Gold as a diversifier - PP gets a mention

Discussion of the Gold portion of the Permanent Portfolio

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Hal
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Gold as a diversifier - PP gets a mention

Post by Hal » Wed Feb 19, 2020 12:14 am

Found this an interesting read - enjoy.

Hal

<snip>
Both the optimal (20%) and upper range of efficient portfolios (35%) may seem to include a fairly high percentage of gold compared to the 5% rule-of-thumb allocation to which a large number of financial advisors seem to subscribe. But there is a precedent. The “permanent portfolio” by Harry Browne recommends an equal weighting (25%) across stocks, bonds, cash, and gold as being optimal across different economic regimes. We believe the evidence presented in this white paper strongly suggests that the currently prevailing “conventional wisdom” greatly understates the potential role of gold in portfolios for a typical investor over the long term.
<snip>

Part 1
http://proactiveadvisormagazine.com/gol ... scenarios/

Part 2
http://proactiveadvisormagazine.com/wha ... n-to-gold/
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Re: Gold as a diversifier - PP gets a mention

Post by sophie » Wed Feb 19, 2020 8:47 am

Oh sure...gold goes up over $1600 and instantly people come out of the woodwork to praise the PP. They'll hate it again when gold goes back down, not to worry :-).
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Re: Gold as a diversifier - PP gets a mention

Post by Kbg » Wed Feb 19, 2020 9:20 am

Thanks for the posts, excellent find.

I'm glad I came across the PP. I don't use it in the "doctrinally pure" way but I sure like the mix. What I've found is a nice sweet spot for me is a 1:1 ratio between Stocks to LTTs and gold. For example, if my allocation was 50% stocks then 25% each to LTTs and gold. This works pretty well. Folks can then dial the cash component to whatever and with the remainder use the above ratio if they want more growth.

Here's a performance breakdown: https://www.portfoliovisualizer.com/bac ... tion4_3=25
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Hal
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Re: Gold as a diversifier - PP gets a mention

Post by Hal » Wed Feb 19, 2020 1:20 pm

Kbg wrote:
Wed Feb 19, 2020 9:20 am
For example, if my allocation was 50% stocks then 25% each to LTTs and gold. This works pretty well. Folks can then dial the cash component to whatever and with the remainder use the above ratio if they want more growth.
Looks like you both agree :)

<snip>
Over the 45 years studied, the optimal allocation in a balanced portfolio has actually been 20% to gold and 80% to a balanced portfolio, representing an end result of roughly 50% stocks, 30% bonds, and 20% gold.
<snip>
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Re: Gold as a diversifier - PP gets a mention

Post by Kbg » Wed Feb 19, 2020 4:14 pm

My actual mix is 60% Stks/90% bonds/30% Gold

Here's a fun one that demonstrates gold doesn't stink it up as bad as advertised . https://www.portfoliovisualizer.com/bac ... tion4_3=30
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Re: Gold as a diversifier - PP gets a mention

Post by dualstow » Wed Feb 19, 2020 5:56 pm

Kbg wrote:
Wed Feb 19, 2020 4:14 pm
My actual mix is 60% Stks/90% bonds/30% Gold
That’s a lot of %!
another day, another North Korean missile
let 2022 be the year of GOLD 🦣
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Re: Gold as a diversifier - PP gets a mention

Post by Smith1776 » Wed Feb 19, 2020 6:34 pm

dualstow wrote:
Wed Feb 19, 2020 5:56 pm
Kbg wrote:
Wed Feb 19, 2020 4:14 pm
My actual mix is 60% Stks/90% bonds/30% Gold
That’s a lot of %!
Maybe it's a leveraged portfolio? :o
https://youtu.be/JS0C-aJ-bAU
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Re: Gold as a diversifier - PP gets a mention

Post by dualstow » Wed Feb 19, 2020 6:37 pm

Smith1776 wrote:
Wed Feb 19, 2020 6:34 pm
dualstow wrote:
Wed Feb 19, 2020 5:56 pm
Kbg wrote:
Wed Feb 19, 2020 4:14 pm
My actual mix is 60% Stks/90% bonds/30% Gold
That’s a lot of %!
Maybe it's a leveraged portfolio? :o
I was thinking that, too, but leveraging to 90% bonds? What..How..that would be original, anyway.
I guess its 60% stocks to 40% non-stocks,
and the non-stock portion itself is- oop, that doesn’t work either.
What I've found is a nice sweet spot for me is a 1:1 ratio between Stocks to LTTs and gold.
another day, another North Korean missile
let 2022 be the year of GOLD 🦣
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Re: Gold as a diversifier - PP gets a mention

Post by Kbg » Wed Feb 19, 2020 11:30 pm

It is leveraged...60% is a bond ETF the other 30% is TMF (10% by face value)
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Hal
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Re: Gold as a diversifier - PP gets a mention

Post by Hal » Thu Feb 20, 2020 9:38 am

As an aside, check out this Incrementum report on Gold. Its probably the largest report I have ever seen at 339 pages!


https://ingoldwetrust.report/wp-content ... nglish.pdf
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Re: Gold as a diversifier - PP gets a mention

Post by vnatale » Tue Oct 19, 2021 4:49 pm

Hal wrote:
Wed Feb 19, 2020 12:14 am

Found this an interesting read - enjoy.

Hal

<snip>
Both the optimal (20%) and upper range of efficient portfolios (35%) may seem to include a fairly high percentage of gold compared to the 5% rule-of-thumb allocation to which a large number of financial advisors seem to subscribe. But there is a precedent. The “permanent portfolio” by Harry Browne recommends an equal weighting (25%) across stocks, bonds, cash, and gold as being optimal across different economic regimes. We believe the evidence presented in this white paper strongly suggests that the currently prevailing “conventional wisdom” greatly understates the potential role of gold in portfolios for a typical investor over the long term.
<snip>

Part 1
http://proactiveadvisormagazine.com/gol ... scenarios/

Part 2
http://proactiveadvisormagazine.com/wha ... n-to-gold/


Hal is constantly providing us with various gems.

This is one of them that deserves to be resurrected. Particularly for those who were not around here when he originally provided it to the forum.
Above provided by: Vinny, who always says: "I only regret that I have but one lap to give to my cats." AND "I'm a more-is-more person."
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Re: Gold as a diversifier - PP gets a mention

Post by buddtholomew » Thu Dec 09, 2021 8:48 am

Gold is still garbage.
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Re: Gold as a diversifier - PP gets a mention

Post by barrett » Thu Dec 09, 2021 10:21 am

buddtholomew wrote:
Thu Dec 09, 2021 8:48 am
Gold is still garbage.
But Budd, the reason that you don't just sell your remaining gold is that your gains on it are large enough for taxes to be a consideration, right?

I would say that historically gold has been garbage for a decade or two when financial assets are performing well, and a great diversifier when financial assets are struggling for long periods. No guarantees going forward, obviously.
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Re: Gold as a diversifier - PP gets a mention

Post by buddtholomew » Thu Dec 09, 2021 12:39 pm

barrett wrote:
Thu Dec 09, 2021 10:21 am
buddtholomew wrote:
Thu Dec 09, 2021 8:48 am
Gold is still garbage.
But Budd, the reason that you don't just sell your remaining gold is that your gains on it are large enough for taxes to be a consideration, right?

I would say that historically gold has been garbage for a decade or two when financial assets are performing well, and a great diversifier when financial assets are struggling for long periods. No guarantees going forward, obviously.
Yes that is correct.
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Re: Gold as a diversifier - PP gets a mention

Post by Cortopassi » Thu Dec 09, 2021 3:47 pm

buddtholomew wrote:
Thu Dec 09, 2021 12:39 pm
barrett wrote:
Thu Dec 09, 2021 10:21 am
buddtholomew wrote:
Thu Dec 09, 2021 8:48 am
Gold is still garbage.
But Budd, the reason that you don't just sell your remaining gold is that your gains on it are large enough for taxes to be a consideration, right?

I would say that historically gold has been garbage for a decade or two when financial assets are performing well, and a great diversifier when financial assets are struggling for long periods. No guarantees going forward, obviously.
Yes that is correct.
Is that logical? Then when would you ever sell? If gold was at $3000 your gains would be huge? How do you ever divest yourself of this "garbage?" :)
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Re: Gold as a diversifier - PP gets a mention

Post by buddtholomew » Thu Dec 09, 2021 3:51 pm

Cortopassi wrote:
Thu Dec 09, 2021 3:47 pm
buddtholomew wrote:
Thu Dec 09, 2021 12:39 pm
barrett wrote:
Thu Dec 09, 2021 10:21 am
buddtholomew wrote:
Thu Dec 09, 2021 8:48 am
Gold is still garbage.
But Budd, the reason that you don't just sell your remaining gold is that your gains on it are large enough for taxes to be a consideration, right?

I would say that historically gold has been garbage for a decade or two when financial assets are performing well, and a great diversifier when financial assets are struggling for long periods. No guarantees going forward, obviously.
Yes that is correct.
Is that logical? Then when would you ever sell? If gold was at $3000 your gains would be huge? How do you ever divest yourself of this "garbage?" :)
Does never qualify as an answer ;)
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Re: Gold as a diversifier - PP gets a mention

Post by Cortopassi » Thu Dec 09, 2021 3:58 pm

If gold goes to some higher number forcing a rebalance, will you? Or do you not follow PP rebalancing?
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Re: Gold as a diversifier - PP gets a mention

Post by buddtholomew » Thu Dec 09, 2021 4:11 pm

Cortopassi wrote:
Thu Dec 09, 2021 3:58 pm
If gold goes to some higher number forcing a rebalance, will you? Or do you not follow PP rebalancing?
I have been rebalancing out of Gold previously held in an IRA but not sold anything in taxable.
I plan to sell some in taxable for annual living expenses in the near future when cash buffer is depleted.
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Re: Gold as a diversifier - PP gets a mention

Post by dualstow » Thu Dec 09, 2021 4:38 pm

Budd: kids, I think of this trove as trash, but I want you to-
Kids: yeah, we’ll take these coins off your hands, Dad. No worries.
O0
another day, another North Korean missile
let 2022 be the year of GOLD 🦣
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Re: Gold as a diversifier - PP gets a mention

Post by seajay » Thu Dec 09, 2021 7:45 pm

Consider Old Money, generational wealth, where a family might own land/farms that are worked and generate dividends, not that dissimilar to stocks. Along with some fine art, and gold, where the price/value might broadly rise with inflation, somewhat bond like. Thirds of each is similar to 33/67 stock/bonds but where there's no regular interest/taxable events on the 'bond' side. True dynastic wealth has existed in some families for 300 years or longer with such assets, wealth that survived not only business cycles but also wars, invasion, the collapse of empires, revolution, and natural disasters. Physical in-hand assets that might be stored around the world, outside of any one single state/geopolitical risk, such that even in the event of a total loss of one of the three a significant amount of wealth remains.

Some times each of those assets may be out of favor, low priced, a good time to be accumulating. Other times they might command a price premium, a good time to be reducing. If many opine gold to be garbage then rejoice at the sale (buy/add low). If prices are high again rejoice at providing liquidity for the greedy/fearful (sell/reduce high).

'Gold is garbage' is just part of a natural cycle, that tends to mid/longer term inversely correlate with other assets such as stocks. As in other cases/times gold can be much sought after.
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Re: Gold as a diversifier - PP gets a mention

Post by mathjak107 » Fri Dec 10, 2021 5:33 am

many times waiting for an asset class to have its day in the sun can take so long for that ship to come in the pier collapses…

what is given up waiting in the asset class can be far greater then any potential gains in it vs what was given up waiting for it to respond because the odds of it having the right economic outcome for it is very low ….

equal dollars in a portfolio dont mean equal chances of outcomes playing out.

for the record , i do own 5% gold but i also own 5% commodites and 5% gbtc bitcoin which tend to act differently but still are linked to inflation and dollar strength in a broader sense …

i cant see equal dollars bet on anything but equal chances of outcomes
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Re: Gold as a diversifier - PP gets a mention

Post by barrett » Fri Dec 10, 2021 10:36 am

mathjak107 wrote:
Fri Dec 10, 2021 5:33 am
many times waiting for an asset class to have its day in the sun can take so long for that ship to come in the pier collapses…

what is given up waiting in the asset class can be far greater then any potential gains in it vs what was given up waiting for it to respond because the odds of it having the right economic outcome for it is very low ….

equal dollars in a portfolio dont mean equal chances of outcomes playing out.

for the record , i do own 5% gold but i also own 5% commodites and 5% gbtc bitcoin which tend to act differently but still are linked to inflation and dollar strength in a broader sense …

i cant see equal dollars bet on anything but equal chances of outcomes
Mathjak, As has been stated on here over time, most of us are either not super confident about investing and/or do not wish to be devoting a lot of energy to it on a daily (weekly, monthly) basis. If someone were to put a gun to your head and ask you for your best advice on portfolio construction using any mix of assets, what would you suggest? Let's say that the rules are that the portfolio would be re-balanced annually on January 1st of each year but that the percentage of assets has to stay the same over time. Would you go with a GB allocation? Something else? Just curious how you would answer.
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Re: Gold as a diversifier - PP gets a mention

Post by mathjak107 » Fri Dec 10, 2021 11:12 am

i already stated mine in another thread here.


gold 5%

commodities 5% (etf dbc)

bitcoin (gbtc) 5%

equities 20% ( fidelity contra , voo , and two other mutual funds )

fidelity strategic real return 9% ( hybrid fund consisting of reits , floating rate loans , inflation proof bonds and commodities ) geared for moderate not high inflation .

very short term treasuries 23% ( shv ) if rates should fall you will get a little kicker unlike a money market which goes lower

total bond fund 7%

hyg high yield bonds 6%

cash 20% money market , if rates rise you will get a kicker unlike shv which is the opposite
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Re: Gold as a diversifier - PP gets a mention

Post by Xan » Fri Dec 10, 2021 11:43 am

Mathjak,

He's not asking for your allocation NOW. He's asking what allocation you would recommend if you were to stick with one for a very long time. Would it be the same?
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Re: Gold as a diversifier - PP gets a mention

Post by mathjak107 » Fri Dec 10, 2021 12:06 pm

yes it would ..but that does not mean that anything will work well forever and that funds shouldnt be swapped over time as conditions change in the bigger picture .

others may want total hands off their money and buy and die with something , to me , when it comes to something as important as my life savings i want a more active roll in things
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