europeanwizard wrote:blue_ruin17 wrote:
If it wasn't LTT that you were worrying about, it would be one of the other core PP asset classes.
I have no problem buying gold when its price is going down. After all, it's part of the plan.
I do have severe doubts when Craig says that he wouldn't buy European bonds. Now you may simply say: no matter what, I'm going to stick to the plan. That could be either a vice or a virtue. But nothing you've said so far has explained to a beginner like me what Craig and others said in the topic I pointed to.
I'm not so dogmatic about the PP that I will stick with it "no matter what".
I will stick with the PP as long as the current economic paradigm continues to exist and function. If/when that paradigm collapses, I'll calmly stop re-balancing, let my paper assets evaporate, sit on my gold, and wait until the dust settles. When political stability returns and a new economic framework is established (which it always does), I'll be one of the only people with investable capital that survived the paradigm-shift to take advantage of the abundance of opportunities that will exist.
This is why gold really is the "secret sauce" of the PP.
It allows a substantial portion of your wealth to survive the collapse of the economic or political systems, an insurance which virtually no other conventional portfolio comes standard with. Losing 75% of your portfolio is no big deal if 25% survives while basically everyone else is
wiped out. You'll be one of the only investors with capital that survived with which to invest in the new paradigm as soon as stability returns. Everyone else has to start again from scratch.
HOW DOES THIS PERTAIN TO YOUR CONCERNS ABOUT EURO-BONDS?
Your rational, logical, legitimate fear of long-term European sovereign debt instruments isn't actually a fear about BONDS, its a fear about the collapse of the European Union altogether. If the Euro LTT market implodes, what do you think that means for European stocks? They'll be toast. Even the currency of the Euro
itself could be doomed, at that point, if Europe experiences a 1930's style economic collapse.
You are afraid, at root, of the collapse of the current European economic paradigm. Maybe I'm wrong, but the fear that you are expressing in your posts does not strike me as the fear of someone who is merely afraid that LTT will be a losing asset (you seem to accept that this is how the PP "works"). Rather, it seems like you are afraid of the evaporation of the LTT market altogether.
...But that is what GOLD is for. If you put all your assets in the PP today, and the Euro collapsed tomorrow,
gold would allow you "to break on through to the otherside" and be one of the only investors with capital ready to deploy when the next economic paradigm in Europe establishes itself. The PP comes standard with protection against such an eventuality.
Now, it could be that your faith in the future of the European economic system is so broken that even the PP, which comes standard with protection against a total collapse of that system, is too risky for your liking. But if that is the case, what options are you left with. Every other conventional passive portfolio out there is no solution, because they'll all be nuked if you're right. So that leaves cash and gold: go all-in. Or, if you have faith in the United States or some other region, perhaps transplant your capital to one of those regions, though I would say that if the European system collapses, its pretty much game-over for everyone anyways.
So perhaps, for you, going all-in on cash and gold is the solution that will help you sleep at night.
BUT: what if you're wrong, even if only about the timing? The central banks have
a lot of duct-tape (just ask the Japanese). They can conceivably keep this whole circus act dancing for a lot longer than you might think. You could end up sitting on a pile of cash and gold for a decade, generating no income or dividends and having no internal rebalancing mechanism with which to harvest capital gains, before your bet is "proven" right.
But at that point, it would probably have been more profitable and less stressful to have simply committed to the PP and allowed your capital to compound during that entire time, and still survive the paradigm-shift in the end.