

So I probably have more emotionally invested in it than most of you but I'm still sticking with it.

I can really relate. Being close to retirement really changes the way you look at your investments. I am almost 57 and hoping to pull the plug on paid work in the next few years. The thing for me is that it's hard to not get fixated on a nice, sweet, round number for retirement. And when you are close to the end of your working years a bad portfolio day WAY outweighs current income. Sophie looks at the same dip and hope it lasts a bit longer so she can sneak in some purchases at lower levels.

A good ale definitely helps... as does a flexible spending plan those first few years in retirement. Wish you luck with it all, Fred.

I know exactly how you feel.  I started my ERE just under a year ago.  The last two years before I pulled the plug were very painful at times, as I couldn't help but watch the daily gyrations and constantly compare them against my goal. 

The thing is, once I finally reached my savings goal my stress did not magically disappear.  If anything, I had just as much anxiety as before but this time nothing but myself to blame it on.  Life called my bluff and I feared going all-in.  It took several months to realize that retirement is less about money than I formerly realized and more about mental preparedness.

With the benefit of hindsight, I think that the specific monetary goal was just an excuse to maintain the status quo and I could have retired even earlier if I had been more emotionally ready.  Once you're truly ready, you'll know.  And IMHO the markets won't really make such a difference at that point because your plan will be much bigger than your investment account.