Faith is believing something you know ain't true

[bill]

The quote is from Mark Twain, but the sentiments are mine.  I am new to the Permanent Portfolio, and I have just read the Rowland / Lawson book on it, but I just simply cannot bring myself to put 50% of my assets into bonds and cash, when I know they are headed over the cliff.  See http://sprottphysicalbullion.com/sprott ... old/.    I'm sorry, but I just can't see myself buying 30 year Treasury bonds when all I hear from everyone is "when interest rates go up, the value of bonds goes down."  Right now, interest rates are close to zero.  So, either they will go negative (which they won't), stay at zero (which they won't), or go up.  When I bought the book, I was hoping I'd found the answer, but I just don't trust something that tells me to do something I know is wrong.

[Pointedstick]

Welcome to the forum! The PP is a hard portfolio to accept because it's composed of very different assets, and usually you will hate one of them. A lot of people share your distrust of government bonds.

If you KNOW that interest rates will rise, you have an excellent way to make a lot of money by shorting bonds. Would you be comfortable doing this? If not, ask yourself why not. Are you really so certain after all? If it turns out that you're not so sure that interest will soon rise that you're willing to put real money on it, then you're in the same boat as the rest of us. Ask all the people who are telling you that bonds will get crushed when rates rise if they've been shorting bonds themselves. I think you may find the answer to be illuminating.

The first and probably most important step in starting a Permanent Portfolio is acknowledging that you don't know which way the assets will go in the future. Switzerland is currently issuing 30-year bonds at 1.2%. Japanese bonds have been at a similar place for 20 years. There's still a lot of room for 30-year rates to fall.

Also, realize you're being advertised to. Of course a gold merchant is going to tell you that gold is the ideal investment because the dollar is going to collapse. TreasuryDirect is going to tell you that government bonds are an ideal product for the wise and prudent investor.

[gap]

Mark Twain notwithstanding

"faith is the assurance of things hoped for, the conviction of things not seen"

[BearBones]

Faith is knowing that you can rest in peace no matter the outcome. Hope is wishing for a specific outcome which is currently unknown. Where do you fall?

I'm with you in your skepticism of treasuries. That's why I have large variable portfolio deficient in LTTs and loaded up in gold.    I seemed to know what you do now a few years ago...

Don't invest in anything you are not comfortable with or do not understand. But you might consider putting some money in a PP or creating a mock PP until you are comfortable how it works. That's what MT always recommends.

Welcome!

[Jake]

I'm with you in your skepticism of treasuries. That's why I have large variable portfolio deficient in LTTs and loaded up in gold.    I seemed to know what you do now a few years ago...

In August 2011, I was forced to rebalance out of gold when I hit a rebalancing band.  I hated selling gold when it was going up so much. The logic was clear to me: governments everywhere were printing money. Gold *had* to keep rising. Thinking myself oh so clever, I decided to create a VP for the first time and left some gold in it.

Shortly afterwards I found that I had sold right at the peak when I rebalanced. Thank you Harry Browne for giving me an approach that led me to do something much cleverer than I would have otherwise done.

I also found that the gold I kept in my VP was a terrible investment. No thank yous to me, for that speculation. Lesson learned.

Funny thing is that the arguments I had for gold in 2011 are probably more applicable now as the fundamentals have arguably got worse since then. One day those chickens will come home to roost, but that could be next week or in a decade.

[jswinner]

Bill:  All I can say is that the 30 yr I bought in mid March is up almost 5%. I have heard the "interest rates have nowhere to go but up" line from the experts the entire 4 years I have been using this strategy.  Here is the plot for TLT for the last month

https://www.google.com/finance?chdnp=1& ... 6TPigLAmAE

I don't know what will happen next week and beyond, so I will stick with the PP and not worry about it.

[bill]

In their book, Rowland and Lawson say to split your assets 4 X 25, and they have a table showing the performance of such a portfolio from 1972 to 2011.

Peter Schiff has a new book on the market.  The title is The Real Crash, and the marquee on the top of the cover says America's Coming Bankruptcy.  If Schiff is right, then a different set of rules apply.  Schiff recommends a three-pronged approach:  (1) quality dividend-paying foreign stocks in the right sectors, (2) liquidity, and less volatile investments, such as cash and foreign bonds, (3) gold and gold mining stocks.

Both PP and Schiff claim to be "able to sleep at night" approaches.  The big difference seems to be whether or not you believe in something which has never happened before:  the bankruptcy of the U.S.  Seeing as no one knows the answer to this question, would it make sense to put half your assets into the PP approach, and the other half into the Schiff approach?

[jswinner]

In their book, Rowland and Lawson say to split your assets 4 X 25, and they have a table showing the performance of such a portfolio from 1972 to 2011.

Peter Schiff has a new book on the market.  The title is The Real Crash, and the marquee on the top of the cover says America's Coming Bankruptcy.  If Schiff is right, then a different set of rules apply.  Schiff recommends a three-pronged approach:  (1) quality dividend-paying foreign stocks in the right sectors, (2) liquidity, and less volatile investments, such as cash and foreign bonds, (3) gold and gold mining stocks.

Both PP and Schiff claim to be "able to sleep at night" approaches.  The big difference seems to be whether or not you believe in something which has never happened before:  the bankruptcy of the U.S.  Seeing as no one knows the answer to this question, would it make sense to put half your assets into the PP approach, and the other half into the Schiff approach?

If you believe that there is no correlation with the US tanking and those foreign investments, then yes, but I just can't imagine any scheme that would offer protection for that event, including the PP.  Yes, it is likely that gold is stratospheric. A bk US probably means my retirement is the least of my problems.  To some extent, I have witnessed in my lifetime all of the economic regimes that the PP is designed to deal with, and am ok with it's strategy.  If one of these black swans comes along, were are pretty much all in the same boat, the SS Screwed.

I would consider Schiff's strategy in a VP,  as you are exposed to significant currency exchange risk, among other issues, but ultimately it's about your risk tolerance, not mine. 

[melveyr]

It's very important to realize that Schiff has no understanding of deflation, so it is essentially never on his radar screen. He is also one of the financial characters who let's his political views pervert his understanding of the financial landscape. Personally, I think one's life savings are too important to be used as a tool for political expression. Harry Browne was very active politically, but even he was able to separate making money from political expression.

If you decide to have a portfolio of gold and international stocks I wish you the best of luck, it will surely be a very bumpy ride.

[MediumTex]

I just simply cannot bring myself to put 50% of my assets into bonds and cash, when I know they are headed over the cliff.

I wish that life and the markets were that simple.  It's a shame that they are not.

When I bought the book, I was hoping I'd found the answer, but I just don't trust something that tells me to do something I know is wrong.

I used to believe many things that I no longer believe because my respect for reality no longer permits me to believe them (even in cases where I really want to continue believing something).

I would say that if you are certain something is wrong and you don't like doing wrong things, then by all means don't do that thing you are sure is wrong.

What I might suggest, though, is to make a list of the things in the world that you are certain are wrong and see how your certainty holds up over time.  The results are often surprising.

Thank you for reading the book.  I hope you enjoyed it.

[bill]

I just simply cannot bring myself to put 50% of my assets into bonds and cash, when I know they are headed over the cliff.

I wish that life and the markets were that simple.  It's a shame that they are not.

When I bought the book, I was hoping I'd found the answer, but I just don't trust something that tells me to do something I know is wrong.

I used to believe many things that I no longer believe because my respect for reality no longer permits me to believe them (even in cases where I really want to continue believing something).

I would say that if you are certain something is wrong and you don't like doing wrong things, then by all means don't do that thing you are sure is wrong.

What I might suggest, though, is to make a list of the things in the world that you are certain are wrong and see how your certainty holds up over time.  The results are often surprising.

Thank you for reading the book.  I hope you enjoyed it.

If you are thanking me for reading the book, I assume you are one of the authors.    You're welcome, and I did enjoy it.  Please understand that my questions are not challenges.    I am an amateur at this stuff, and I am trying to find my way.  The guys on the radio are telling me to buy 60/40 portfolios, Peter Schiff and Porter Stansberry are telling me to fill up my cellar with food and buy guns, and PP is telling me ... well, you know what you are telling me.  What's a poor girl to do?  [I'm a guy.]  Thanks back.

[melveyr]

If you are thanking me for reading the book, I assume you are one of the authors.    You're welcome, and I did enjoy it.  Please understand that my questions are not challenges.    I am an amateur at this stuff, and I am trying to find my way.  The guys on the radio are telling me to buy 60/40 portfolios, Peter Schiff and Porter Stansberry are telling me to fill up my cellar with food and buy guns, and PP is telling me ... well, you know what you are telling me.  What's a poor girl to do?  [I'm a guy.]  Thanks back.

That's the beautiful thing about the market! The prices are all at the point where buyers and sellers are indifferent about the outcomes of the securities. No one knows what is going to happen 

That is why I like diversification. The PP is the most powerful combination of diversification I have seen in an easy package, so that is why I use it.

[Reub]

Again, the PP differs in that it readily admits that the future is unknown. It tries to cover all bases.

[Pointedstick]

FWIW, the PP is not in any way incompatible with filling up your cellar with food and guns. Just put them right next to the gold and the government bonds. 

In all seriousness, what you ought to do is ignore what everyone else is telling you to do. Figure it out for yourself, then let other people help you get there. When it comes to investing, this involves asking challenging questions about your goals and your psychology, such as your risk tolerance, time horizon, and the ultimate purpose of the money.

Once you've figured out what you plan to buy with the money you're investing, how long it will be before you start to do that, and how much you're willing to lose along the way in exchange for the hope of getting there faster, then you're ready to start looking at individual assets and learning about how they work and what makes them tick. Once you know what the assets do and how they respond to various stimuli (prosperity, inflation, interest rate movements, etc), you can more realistically figure out which of them you want and how the ones you'll own will interact with one another. That's the portfolio design part. As you can see, it comes much later.

[jswinner]

I just simply cannot bring myself to put 50% of my assets into bonds and cash, when I know they are headed over the cliff.

I wish that life and the markets were that simple.  It's a shame that they are not.

When I bought the book, I was hoping I'd found the answer, but I just don't trust something that tells me to do something I know is wrong.

I used to believe many things that I no longer believe because my respect for reality no longer permits me to believe them (even in cases where I really want to continue believing something).

I would say that if you are certain something is wrong and you don't like doing wrong things, then by all means don't do that thing you are sure is wrong.

What I might suggest, though, is to make a list of the things in the world that you are certain are wrong and see how your certainty holds up over time.  The results are often surprising.

Thank you for reading the book.  I hope you enjoyed it.

If you are thanking me for reading the book, I assume you are one of the authors.    You're welcome, and I did enjoy it.  Please understand that my questions are not challenges.    I am an amateur at this stuff, and I am trying to find my way.  The guys on the radio are telling me to buy 60/40 portfolios, Peter Schiff and Porter Stansberry are telling me to fill up my cellar with food and buy guns, and PP is telling me ... well, you know what you are telling me.  What's a poor girl to do?  [I'm a guy.]  Thanks back.

As Bud puts it, listening to experts can be hazardous to your wealth.

[MachineGhost]

Portfolio, and I have just read the Rowland / Lawson book on it, but I just simply cannot bring myself to put 50% of my assets into bonds and cash, when I know they are headed over the cliff

You may want to examine the performance of T-Bonds post-WWII until 1980.  It was a bear market that lasted about 40 years.  Try and imagine how you would have done within the context of the PP.

Cash is not suspectible to inflation (short of Fed manipulation), because it is of short duration.  As long as you stay under 5 year maturity with a 5-year ladder at the most, it will preserve your purchasing power.