PHYS

[Tom]

I searched the forum for this fund and nothing came up.  I'm thinking I'm going to implement a short term house fund in permanent portfolio form using funds for each 25% allocation. 

GLD is the obvious for gold, but my accountant also told me about a fund, PHYS.  Anyone have any thoughts on or experience with that fund?

[Greg]

It doesn't seem too bad, although it has an expense ratio almost twice that of IAU (.47% in 2011 http://sprottphysicalbullion.com/sprott ... ighlights/)

It also has the advantage of being able to be taxed as a Long-term capital gains versus a collectibles tax when filing the QEF form each year (much like CEF or GTU).

Doesn't seem too bad at a first glance although that expense ratio I don't like as much.

[Tom]

I've read that despite being able to redeem shares for actual physical gold, that due to being a closed-ended fund that it doesn't track the price of gold nearly as closely as GLD.  Not sure which way to go.

There's always buying physical coins.  Since this is for shorter term investment, could it be difficult to sell a large quantity of coins all at once when I go to liquidate to cash?

[6 Iron]

Tom, be aware that over the last forty years there have been periods of significant draw down in the permanent portfolio, and that one could occur when you are ready to cash out for the down payment.  It may not be likely, but it is possible. What is your time horizon for buying a home?

[Tom]

I'm really uncertain.  I'm getting married in April and I'd really like to do it sooner than later, but my gut tells me to not rush and save up a little more.  I live in the NYC area and housing prices and the taxes are astronomically high.  Even with a 200k downpayment and earning six figures, putting yourself in a situation where you don't exceed 30% of your post-tax income on your monthly payment is tough.  And I also want to keep enough of an emergency fund to cover 6 months to a year of living expenses.

Had I invested my house fund when I started it 6-7 years ago, I'd be so much better off today, so I was thinking to maybe invest it and sit on it for 2-5 years.  It's probably going to be closer to a 2 year timeline though, I'm nervous about interest rates rising.

[BearBones]

See this link. Looks good to me. In fact, if one is to buy a closed end fund (which I favor in taxable acts due to reasons stated by Greg above), PHYS may be favorable over GTU.

http://minesite.com/fileadmin/content/p ... 202010.pdf

Anyone prefer GTU over PHYS?

[Tom]

Tom, be aware that over the last forty years there have been periods of significant draw down in the permanent portfolio, and that one could occur when you are ready to cash out for the down payment.  It may not be likely, but it is possible. What is your time horizon for buying a home?

When I look at Craig's chart of the PP performance, its makes it look as though the highest losing year was 1981 at a 4.1% loss.  But when you look at the losses in each asset allocation it seems like it has to be much higher - am I reading this incorrectly or is the 4.1% loss accounting for just 4.1% lost from the initial principle starting from 1972 and not the loss made in that year - the loss from that year being much much higher?

If that's the case, that's a little scarier for a shorter term investment and I may reconsider.

[steve]

See this link. Looks good to me. In fact, if one is to buy a closed end fund (which I favor in taxable acts due to reasons stated by Greg above), PHYS may be favorable over GTU.

http://minesite.com/fileadmin/content/p ... 202010.pdf

Anyone prefer GTU over PHYS?

I hold GTU, I have had it before PHYS came out. GTU is managed by the same people as CEF which was founded in 1961 The fact that shareholders can take delivery of gold (PHYS) could also impact the fund in a possible negative way as expenses, capital gains, etc. get passed on to remanding shareholder.  I think that both GTU and PHYS are very similar and either will serve you purpose.

[rickb]

Tom, be aware that over the last forty years there have been periods of significant draw down in the permanent portfolio, and that one could occur when you are ready to cash out for the down payment.  It may not be likely, but it is possible. What is your time horizon for buying a home?

When I look at Craig's chart of the PP performance, its makes it look as though the highest losing year was 1981 at a 4.1% loss.  But when you look at the losses in each asset allocation it seems like it has to be much higher - am I reading this incorrectly or is the 4.1% loss accounting for just 4.1% lost from the initial principle starting from 1972 and not the loss made in that year - the loss from that year being much much higher?

If that's the case, that's a little scarier for a shorter term investment and I may reconsider.

The chart is end of year to end of year, assuming annual rebalancing (and reinvesting in the same asset), so in 1981 the overall PP lost 4.1% for the year.  Each year's return is computed by adding the individual components' returns and dividing by 4.

The maximum daily drawdown (daily peak to subsequent daily trough) is about 20% - which doesn't show in the chart since the peak and trough didn't happen to be on year-end boundaries.  If you're using a PP as a short term savings account, you might want to think about minimizing any possible drawdowns by boosting the cash allocation (but this reduces the CAGR as well, and leaves you less protected against strong inflation and other scenarios).  At 70% cash (70/10/10/10), the historical CAGR drops from about 9.8% to 8.5%, but the std dev drops from 8.4% to 4.9%.  Holding 70% cash would have turned the 20% drawdown into an 8% drawdown.

[Tom]

Thanks Rick - that's super helpful.  So that 20% highest draw down was just on one particular day?  And the highest year end drawdown was 4.1%?  That's a risk I can handle as I'm not going to wait until the day I need the cash for a downpayment.  Once I decide I'm definitely buying a house and my portfolio looks healthy, I'll liquidate it all to cash and hold it until I buy.