Moving out of the PP

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koekebakker
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Moving out of the PP

Post by koekebakker » Sun Dec 18, 2016 7:05 am

Lately I’ve been looking to simplify certain areas of my life and I had to admit to myself that I had more doubts about my Permanent Portfolio then I’d like to.
Ever since I’ve began adding new money to move my portfolio closer to the 4x25 allocation (5/6 years!) I’ve kept a feeling of unease about this allocation.

See for example: http://www.gyroscopicinvesting.com/foru ... f=1&t=8663

Partly this has to do with the fact that I’m living in the EU and a PP without the reserve currency isn’t really the same as the US-PP. The EU-PP is a bit of a compromise and I thought I would be ok with that. In a way I am ok with that. I’ve been reasonably happy with the performance and behaviour of my portfolio.

What I didn’t like is that 75% of the assets are very volatile. I felt like I always had to sort of check if none of the assets made some particularly strong move which would cause a rebalance. Keeping track of a portfolio is something I apparently don’t like to do, it causes me a bit of stress.
Other issues I have are more specific to a EU-PP: Gold isn’t tied to the Euro, and Euro bonds are of course way more risky than US treasuries.

My portfolio just feels unnecessarily risky to me. I thought long and hard about switching to a Desert portfolio with global stocks, but that 10% gold is unlikely to make a major difference either way. It just adds complexity.

So from January 2017 I’ll be simplifying into a 40/60 global stocks/short-term fixed portfolio:

40% iShares Core MSCI World UCITS ETF (IWDA)
60% Savings account 0.5% government insured. (short-term bonds if yield is higher)

The main advantages for me are clarity and simplicity. There is a risky asset and there is a safe asset, and they serve different purposes. I’m still accumulating and I’m ok if the stock part gets larger or smaller. I just keep adding new money 40/60 and let it ride.

I understand that it can sound quite silly to some to consider the PP ‘complicated’ and ‘risky’, and I don’t think there is something really wrong with the PP, but I do think it can be tiring to be invested in such risky assets all the time. At least for me it was.

I want to thank everybody on this board for all the contributions, learned a lot here! (although you could say I didn’t learn enough ;)) Think I will check-in every once in a while, I will always have a soft spot for Harry Browne and the PP.
Best of luck everyone!
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ochotona
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Re: Moving out of the PP

Post by ochotona » Sun Dec 18, 2016 7:35 am

Looking into trend-following the equities portion, you will be glad you did
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sophie
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Re: Moving out of the PP

Post by sophie » Sun Dec 18, 2016 8:47 am

It sounds like you've made up your mind, but do consider keeping that 10% in gold on the side. It's not so much that it'll be too daunting, but it's enough to serve as a decent insurance policy in case of a future 1970s style event. Just buying some coins to balance your retirement accounts is all you need do.

If I were in Europe I would not be sinking my savings into government insured savings accounts. That insurance won't mean a whole lot if things get really bad...remember what happened in Crete? Short term bonds would be a better bet. You could get a mix of government and corporate if you like.

Anyway, best of luck and hope you stay on the board anyway! Your perspective is very welcome here.
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buddtholomew
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Re: Moving out of the PP

Post by buddtholomew » Sun Dec 18, 2016 10:42 am

The Achilles heal for the PP is a strengthening dollar, the same reserve currency problem you outline for the EU-PP. A globally diversified equity allocation makes sense for an EU-PP as you want to benefit from US equities when they are in rally mode (rising $, weaker local currency)
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Re: Moving out of the PP

Post by dualstow » Sun Dec 18, 2016 11:04 am

Although the pp is not high-risk, it does have a (marketing) disadvantage in that it can feel risky.
As the Chinese say, good medicine tastes bitter.

But, I doubt you'd go broke with your new portfolio. Saving is the most important thing.
Best of luck and
tot ziens.
RIP Paul Volcker
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I Shrugged
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Re: Moving out of the PP

Post by I Shrugged » Mon Dec 19, 2016 7:28 am

The reserve currency strong dollar is a head wind for non-dollar PPs, but I am not sure that means a non-dollar PP is a bad plan. I guess it means that the investor has to make a prediction about currencies, and pick the one he/she likes. The PP idea is anti-prediction. But, if the investor is in Venezuela, they don't want a bolivar-based PP. So I don't know....

Bottom line, I would keep gold, as Sophie said.
feicfeic123
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Re: Moving out of the PP

Post by feicfeic123 » Mon Dec 19, 2016 11:58 am

The dollar was weak from 2000 until 2009 or so. Au went from 300 to 1900. PP will protect from currency you through Au. Assuming the currency comes back at some point (big assumption I know), you will remain covered and recover totally when the currency comes back.
dragoncar
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Re: Moving out of the PP

Post by dragoncar » Mon Dec 19, 2016 4:25 pm

I want to get out, but I'm too stubborn and I know it'll just go up as soon as I do. The next time equities are way down, I might move out of other assets
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buddtholomew
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Re: Moving out of the PP

Post by buddtholomew » Mon Dec 19, 2016 6:23 pm

dragoncar wrote:I want to get out, but I'm too stubborn and I know it'll just go up as soon as I do. The next time equities are way down, I might move out of other assets
Sure, to rebalance...makes sense >:D
I know how you feel, but look at YTD results.
Not happy?
koekebakker
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Re: Moving out of the PP

Post by koekebakker » Sat Dec 24, 2016 5:49 am

sophie wrote:It sounds like you've made up your mind, but do consider keeping that 10% in gold on the side. It's not so much that it'll be too daunting, but it's enough to serve as a decent insurance policy in case of a future 1970s style event. Just buying some coins to balance your retirement accounts is all you need do.
Yeah, I guess I'm pretty confident about the combination of non-hedged global stocks and short-term fixed income in my local currency. Letting go of the 10% in gold is something I'm less sure about. I sold all LT-bonds and gold ETF's but I've kept my physical gold and silver coins. I think I will keep them as a small disaster hedge.

The reason for me not to add gold as a fixed percentage to my portfolio is because I've asked myself the question: "When gold will go nowhere for another 20 years, like it did between 1980 and 2000, will I be able to rebalance in and out of gold all that time?". The answer is probably not. Holding on to some coins outside of my portfolio seems like something I can do. Will add a bag of junk silver as well.
sophie wrote:If I were in Europe I would not be sinking my savings into government insured savings accounts. That insurance won't mean a whole lot if things get really bad...remember what happened in Crete? Short term bonds would be a better bet. You could get a mix of government and corporate if you like.

Anyway, best of luck and hope you stay on the board anyway! Your perspective is very welcome here.
I understand your concern and it is my intention to eventually have some kind of a mix between short-term bonds and savings-accounts.
At the moment the short-term rates of Dutch government bonds are somewhere between -0.6 and -1.0 percent (30-y is at 1%...).
A 0.5% savings account seems mighty attractive compared to that.

I consider it extremely unlikely that individual Dutch savings accounts will be at risk when you stay within the limits of government insurance. I do agree that some extra diversification would be better though. Haven't thought about short-term corporates yet. In general I prefer treasuries for safety but because I'll keep duration pretty short the risk could be tolerable. Thanks for the suggestion, I'll look into it.

After selling my LT bonds and gold I'm at 30/70 stocks/fixed right now. I'm gonna leave it like that and will add new money evenly split between iShares MSCI World and my savings account.
It feels good to me to have a pile of stable cash-like investments and to let stocks just do their thing without me interfering at all. A few physical coins on the side to keep my inner ghosts at bay, this might be all I need from my investments.
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Re: Moving out of the PP

Post by dutchtraffic » Mon Jan 02, 2017 8:20 am

koekebakker wrote: I consider it extremely unlikely that individual Dutch savings accounts will be at risk when you stay within the limits of government insurance. I do agree that some extra diversification would be better though. Haven't thought about short-term corporates yet. In general I prefer treasuries for safety but because I'll keep duration pretty short the risk could be tolerable. Thanks for the suggestion, I'll look into it.
You are looking in the wrong direction.
The main risk of that is the currency you're holding.
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Desert
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Re: Moving out of the PP

Post by Desert » Mon Jan 02, 2017 10:43 am

koekebakker wrote: I understand your concern and it is my intention to eventually have some kind of a mix between short-term bonds and savings-accounts.
At the moment the short-term rates of Dutch government bonds are somewhere between -0.6 and -1.0 percent (30-y is at 1%...).
A 0.5% savings account seems mighty attractive compared to that.

I consider it extremely unlikely that individual Dutch savings accounts will be at risk when you stay within the limits of government insurance. I do agree that some extra diversification would be better though. Haven't thought about short-term corporates yet. In general I prefer treasuries for safety but because I'll keep duration pretty short the risk could be tolerable. Thanks for the suggestion, I'll look into it.

After selling my LT bonds and gold I'm at 30/70 stocks/fixed right now. I'm gonna leave it like that and will add new money evenly split between iShares MSCI World and my savings account.
It feels good to me to have a pile of stable cash-like investments and to let stocks just do their thing without me interfering at all. A few physical coins on the side to keep my inner ghosts at bay, this might be all I need from my investments.
I think the 30/70 is great, particularly if you have a reasonable chance of achieving at least a zero real return on the fixed income pile. As you've said, having some physical gold around for insurance may help you stick with the rest of the allocation when various global crises occur. You might target a 5% allocation to physical gold, just to keep the numbers simple.
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