Gyroscopic Investing

Hello-

I have been lurking on these forums for a couple months now and have yet to start a fund for myself and family.  I'd like to change that starting now, and would appreciate someone pointing me in the right direction. 

1) Which fund(s) are best for someone like myself?

2) Which brokerage account is best for the funds recommended? 

3) Are the any other questions I should be asking, that I am not?


Thanks in advance for any input given!

There is a really good book written specifically for folks in your situation.  It covers all of your questions and addresses the various approaches that you can use to make it work for you.



http://www.amazon.com/Permanent-Portfol ... +portfolio

Mark Leavy wrote: There is a really good book written specifically for folks in your situation.  It covers all of your questions and addresses the various approaches that you can use to make it work for you.



http://www.amazon.com/Permanent-Portfol ... +portfolio

Multiple THUMBS UP.    Wonderful book.

Most of us on this forum agree that the commercial so-called Permanent Portfolio funds are not really in fact the Permanent Portfolio, and that you can make your own Permanent Portfolio with four mutual funds or Exchange Traded Funds, and can you divide by four, and can you do so once a year? That would be the baseline requirement.

Everything else is window dressing and customization for one's own needs.

Hi TNT and welcome to the forum!

I will throw out my own enthusiastic endorsement of the book which is sitting about a foot to the left of my keyboard as I type. That said you did ask about funds so I will make a few observations...

First, with VERY few exceptions, actively managed funds suck. They almost always underperform their respective index and you get raped with the management fees. So even if you decide to go with something other than a 4x25% permanent portfolio stick with low cost index funds or near equivalent ETFs. The few exceptions tend to be conservative funds that are not trying to track an index but rather give you a diversified all in one portfolio that offers some protection from extreme market volatility while giving you a decent return over the long run. Generally we advise against using them because you can usually get more safety, with an at least comparable return, and lower costs by doing the aforementioned DIY permanent portfolio (see the book).

All of which aside some people just don't want to deal with any investing decisions at all. And (not to be insulting), yes there are a very small percentage of people who are intellectually ill-equipped to handle even very basic investing. Those people need help and an all in one fund may be the best available alternative for them. On this forum there seems to be some consensus in favor of two funds for those, who by choice or necessity are looking for a one-stop shopping investment plan.

Those two funds are PRPFX and VWINX/VWIAX. Both have advantages and drawbacks.

PRPFX is closely modeled on an earlier version of Harry Browne's Permanent Portfolio and Harry was a consultant in the creation of the fund. It is composed as follows.

35% US Dollar assets  (mostly Government Bonds)
10% Swiss Franc denominated bonds
15% Natural resource stocks
15% Aggressive growth stocks
20% Physical Gold
5% Physical Silver

Advantages: The fund is radically diversified and your chances of taking a bad hit are slim. Historically the fund has produced long term returns roughly comparable to the 4x25% PP before factoring in fees and expenses. In the past the fund has had a good reputation for being tax efficient, although that reputation has taken a hit over the last couple of years. And lastly the fund holds virtually all of its metals directly in physical form which is safer than gold/silver ETFs.

Disadvantages: It's actively managed so you are to some degree counting on your fund manager to be smarter than the index. That is almost always a bad long term bet, especially with stock picking. It is significantly more expensive than pretty much any DIY lazy man's portfolio that relies on index funds. Fees and expenses will severely cut into your long term returns because of the law of negative compound interest. The fund is weighted in favor of a high inflation/weak dollar scenario. (In his early days Harry B. was a gold bug and a big time inflation hawk.) Historically the fund has done very well in these scenarios, out performing the conventional PP, while underperforming during period of prosperity or deflation/recession.

The other fund is VWINX or its cheaper big investor equivalent VWIAX. This fund is run by Vanguard and is composed as follows...

Approximately...
65% Investment grade bonds, mostly intermediate term.
35% Dividend paying stocks.

Advantages: It's cheap with an expense ratio that is well below average for an actively managed fund. Everything in the fund pays you to own it. That's a big + for Bogleheads who like income and being able to reinvest dividends. It doesn't overweight equities and the stocks tend to be a bit on the conservative side which helps reduce volatility when the stock market is having a bowl movement. The fund is well suited to handle conventional volatility during periods of prosperity and normal recessions.

Disadvantages: The fund lacks hard assets. These protect you from severe inflation. It also does not have a cash reserve which comes with the 4x25 PP.

Most of us on the forum like the fund but would feel more comfortable if it had a slug of gold on the side, say 10% of your net worth. Conversely PRPFX underweights bonds to a degree that could leave investors vulnerable in a severe deflation/depression scenario. The often proposed solution is to put 10% in EDV with the rest in PRPFX. Another possible solution I have considered is to use both funds. Maybe 80% in VWINX and 20% in PRPFX.

Again I want to stress that neither fund is considered ideal. Both have drawbacks. But both are probably acceptable choices for those who won't or can't handle their own investing. Just put your money in the fund(s) of choice, set the funds to auto reinvest any dividends and just leave them alone forever.

I hope this helps.

P.S. to my above...

If you are looking for a list of funds to set up a PP I suggest Vanguard as your broker and using VTI, TLT, IAU and VGSH. We encourage gold to be held physically but quite a few PPers just use IAU for convenience sake.

Thank you for the replies.  I'm happy to say that I've taken action and started my PP!  Currently, I am over-invested in physical gold so for the next 12 months (the time I think it will take to avg out the other three), I will focus on building my cash, bonds, and stocks. 

From Ad Orientem's post, if I am understanding it correctly, for cash, VGSH, is a good solution over just sticking it in FDIC insured account.  Please correct me if I'm mistaken.

Then for stocks, I already purchased some SPY and IWF, but have added the other indexes to my watch list that were recommended.

Thanks again guys!  Very much appreciated.

tnt211 wrote: Thank you for the replies.  I'm happy to say that I've taken action and started my PP!  Currently, I am over-invested in physical gold so for the next 12 months (the time I think it will take to avg out the other three), I will focus on building my cash, bonds, and stocks. 

From Ad Orientem's post, if I am understanding it correctly, for cash, VGSH, is a good solution over just sticking it in FDIC insured account.  Please correct me if I'm mistaken.

Then for stocks, I already purchased some SPY and IWF, but have added the other indexes to my watch list that were recommended.

Thanks again guys!  Very much appreciated.

That's a good start. Many find that taking the step of buying physical gold is a really difficult one. An often repeated piece of advice on this forum is to remember that gold is just a tool. It's easy to look at those coins and delude yourself into thinking something else. To paraphrase CraigR, they are just one of the four firewalls.

I'll also reiterate what others have said... Read the PP book from cover to cover if you haven't done so already. It's lean and mean & comes at the PP from a lot of angles.

As for which brokerage to use, I have had good luck with Fidelity. Their website is very good. Once you understand how simple the PP is (aside from whatever tweaks your own situation dictates), you don't really need to interact with other humans... except on this forum of course!

Good luck.

barrett wrote:

tnt211 wrote: Thank you for the replies.  I'm happy to say that I've taken action and started my PP!  Currently, I am over-invested in physical gold so for the next 12 months (the time I think it will take to avg out the other three), I will focus on building my cash, bonds, and stocks. 

From Ad Orientem's post, if I am understanding it correctly, for cash, VGSH, is a good solution over just sticking it in FDIC insured account.  Please correct me if I'm mistaken.

Then for stocks, I already purchased some SPY and IWF, but have added the other indexes to my watch list that were recommended.

Thanks again guys!  Very much appreciated.

That's a good start. Many find that taking the step of buying physical gold is a really difficult one. An often repeated piece of advice on this forum is to remember that gold is just a tool. It's easy to look at those coins and delude yourself into thinking something else. To paraphrase CraigR, they are just one of the four firewalls.

I'll also reiterate what others have said... Read the PP book from cover to cover if you haven't done so already. It's lean and mean & comes at the PP from a lot of angles.

As for which brokerage to use, I have had good luck with Fidelity. Their website is very good. Once you understand how simple the PP is (aside from whatever tweaks your own situation dictates), you don't really need to interact with other humans... except on this forum of course!

Good luck.

+1 on Fidelity. Besides a great website and excellent customer service Fidelity's Spartan line of index funds will satisfy your needs for everything except gold. They also offer lots of iShares ETFs commission-free, including TLT. Gold ETFs are the only asset you would have to pay $7.95 per trade.

tnt211 wrote:Thank you for the replies.  I'm happy to say that I've taken action and started my PP!  Currently, I am over-invested in physical gold so for the next 12 months (the time I think it will take to avg out the other three), I will focus on building my cash, bonds, and stocks. 

Smart.  Impressive you already had the gold.

From Ad Orientem's post, if I am understanding it correctly, for cash, VGSH, is a good solution over just sticking it in FDIC insured account.  Please correct me if I'm mistaken.

It depends. 

It depends on the size of your savings. 

It depends on your spending pattern and income pattern. 

It depends on whether you're doing this in a tax-sheltered way where the funds will be locked up, or if it will be taxable and available for withdrawal. 

You should have a proper amount of your total savings available for your spending needs in a convenient and easily-available form.  That's probably the big consideration.  Now that could mean a FDIC bank account.  But a brokerage account with checking/debit could also be convenient and meet your needs.  The brokerage money-market account would be superior, in Harry Browne's view, because they may not legally pyramid debt on your account value in the same way a bank may do.  That means they're sounder and safer.

Thanks for the nice comments about the book.  I feel so fortunate that things came together for Craig and I to do the book and that it has apparently been useful to lots of people.  Every time someone tells me that the book was well-written and/or that they enjoyed reading it, I get a little jolt of good feeling.

For someone looking at PRPFX, take a look at some of the past discussions about adding a little TLT or EDV to PRPFX to help make up for its light LT treasury holdings.

If you read "Fail Safe Investing", the new PP book, the giant PP thread on the BH forum, and of course the posts on this forum, you should have everything you need to embark on your PP journey.

MediumTex wrote:Thanks for the nice comments about the book.  I feel so fortunate that things came together for Craig and I to do the book and that it has apparently been useful to lots of people.  Every time someone tells me that the book was well-written and/or that they enjoyed reading it, I get a little jolt of good feeling.

For someone looking at PRPFX, take a look at some of the past discussions about adding a little TLT or EDV to PRPFX to help make up for its light LT treasury holdings.

If you read "Fail Safe Investing", the new PP book, the giant PP thread on the BH forum, and of course the posts on this forum, you should have everything you need to embark on your PP journey.

hi, what is BH forum?
I read the book it was truly excellent, not only for PP buyers!

Incomplete link?

dualstow wrote:Incomplete link?

Budd was replying to the previous post asking what was meant by "BH Forum".

Xan wrote:

dualstow wrote:Incomplete link?

Budd was replying to the previous post asking what was meant by "BH Forum".

Oh, geez, I didn't even realize that I was on page 2.
Sorry about that, guys.

MediumTex wrote: ↑Sun Jun 07, 2015 4:01 am Thanks for the nice comments about the book.  I feel so fortunate that things came together for Craig and I to do the book and that it has apparently been useful to lots of people.  Every time someone tells me that the book was well-written and/or that they enjoyed reading it, I get a little jolt of good feeling.

For someone looking at PRPFX, take a look at some of the past discussions about adding a little TLT or EDV to PRPFX to help make up for its light LT treasury holdings.

If you read "Fail Safe Investing", the new PP book, the giant PP thread on the BH forum, and of course the posts on this forum, you should have everything you need to embark on your PP journey.

This one of the best books I have ever read on investing. Kudos to you and Craig! Thank you.