Looking for feedback for EU/US PP

[talara]

Hello all!

A friend introduced me to the Permanent Portfolio and this forum.

Let's cut right to the chase: I was thinking of constructing a Eurozone/U.S. PP due to two reasons:

- A good part of the theory behind the PP seems to be the relationship between Gold and USD.
- European currency union is 20 yrs old. Might be stable now but who knows what happens.

There are a few reasons that weaken the above issues or speak against a EU/US PP as well:

- The EU disappearing does not imply all the values in the portfolio disappearing too
- Taxation might be more complex or even strictly higher
- It's harder to manage

Either way I ended up constructing a portfolio as follows:

• Gold:
  - Xetra Gold https://www.justetf.com/de-en/etf-profi ... 000A0S9GB0
  - Maybe Perth Mint later down the road
  Long Term Bonds:
  - 50% IBCL iShares € Govt Bond 15-30yr UCITS ETF https://www.ishares.com/de/individual/d ... -ucits-etf
  - 50% TLT iShares 20+ Year Treasury Bond ETF https://www.ishares.com/ch/qualifiziert ... y-bond-etf
  Short Term Bonds:
  - Undecided, maybe just keep in savings account
  Stocks:
  - 50% XD5E db x-trackers MSCI EMU Index UCITS ETF (DR) 1D https://www.justetf.com/de-en/etf-profi ... 0846194776
  - 50% SXR8 iShares Core S&P 500 UCITS ETF https://www.ishares.com/de/individual/d ... f-acc-fund

Picked these mostly by fund volume and fees, preferring accumulating when possible.
Because yield on short term bonds is low (0.6%) I figured I would just keep the money in a savings account which gives 0.5%.

- What do you think of the general approach?
- Am I stressing myself too much over potential EU issues? (Don't feel history-savvy enough to judge what would happen if EU goes away.)
- XD5E (EU Stocks) has 204 equities and 0.15% percent fees compared to Stoxx 600, with 0.20% fees. Broad enough?

Looking forward to your thoughts and; Hi again

EDIT I am German and currently spend most of my time here. This may or may not change in the future. Who knows

[LazyInvestor]

I believe an average German has lots of capital in the various current and future social benefits and comparatively quite low savings rate. What I would do in your case is to first calculate how much I have in savings compared to the value of the social security benefits. Then I would decide how risky should my portfolio be. More often than not, I believe PP is way to conservative for an average EU person (from a developed EU state).

A simplistic calculation could be: assume you expect 24K per year in pension. At 3% withdrawal rate, this means you have around 800K of capital in something that can be considered as government bonds. Then take the value of the real estate you own. Let's say it's 300K. And then consider you have maybe 100K in savings ready to invest. Going with PP you'll end up with a portfolio of something like:

850K government bonds ~71%
300K real estate ~25%
25K gold ~2%
25K equity ~2%

[talara]

Hello LazyInvestor,

- I'm 25
- I work as a freelancer, giving me choice to pay into the Government retirement fund
- The amount of money I earned as an employee is negligible, and so is my capital in the retirement fund
- I don't own any real estate

So while the points you made are probably all true for my mom, they don't really apply to me.
Sorry for not stating this kind of stuff earlier — in retrospect it seems like a mention-worthy aspect

[LazyInvestor]

OK. You're young, at the beginning of your career, living in a country with a very strong social safety net, so you can definitely take on more risk with your investments IMO. If I were you, I'd pay into the retirement fund, and then "aggressively" invest using one of more aggressive Bogleheads-style portfolios, e.g., 20% German Bonds 80% Total World Stock market.

[juandelarocha]

I'm also a young European running a EU PP.

First of all I would recommend you to implement your portfolio using funds insted of ETFs. It is true that speaking about gold is not easy to go the hardcore way -buying coins, storing them, securing them and so on, so using Xetra Gold is the best approach. But then again, in the case of Bonds, I managed myself to buy 2046 German Bond through Flatex (German online bank with low rates) whilst I'm not german nor live in Germany.

On the other hand, it seems funny to me the way you americans (or non EU users) speak about the social welfare and economic cashflows that we Europeans are supposed to receive in the future -the so called public pensions. It is true that in my homecountry, if you have worked for 40 years, you can get the maximum public pension (14 wages of 2k€ per year) which is just great. But it is also true that debt level in European countries is extremely high -Italy or Spain for instance spend almost 50% of their budget in pensions and financing this part is based on debt because wage tax does not cover the needed amount. So I would bet that this structure will sort of fall apart in the following years. Maybe it won't be completely dismantle, but surely it will reduce payments -for instance by cutting 1 or 2 wages per year.

Considering all this, I would recommend to take out of the PP equation the the public pensions.

[talara]

Hey juandelarocha,

First of all I would recommend you to implement your portfolio using funds instead of ETFs.

Could you maybe explain a bit further? What makes funds better than ETFs? Maybe a few examples of funds you picked or would pick in my situation would be helpful as well

Thanks

[frugal]

Hello all!

A friend introduced me to the Permanent Portfolio and this forum.

Let's cut right to the chase: I was thinking of constructing a Eurozone/U.S. PP due to two reasons:

- A good part of the theory behind the PP seems to be the relationship between Gold and USD.
- European currency union is 20 yrs old. Might be stable now but who knows what happens.

There are a few reasons that weaken the above issues or speak against a EU/US PP as well:

- The EU disappearing does not imply all the values in the portfolio disappearing too
- Taxation might be more complex or even strictly higher
- It's harder to manage

Either way I ended up constructing a portfolio as follows:

• Gold:
  - Xetra Gold https://www.justetf.com/de-en/etf-profi ... 000A0S9GB0
  - Maybe Perth Mint later down the road
  Long Term Bonds:
  - 50% IBCL iShares € Govt Bond 15-30yr UCITS ETF https://www.ishares.com/de/individual/d ... -ucits-etf
  - 50% TLT iShares 20+ Year Treasury Bond ETF https://www.ishares.com/ch/qualifiziert ... y-bond-etf
  Short Term Bonds:
  - Undecided, maybe just keep in savings account
  Stocks:
  - 50% XD5E db x-trackers MSCI EMU Index UCITS ETF (DR) 1D https://www.justetf.com/de-en/etf-profi ... 0846194776
  - 50% SXR8 iShares Core S&P 500 UCITS ETF https://www.ishares.com/de/individual/d ... f-acc-fund

Picked these mostly by fund volume and fees, preferring accumulating when possible.
Because yield on short term bonds is low (0.6%) I figured I would just keep the money in a savings account which gives 0.5%.

- What do you think of the general approach?
- Am I stressing myself too much over potential EU issues? (Don't feel history-savvy enough to judge what would happen if EU goes away.)
- XD5E (EU Stocks) has 204 equities and 0.15% percent fees compared to Stoxx 600, with 0.20% fees. Broad enough?

Looking forward to your thoughts and; Hi again

EDIT I am German and currently spend most of my time here. This may or may not change in the future. Who knows

hi

why not only a EU-PP?

I would say at least 75% EU and 25% US

No :-) ?

Regards

[frugal]

I believe an average German has lots of capital in the various current and future social benefits and comparatively quite low savings rate. What I would do in your case is to first calculate how much I have in savings compared to the value of the social security benefits. Then I would decide how risky should my portfolio be. More often than not, I believe PP is way to conservative for an average EU person (from a developed EU state).

A simplistic calculation could be: assume you expect 24K per year in pension. At 3% withdrawal rate, this means you have around 800K of capital in something that can be considered as government bonds. Then take the value of the real estate you own. Let's say it's 300K. And then consider you have maybe 100K in savings ready to invest. Going with PP you'll end up with a portfolio of something like:

850K government bonds ~71%
300K real estate ~25%
25K gold ~2%
25K equity ~2%

Hi.

Nice food for my thought!!!

What kind of pension you are talking about?

Regards

[WhiteElephant]

- Am I stressing myself too much over potential EU issues? (Don't feel history-savvy enough to judge what would happen if EU goes away.)

It's very hard (impossible) to predict what will happen when the eurozone breaks up. I believe that 25% gold plus having the majority of my fixed income in the strongest eurozone countries will protect against most future crisis. But you can never be sure of course.
There's definitely a case for adding some us/global assets to a euro PP. The trade off is currency risk and/or costs (taxes, currency hedging).

- XD5E (EU Stocks) has 204 equities and 0.15% percent fees compared to Stoxx 600, with 0.20% fees. Broad enough?

The MSCI EMU index is pretty well diversified imo. It has ~240 stocks, has moderate sector concentration, and the top ten stocks make up 22% of the index. Compared to other national indices this is really well diversified.
It is slightly less diversified than the stoxx600 but it's doubtful that will make a big difference except for the currency risk. If I'd want currency risk I'd prefer to add a global stock etf to my emu stocks.

[LazyInvestor]

Considering all this, I would recommend to take out of the PP equation the the public pensions.

Sure, if you are a pessimist wrt future payment of pensions, then by all means run a PP or some other more conservative Bogleheads portfolio.

As I discussed in my previous posts, I'd have only US PP because of the peculiar relationship between gold and USD (and no other currency as pointed out by HB). For all other countries, I'd stick with an appropriate Bogleheads-style portfolio (that you can add some gold to if you like).

[WhiteElephant]

This depends on your goal as well. Most people I know treat their taxable savings as completely separate from their retirement savings. They don't have any choice how their retirement money is invested. Any further savings are usually for general wealth building. The money could be used as additional retirement money, a down payment or starting a business. You can use an aggressive bogleheads portfolio for this, but I believe the PP is more suitable because of the lower volatility and better protection against deep risk. Not needing a separate emergency fund is nice as well.

[Hal]

As I discussed in my previous posts, I'd have only US PP because of the peculiar relationship between gold and USD (and no other currency as pointed out by HB). For all other countries, I'd stick with an appropriate Bogleheads-style portfolio (that you can add some gold to if you like).

I believe LazyInvestor is correct here.

While I do hold a PP in Australia, I don't believe for a minute that if the AUD lost value the Gold price would rise to compensate for the loss in purchasing power.

So I see my PP as a Benjamin Graham 50/50 portfolio, with savings in AUD and Gold. (50/50)
Currently reviewing the ratio of AUD to Gold, and considering Silver as well.

For a US investor - the PP is the way to go.

Also I am seriously impressed with an old 1890's book that discussed exactly this issue. "A Greenbacker"
https://archive.org/stream/coinsfinanci ... 4/mode/2up

Edit:Typo

[WhiteElephant]

I agree as well that only a US PP can really benefit from the USD-Gold relationship.
However, gold is still a unique asset with very low correlation to other assets in any currency. It just doesn't offer the same protection as it does in a US PP.

@Hal, I like the way you describe your portfolio. I feel the same about cash/gold.