PP myth #605: It is only good for preserving capital

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Indices
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PP myth #605: It is only good for preserving capital

Post by Indices »

I am so tired of seeing posts by people who say they would only use the permanent portfolio if they had a windfall. There is no such thing as "preserving" capital. There is only growing it or losing it at various rates. The PP obviously works and grows your money.
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MediumTex
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Re: PP myth #605: It is only good for preserving capital

Post by MediumTex »

The permanent portfolio only makes sense when you are ready for it to.

Lots of people need to bang their head against the wall for a LONG time before they become capable of appreciating something like the permanent portfolio.

I wouldn't have understood it 10 years ago.
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craigr
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Re: PP myth #605: It is only good for preserving capital

Post by craigr »

I hear this often. But you tell them that it's pulled in 9-10% a year for going on three decades with very low volatility and it just gets ignored.

Most people make these kinds of statements because it justifies their own risk taking. It is a way for them to talk themselves into making risky bets with their money so when the losses happen (and it's always when, not if) then they can live with the cognitive dissonance that drove them to that decision. IMO.
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moda0306
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Re: PP myth #605: It is only good for preserving capital

Post by moda0306 »

I think all investments are going to have a tough time doing inflation +4% nowadays, but I don't think the PP is in any less a position today than most other years to do better than the risk-adjusted market...

With the Dow at 12,100, where are the big opportunities to beat inflation, risk adjusted, by 4%+ today?  I'd ask anyone who wants to do something besides the PP, what else do you suggest nowadays?

Removing cash is one option, and maybe gearing it more towards stocks, REITS, EM, etch is another, but in the end I think the PP looks extremely solid today, adjusted.

I've always thought there are ways to tweak the PP to do a bit better if you can stomach the volatility, but then you really have to ask yourself a lot tougher questions than you do when you have 4 assets that oppose each other for fundamental macroeconomic reasons.  These are questions that really start ragging on a person at the very worst time... when whatever tweak they made is probably "a good buy," and they are regretting not sticking to the 4x25 allocation of the proper PP assets.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."

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Lone Wolf
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Re: PP myth #605: It is only good for preserving capital

Post by Lone Wolf »

You are exactly right.  I embraced conservative investing when I realized 3 things:
  • Your savings represent your irreplaceable time and labor.
  • Time is precious.  (Marriage and especially children bring this into sharp focus.)
  • A loss of savings is your time and work flushed down the toilet.  (Losing money is what made this one real for me.)
Your money should be treated as well as possible regardless of how much or little of it you have.
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moda0306
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Re: PP myth #605: It is only good for preserving capital

Post by moda0306 »

LW,

Yeah... some people always think they'll be able to make some windfall in the future, or that their consumer purchases somehow represent a form of liquid wealth.

I consider, with few exceptions, my investments to be a representation of all my accumulated past work.  Anything else is either quite illiquid (my home, car, etc) or already spent (my past experiences, etc).

Obviously there are intangibles, such as my work/college experience, but to leverage that I have to also use my time.

When I hear of people being 40 and broke, that means every hour of work in their entire life has counted for no accumulated benefit.  I think I'd be sick if that were the case for me, but I still can see how it can happen, especially when debt-financed "investing" (read: consumption) gets factored in.
"Men did not make the earth. It is the value of the improvements only, and not the earth itself, that is individual property. Every proprietor owes to the community a ground rent for the land which he holds."

- Thomas Paine
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