Hey, Look...

[buddtholomew]

Another down day for the PP.

[moda0306]

This year the PP is up over 9% in a time of historically pathetic interest rates and stocks down almost 8% on the year.

Most highly-paid portfolio managers would be killing for this performance.

I think maybe you may want to reconsider the PP, and maybe check out a combination of SHV, I/EE bonds, and ally savings accounts & CD's.

[MediumTex]

All that's happened to the PP is that it has given up about a month of gains.

It's still on track to have a very typical year of around a 9% return. 

I really don't see anything unusual here at all.  Everyone is selling everything right now, and as usual the PP is outperforming everything else when people start getting scared.

Where would you rather be right now, considering that basically every other investment strategy is down way more than the PP?

I'm not following what the basic problem is.  What do you want that you aren't getting?  For me, I am thrilled to see the PP continue to do its job while a lot of professional money managers are being made to look pretty foolish.

[buddtholomew]

My expectations were that the individual assets would complement each other to produce a slow and steady gain. I was not prepared to witness a 4% decline in the overall portfolio value in less than a week. Is this customary or are we experiencing unprecedented volatility?

[moda0306]

Bud,

Why would this be a surprise... as recently as 2008 the PP had relatively wild day-to-day swings.  When the assets of the PP are doing 3-5% adjustments in a day without even breaking a sweat, you're BOUND to have some adjustments along the way.

We've said repeatedly that there seems to be about 16-18 month window through which the PP can go through a rough ride, historically.

If this is too rough a ride for you, I suggest you start piling money into cash until your portfolio swings (looking back on years like 2008 & the last few months) are more within your liking.

Then run your PP at that level.  In other words, save up a nice pile of cash to soften PP blows.  If you keep a 50% cash, 50% PP portfolio, your losses will be about half as much over short stretches.

[MediumTex]

My expectations were that the individual assets would complement each other to produce a slow and steady gain.

They have.  YTD we are up about 6-7%.

I was not prepared to witness a 4% decline in the overall portfolio value in less than a week. Is this customary or are we experiencing unprecedented volatility?

If you look at the three weeks preceding the last week, though, you would have seen the PP lunging forward in a way that suggested a pullback was likely at some point.

If you only looked at the portfolio once a month or so, you would likely not even have seen the volatility that is bothering you right now.

Just let the PP do its thing, or perhaps use a VP of cash to help you sleep better.

I don't know what else to say, because there is not a safer allocation than the PP short of 100% t-bills, but then you would be swapping 9% average annual growth for what is right now 0% annual growth.

[moda0306]

I don't know where I got 9% YTD.

Regardless, I don't see how anyone could be unhappy with the PP in 2011, even with the recent pullback.

[craigr]

My expectations were that the individual assets would complement each other to produce a slow and steady gain. I was not prepared to witness a 4% decline in the overall portfolio value in less than a week. Is this customary or are we experiencing unprecedented volatility?

The portfolio was down for me personally -15% or so in 2008 at the worst of the market decline. But it's like a rudder on a ship. It might not turn quickly, but it will turn. And turn it did,  it was positive territory by end of year just two months later.

Again my answer to people is to watch your portfolio less often.

I'm not saying this to be flip. There are hard wired human psychology reasons behind it (loss aversion).

Morningstar is showing my tracker permanent portfolio +10% for the year. The benchmark 60/40 portfolio is -3.5% right now. So I'm not sure what the fuss is about.

[clacy]

My expectations were that the individual assets would complement each other to produce a slow and steady gain. I was not prepared to witness a 4% decline in the overall portfolio value in less than a week. Is this customary or are we experiencing unprecedented volatility?

The portfolio was down for me personally -15% or so in 2008 at the worst of the market decline. But it's like a rudder on a ship. It might not turn quickly, but it will turn. And turn it did,  it was positive territory by end of year just two months later.

Again my answer to people is to watch your portfolio less often.

I'm not saying this to be flip. There are hard wired human psychology reasons behind it (loss aversion).

Morningstar is showing my tracker permanent portfolio +10% for the year. The benchmark 60/40 portfolio is -3.5% right now. So I'm not sure what the fuss is about.

It's all relative though.  There weren't a lot of asset classes that weren't down significantly more than 15% in 08 however.  SPY was down around 34% of the top of my head.  If you were 100% in treasuries.

[Ariadne22]

Guy who first alerted me to the PP philosophy talks about buckets and continually stresses a long-term investment viewpoint - 10-15 years.  According to him, the gold/equities/ltt investments in the PP should be made with the idea of a 10-15 year horizon.  The cash bucket can be replenished on a rebalance to fund living expenses - if you're retired - which I am.

So, amazingly, even though PRPFX has lost 6% since I bought it a month ago - which is probably almost the entire year's gains so far, I haven't sold it and am planning to add EDV/TLT to smooth out the ride.  Haven't decided yet whether to sell 10% of the PRPFX or just add cash.  Next year I may bundle that entire holding into a PP when I get additional cash.

Just sayin', when I get my PP set up over the next six months from outside cash, I'm not viewing it as anything other than a long-term untouchable commitment and will keep cash outside of the PP for immediate needs.  Probably setting up a VP, as well, for the conservative gambler in me.

Every time I've sold in a panic, it has cost me money, because I am selling low and do not immediately reinvest when the market turns around.  Also, 2008 was a wild anomaly, although that's not to say it couldn't happen again.  But a 15% drawdown for the PP in 2008 was minor compared to the experience of most investments/funds. 

The overseas uncertainty and high frequency/robotic trading contributes to the crazy volatility which is best ignored if one has a PP.  Anyone in a PP should not be a trader with that money, imho.  Key is to keep enough cash outside the PP so that the ups and downs within the PP do not influence long-term investment strategy.  jmo

[MarySB]

Ariadne22,

That's an interesting strategy. I have heard of it before, but not in terms of the PP.

I am in retirement as well, but have no plans, at present, to withdraw from the PP until RMDs kick in in about 4 1/2 years. At that time, I will still only use to supplement my SS and pension for COLAs.

So, I'm curious, how much in percentage terms does you financial advisor recommend toward the PP and how much toward the first "bucket". Thanks.

[neil]

My hbpp down 2% since I bought gtu/ivv/shy/tlt ONE month ago.

Yes, I am a little panic these days, but it is waaay much better than bogleheads' portfolio I have.

I decide to hold cash and wait for one year to see how hbpp performs.

[craigr]

I have been running this portfolio for almost five years now. I sleep so much better vs. my older index stock/bond portfolio I cannot put it into words. It has taken me through the 2007 real estate bubble, the 2008 real estate crash, the 2009 stock market recovery, the 2010 "double dip" recession (which was a banner year for stocks BTW), and now the 2011 QE3/Euro panic. It has done these things with a stability that I never had before I started using it. If I owned another portfolio over all of this I would have given up a long time ago.

I strongly encourage people not to track these portfolio values over days or weeks. If you can stomach not checking but only once a month that is an OK start. If you can check once a quarter that is great. If you can do it once or twice a year that is fabulous.

But you will go nuts checking so frequently. If you don't go nuts because you think you are losing money, then just wait until your neighbors are bragging about their +20% gains some year at the company Christmas Party. That will drive you insane with jealousy if you maintain a short-term attitude (but of course they never brag about the -20% years they have, do they?).

I am perfectly happy with my boring and low volatility 9-10% a year returns the portfolio has had through the years. This really is a remarkable thing when you look at what other portfolios put their owners through to get the same results. The portfolio is still very much positive YTD where many stock/bond portfolios are probably well into negative territory by now. The Permanent Portfolio is not a magic elixir, but I haven't found anything that works better so I'm going to stick to the plan.

[AdamA]

I decide to hold cash and wait for one year to see how hbpp performs.

Good idea.  I'll be surprised if you don't wind up moving more of your money.
Let us know.

[Khisanth]

It's painful, as I jumped into the PP Allocation less than two weeks ago. I have since seen the portfolio as a whole get clobbered from S&P@1216, GLD@177, while TLT@111 isn't carrying everything as much as I'd have hoped. I don't expect my cash to do much, except perhaps buy more Gold and Stocks at a cheaper price.

Of course, the silver lining is that I had been contemplating using all my investment cash for a 1/3 split across the other asset classes. Thankfully I didn't go crazy like that or I'd be looking at a jaw-dropping x% which I haven't bothered to calculate.

For now, I'll console myself by rationalizing that even the Vanguard Balanced Fund is down similarly in the same timeframe, and try to stop looking at the performance every hour (difficult).

In the end my expectations of the Permanent Portfolio were unrealistic, as I expected it to simply go up -- don't get me wrong I knew this was more of a tortoise rather than a hare, but I hadn't expected it to drop. I really hated to buy Gold and S&P at that level, and I suppose it turns out I could have waited.

But if I'm going to start mastering a mechanical and emotion-less portfolio, those are the rules. Emotions are what killed me in the first place (2009).

[Odysseusa]

My Permanent Portfolio is still positive overall because of the gain in TLT, although SHY, IAU, VTI are negative.

[Odysseusa]

Using the ETF backtest at the link below of $100,000 permanent-portfolio (SHY, TLT, GLD, VTI); for the last few weeks in September 2011; the permanent-portfolio has lost almost $5,000 (from the peak of ~$113,000 to ~$108,000 right now. That's a loss of ~$5,000. I can understand why that some of us are worried.


http://www.etfreplay.com/combine.aspx

[Ariadne22]

Ariadne22,

That's an interesting strategy. I have heard of it before, but not in terms of the PP.

I am in retirement as well, but have no plans, at present, to withdraw from the PP until RMDs kick in in about 4 1/2 years. At that time, I will still only use to supplement my SS and pension for COLAs.

So, I'm curious, how much in percentage terms does you financial advisor recommend toward the PP and how much toward the first "bucket". Thanks.

The 'advisor' I 'met' on another board says cash is always the hard part.  He's still working, runs a PP and a VP modeled on the Fidelity Insight Growth & Income model.  Been investing for 24 years and, like CraigR, has had an overall annualized return of 10.4%.  His portfolio is over $3.5 million.  Mentors are Harry Browne, Ray Lucia, Ed Slott, among others.  Right now, between both portfolios, he says he only has 35% in equities, which includes some REITS (in the VP).

When one is retired, as I understand him, it is best to keep ten-fifteen years RMDs or expected withdrawals in a bucket separate and apart from the PP, so your investment decisions affecting the PP are not emotionally influenced by your need for cash.  That bucket can be replenished by the sale of appreciated assets from the PP, as appropriate.  For me, I would probably keep part of this money in GNMAs, conservative dividend paying stocks (utilities), laddered I- bonds, CDs when and if they start to pay anything, again.  Ten-fifteen years cash needs is a lot of money, so that could almost be a mini-PP in itself in a way, except I wouldn't put any of it in gold or zero interest MM funds.  At the same time, I don't want minuscule earnings.  Like he says, 'cash' is the hard part. 

[Ariadne22]

Using the ETF backtest at the link below of $100,000 permanent-portfolio (SHY, TLT, GLD, VTI); for the last few weeks in September 2011; the permanent-portfolio has lost almost $5,000 (from the peak of ~$113,000 to ~$108,000 right now. That's a loss of ~$5,000. I can understand why that some of us are worried.


http://www.etfreplay.com/combine.aspx

Gotta admit, if I had just set up the portfolio with a significant portion of my money, it would concern me, too.  But, if you have a long-term horizon - fifteen years or more and no immediate need for this money - then you can ride out the hiccups.  Best to just not look at it too often.  Easier said than done.

[MediumTex]

Using the ETF backtest at the link below of $100,000 permanent-portfolio (SHY, TLT, GLD, VTI); for the last few weeks in September 2011; the permanent-portfolio has lost almost $5,000 (from the peak of ~$113,000 to ~$108,000 right now. That's a loss of ~$5,000. I can understand why that some of us are worried.

But wouldn't the same person be more worried if they had seen a much larger decline, as most investors in other allocations have?

I get that no one likes seeing their portfolio value decline, but if everyone's portfolio is declining, shouldn't it be satisfying to have the smallest decline of anyone?

[MarySB]

Thanks, Ariadne.

As I recall, the purpose of having buckets is to try to avoid withdrawing from investments when drawdowns occur. I had heard of keeping five years in a bucket of cash and replenishing every five years. You are right that it would take a lot of money to do it for 10-15 years at a time. It might work for me for a few years, but as the cost of living increases, it would be pretty hard to continue, I would think. A 4% COLA would double the original base in
18 years.

I'll have to mull it over a bit. But, it does sound like an interesting idea.

[Storm]

I backtested from September 1st to the 28th (yesterday) and the PP outperformed an S&P 500 index fund by every measurement:  Total return, volatility, and max drawdown:





Volatility:



So where would you rather stick your money?  In any one of thousands of equity heavy managed stock portfolios, or the PP?  The choice is a no-brainer.

[amp]

Really?  We're going to start comparing one month returns for our portfolios?  Why?  Do that and you will be switching horses every month or two... not a good idea.

As for this observation:

Using the ETF backtest at the link below of $100,000 permanent-portfolio (SHY, TLT, GLD, VTI); for the last few weeks in September 2011; the permanent-portfolio has lost almost $5,000 (from the peak of ~$113,000 to ~$108,000 right now. That's a loss of ~$5,000. I can understand why that some of us are worried.


http://www.etfreplay.com/combine.aspx

Weird.  I see a $8,000 gain (8%, not too shabby) over the past year with relatively low volatility, but others see a $5,000 loss.  Guess I'm a glass half full kind of guy. 

[clacy]

Really?  We're going to start comparing one month returns for our portfolios?  Why?  Do that and you will be switching horses every month or two... not a good idea.

As for this observation:

Using the ETF backtest at the link below of $100,000 permanent-portfolio (SHY, TLT, GLD, VTI); for the last few weeks in September 2011; the permanent-portfolio has lost almost $5,000 (from the peak of ~$113,000 to ~$108,000 right now. That's a loss of ~$5,000. I can understand why that some of us are worried.


http://www.etfreplay.com/combine.aspx

Weird.  I see a $8,000 gain (8%, not too shabby) over the past year with relatively low volatility, but others see a $5,000 loss.  Guess I'm a glass half full kind of guy.   ;)

Yes, if you can't handle the volatility of the PP, then your only options are cash and government bonds that are held to maturity.  And one could certainly argue that all your eggs in those baskets is much riskier.

[gonetowindsurf]

One could look at this as buying opportunity - if one is currently funding a retirement portfolio.
I purchased additional shares because I am confident PP will be higher.
I cannot say that about equities.
If PP drops another 5%, I will deploy additional funds. Plus you have your rebalancing bands.
I can understand the trepidation of those who just started a PP. We all watch over investments closely when we first start out.
Give it time to work.
And maybe consider dollar cost averaging going forward?