Starting EU PP, doubts about the bonds part

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koekebakker
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Re: Starting EU PP, doubts about the bonds part

Post by koekebakker » Thu Jun 15, 2017 2:32 am

But there's a personal reason I don't want stocks to be a large part of my portfolio: volatility. I'm a contractor, I've got enough risk in my life and I do not wish to see my savings go up and down with the stock market.
That's a very good reason to feel attracted to a conservative portfolio like the PP. However the gold and bond parts of the eurozone-PP don't offer the same protection as in a US-PP.

The main problem with gold in a Euro PP is that the gold price seems to react to the US-dollar, not the euro. So when the euro got stronger compared to the dollar in the 00's, gold got stronger as well. Last few years it's the other way around: gold going nowhere, euro getting weaker.
The issue with euro bonds is that imo they're really not investable anymore for small investors. Yields are being suppressed to the extent that 10 year bonds pay close to zero procent... As a small investor you can get a far 'better' deal by using CD's or even just a savings account. These accounts are government insured up to 100k per bank account.

The PP is not the only conservative portfolio out there though. As lazyinvestor said you can create a conservative Boglehead portfolio, or pick something in between a PP and a boglehead portfolio.
For example, another forum member, Desert, came up with the Desert Portfolio which consists of 30% stocks, 60% intermediate treasuries and 10% gold.
This is a portfolio which can easily be translated to a euro-based portfolio:
30% global stocks
60% intermediate fixed income (spaardeposito's)
10% gold

This way you still get a bit of gold's diversification while the volatility will be very low, arguably even lower than the PP. The expected return should be slightly higher as well but don't expect to get rich quickly...
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Re: Starting EU PP, doubts about the bonds part

Post by Kike Moreno » Thu Jun 15, 2017 2:56 am

Just to say something in favor of the Euro PP, during the 18 years of the euro the portfolio has got a 6.36% annualized nominal return ( http://www.carterapermanente.es/evoluci ... ermanente/ ). So it has been doing its job during these years. As always past returns do not guarantee future returns and all that, but it is a very decent 18 years history.
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Re: Starting EU PP, doubts about the bonds part

Post by frugal » Thu Jun 15, 2017 2:47 pm

Acciones Bonos Oro Dinero HBPP EUR Index
Ini 100,00
1999 39,14% -11,45% 17,53% 3,06% 12,07% 112,07
2000 -2,55% 14,83% 1,12% 3,78% 4,30% 116,88
2001 -18,29% 6,20% 6,69% 4,61% -0,20% 116,65
2002 -33,77% 12,69% 4,59% 3,32% -3,29% 112,81
2003 19,10% 4,49% 1,27% 2,63% 6,87% 120,56
2004 12,67% 14,54% -2,95% 2,26% 6,63% 128,56
2005 25,38% 17,15% 34,93% 2,28% 19,94% 154,19
2006 21,92% -3,15% 11,41% 2,71% 8,22% 166,86
2007 7,82% -5,47% 17,79% 3,85% 6,00% 176,87
2008 -44,85% 22,85% 8,09% 4,07% -2,46% 172,52
2009 27,32% -4,30% 24,69% 1,61% 12,33% 193,79
2010 2,40% 17,11% 37,67% 0,77% 14,49% 221,87
2011 -14,89% 25,97% 15,35% 0,56% 6,75% 236,84
2012 19,31% 8,11% 3,66% -0,02% 7,77% 255,23
2013 23,36% -10,80% -30,84% -0,04% -4,58% 243,54
2014 4,32% 33,27% 13,07% 0,12% 12,70% 274,46
2015 9,82% 1,26% -1,24% -0,10% 2,44% 281,14
2016 4,33% 14,95% 12,73% -0,39% 7,91% 303,36

Anualizada: 3,15% 8,08% 8,66% 1,94% 6,36%

Referencia: MSCI EMU Ger Gov 30y Bullion (€) Ger Gov 1y
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Re: Starting EU PP, doubts about the bonds part

Post by frugal » Thu Jun 15, 2017 2:51 pm

Kike Moreno wrote:Just to say something in favor of the Euro PP, during the 18 years of the euro the portfolio has got a 6.36% annualized nominal return ( http://www.carterapermanente.es/evoluci ... ermanente/ ). So it has been doing its job during these years. As always past returns do not guarantee future returns and all that, but it is a very decent 18 years history.
hiiiiiiiiiii

yes better then US-PP

and other countries also worked well!
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Re: Starting EU PP, doubts about the bonds part

Post by europeanwizard » Fri Jun 16, 2017 2:01 pm

Some good points about the Euro PP history -- however the question remains: should I get into bonds at this point. The topic from October 2016 had a general consensus that I shoudn't, and that sentiment is repeated here.

So, I've been re-reading that older topic, and here is a possible alternative:
craigr wrote:My advice today would be to look into a diversified global portfolio that lowers your exposure to the Eurozone to have it represent the worldwide percentage in the global economy. Basically, think of a Permanent Portfolio, but using globally diversified assets for the cash, bonds, and stocks. Gold should remain and should have geographic diversification outside the continent where you live for emergencies.
I'd have to say, that does sound good to me.
koekebakker wrote: This is a portfolio which can easily be translated to a euro-based portfolio:
30% global stocks
60% intermediate fixed income (spaardeposito's)
10% gold
(...) don't expect to get rich quickly...
Thanks for that pointer. That could be a start indeed. I'm not looking to get rich, it's more that I'm protecting against inflation.

So right now if I'd mix Craig's and Koekebakker's advice, it would look something like this:
25% global stocks
25% cash/intermediate fixed income (spaardeposito's)
25% gold
25% global government bonds

Does anyone have advice on this? For example I've noticed that there's a JP Morgan Global Government Bond Index. Is that perhaps a start? I can't find an ETF that follows it, does anyone have a pointer here?
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Re: Starting EU PP, doubts about the bonds part

Post by Kike Moreno » Fri Jun 16, 2017 4:21 pm

What happens to this allocation if the euro appreciates for example a 20% to the level where it was just 3 years ago? 3 of the 4 assets have currency exchange risk in this portfolio.
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Re: Starting EU PP, doubts about the bonds part

Post by frugal » Sat Jun 17, 2017 2:15 am

Kike Moreno wrote:What happens to this allocation if the euro appreciates for example a 20% to the level where it was just 3 years ago? 3 of the 4 assets have currency exchange risk in this portfolio.
+1
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Re: Starting EU PP, doubts about the bonds part

Post by LazyInvestor » Sat Jun 17, 2017 4:19 am

I'd just go with something simple like

60% VWRD
40% IEGA

or if you really want some gold:

50% VWRD
10% SGLN
40% IEGA
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Re: Starting EU PP, doubts about the bonds part

Post by barrett » Sun Jun 18, 2017 5:46 am

Kike Moreno wrote:What happens to this allocation if the euro appreciates for example a 20% to the level where it was just 3 years ago? 3 of the 4 assets have currency exchange risk in this portfolio.
Exchange rate risk is very real and one probably has about a 50% chance of being adversely affected by it. My total gain on the PP since the start of 2014 is almost exactly 20%. At the beginning of 2014 the Euro was worth 1.36 USD. Now it's 1.12. So, if I held a USD denominated PP in Europe, my nominal gains would be knocked down to almost zero. Real gains would be negative. Also, the USD really tanked in 2008 relative to the Euro. If a real life failure of an investment strategy is a recent memory, I would avoid it at all costs (pun not intended).
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Re: Starting EU PP, doubts about the bonds part

Post by frugal » Mon Jun 19, 2017 3:56 pm

barrett wrote:
Kike Moreno wrote:What happens to this allocation if the euro appreciates for example a 20% to the level where it was just 3 years ago? 3 of the 4 assets have currency exchange risk in this portfolio.
Exchange rate risk is very real and one probably has about a 50% chance of being adversely affected by it. My total gain on the PP since the start of 2014 is almost exactly 20%. At the beginning of 2014 the Euro was worth 1.36 USD. Now it's 1.12. So, if I held a USD denominated PP in Europe, my nominal gains would be knocked down to almost zero. Real gains would be negative. Also, the USD really tanked in 2008 relative to the Euro. If a real life failure of an investment strategy is a recent memory, I would avoid it at all costs (pun not intended).
Hello

I agree with you

in many foruns in europe, investors that have lazy portfolios with a lot of diversification, lets say almost all the asset classes from all the world, say that at the end the exchange rate is not important ----> I really don't understand if a multi diversified portfolio has no problem of currency risk!

Please let me know your comments.
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Re: Starting EU PP, doubts about the bonds part

Post by frugal » Mon Jun 19, 2017 3:58 pm

LazyInvestor wrote:I'd just go with something simple like

60% VWRD
40% IEGA

or if you really want some gold:

50% VWRD
10% SGLN
40% IEGA
hi

interesting, why this asset allocation?

Is not a all weather portofolio...

regards
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Re: Starting EU PP, doubts about the bonds part

Post by europeanwizard » Tue Jun 20, 2017 4:55 am

LazyInvestor wrote:I'd just go with something simple like
40% IEGA
But how does that fix my (and other people's) worries about the low yield of long-bonds and its associated risks?
Kike Moreno wrote:What happens to this allocation if the euro appreciates for example a 20% to the level where it was just 3 years ago? 3 of the 4 assets have currency exchange risk in this portfolio.
Yeah that's a great question to which I don't really have an answer...

For what it's worth, in order to get some different perspectives I've opened a topic at the Bogleheads forum.
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Re: Starting EU PP, doubts about the bonds part

Post by blue_ruin17 » Tue Jun 20, 2017 9:45 pm

It is always going to be a "bad time" to get into at least one of the PP assets, by default.

That's how the system is designed: the PP accepts the damage done by the losing assets, but offsets those losses with the (usually) superior gains of the winning assets. The differential between the winners and losers of the component PP assets has historically been tilted toward the winners, providing a consistent, respectable, inflation-adjusted return. That's the Permanent Portfolio system, in a nutshell. Preaching to the choir, I know...

If you had started your PP ten years ago, would your "doubts about the bonds" cause you to sell off the LTT portion of the portfolio today?That would amount to an explicit abandonment of a strategy which served you well during that decade. In Germany, the PP hasn't had a losing three year rolling return since 2000. Its a portfolio that has worked in Europe for decades, despite there always being an asset or two which was or appeared to be a loser. But what's the difference between that scenario and going all-in on the Permanent Portfolio today, LTT included? There is none, other than the natural aversion of humans to jumping into the deep-end. Once you're in though, I promise you, the water is quite nice.

If it wasn't LTT that you were worrying about, it would be one of the other core PP asset classes. At any given time, one of the assets will be basking in the sun, and the other will be in the dog-house. But these roles often reverse suddenly and violently: you never know when an asset that looks terrible today might save your ass tomorrow. In January 2008 most people thought LTT were going to be slaughtered, but by December they turned out to be your saviour of any portfolio that held a strong position in them. In January 2009 stocks looked sickening, but they handsomely rewarded anyone who held them through the year. And so on, and so forth.

The PP system breaks the instant that you remove one of the component asset classes, period. Either you're in or you're out: either you commit to the logic, the mechanics, the system of the PP, or you find another portfolio that aligns with your style and objectives. Don't smash the PP and then glue three of the four pieces back together again, fooling yourself into believing that it will still "work". It won't. The PP requires a buy-in to all four asset classes, or it isn't the PP.

Do I like LTT right now? Nope! Am I fully invested in them, within the context of the PP? Yup. Do I sleep like a baby at night? Sure do.
STAT PERPETUS PORTFOLIO DUM VOLVITUR ORBIS

Amazon: Investing Equanimity: The Logic & Wisdom of the Permanent Portfolio
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Re: Starting EU PP, doubts about the bonds part

Post by LazyInvestor » Wed Jun 21, 2017 4:26 am

europeanwizard wrote:
LazyInvestor wrote:
But how does that fix my (and other people's) worries about the low yield of long-bonds and its associated risks?
If you pay even more attention to PP components you'll realize that gold is nothing but a useless metal, equity is an artificially inflated asset to give appearance that economy is supposedly doing well, cash is lost opportunity slammed by inflation, and bond yields just cannot go lower. You combine these 4 crappy components and you get something that's completely lagging behind in times of prosperity, and doesn't help with panic attacks of the investors who believe it's a safe portfolio that cannot drop 20% in times of downturn.

PP investors are maybe 0.1% of the passive investing community that loves the experience of sticking with this crappy portfolio consisting of 4 crappy components.

The portfolio I suggested to you is a standard conservative (equally crappy) Bogleheads portfolio consisting of *only* 2 crappy components to worry about. The nice thing about this one is that it has something like 99% of the passive investing community behind it which rally helps during the times of downturns to stick with the portfolio, and you don't have to suffer that much during the times of prosperity as PP investors do.

So, if you are a new investor that has no experienced going through market downturns, just find the biggest and most supportive passive investing community and pick the simplest and most recommended of their portfolios that satisfies the safety criteria you have. Dealing with behavioral issues and traps is the hardest and most critical part of investing, and having strong community support is critical.

Also, if you are an analytical type, don't fall into behavioral trap of over-analyzing before you start. Just start with something and learn along the way.
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Re: Starting EU PP, doubts about the bonds part

Post by tarentola » Wed Jun 21, 2017 4:57 am

It seems to me that a Europe-resident investor should invest primarily in Euros to avoid exchange-rate risk. A Euro resident investing in substantially in dollars is taking a bet on the direction of the exchange rate. If the Euro were abandoned for political reasons, it would be replaced by other currencies, and life would presumably go on. It seems to me that exchange-rate risk outweighs Euro risk, but that is a matter of opinion. Harry Browne was in favour of investing in the currency of your country.

On the subject of bond duration: this was discussed in the thread viewtopic.php?f=3&t=6675&start=228

The conclusion (or at least my conclusion) with US data was that in a PP long bonds have been better than intermediate bonds mainly when interest rates were falling. When interest rise (as in the 1970s and maybe the next few years) longer duration bonds are worse than intermediate term bonds.
I did a backtest comparison of the PP, comparing it to a portfolio where ITTs replace LTTs. Results from Portfolio Visualizer.

In a backtest period 1981-2016, a (standard) PP with 25% long-term treasuries beats a PP with 25% intermediate-term treasuries. CAGRs:
with 25% LTTs: 7.41%
with 25% ITTs: 6.88%
with 25% STTs: 6.49%

The difference between CAGRs is only about half a percent. Using 25% short-term treasuries loses another half a percent. MaxDDs varied little between bond durations. I conclude that in the last 35 years, bonds of almost any duration would have given the PP a respectable CAGR. 1981-2016 is a 35-year period of falling interest rates.

The period 1972-1980 is the only multi-year period in PV's available data (1972-present) when interest rates rose, from 5% in November 1971 to 20% in December 1980. For the bond durations, the order of success is reversed. ITTs beat LTTs. (Data for STTs were not available as early as 1972.) CAGRs:
with 25% LTTs: 13.17%
with 25% ITTs: 14.50%

Using 25% ITTs beats 25% LTTs by 1.33%. Conclusion: the PP with shorter-duration bonds did better when interest rates are rising, and worse when interest rates were falling. I also compared the two in portfoliocharts.com, and the ITT version beat the LTT PP in 8 out of 9 years in the 1970s.
Europeanwizard:
But how does that fix my (and other people's) worries about the low yield of long-bonds and its associated risks?
One solution to reduce the potential downside of LTTs would be to buy ITTs instead of LTTs. The US backtested results, even over decades, are not very different in any case.
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Re: Starting EU PP, doubts about the bonds part

Post by tarentola » Wed Jun 21, 2017 6:44 am

For comparison, my own Euro PP results over the last four years:
2013 : -3.04%
2014 : +12.39%
2015 : +1.42%
2016 : + 7.08%
Four-year CAGR 4.30%

2017 so far: +2.1%

Prety similar to the 2013-2016 US figures: -2.24%, +10.10%, -2.99%, +5.90% (from Bogleheads blog https://finpage.blog/2017/01/12/harry-b ... 6-update/))
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Re: Starting EU PP, doubts about the bonds part

Post by Thomas Hoog » Wed Jun 21, 2017 9:08 am

frugal wrote:IBCL

;)

Regards
I uses IBGL (which is the same) 75 % and PIMCO 25 Yr Zro Cupn US Ty Inx Fd ETF (25 %).
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Re: Starting EU PP, doubts about the bonds part

Post by frugal » Wed Jun 21, 2017 12:49 pm

blue_ruin17 wrote:It is always going to be a "bad time" to get into at least one of the PP assets, by default.

That's how the system is designed: the PP accepts the damage done by the losing assets, but offsets those losses with the (usually) superior gains of the winning assets. The differential between the winners and losers of the component PP assets has historically been tilted toward the winners, providing a consistent, respectable, inflation-adjusted return. That's the Permanent Portfolio system, in a nutshell. Preaching to the choir, I know...

If you had started your PP ten years ago, would your "doubts about the bonds" cause you to sell off the LTT portion of the portfolio today?That would amount to an explicit abandonment of a strategy which served you well during that decade. In Germany, the PP hasn't had a losing three year rolling return since 2000. Its a portfolio that has worked in Europe for decades, despite there always being an asset or two which was or appeared to be a loser. But what's the difference between that scenario and going all-in on the Permanent Portfolio today, LTT included? There is none, other than the natural aversion of humans to jumping into the deep-end. Once you're in though, I promise you, the water is quite nice.

If it wasn't LTT that you were worrying about, it would be one of the other core PP asset classes. At any given time, one of the assets will be basking in the sun, and the other will be in the dog-house. But these roles often reverse suddenly and violently: you never know when an asset that looks terrible today might save your ass tomorrow. In January 2008 most people thought LTT were going to be slaughtered, but by December they turned out to be your saviour of any portfolio that held a strong position in them. In January 2009 stocks looked sickening, but they handsomely rewarded anyone who held them through the year. And so on, and so forth.

The PP system breaks the instant that you remove one of the component asset classes, period. Either you're in or you're out: either you commit to the logic, the mechanics, the system of the PP, or you find another portfolio that aligns with your style and objectives. Don't smash the PP and then glue three of the four pieces back together again, fooling yourself into believing that it will still "work". It won't. The PP requires a buy-in to all four asset classes, or it isn't the PP.

Do I like LTT right now? Nope! Am I fully invested in them, within the context of the PP? Yup. Do I sleep like a baby at night? Sure do.
+1

good post
LazyInvestor wrote:
europeanwizard wrote:
LazyInvestor wrote:
But how does that fix my (and other people's) worries about the low yield of long-bonds and its associated risks?
If you pay even more attention to PP components you'll realize that gold is nothing but a useless metal, equity is an artificially inflated asset to give appearance that economy is supposedly doing well, cash is lost opportunity slammed by inflation, and bond yields just cannot go lower. You combine these 4 crappy components and you get something that's completely lagging behind in times of prosperity, and doesn't help with panic attacks of the investors who believe it's a safe portfolio that cannot drop 20% in times of downturn.

PP investors are maybe 0.1% of the passive investing community that loves the experience of sticking with this crappy portfolio consisting of 4 crappy components.

The portfolio I suggested to you is a standard conservative (equally crappy) Bogleheads portfolio consisting of *only* 2 crappy components to worry about. The nice thing about this one is that it has something like 99% of the passive investing community behind it which rally helps during the times of downturns to stick with the portfolio, and you don't have to suffer that much during the times of prosperity as PP investors do.

So, if you are a new investor that has no experienced going through market downturns, just find the biggest and most supportive passive investing community and pick the simplest and most recommended of their portfolios that satisfies the safety criteria you have. Dealing with behavioral issues and traps is the hardest and most critical part of investing, and having strong community support is critical.

Also, if you are an analytical type, don't fall into behavioral trap of over-analyzing before you start. Just start with something and learn along the way.

hi

another great post, you guys are inspired!

Just one point, I think PP sometimes have drawdowns of 20% !

By the end of the year no, but during the year yes. This should be terrible and scarry!!!

Correct?

Thank you.
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Re: Starting EU PP, doubts about the bonds part

Post by europeanwizard » Wed Jun 21, 2017 12:56 pm

tarentola wrote:For comparison, my own Euro PP results over the last four years:
So what do you use for the bonds part?
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Re: Starting EU PP, doubts about the bonds part

Post by europeanwizard » Wed Jun 21, 2017 1:01 pm

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.
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Re: Starting EU PP, doubts about the bonds part

Post by tarentola » Wed Jun 21, 2017 4:16 pm

Europeanwizard:
So what do you use for the bonds part?
For long bonds, the ETF MTH (Lyxor 25+ years, mostly French, German and Italian bonds).

For medium bonds, C73 (Amundi 7-10 year bond ETF, French, German, Italian and Spanish bonds mostly)
I do have severe doubts when Craig says that he wouldn't buy European bonds.
From the context, it seems to me that Craig was concerned about interest rate risk related to the duration of the bonds, rather than about their Euro origin.
Simonjester wrote: i thought the main concern with euro bonds is political. with widely different cultures and no unifying history, combined with nations like Greece in perpetual debt crisis the entire concept of the euro is built on shaky ground, giving euro bonds a higher currency collapse risk..
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Re: Starting EU PP, doubts about the bonds part

Post by blue_ruin17 » Wed Jun 21, 2017 6:37 pm

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.
STAT PERPETUS PORTFOLIO DUM VOLVITUR ORBIS

Amazon: Investing Equanimity: The Logic & Wisdom of the Permanent Portfolio
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Hal
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Re: Starting EU PP, doubts about the bonds part

Post by Hal » Wed Jun 21, 2017 9:49 pm

So... just a quick note to support Blue Ruins post.

Gold does indeed act as a "insurance policy" if a currency should fail. The concerns about a currency failing is not new.

Have a look at the link below, esp. Pg's 75 -78 The book was from the 1890's.

https://archive.org/details/coinsfinancialsc00harvrich

Jim Rickards, who has published on the current monetary system, advises a minimum of 10% Physical Gold to be held for just this purpose.

Hal
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Re: Starting EU PP, doubts about the bonds part

Post by LazyInvestor » Thu Jun 22, 2017 3:35 am

Hal wrote:
Gold does indeed act as a "insurance policy" if a currency should fail. The concerns about a currency failing is not new.
No this is not the case. HB has clearly specified it works only wrt USD. When there is significant world economy worry then money flows into the world reserve currency USD. Only when there is trouble with USD money flows into gold. EUR, CAD, AUD, etc. got hammered in recent times and gold is doing nothing. Little worry about USD and it starts shooting up.

If there is real prosperity in US, gold might decline even further. At the same time, it could be a disaster in your country and gold will not really care (e.g., Venezuela).

Even in a case of a disaster in big economies such as EU, I'm not sure they would negatively effect US. Maybe quite opposite. We might end up with, e.g., breakdown in EU, and all money flowing into US and strengthening of USD and same price or even lower price of gold. This would be horrible for EU PP.

I think even people in third world countries intuitively get this. It's a tradition there to dump everything into real estate and USD (with maybe exception of India and related countries where they have tradition of buying gold). So when you break it down, a prosperous person in a third world country probably runs a business, has some real estate or farming land, and some reserves in USD giving them that so called Talmudic Porfolio, which if you break down further gives you something like US PP (within the context of economy influenced/controlled by federal reserve).
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Re: Starting EU PP, doubts about the bonds part

Post by gaston » Thu Jun 22, 2017 4:22 am

Hi europeanwizard,

I would get 30 year Dutch bonds for the bond part if I was Dutch. They are currently yielding a little over 1% (source https://ca.investing.com/rates-bonds/ne ... ity_to=290) which can easily go lower in a deflationary event; for comparison Swiss rates are currently below 0.3%.

Similarly for cash I would use Dutch short term bills/bonds. Rates are negative -0.6% but that is an insurance against bank failures. Apparently the market thinks this risk is high. Physical gold storage costs more than that.

Here is what harry Browne had to say about non-american investors (from 'why the best laid plans usually go wrong'):
Permanent Portfolio Alterations for Non-Americans

The suggestions in this book are made with American readers in mind. If you live outside the United States, some of the suggestions I've made for the Permanent Portfolio can be changed. Whether you should use U.S. investments or use investments of the country in which you live depends on how stable and useful you consider the investment markets in the country where you live.
If you are an American living abroad and you expect to return to the U.S. to live within the next few years, it isn't necessary to make any changes from the suggestions I've made. If you don't know when or whether you will return to the U.S., consider making the changes.
The purpose of Treasury bills in the portfolio is to provide stable purchasing power through a default-proof investment in the currency you rely on. So, for U.S. Treasury bills, you can substitute the equivalent investment in the country in which you live. That can be bills, notes, or bonds issued by the government and maturing within one year.
The long-term bonds can be bonds of the government of the country in which you live, so that you will have protection if there's a deflation in your country. Use the longest maturity available.
Stock-market investments are meant to provide profit when your country is prosperous and inflation is low. So, in general, you should
buy stocks of companies in your country.
However, you might prefer to use American stock-market investments instead. Usually, the stock markets of the world move upward or downward together. And the U.S. securities markets offer a greater number of alternatives—including such things as warrants and spe- cialized mutual funds.
The decision may depend upon how adequately you believe you can cover yourself with stock investments of your own country. One pos- sibility is to split the stock-market budget between investments of your country and the United States.
There is no reason to alter the suggestions I've made for gold, no matter where you live.
To me all of this is still valid today, except the part about the American stock market offering more alternatives. There are now plenty of European stock investments to choose from.
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