Gold / Stock / Bonds at highs or near highs?

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vnatale
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Gold / Stock / Bonds at highs or near highs?

Post by vnatale » Wed Sep 18, 2019 8:24 pm

I'm in the process of making a plan to go 100% into the Permanent Portfolio.

My understanding is that the 25% cash portion is somewhat like ballast in the overall portfolio while each of the 25% in gold, stock, and bonds each represent an oft times volatile investment wherein one or two of them can be going down in value but the third may well be going up in value, more than offsetting the decrease in value of the other two.

I am looking at where each of the three investments currently are and it seems that two - stock and bonds - are at the all time highs while gold is near an all-time high. This certainly goes counter to buy high / sell low.

For each of the volatile investments I'd be buying quite high.

Here is what I see:

Gold is currently 80% of its 9/5/11 high. It has gone up 26% since 8/13/18 and 17% up since 4/22/19.

The S&P 500 is up 345% since the 3/9/09 low and up 20% since 10/1/18.

Only going back to 2000, I see an interest rate for 20 year Treasury Bonds of 6.94% on 1/3/00. It was down to 1.69% on 7/8/16, 1.78% on 8/30/19, and 2.06% on 9/18/19.

If I were to go all in right now which of those three investments are poised to go yet higher? Or, likely to go higher? Seems like all three are poised to go down!

The bonds are only going to go up if there is deflation or market sentiment that interest rates are go down even farther. But not that much room to go below 2.06%. I have never ever owned long-term bonds in any form. If I bought 30 year bonds today at 2.06% and the rate goes back to near 7% those bonds are going to lose tons of value. Plus, interest received from the bonds is most likely going to be less than inflation.

Stocks can just keep going up. But the higher they go the more likely they are to go down. However, I've been a long stock equity holder so I'm quite familiar with the long-term upwards. On the other hand, though I was not then an investor I am well aware of the 1974 to 1982 time period wherein the market went nowhere during those 8 years.

Back in 1995 I made a small purchase of gold coins. They immediately lost value and stayed a loser for many, many years until the great run up in value culminating in 2011. But what is going to cause gold to surge in value by 25% to match that 2011 high?

In sum I was all set to go full into the Permanent Portfolio and was describing it to someone who then pointed out to me that all three of these were near their all time highs.

For those of you who have FULLY embraced the Permanent Portfolio and made your investment all at once can you reveal where each of the three volatile investments stood at the time of your investment? In other words, how close was each to its market high or low at the time of your investment.

And, do you see any flaws in what I state above?
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Re: Gold / Stock / Bonds at highs or near highs?

Post by Tyler » Wed Sep 18, 2019 9:52 pm

My first thought is that you need to account for inflation. Even hard assets that do absolutely nothing will reach all-time highs in price almost every year. And that's before you account for things like companies and economies that naturally grow in value and are supposed to regularly set new highs.

My second thought is to ask this: if these are so clearly unsustainable highs, what's the equilibrium price each asset is supposed to remain at? Why is that number so special? Is it a universal law, or just bias of personal experience?

My third thought is that even if we assume you're right, it's always better to diversify your risk across multiple assets rather than bet on just one. To me that's sorta the beauty of the PP. All 3 volatile assets will eventually fall, but they generally don't do it all at once. And even if they do you've got a 4th asset to cover you and buy cheap assets at new lows. ;)
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Re: Gold / Stock / Bonds at highs or near highs?

Post by Pet Hog » Thu Sep 19, 2019 2:05 pm

vnatale wrote:
Wed Sep 18, 2019 8:24 pm
For those of you who have FULLY embraced the Permanent Portfolio and made your investment all at once can you reveal where each of the three volatile investments stood at the time of your investment? In other words, how close was each to its market high or low at the time of your investment.
I completed buying all the components of my PP in May 2013. Within about three months I was down 7%. Ouch. I guess I bought at some highs. (I'm now at almost 4% real annualized over the six years.) So I understand your concerns and everything you say sounds reasonable and well thought out.

Sure, I think we're due for some dramatic market turbulence in the next couple of years, but there seems to be so much doom and gloom in the personal finance world these days that perhaps it's already factored in (i.e., if everyone thinks we're going to crash it's unlikely to happen). If I were to make some bold predictions, I think treasury yields could go to zero or negative, gold could double, and stocks could halve. In that case, the PP would do very well and a rebalance or two would happen into then-very-affordable stocks. If we muddle through the next few years, then the PP will probably function as usual.

My experience has been that there wasn't a time during the last six years when it was possible to say, "now is a great time to invest in the PP!" -- it's always been seemingly overvalued/scary. But I'm very content with my holdings and I expect to do OK going forward. I'm not going to cash out my PP today; flip that logic on its head and I would have to be happy to buy into it today. With the three volatile assets seemingly overvalued, I suspect that you prefer to hold 100% cash. Given the two choices, I'll stick with the PP. Who knows what will happen. Not me!
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Re: Gold / Stock / Bonds at highs or near highs?

Post by stuper1 » Thu Sep 19, 2019 3:06 pm

Excellent points made already. If you really can't make yourself pull the trigger, then consider a plan like this. Start out by overweighting cash, maybe at 49% cash and 17% of the other three assets, and then dollar-cost average your way to 4x25 (or whatever final allocation you've decided on) over whatever time period seems good to you, say a year or two. Odds are that it will actually hurt your total return by the end of it (versus just going to your final allocation right now), but then again, maybe not, and at least you'll be headed in the right direction.
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Re: Gold / Stock / Bonds at highs or near highs?

Post by InsuranceGuy » Thu Sep 19, 2019 3:38 pm

No one knows when the highs will peak, in fact there are strategies built around buying when a 52-wk high is hit that are remarkably profitable.

It seems there is some pretty compelling data supporting lump sum investing over DCA over longer periods. Here is one such example: https://fourpillarfreedom.com/the-math- ... investing/. That said, you could do something like 10% of your money each week over 10 weeks to get in quick enough to not lose out on long term gains but minimize regret volatility in the short term.

Good luck!
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Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Thu Sep 19, 2019 3:58 pm

With markets up 2/3’s of the time and down 1/3 dca has lagged lump sum investing more often than not ..after all , if dca worked better we would all hit our desired allocation, sell everything and start from zero again ....
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Re: Gold / Stock / Bonds at highs or near highs?

Post by Tortoise » Thu Sep 19, 2019 6:07 pm

I actually have the opposite problem from you, vantage :)

I'm 100% invested in the PP, and I'd like to transfer my former employer's 401(k) to my current one (at a different financial institution) to simplify things. But doing that will require me to convert the old 401(k) to cash and wait for probably at least a week or two for the funds to be transferred and settled.

During those one or two weeks, that cash will potentially be missing out on growth within the PP. I would be watching the markets like a hawk during that time, and with my luck, gold and LTTs would both skyrocket before I got back in. In the grand scheme of things it probably wouldn't matter, but it would still irritate me.
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Re: Gold / Stock / Bonds at highs or near highs?

Post by boglerdude » Thu Sep 19, 2019 11:37 pm

I started the PP just before Trumps election and EDV got crushed by the inflation expectations

Yeah everything looks expensive right now, but long term rates will probably go lower just like the rest of the world. Gold would go higher with negative rates, as a way to store value.

Have a mortgage you could pay down? And/or you could start overweight cash, with ibonds and 4% checking with Orion FCU

Commodities look cheap, but I dont understand this contango issue: https://www.bogleheads.org/forum/viewtopic.php?t=243986
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Re: Gold / Stock / Bonds at highs or near highs?

Post by glennds » Fri Sep 20, 2019 8:59 am

If you're uncomfortable going in all at once, why not ease in? For example transition 1/4 of your funds each quarter over the course of a year. Or longer, or shorter, your call.

Either way, there's no real way to answer your questions except in 20/20 hindsight. But I would think easing in would substantially flatten out the risk of buying in to the PP at the "wrong time".
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Re: Gold / Stock / Bonds at highs or near highs?

Post by mathjak107 » Fri Sep 20, 2019 9:07 am

glennds wrote:
Fri Sep 20, 2019 8:59 am
If you're uncomfortable going in all at once, why not ease in? For example transition 1/4 of your funds each quarter over the course of a year. Or longer, or shorter, your call.

Either way, there's no real way to answer your questions except in 20/20 hindsight. But I would think easing in would substantially flatten out the risk of buying in to the PP at the "wrong time".
if i had to guess , i think rates are headed higher once the trade crap ends .. i think back up to 3% range for the 30 year .

my guess is that if the trade war is resolved stocks will have a knee jerk rise , bonds will see rates rise , gold has been following bonds . I think the rise in rates will spook stocks . I think when all is said and done all 3 assets will fall 10-20% …… I think only cash will hold up ….it can act like a stock option later on but with no expiration date .
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Re: Gold / Stock / Bonds at highs or near highs?

Post by jhogue » Fri Sep 20, 2019 9:46 am

vnatale,
If there is any “flaw” in your thinking, it is that you have not fully considered the role that Cash plays in the HBPP. You are correct: all of the “volatile” PP assets are at/near all time highs. On the other hand, Cash is at/near an all time low. Years of ZIRP have convinced the consensus-driven herd on Wall Street that cash is trash. That should be the signal to you to invest in a high level of safe and liquid cash as you transition your portfolio to the HBPP.

I don’t worship at the altar of Warren Buffett, but I will note that there is a good and simple reason why this famous value investor is reportedly holding over $100 billion in Treasurys: he can’t find anything cheap to buy either. So don’t just be fearful when others are greedy. Be patient while others are impatient. Hold Cash and lots of it. You won't sorry when one of those high-flying assets comes crashing back to earth.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Gold / Stock / Bonds at highs or near highs?

Post by sophie » Sat Sep 21, 2019 7:08 am

At any given time, at least one of the PP assets will be at an "all time high". That's called "getting returns on your investments". It kind of makes me laugh, because the phrase "all time high" suggests an exceptional situation, not something that's expected - it's why you're buying that asset in the first place, isn't it?

The problem is you can't predict where each asset will go, except you can be pretty confident that at least one asset will go down. There's no pre-defined ceiling on any of the assets. Did anyone at the start of this year predict the transient bump in bonds, with the 30 year dropping to a 2% yield? I bet not. We all thought bonds were at their bottom. Similarly, no one thought gold would be going up. Might it go up further? Sure, why not? The current shock in the money market system might well trigger something like that, and if it doesn't, something else could. A week ago we didn't have any idea that a crisis was about to hit money markets.

So what if gold and bonds do go down? If they are, it means stocks are rising, probably a lot. Cash also provides a good ballast. In 2013 there was a big drop in gold, but with the PP's structure the portfolio was (as usual) quite stable. My own PP was actually flat for the year, plus I got to tax loss harvest.

If you're a bit skittish about buying in, then transferring in gradually over time might be easier than holding your nose and jumping all in. It does help to set things up in a way that will let you tax loss harvest when appropriate.
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