Political risk and EU Permanent Portfolio

Discussion of the Bond portion of the Permanent Portfolio

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Introvert
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Political risk and EU Permanent Portfolio

Post by Introvert » Sun Jan 15, 2017 1:10 pm

I am in the process of building my EU Permanent Portfolio, and since I live in one of the small countries, I am thinking of buying Germany bunds directly. However, I was rereading the PP book (Craig R. and J.M. Lawson chapter on bonds and started thinking about the political risk mentioned there.

As far as I understand, the risk with investing in international bonds is that there will be a new tax or restriction on the foreign debt holders. I think in EU's case that is illegal, but we all now that if things turn really sour, law can start going out the window. Have any of you european fellas thought about this? Maybe someone here is a bit more informed on these regulatory topics than me.

Thank you
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Re: Political risk and EU Permanent Portfolio

Post by LazyInvestor » Tue Jan 17, 2017 2:46 am

I'd say either run a US PP or stick with a Boglehead's portfolio if you are non-US person. The peculiar connection between USD as a world reserve currency and gold plays a role not to be ignored in a PP. You can see right now, for example, that GBP or Turkish Lira are tanking but gold is not really reacting at all.
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Re: Political risk and EU Permanent Portfolio

Post by LazyInvestor » Tue Jan 17, 2017 3:01 am

Also note, I guess your country is a typical EU socialist/welfare country with loads of safety net, pensions, etc. and quite low personal savings/investing capital. You might want to go through an extensive calculation of how much this welfare safety net is worth and to consider the total as your fixed income and invest the remaining money in stocks. For example, if you know that if you lose a job or if you retire you'll be receiving 1000 EUR/month, that's 12K/year or at 4% withdrawal rate you can consider that you already have 300,000 EUR in your fixed income. So if you have 100K available for investing that's actually only 25% of your total portfolio, which I would just dump into VWRD or something like that.

On the other hand, some of us are in countries with zero welfare/retirement money, so we must invest what we have in "conservative" portfolios such as PP.
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Re: Political risk and EU Permanent Portfolio

Post by jonas_eu » Thu Jan 26, 2017 8:05 am

Hi. I'm also from a small EU country and the answer to that question is not easy... It's been discussed on the forums and I think there isn't an right(or wrong) answer.
I can only talk of my answer to that question (and how I implement that part of the Permanent Portfolio).
For the long term bonds I use an broad EU Government Index Fund, preferably with the most of AAA rated countries. Right now I use IShares IBGL etf, but the problem of that etf is that about 37% is from BBB countries. The problem is I couldn't find any ETF with German or Austrian or Netherland Bonds of long duration, so I'm stuck with this one. I'm thinking of use instead the SAAA Etf (ie iShares Global AAA-AA Govt Bond UCITS ETF) but that ETF has an duration of only 10 years.
For the "Cash" part I also use an 1-3 year EU government bond fund, in this case MTA etf (from lyxor). It has the same problem that IBGL has.
Be very careful with some short term bond funds, for example the iShares € Govt Bond 1-3yr UCITS ETF(IBGS) has all the money on the Italy and Spain bonds (!!!!).
I use ETFs because I like the idea of don't rely in any special EU country.
Although my country has an social safety net I create my portfolio like it's the only thing I will have. The idea of LazyInvestor is very good but I'm a long way off retirement (20 years) and although I think it will exist some kind of Social security I believe that the benefits we will have will be less that exist now (I'm counting on a LOT less). That's hard to forecast.
Just my 5 cents, I hope it helps.
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Re: Political risk and EU Permanent Portfolio

Post by dualstow » Thu Jan 26, 2017 9:28 am

Would love to know what countries you guys hail from. Denmark? Slovenia? Moldova?
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Re: Political risk and EU Permanent Portfolio

Post by jonas_eu » Thu Jan 26, 2017 11:14 am

Portugal in my case.
Great sunny country. :)
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Re: Political risk and EU Permanent Portfolio

Post by dualstow » Thu Jan 26, 2017 2:24 pm

jonas_eu wrote:Portugal in my case.
Great sunny country. :)
And large sardines. ^-^ Nice.
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Re: Political risk and EU Permanent Portfolio

Post by frugal » Sun Apr 16, 2017 1:59 am

jonas_eu wrote:Hi. I'm also from a small EU country and the answer to that question is not easy... It's been discussed on the forums and I think there isn't an right(or wrong) answer.
I can only talk of my answer to that question (and how I implement that part of the Permanent Portfolio).
For the long term bonds I use an broad EU Government Index Fund, preferably with the most of AAA rated countries. Right now I use IShares IBGL etf, but the problem of that etf is that about 37% is from BBB countries. The problem is I couldn't find any ETF with German or Austrian or Netherland Bonds of long duration, so I'm stuck with this one. I'm thinking of use instead the SAAA Etf (ie iShares Global AAA-AA Govt Bond UCITS ETF) but that ETF has an duration of only 10 years.
For the "Cash" part I also use an 1-3 year EU government bond fund, in this case MTA etf (from lyxor). It has the same problem that IBGL has.
Be very careful with some short term bond funds, for example the iShares € Govt Bond 1-3yr UCITS ETF(IBGS) has all the money on the Italy and Spain bonds (!!!!).
I use ETFs because I like the idea of don't rely in any special EU country.
Although my country has an social safety net I create my portfolio like it's the only thing I will have. The idea of LazyInvestor is very good but I'm a long way off retirement (20 years) and although I think it will exist some kind of Social security I believe that the benefits we will have will be less that exist now (I'm counting on a LOT less). That's hard to forecast.
Just my 5 cents, I hope it helps.
Hi Jonas,

could you already find better BONDS from more secure countries?

Best regards!

:)
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