PP and expected asset class returns

[JayT]

I came across this slide from GMO, where it shows expected real returns for next 7 years: https://www.scribd.com/document/3458673 ... from_embed

Both US stocks and US bonds are in negative territory. Of course no one can predict the future, etc. But we are currently at a high CAPE and very low bond yields, so that's why expected returns on those are so low.

Has PP encountered similar situations before and if so, how does it perform?

If the expected returns materialize, then cash will likely do well due to higher interest rates. But that will probably be enough to cover inflation. So does gold make up for the both stock and bond under performance? Or are we condemned to very-low/negative PP returns for the next several years?

[ochotona]

Prediction is futile, but given that precious metals and other real assets have been in the toilet for years gives me a hunch that they may do better than stocks over the next decade. And cash is not trash it gives you options.

[eufo]

I'm with ochotona on this one. Predictions are pretty much useless, no matter what the source. The whole point of the PP is that you don't have to predict or worry about the future of any asset. If you've been selling into these rallies, you have plenty of cash to gobble up the assets that end up declining later.

[Tyler]

The thing I personally don't like about most expected returns conversations is the implicit assumption that a low expected return is somehow permanent and requires a portfolio change. I also find it interesting when people fixate on individual holdings while ignoring the performance of the overall portfolio. Assets go through ups and downs all the time, and understanding the resulting uncertainty in any given portfolio can help you identify ones that don't require such hand-holding. The PP is very high on the list in that regard.

Check out the historical charts for the Permanent Portfolio here:

https://portfoliocharts.com/portfolio/p ... portfolio/

And be sure to also compare the PP to other portfolios on the site. Note that the data includes the decade of the 70's where stocks tanked, inflation was double-digits, and bonds plummeted in value due to massive interest rate hikes. The PP is about as consistent in both good times and bad as any portfolio you will find.

[JayT]

Thanks for all the replies.

Tyler, that's a fantastic website!! Do you have any portfolio charts for Singapore? I saw this link with a Singapore PP chart since 2012, but it will be interesting to see a longer term chart: https://www.drwealth.com/singapore-perm ... rformance/

[Tyler]

Thanks!

I don't have Singapore data at the moment, although I'll add it to my list of things to look for.

[sophie]

Both US stocks and US bonds are in negative territory. Of course no one can predict the future, etc. But we are currently at a high CAPE and very low bond yields, so that's why expected returns on those are so low.

Has PP encountered similar situations before and if so, how does it perform?

Yes it has indeed. You just described the 1970s. Gold went insane and the PP did very well.

I think there's some chance of this happening, but wouldn't be surprised if it doesn't. Even assuming someone has the ability to divine the future of an enormously complicated entity like the global financial market, nobody would write an article saying "nothing much interesting is going to happen" anymore than a newspaper would publish an article saying "the sun is going to rise tomorrow", so they are likely strongly biased toward predicting catastrophic scenarios.