How much is "enough" in the Permanent Portfolio?

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

barrett
Executive Member
Executive Member
Posts: 1529
Joined: Sat Jan 04, 2014 2:54 pm

Re: How much is "enough" in the Permanent Portfolio?

Post by barrett » Tue Dec 12, 2017 8:34 pm

Sophie,

Here is a link to a piece by Michael Kitces on a rising equity glide path:

https://www.kitces.com/blog/should-equi ... ly-better/

This was written back in 2013 and it looks like he's revisited the topic a few time since then.
User avatar
sophie
Executive Member
Executive Member
Posts: 3871
Joined: Mon Apr 23, 2012 7:15 pm

Re: How much is "enough" in the Permanent Portfolio?

Post by sophie » Wed Dec 13, 2017 7:38 am

Interesting article! This does have some similarity with my suggestion, but not quite. What I'm proposing is to use the Permanent Portfolio as a drop-in replacement for the cash & bond bucket, which is intended in the article to forestall having to sell equities when they're down. The core premise in the article is that bonds alone can't fund retirement expenses. The PP, of course, doesn't have that problem.

The rising glidepath in the article is about making up for a key weakness in stock/bond portfolios, which is inability to avoid selling stocks when they're down, which kills needed returns later on. The PP doesn't have that problem, either. I wasn't suggesting the 100% stock portion for safety, but rather to juice returns over the long haul (15+ years) and also to simplify management as it means you can cap the amount of gold you'll have to deal with, for example. Note that it helps with long stock bull markets, which are hell on the PP. So I guess it does provide a bit extra insurance and user-friendliness. Plus, the income from the stock funds can be collected in the PP's cash bucket, so it provides a bit of protection even if the market itself is doing poorly.
User avatar
blue_ruin17
Senior Member
Senior Member
Posts: 125
Joined: Sat Aug 13, 2016 11:16 pm
Location: New Brunswick, Canada

Re: How much is "enough" in the Permanent Portfolio?

Post by blue_ruin17 » Wed Dec 13, 2017 7:55 pm

If I ever felt that I had "enough" in the PP (i.e. SWR achieved, plus a little cushion on top), my dream alternative asset would be local farmland which I would rent out to local farmers, with the objective being the creation of trust and partnership with said farmers, rather than focusing solely on cash-flow. As well, I would look into buying property in Singapore.

That's all dream level, though. For my foreseeable future, the PP is really the only rational investment vehicle out there.

I've often wondered how much I would put into the PP if I suddenly had a $100 million to invest. I actually would seriously consider just dumping the entire lump sum into the PP, minus a property or two, just for the peace-of-mind, even though it would be justified in mind to place a very large allocation into equities. Whenever I start to wander into any allocation that puts me sub-20% gold, though, that triggers anxiety for me. Even if I were a billionaire, I would keep at least 20% in gold, regardless of what the rest of the allocation looked like.
"Like a confident pack, a confident portfolio provides both strength in fact, as well as — and this is the part I bet you’re missing right now and the focus of this note — strength in spirit."
tarentola
Full Member
Full Member
Posts: 93
Joined: Wed Aug 17, 2011 6:55 am

Re: How much is "enough" in the Permanent Portfolio?

Post by tarentola » Sat Dec 16, 2017 8:11 am

Good questions, Sophie.

Q1 .The PP as a « base » portfolio could be complemented (or even replaced) by a stock portfolio. There are dividend share diehards on seekingalpha.com for example who seem to live exclusively off dividends and never sell a share unless forced to by a merger or similar event. I have a core PP (75%) and a satellite dividend share portfolio (25%), but I can think of other candidates for the satellite (see PS below).

2. and 3. How much is enough ? How do you calculate projected future expenses ?
I did the calculations when I retired a few years ago, but have found that a certain amount of trial and error was required. I set up a standing order from my investment account to my current account, but ended up with too much in the current account (a good problem) so had to put it back into the PP. Now I try to withdraw a smaller amount each month, and review the situation every few months.

4.How do you take Social Security income into account ?
In Europe I have a small state pension which I think is reliable, or as reliable as anything else!

5. Is a 4 % withdrawal rate safe ?
I think Tyler has satisfactorily shown that the answer is yes – in the USA. In Europe or at least Germany it is more like 3.5 % according to portfoliocharts.com. I am in Europe and withdraw 3 % from the PP. The yield on my share portfolio is about 3.5 %.

PS It seems to me that there are relatively few sane investing strategies that can be considered by a retired or retiring person - a non-gambler. The following come to mind:
  • The PP and variants - unbeatable in its historic low drawdown, and as good as many other portfolios in terms of return
  • Stocks and bonds 60/40 or similarly simple as championed by the Bogleheads
  • Stocks and bonds with other additions such as REITs (but little or no gold), such as Ivy, Larry and so on
  • Multiasset portfolios such as Merriman and 7-Twelve
  • Dividend stocks such as the Dividend Aristocrats, living off income from dividends, ignoring capital value, popular on Seeking Alpha.
The above could be managed actively or simply rebalanced.

I am considering multiassets for a complementary portfolio along with my dividend stocks. The other strategies in my view do not provide enough return or variation to make the increased drawdown risk worthwhile: they are not different enough from a PP. With dividend stocks, the drawdown is less important: dividend payouts hold up pretty well even during stock price crashes, and dividend-paying large-cap prices do recover eventually, as shown by the recovery since 2008-9.
farjean2
Executive Member
Executive Member
Posts: 284
Joined: Thu Feb 23, 2017 12:51 am

Re: How much is "enough" in the Permanent Portfolio?

Post by farjean2 » Sat Dec 16, 2017 2:26 pm

I retired last year (involuntarily) at the age of 67 and after I got my last paycheck I had almost exactly 1 million dollars in the PP. Fortunately I'm not having to draw from it yet because my wife is still working and also this year turned out to be a very nice start as far as sequence of returns goes. It is now 1.1 million already.

At this point in time I have to consider the entire nest egg as money I can't afford to lose and maybe not even "enough". If it grows to 1.5 million I figure that will give me close to a 6 figure pre-tax income when combined with my SS (which I'm delaying for the max). I might consider that "enough" if/when I get there.
User avatar
frugal
Executive Member
Executive Member
Posts: 921
Joined: Sat Nov 10, 2012 12:49 pm

Re: How much is "enough" in the Permanent Portfolio?

Post by frugal » Sun Dec 17, 2017 1:58 am

tarentola wrote:Good questions, Sophie.

Q1 .The PP as a « base » portfolio could be complemented (or even replaced) by a stock portfolio. There are dividend share diehards on seekingalpha.com for example who seem to live exclusively off dividends and never sell a share unless forced to by a merger or similar event. I have a core PP (75%) and a satellite dividend share portfolio (25%), but I can think of other candidates for the satellite (see PS below).

2. and 3. How much is enough ? How do you calculate projected future expenses ?
I did the calculations when I retired a few years ago, but have found that a certain amount of trial and error was required. I set up a standing order from my investment account to my current account, but ended up with too much in the current account (a good problem) so had to put it back into the PP. Now I try to withdraw a smaller amount each month, and review the situation every few months.

4.How do you take Social Security income into account ?
In Europe I have a small state pension which I think is reliable, or as reliable as anything else!

5. Is a 4 % withdrawal rate safe ?
I think Tyler has satisfactorily shown that the answer is yes – in the USA. In Europe or at least Germany it is more like 3.5 % according to portfoliocharts.com. I am in Europe and withdraw 3 % from the PP. The yield on my share portfolio is about 3.5 %.

PS It seems to me that there are relatively few sane investing strategies that can be considered by a retired or retiring person - a non-gambler. The following come to mind:
  • The PP and variants - unbeatable in its historic low drawdown, and as good as many other portfolios in terms of return
  • Stocks and bonds 60/40 or similarly simple as championed by the Bogleheads
  • Stocks and bonds with other additions such as REITs (but little or no gold), such as Ivy, Larry and so on
  • Multiasset portfolios such as Merriman and 7-Twelve
  • Dividend stocks such as the Dividend Aristocrats, living off income from dividends, ignoring capital value, popular on Seeking Alpha.
The above could be managed actively or simply rebalanced.

I am considering multiassets for a complementary portfolio along with my dividend stocks. The other strategies in my view do not provide enough return or variation to make the increased drawdown risk worthwhile: they are not different enough from a PP. With dividend stocks, the drawdown is less important: dividend payouts hold up pretty well even during stock price crashes, and dividend-paying large-cap prices do recover eventually, as shown by the recovery since 2008-9.

Good post!

Hi

for someone living in Europe, the EUPP is still the best option?

Never a USPP?

I am very courious about the alternatives you wrote.

Can you please explain more in detail.

All the best!
tarentola
Full Member
Full Member
Posts: 93
Joined: Wed Aug 17, 2011 6:55 am

Re: How much is "enough" in the Permanent Portfolio?

Post by tarentola » Sun Dec 17, 2017 4:00 am

Frugal
I already have exposure to US shares in my VP so I have none in the PP. Otherwise I would probably have about 50% US in the PP, or a global share ETF. There is currency risk though: the dollar has lost about 11% against the Euro this calendar year, so my mostly US VP is only breaking even for 2017 in spite of a good year for US shares.

For the alternatives, see portfoliocharts.com, where their performance is described in detail. For the dividend stocks, seekingalpha.com.
User avatar
I Shrugged
Executive Member
Executive Member
Posts: 800
Joined: Tue Dec 18, 2012 6:35 pm

Re: How much is "enough" in the Permanent Portfolio?

Post by I Shrugged » Sun Dec 17, 2017 10:41 am

I (we) have Enough x 2 or 3. It’s a great feeling. I recall reading maybe Bill Bernstein saying that Bill Gates could afford to be 100% stocks. It was probably in his booklet “Deep Risk”. I tend to agree with Tyler.

OTOH when you get to a big number, you start thinking about kids, grandkids, charity. Like, gee, if we can really grow this, it can be very useful for a long time. On the other, other hand, it might just as likely ruin the kids or grandkids. “Shirtsleeves to shirtsleeves in three generations.” I really believe that. The whole thing of what to do going forward is the 900 pound gorilla in the room that we have been trying to ignore.

Some people would go crazy spending, but that’s not us. So back to the question, I’ve stuck with the PP for the whole thing. It’s very comforting. I want very conservative growth.
User avatar
frugal
Executive Member
Executive Member
Posts: 921
Joined: Sat Nov 10, 2012 12:49 pm

Re: How much is "enough" in the Permanent Portfolio?

Post by frugal » Sun Dec 17, 2017 1:48 pm

tarentola wrote:Frugal
I already have exposure to US shares in my VP so I have none in the PP. Otherwise I would probably have about 50% US in the PP, or a global share ETF. There is currency risk though: the dollar has lost about 11% against the Euro this calendar year, so my mostly US VP is only breaking even for 2017 in spite of a good year for US shares.

For the alternatives, see portfoliocharts.com, where their performance is described in detail. For the dividend stocks, seekingalpha.com.
hi

I couldn't find the explanation and a model of that DIVIDEND portfolio .


Please help.
User avatar
technovelist
Executive Member
Executive Member
Posts: 6743
Joined: Wed Sep 15, 2010 11:20 pm

Re: How much is "enough" in the Permanent Portfolio?

Post by technovelist » Sun Dec 17, 2017 11:18 pm

I Shrugged wrote:I (we) have Enough x 2 or 3. It’s a great feeling. I recall reading maybe Bill Bernstein saying that Bill Gates could afford to be 100% stocks. It was probably in his booklet “Deep Risk”. I tend to agree with Tyler.

OTOH when you get to a big number, you start thinking about kids, grandkids, charity. Like, gee, if we can really grow this, it can be very useful for a long time. On the other, other hand, it might just as likely ruin the kids or grandkids. “Shirtsleeves to shirtsleeves in three generations.” I really believe that. The whole thing of what to do going forward is the 900 pound gorilla in the room that we have been trying to ignore.

Some people would go crazy spending, but that’s not us. So back to the question, I’ve stuck with the PP for the whole thing. It’s very comforting. I want very conservative growth.
I would NOT leave a large sum of money outright to heirs who haven't already demonstrated sensible behavior, as I believe it tends to be destructive.

A trust with a good trustee who has a lot of discretion is best in such cases, if you can find someone you can trust.
tarentola
Full Member
Full Member
Posts: 93
Joined: Wed Aug 17, 2011 6:55 am

Re: How much is "enough" in the Permanent Portfolio?

Post by tarentola » Mon Dec 18, 2017 2:32 am

frugal wrote: hi

I couldn't find the explanation and a model of that DIVIDEND portfolio .


Please help.
There is no official dividend portfolion on Seeking Alpha, look for articles by David Van Knapp, David Crosetti, Chuck Carnevale. A good introduction here: https://seekingalpha.com/article/254416 ... -portfolio
User avatar
sophie
Executive Member
Executive Member
Posts: 3871
Joined: Mon Apr 23, 2012 7:15 pm

Re: How much is "enough" in the Permanent Portfolio?

Post by sophie » Mon Dec 18, 2017 7:05 am

Dividend portfolios have been way too popular for the past almost 10 years, because dividend rates have been greater than intermediate-term interest rates. I'd be really hesitant to bet the farm on one of these. Just wait until 5 year bond yields hit 2%, and watch the stampede away from these stocks.

EDIT: they're at 2%! Well, we'll soon see if my theory is correct. BTW...holy flattening yield curve on bonds...only a 0.05% difference in yield between 5 year and 30 year treasuries???
Post Reply