DIY PRPFX with ETFs

[BobS]

Stumbled upon this article - http://www.etfguide.com/commentary/758/ ... with-ETFs/ about
creating your own PRPFX.  The author estimates the expenses to average out to 0.32%.

He used the following ETF's -

• 35% in U.S. Treasuries (NYSEArca: TLH) and U.S. Corporate Bonds (NYSEArca: LQD)
• 20% in Gold (NYSEArca: IAU)
• 15% in Natural Resources (NYSEArca: GNR) and Foreign Real Estate Stocks (NYSEArca: RWX)
• 15% in Large Cap Growth Stocks (NYSEArca: VONG)
• 10% in Swiss Francs (NYSEArca: FXF)
• 5% in Silver (NYSEArca: SIVR)

I built a test PRPFX, but had to change a few of the ETFs as Fidelity's etf builder doesn't work with etf's they don't offer.
Using a $10,000 starting point, the portfolio ended up as follows -

• 10 shares Swiss Francs FXF
• 18 shares in Global Natural Resources IGF
• 16 shares in U.S. Corporate Bonds LQD
• 18 shares in Foreign Real Estate Stocks RWX
• 22 shares in Gold SGOL
• 22 shares in Silver SIVR
• 16 shares in 20+ yr Treasuries TLT
• 26 shares in Total Stock market VTI

Putting it up and starting with a 31 Dec 2009 date, the DIY PRPFX has an overall YTD return of 13.9%, while the 90% PRPFX/10% TLT variant
with the same start date has a YTD return of 13.28%.

Some differences to note - VONG is a Russell 1000 etf and not really a TSM etf.  I used SGOL, GLD or IAU will work as well.  I really haven't
researched any of these etfs, other than the ones I've used in other test portfolios - VTI, TLT, SGOL.  Some homework will need to be done.

[MediumTex]

A synthetic PRPFX would have none of the tax advantages of PRPFX.

I'm also not sure how you would know when to rebalance such a concoction.

I think I would rather just do an ETF-driven HB PP along the lines of:

GLD - 25%
TLT - 25%
VTI - 25%
SHY - 25%

[MadMoneyMachine]

I saw the article too. (In fact, I commented on it to much the same effect as MediumTex just has.]

A couple more comments:
1. Harry explicitly said to avoid corporate bonds. Too risky.
2. Harry would not have allocated assets to real estate stocks or sectors in that way.
3. While Harry was in love with Silver in the 70's, he later said stick purely with gold. (Perhaps some silver in one's Variable Portfolio wouldn't hurt though!)
4. Large Cap Growth stocks are a big loser compared to Small Cap Value over the long term.
5. Ron has picked two ETFs that are each less than one month old. Why?
6. You should not compare two portfolios based solely on their returns. You must also look at their risk: either using Standard Deviation (Sharpe Ratio) or Maximum Drawdown. That should be engraved above your computer monitor so you remember it every time you see two portfolios compared just by their returns.

Nonetheless, nice to see the Permanent Portfolio getting more press.

Paul

[craigr]

I saw the article too. (In fact, I commented on it to much the same effect as MediumTex just has.]

A couple more comments:
1. Harry explicitly said to avoid corporate bonds. Too risky.
2. Harry would not have allocated assets to real estate stocks or sectors in that way.
3. While Harry was in love with Silver in the 70's, he later said stick purely with gold. (Perhaps some silver in one's Variable Portfolio wouldn't hurt though!)
4. Large Cap Growth stocks are a big loser compared to Small Cap Value over the long term.
5. Ron has picked two ETFs that are each less than one month old. Why?
6. You should not compare two portfolios based solely on their returns. You must also look at their risk: either using Standard Deviation (Sharpe Ratio) or Maximum Drawdown. That should be engraved above your computer monitor so you remember it every time you see two portfolios compared just by their returns.

Nonetheless, nice to see the Permanent Portfolio getting more press.

Paul

I think Paul nailed it. Keep things simple and avoid risks where you don't need to take them. I don't think silver or Swiss Francs perform as well as gold in the portfolio for inflation protection either.