The Global PP

[dutchtraffic]

50% - SAAA - iShares Global AAA-AA Government Bond UCITS ETF (link)
25% - VT - Vanguard Total World Stock ETF (or comparable gloval equity ETFs)
25% - Gold (either physical or a real ETF that can be delivered)

Why not?
Beat it down, destroy it.

As a negative, I see some currency risk.
As a positive, I see WAY more safety compared to using bonds from an individual country, especially for euro-pp owners using German bonds while they do not live in Germany themself (!)

[AdamA]

I think it's an interesting idea and worth discussion, especially for someone who lives in the EU.

I would not change your current PP (with 50% bunds and 50% US treasuries) but I would probably add this as 10-20% of the portfolio.

I would be more inclined to use and ex-US bond fund though b/c it sounds you already have them in your PP.  VTIBX for example seems to hold a lot more Japanese dept than the fund you mentioned, no US debt, and less german debt, so that might be better. 

I'm not sure how non-correlated VT and SAAA are, but it does seem like you are definitely diminishing the "flight-to-safety" benefit you get with US Treasury Bonds, which is the reason I think this should be a small portion of your portfolio. 

[dutchtraffic]

I think it's an interesting idea and worth discussion, especially for someone who lives in the EU.

I would not change your current PP (with 50% bunds and 50% US treasuries) but I would probably add this as 10-20% of the portfolio.

I would be more inclined to use and ex-US bond fund though b/c it sounds you already have them in your PP.  VTIBX for example seems to hold a lot more Japanese dept than the fund you mentioned, no US debt, and less german debt, so that might be better. 

I'm not sure how non-correlated VT and SAAA are, but it does seem like you are definitely diminishing the "flight-to-safety" benefit you get with US Treasury Bonds, which is the reason I think this should be a small portion of your portfolio.

I'm holding a full european PP right now, so only german bonds.

I think pretty much every bond in the SAAA etf is a "safe haven" bond though, besides France maybe.

[AdamA]

I think pretty much every bond in the SAAA etf is a "safe haven" bond though, besides France maybe.

Yeah, that might be true.

I'll admit I lack sophisticiation when it comes to global economics, but just for the sake of discussion, what do you think would happen to your hypothetical portfolio if a country like France defaulted on it's debt?

[dutchtraffic]

I think pretty much every bond in the SAAA etf is a "safe haven" bond though, besides France maybe.

Yeah, that might be true.

I'll admit I lack sophisticiation when it comes to global economics, but just for the sake of discussion, what do you think would happen to your hypothetical portfolio if a country like France defaulted on it's debt?

Well, that's a hard one, as that will likely mean the euro is done.

And if each country goes back to its own currency, each country will deal different with foreign creditors.

Let's say germany decides to step out of the euro, implements the german mark again, mark goes skyhigh and euro plummets, but your bonds are in euros...

As a foreign creditor it's likely that Germany will give you the middle finger and will not convert your bonds 1/1 with the new marks.
That would be pretty ugly.

[MachineGhost]

No government ever repays all its debt, so a 1:1 swap in the middle of an austerity EMU implosion crisis sounds rather ambitious. 

But, the new currencies could be printed up unlimited unlike under the EMU, so the 1:1 swap could happen in nominal terms, just not real.

Maybe you need more gold to deal with EU failure?  Germany certainly seems intent on destroying itself with open borders.  How can a welfare state for massive immigrants possibly continue to exist when you're not a currency issuer?  Something's gotta give.

[AdamA]

Dutchtraffic--

Keep us posted on your progress.  I'm interested.

[craigr]

50% - SAAA - iShares Global AAA-AA Government Bond UCITS ETF (link)
25% - VT - Vanguard Total World Stock ETF (or comparable gloval equity ETFs)
25% - Gold (either physical or a real ETF that can be delivered)

Why not?
Beat it down, destroy it.

As a negative, I see some currency risk.
As a positive, I see WAY more safety compared to using bonds from an individual country, especially for euro-pp owners using German bonds while they do not live in Germany themself (!)

I had looked closely at a similar strategy some time ago as a way to diversify away from Western countries with declining trajectories. The problem is there is not a lot of data you can put together easily to test this approach.

The idea is not a bad one, but as you point out there is currency risk which can be substantial if the future doesn't pan out as expected.

Ideally, the funds in the mix would move the allocations to match current economic position in the globe. So as U.S. declines for instance, it shouldn't take years for the funds to adjust to the new allocation. The funds should adjust immediately, or least annually, to match the new reality. Funds could do this already just based on market cap weighting.

The bonds and cash are the hardest part though. The currency swings can really cause a lot of damage if you end up on the wrong side of the bet. But it's the kind of thing where it could come out in the wash when all the variables play out. It's just much too hard to model all the possibilities so you'd just have to do this a bit on educated decisions.

But clearly yes as Western countries continue to make very bad decisions politically, wider international diversification of the Permanent Portfolio would be a good idea regardless of where you live. I don't know if it would be called the Permanent Portfolio after all is said and done because it breaks the model of tying assets to your local economy though. But I think it could provide a good level of protection with increase in volatility however.

[koekebakker]

I wanted to add that the currency risk would be huge but when I checked global bond etf I noticed that it holds 50% eurozone bonds. Seems like a great mix for eurozone investors.

Don't see any problems with this portfolio. You might want to lower the gold allocation somewhat as you won't need so much currency protection anymore.

I remember from another topic that you don't trust eurozone government debt so that global bond etf might still hold too much of that. Have you thought about adding high quality eurozone corporate bonds?

[AdamA]

But it's the kind of thing where it could come out in the wash when all the variables play out. It's just much too hard to model all the possibilities so you'd just have to do this a bit on educated decisions....But I think it could provide a good level of protection with increase in volatility however.

That's why I think the idea of keeping this as a VP 10-20% the size of your PP is a good idea.  This plus the gold allocation of the PP gives good diversification out of the dollar (or whatever local currency you hold) without really chaning the PP in such a way that "breaks the warranty."

[koekebakker]

But it's the kind of thing where it could come out in the wash when all the variables play out. It's just much too hard to model all the possibilities so you'd just have to do this a bit on educated decisions....But I think it could provide a good level of protection with increase in volatility however.

That's why I think the idea of keeping this as a VP 10-20% the size of your PP is a good idea.  This plus the gold allocation of the PP gives good diversification out of the dollar (or whatever local currency you hold) without really chaning the PP in such a way that "breaks the warranty."

I doubt that there is any warranty on the PP outside the US so maybe there's nothing to break. There's no link whatsoever between gold and any other economy except for the US.  So a non-US PP is in my opinion not 'fail-safe', it's just another well diversified portfolio.
It's also the reason 25% gold in an already internationally diversified portfolio seems a bit high. Unfortunately I have no way of testing this.

[koekebakker]

I've been thinking some more about Dutchtraffics proposed global PP as I really like the idea.
How about a Global Desert?

30% stocks is easy: any global stock fund/etf will do.

10% gold: a lower gold allocation seems to make sense in a global portfolio. You don't need as much protection against your own currency.

60% fixed: Here it gets interesting. One thing I don't like in OP's PP is that there's no allocation to cash.
I would want some local cash (at least my emergency fund) so an equal split between global bonds (intermediate treasuries, preferably AA+) and local cash seems reasonable.
You can be flexible with the cash part. Local short term treasuries, savings accounts, CD's, whatever gives the best risk/return, or whatever feels most comfortable.

You'll have a little bit less protection against deflation but with 60% fixed income that should not really be a problem anyway.

To me this portfolio seems like a very safe long-term portfolio, arguably safer than for example a UK- or eurozone-PP. It can be implemented in almost any country.
Shifting global economics will be immediately reflected as well.

What do you think?

[LazyInvestor]

50% - SAAA - iShares Global AAA-AA Government Bond UCITS ETF (link)
25% - VT - Vanguard Total World Stock ETF (or comparable gloval equity ETFs)
25% - Gold (either physical or a real ETF that can be delivered)

Why not?
Beat it down, destroy it.

As a negative, I see some currency risk.
As a positive, I see WAY more safety compared to using bonds from an individual country, especially for euro-pp owners using German bonds while they do not live in Germany themself (!)

I think this way you own a basket of currencies plus a huge proportion in yet another currency (gold). Way too much currency risk IMO. I'd say reduce gold to around 10% and increase VT to 40%, which would make it a fine global Boglehead's portfolio. I'm sticking with my US PP although I have nothing to do with US. If I were not using US PP, I think I'd have a global Boglehead's portfolio along the lines of what you are suggesting.

[LazyInvestor]

Just checked this ETF is only 50 million in AUM. I've read somewhere one should ideally avoid any ETF with anything less than 1 billion in AUM.

[MachineGhost]

http://etfdb.com/screener/#asset-class= ... ncy-hedged

[dutchtraffic]

http://etfdb.com/screener/#asset-class= ... ncy-hedged

If you diversify to counter a currency collapse, you do not want to be currency hedged.

[MachineGhost]

If you diversify to counter a currency collapse, you do not want to be currency hedged.

The USD isn't going to collapse.  But if you believe that, you are better off sticking to gold than trying to pick the least rotten apple in a barrel.

[dutchtraffic]

If you diversify to counter a currency collapse, you do not want to be currency hedged.

The USD isn't going to collapse.  But if you believe that, you are better off sticking to gold than trying to pick the least rotten apple in a barrel.

I don't just believe it, it's guaranteed to collapse.

[MachineGhost]

I don't just believe it, it's guaranteed to collapse.

Centuries of history doesn't agree with you.  What do you expect to be different this time that would be the exception to the rule?

[dutchtraffic]

I don't just believe it, it's guaranteed to collapse.

Centuries of history doesn't agree with you.  What do you expect to be different this time that would be the exception to the rule?

Are you kidding? How many fiat currencies survived...?

[MachineGhost]

Are you kidding? How many fiat currencies survived...?

No I'm not kidding.  You don't understand the role of the the world's core economy nor operational reality.  The USD has special advantages that other currencies simply don't have and never will.  Its just too much to cover to be able to have a conversation on the same page.  I suggest worrying about second and third tier currencies first.  No one will want them.

[dutchtraffic]

Are you kidding? How many fiat currencies survived...?

The USD has special advantages that other currencies simply don't have and never will.

Ah ok, now I'm sure you're kidding



Ah i guess "this time it's different" 

[Libertarian666]

Interesting chart.  I wonder if it was ever possible in the past to predict which currency would take over.  I can't even guess which one would take over next in today's world.

I can.

[Libertarian666]

Interesting chart.  I wonder if it was ever possible in the past to predict which currency would take over.  I can't even guess which one would take over next in today's world.

I can.

Please don't say China.

Hardly. It's a shiny metallic element.

[MachineGhost]

Ah i guess "this time it's different" 

Changing of the reserve currency != "collapse".   Did Great Britain collapse?  It's still going strong last I looked.  And in the past, nations were not currency issuers as the major ones are today; not being one which is largely a reason why they did run into serious trouble with their dual silver and gold forms of money.  There was no relief valve for labor and wage injustices.

As far as the new form of money, it won't be gold or other austerity-imposing relics from the past.  Been there, done that.  We use debt as money now not commodities.  It'll be the IMF's SDR or something supranational like that.  You have to put what's coming in context.  Countries and governments will be crying out to negotiate a New World Order without the USD being the world's reserve currency because they stupidly issued trillions in USD-denominated sovereign debt at near zero percent interest rates.  Currency pegs never work.  The rest of the world is going to blow up and the USD will stay the least unscathed, just by virture of its special position.