Mixed Europe/US Permanent Portfolio

[Mouro]

Regarding the performance of a EU-PP portfolio, I have actually did some testing (which may be replicated in the future... or not!) from 1 July 2007 onwards.

The following is the performance that it gave me:

                      CAGR
2007 (July-Dec) 2,92
2008               -3,31
2009               12,58
2010                 15,3
2011                 3,87
2012                 9,21
2013               -2,94
2014                 16,3

Note that the PP was rebalanced manually each 1 July, so the % may be slightly different if one considers a rebalance at the end of each year.
Please note as well that the % above take into account a starting portfolio of 10k and a subsequent investment of 2k following each 12 months.

ETFs considered:
Equity: db x-trackers MSCI World Index UCITS ETF 1C
LT Bonds: Lyxor UCITS ETF (FCP) EuroMTS 15+Y Inv. Grade (DR) EUR
Cash/ST Bonds: Lyxor UCITS ETF SICAV (FR) - EuroMTS 1-3Y Inv. Grade (DR) EUR
Gold: ETFS Physical Gold

Will the same happen in the future? Maybe it will, maybe it won't... Who knows?

[Pfanni]

Oh man....been reading through this tax sh*t for hours now.
Basically 0% US taxes for me as a non-resident but: dealbreaker is that my German brokerage firm demands a monstrous fee not only for filing the IRS form but for each and every interest payout..insane! It is a rip-off...I hate banksters.

There is a low cost iShares 7-10yr US Treasury ETF available, "easy" (automatic) taxes in Germany, not the duration I wanted but that is as good as it gets..sigh.

[frugal]

I'm American.  My PP is a lot like what frugal posted above.  I decided a few years ago to mix international exposure into the stocks and bonds.  Some years I think it helped, but mostly lately it has hurt.  But, that's to be expected.  I don't know if my way is better than Harry Browne's way, but I am comfortable with it.  Lately I've begun to realize that it probably doesn't matter as much as I thought.  Just look at the names and cap weightings of a non-US index fund.  The big companies in both US and non-US are all worldwide companies.

I would be very hesitant to recommend a German put his stock exposure all into German stocks or bonds, or a Japanese into Japan, etc.  Those are way too concentrated of positions, IMO.    I can see the cash being put into Euros for a Euro person though. 

I'm not sure Harry Browne would have agreed with my reasoning about the positions being too concentrated.  It is easy to talk oneself into variations that do significant harm to the PP concept.

Hi, I already read that it is not the right concept to use international assets. In terms of historical performance I don't know. It may be used for VP.

Regarding the performance of a EU-PP portfolio, I have actually did some testing (which may be replicated in the future... or not!) from 1 July 2007 onwards.

The following is the performance that it gave me:

                      CAGR
2007 (July-Dec) 2,92
2008               -3,31
2009               12,58
2010                 15,3
2011                 3,87
2012                 9,21
2013               -2,94
2014                 16,3

Note that the PP was rebalanced manually each 1 July, so the % may be slightly different if one considers a rebalance at the end of each year.
Please note as well that the % above take into account a starting portfolio of 10k and a subsequent investment of 2k following each 12 months.

ETFs considered:
Equity: db x-trackers MSCI World Index UCITS ETF 1C
LT Bonds: Lyxor UCITS ETF (FCP) EuroMTS 15+Y Inv. Grade (DR) EUR
Cash/ST Bonds: Lyxor UCITS ETF SICAV (FR) - EuroMTS 1-3Y Inv. Grade (DR) EUR
Gold: ETFS Physical Gold

Will the same happen in the future? Maybe it will, maybe it won't... Who knows?

Hi,
those assets are quoted in EUR? I think it is USD.
Regards.

[Mouro]

Those assets being in USD or EUR is meaningless.

What is important is your/my currency (EUR). The CAGR is obviously in EUR.

[Lang]

I was looking for an ETF investing in long-term Euro government bonds about a year ago and all the ETFs that I came across (in the Frankfurt Stock Exchange) had absolutely terrible liquidity. Average daily trading volumes were less than 100k EUR on most ETFs. Are you looking at a different stock exchange?

[Pfanni]

Latest findings:

Cash - savings account, yield 0.5%

Gold - physical coins, safe deposit box (TER 1.5%)

Stocks - Comstage MSCI World ETF, reinvesting, TER 0.4%
(should have easy & automatic taxation in Germany, very important to me)

Bonds
50% US Government Zero Coupon 2021, yield 2%
longest term zero coupon bond I could find - trading is very, very illiquid on European bourses, kinda interesting for the bonds of the biggest debtor nation in the history of the world
(I fill out IRS form W8-BEN therefore I pay no US taxes, my bank cannot charge me a big payout fee twice a year, I have some USD diversification)

50% Deka EUR Sovereign 10+ ETF, TER 0.15% (yield 1.7%, average duration 15 years), they invest in the biggest sovereign bond issuances just by the size of the bonds (most of it is Germany, France, Italy, Belgium).


I don't like having the word "Italy" in my portfolio, though. The country is dead in the water, financially speaking. But if they were to leave the EUR, it would be the death blow to the financial system so to speak anyways.

[D1984]

Pfanni,

Three quick questions:

One, why did you use a zero coupon bond instead of a coupon bearing one? To avoid your bank charging you the big fee on the interest payout (since zero coupon bonds by their very nature do not pay out interest)?

Two, why did you pick a bond with only six years remaining? That's nowhere near enough as per Harry Browne's instructions (he said from twenty to thirty years left until maturity). Even given that a zero has more duration than a coupon bearing bond, six years is still not close to enough...what you have is perhaps the equivalent of a ten year coupon-bearing bond.

If the selection of US long-term Treasury bonds is so limited on European exchanges and brokerages, why not open an account with an American brokerage like InteractiveBrokers or Schwab? Are there specific tax implications (other than the potential $60K estate tax issue)  that would apply to products bought on an American exchange through an American broker but not on a European one ? As a non-resident investor, wouldn't the capital gains be exempt either way?

Three, is there no cheaper stock index ETF? Our (in the United States) ETF and mutual fund equivalents for the total world indexes carry an expense ratio of a little over a third of what the one you listed has.

[Kike Moreno]

I would be very hesitant to recommend a German put his stock exposure all into German stocks or bonds, or a Japanese into Japan, etc.  Those are way too concentrated of positions, IMO.    I can see the cash being put into Euros for a Euro person though. 

I'm not sure Harry Browne would have agreed with my reasoning about the positions being too concentrated.  It is easy to talk oneself into variations that do significant harm to the PP concept.

A German person can buy stocks of all the euro zone, for example buying the MSCI EMU index.  This gives exposure to 10 countries and 239 companies.

[Kike Moreno]

Regarding the performance of a EU-PP portfolio, I have actually did some testing (which may be replicated in the future... or not!) from 1 July 2007 onwards.

There is a Spanish blog devoted to the euro permanent portfolio that has an interesting page with the evolution since 1999:

http://www.carterapermanente.es/evoluci ... ermanente/