Friends, Family & the PP

[barrett]

Just curious if the rest of you kinda get the blank stare when explaining the PP to people you know. My wife is OK with it but doesn't really want to understand the details. My friends who have investible assets seem wedded to what they are already doing. My brother-in-law & sister both like the idea but don't want to pull the trigger. When I see how few people post here, it really hits home how far out of the mainstream the PP concept is even after 30 plus years. My best guess is that's because nobody except the actual investors make any money on it (maybe a few bucks on gold for coin shops and a some small transaction and expense fees for Fidelity, Vanguard, etc.).

[dualstow]

They say that loss aversion outweighs the pleasure of gains, but I think this is only true in the rearview mirror. That is, I think greed* still trumps fear, and the seemingly limitless profit of stocks is just too powerful a tractor beam for most people. That is why my brother-in-law who works at Fannie Mae rejects the pp. He knows one could do worse, but for him the limited upside is a turn-off. Same deal with my father, although he let me set one up for him alongside his stocks & bonds. I think this, plus all the aurophobia is why pp'ers are sparse.

I have a weekly lunch with two friends who are very much into investing. They have listened patiently to the pp strategy but they aren't into it for a different reason. They are older and have most of their retirement wealth in a stable value fund. They each only have a tiny bit in stocks, aren't serious about gold and, because the of the stable value fund, would never buy more treasuries.

My wife isn't really interested in how I invest as long as she can keep using the credit card when at lunch with friends.

*I don't mean greed in a horrible seven deadly sins way. Just the natural greed/ambition that seems to be a natural component of humanity.

[AdamA]

Sometimes people ask me for investing advice.

I used to try to explain the PP, but was never effective.

I started telling people to use a BH type portfolio with 5-10% allocated to gold.
This also generated a lot of blank stares and skepticism.

Now I just recommend PRPFX. 

[Pointedstick]

The PP occupies a strange spot in the risk-reward continuum for most people, I think. It's not rewarding enough for people who like (or claim to like) stock-and-bond heavy portfolios. But it seems too risky for those who are likely to keep 100% of their assets in cash-like instruments or 5-year CDs. The "extremeness" of gold and 30-year bonds scares off a lot of people too.

[goodasgold]

plus all the aurophobia is why pp'ers are sparse.

Aurophobia! What a fine word to describe an all-too-pervasive prejudice.

Just the other day, Rick Ferri was singing the praises of volatility on the BH list. So what does Ferri think about gold, the ultimate volatile asset, which zigs when all other assets are zagging? He scorns and dismisses it without thought or examination.

My one hesitancy about the yellow stuff is that when (and not *if* IMHO) the dollar sinks like the Titanic, the Bankrupter-in-Chief who happens to be inhabiting the White House, whatever his or her party may be, will get the bright idea of "doing an FDR" and confiscating gold from all us "greedy exploiters" who had the outrageous and evil notion of investing in the yellow stuff to buffer the inevitable decline of paper money. 

[dualstow]

You know what's funny? I made it up and then googled it to find the correct word. Same word. 
Of course, it probably refers to people who literally run from the metal and refuse to physically touch it. We'd probably have to use some neo-Greek to concoct a word that means a fear of buying it. I like the sound of aurophobia, though.

[buddtholomew]

I think agaurophobia combines the fear of investing in both soft and hard commodities (agriculture as well as silver and gold as TeenPaGa suggests)

In response to the original question, family members have long since abandoned gold as well as treasuries of any duration longer than 1-3 years.

"Gold has had its hay day and interest rates have no where to go but up." PP'ers know differently of course since gold and LTT have outperformed a BH 60/40 equities/ST bonds YTD.

[dualstow]

So would agaurophoia would be fear of leaving the house to buy silver and gold?

lol. Yes, buying gold in an open space.

[Tyler]

The PP requires a certain kind of investing personality.  One must be educated in economics to the point of understanding nuanced behavior of things like gold and treasuries without dismissing them outright when viewed in isolation, but humble enough to truly accept that one cannot beat the markets by actively trading on this knowledge.  Those are two very high hurdles to cross for a lot of people.  Toss in a general willingness to question the financial status quo (occasionally verging on prepper to others), a systems mindset that can appreciate the big picture, and of course the requisite dashing good looks.  With all those filters you find a small niche of fertile ground for the PP to grow.

I've gifted Fail Safe Investing to a few family members.  Maybe one of these days they'll take the time to read it and will ask for more info.  I honesty don't count on it because everyone is different.  But at least I made the effort to share something I truly believe is helpful.

[Reub]

plus all the aurophobia is why pp'ers are sparse.

Aurophobia! What a fine word to describe an all-too-pervasive prejudice.

Just the other day, Rick Ferri was singing the praises of volatility on the BH list. So what does Ferri think about gold, the ultimate volatile asset, which zigs when all other assets are zagging? He scorns and dismisses it without thought or examination.

My one hesitancy about the yellow stuff is that when (and not *if* IMHO) the dollar sinks like the Titanic, the Bankrupter-in-Chief who happens to be inhabiting the White House, whatever his or her party may be, will get the bright idea of "doing an FDR" and confiscating gold from all us "greedy exploiters" who had the outrageous and evil notion of investing in the yellow stuff to buffer the inevitable decline of paper money. 

Would an unintended consequence of owning paper ETF gold or a fund like GTU be that if big brother ever came for our physical gold then the value of our paper gold would go through the roof?

[rickb]

Would an unintended consequence of owning paper ETF gold or a fund like GTU be that if big brother ever came for our physical gold then the value of our paper gold would go through the roof?

Let's take these one at a time.

GTU has a vault full of gold.  They're a Canadian company.  Their gold is stored in a vault in the Canadian Imperial Bank of Commerce (I believe this is in Toronto).  If Big Brother wanted "our" gold, the gold price would go through the roof.  If BB wanted our gold, they might demand Canada give up any gold belonging to US citizens.  Or they might not.  If they did, then Canada might or might not agree.  If they did, then GTU might or might not comply with an order by the Canadian government to identify US shareholders.  If they did, then your shares of GTU (as an American shareholder) might be forcibly liquidated.  The liquidation price would presumably be the current market price (not NAV) of GTU.  In this scenario, I think it's reasonable to assume GTU's premium would be very, very high.

If we assume a 90% probability that BB demands Canada gives up US citizens' gold, and a 90% probability Canada complies, and a 90% probability that that GTU complies, we're left with a 73% probability that GTU forcibly liquidates your shares - but in all probability at a very high premium to NAV.

GLD's trustee is BNY Mellon (a US company).  The primary custodian is HSBC Bank USA (US division of HSBC).  Their gold is physically located in HSBC's vaults in London, see http://www.lbma.org.uk/vaulting.  If BB wanted "our" gold they might demand BNY Mellon surrender any gold owned by US citizens.  As a US company they would pretty much have to comply.  If GLD is surrendering gold to the US government what do you think will happen to its share price?  I'm thinking it won't be trading at a premium.  It might trade at NAV.  But my guess is it actually trades well bellow NAV, instigating the Authorized Participants to buy shares and trade the shares for gold.  As long as the shares trade below NAV this process repeats, until all the gold is gone (i.e. the ETF collapses).

Am I sure about these scenarios?  Absolutely not.  I am sure that gold I physically own would be worth whatever the going price for physical gold would be.

[Ad Orientem]

Sometimes people ask me for investing advice.

I used to try to explain the PP, but was never effective.

I started telling people to use a BH type portfolio with 5-10% allocated to gold.
This also generated a lot of blank stares and skepticism.

Now I just recommend PRPFX.

PRPFX... the gateway drug to good investing.

[dualstow]

PRPFX is a smart recommendation, isn't it. It does some like most people want some handy ticker rather than d.i.y., so better that they pick this one rather than some random stock mutual fund out there with an equally high expense ratio and no balancing assets.

[RobJ]

PRPFX is a smart recommendation, isn't it. It does some like most people want some handy ticker rather than d.i.y., so better that they pick this one rather than some random stock mutual fund out there with an equally high expense ratio and no balancing assets.

Totally true! Too bad they don't have an European version of this fund (At the moment I run the PP with ETF's of Euronext Amsterdam as those are the cheapest ones in fees with my broker).

[dualstow]

Are you in the Netherlands, Rob? We seem to have a few Nederlanders here now and then.

[RobJ]

Are you in the Netherlands, Rob? We seem to have a few Nederlanders here now and then.

Belgium, but the dutch side so it would be nice to get in contact with them. I buy my ETF's at Euronext Amsterdam just because Euronext Brussels doesn't have any trackers available at this time.

For people interested in my European version of the PP (I run the version without a cash ETF):
34% Vanguard S&P500 UCITS ETF
33% ETFS Physical Gold
33% iShares Euro Govt Bond 7-10yr UCITS ETF

(From 02/01/14 -  +8%)

Transaction cost average is 9,75 euros (3 times 9,75) and I started with a negative of 0,20% on each asset so that wasn't a big deal.

Would love to have a single ETF/fund feature like in the States (PERM & PRPFX I suppose?), but at the moment the portfolio is doing just fine as it should be.

To get back on the discussion: I currently run my own PP and a friend of mine (I've explained him the details, I just check annually together with him for rebalancing and adding more money).

[Reub]

PRPFX charges more than they should. They hold 10% Swiss Francs, which are tied to the Euro. They had a capital gains distribution of 10% last year which was a big hit on my taxes.  All of these are big negatives.

[Ad Orientem]

PRPFX charges more than they should. They hold 10% Swiss Francs, which are tied to the Euro. They had a capital gains distribution of 10% last year which was a big hit on my taxes.  All of these are big negatives.

Fair points. But we are talking about a suitable fund for investors who would have a hard time with the 4x25% PP or who just have no inclination to handle their own investments.

[AdamA]

PRPFX charges more than they should. They hold 10% Swiss Francs, which are tied to the Euro. They had a capital gains distribution of 10% last year which was a big hit on my taxes.  All of these are big negatives.

Yeah, but it's still the best one stop shopping someone can do.

[LC475]

How hard is it to set up an ETF?  Couldn't someone set one up with the final-version 4X25 split, do everything the right way like a HBPP person would want, and charge a .3 or even .5% annual fee?

Seems kind of like what PERM thought, but somehow they managed to mess it up, adding real estate, international, and silver.  And the market seems to agree, since they're still only managing 11 million dollars.

If someone put together a simple 4X25 ETF, I'll bet it would be managing 100 million in just a few years.  There are lots of people who would snap it up.  It would eat PRPFX's lunch.

[mortalpawn]

Just curious if the rest of you kinda get the blank stare when explaining the PP to people you know.

Absolutely - that is the reaction every time.  Discussing the PP seems to be a losing proposition, even if you show them the 40 year returns.  Its a lost cause.

I do have some friends with substantial investments, and inevitably they have "a guy" who invests their money for them.  Usually they don't really know in detail what they are invested in - often "3D printers" or "the stock market" or "real estate", but it always gives them great returns and they never lose any money.  I'm always amazed that someone with hundreds of thousands of dollars in spare cash is willing to turn it over to a complete stranger to manage and assumes they'll act in their best interests.

Regarding the sub-thread on GLD vs GTU vs SGOL, etc...I moved to hedge my "paper gold" by diversifying it across several of the gold funds.  That way if one does get involved in future shenanigans or government subterfuge, perhaps "most" of my paper gold will still be good.

[dualstow]

...
I do have some friends with substantial investments, and inevitably they have "a guy" who invests their money for them.  Usually they don't really know in detail what they are invested in - often "3D printers" or "the stock market" or "real estate", but it always gives them great returns and they never lose any money.
...

Sounds like my brother, except for the always clause at the end. However, I was dismayed to find out that he wasn't sure what % he paid in fees. He's a busy guy but, c'mon!

[AdamA]

How hard is it to set up an ETF? 

It's not hard, but I think for someone who doesn't understand (or care to understand) the underlying macroeconomic principles, it's psychologically easier just to buy one fund.

[LC475]

How hard is it to set up an ETF? 

It's not hard, but I think for someone who doesn't understand (or care to understand) the underlying macroeconomic principles, it's psychologically easier just to buy one fund.

No, I'm not rhetorically asking "How hard is it to set up one's investments using ETFs (as in a DIY PP)?"

I am asking, sincerely, "How difficult is it to found and then operate a new ETF?"

[dualstow]

I am asking, sincerely, "How difficult is it to found and then operate a new ETF?"

I think Craig commented on this question once. If I remember correctly, it sounded like a hassle.