Help, my bonds are not protecting me !!

[mrwheatabix]

I just started my PP. I have 25% 30 year treasuries, 25 % FSTMX, 25% IAU, 25% cash. It seems like I am getting big losses on days like today when gold and stocks go down together. Long bonds did not go up much today. Should I go up to 35 or 40 % on long term bonds for more protection ? It seems like the European debt crisis will bring a large loss in stocks and gold, and I don't want to watch my portfolio keep going down.

[Ad Orientem]

I just started my PP. I have 25% 30 year treasuries, 25 % FSTMX, 25% IAU, 25% cash. It seems like I am getting big losses on days like today when gold and stocks go down together. Long bonds did not go up much today. Should I go up to 35 or 40 % on long term bonds for more protection ? It seems like the European debt crisis will bring a large loss in stocks and gold, and I don't want to watch my portfolio keep going down.

Try not to spend a lot of time watching your portfolio.  There is nothing magical about the PP that says you will never have a down day.  What the PP does do is reduce volatility especially over the intermediate term.  As Crag has noted, back during the early stage of the financial meltdown in 2008, almost everything was getting murdered, until someone started whispering the word "deflation."  Then long term treasuries soared.

Watching all the moving parts can be unnerving especially on an ugly day like today. (I peeked too, and regret it.) But I also take note that YTD the HB-PP is still up over 10% (using VTI-TLT-SHY-GLD for tracking purposes).  So take a deep breath and relax.  What the PP does on a day to day basis is almost irrelevant.  Likewise what it does in a week, a month or even a quarter.  You have forty years of history on your side. 

[Tyler]

I also just started my PP.  I understand the impulse to tinker, especially with a new investment, but just hold the course.  Nothing is happening that Harry Browne did not already account for in the 25x4.

I feel much better on a day like to day in the PP than I did a few months ago when the market really tanked and I had 70% of my money in stocks.  Maybe stocks and gold will fall apart in the next few weeks.  Maybe not.  But you're covered either way much moreso than with any other investment strategy.  Think of it this way -- even with stocks and gold having a bad day, the total portfolio was only down less than 1%.  

If the market starts to stress me out, I plan to stop reading about it and instead spend that time reading all of the historical data on how well the PP performs in adverse and volatile years.  And once I've done that, I'll just pick up a new hobby.  ;)

[Ad Orientem]

PS to my previous... mrwheatabix welcome to the forum. 

[foglifter]

Welcome to the forum!

The power of PP is best demonstrated over the long term, not within one day. There are plenty of variables in play on Wall Street daily, so it makes no sense to draw conclusions based on 1- day, -week or -month performance. It's safe to say that many of us who discovered PP felt what you're feeling at some point but patience served us well. Just stay put!

Here's the performance chart of TLT since June 2010, when I completed my transition to PP. I clearly remember how my feelings were changing over time as I was getting used to PP:

September 2010: Cool, my bonds are growing!
February 2011: Awww, help, PP isn't working, bonds are down, I'm an idiot.
August 2011: Great, the bonds are up. I don't care about the equities, I know PP works!



Think about the PP and the market in this way: money can't leave every possible asset completely, it has to be held somewhere. Unlike traditional stock/bond portfolios PP combines major investment vehicles covering all possible places where investors could put their money. I hope my totally unscientific explanation makes sense. 

[beafet]

Try comparing how your portfolio did compared to the overall market. Looks pretty good now, doesn't it?

[MediumTex]

Extreme volatility in the days following the initial setup of your PP can be unnerving.

The same volatility a few months later may not even be noticed.

It just takes time to get used to it.  Worrying is a hard habit to break.

Another experience that new PPers often have is watching the PP asset that they had the hardest time buying turn out to be the PP's best performer in the period following the initial setup of their PP.  It seems to me that this experience often helps build confidence in the sturdiness of the PP strategy (after the sense of surprise wears off).

Congratulations on taking the plunge and welcome to the forum.

[AdamA]

Just leave it alone.

Try not to look at it for a couple of months.

[murphy_p_t]

Another experience that new PPers often have is watching the PP asset that they had the hardest time buying turn out to be the PP's best performer in the period following the initial setup of their PP.  It seems to me that this experience often helps build confidence in the sturdiness of the PP strategy (after the sense of surprise wears off).

i can confirm this first hand

[mrwheatabix]

Thanks guys, I guess I will just try not to watch so much , and check back in a while.

[buddtholomew]

I have had success with the PP over several months, but still am unable to disassociate myself from the daily fluctuations. Many have suggested to ignore the individual components and focus on the performance of the portfolio as a whole, or as a last resort look less frequently. I have had mixed success with both of these recommendations. I even went as far as to sell calls in an attempt to manage the individual positions when they reached what I considered elevated sums (gains in excess of 25%). This venture into options trading was not advantageous as I found myself more fixated than ever on the gyrations of each of the holdings. I should have listened to a wiser man on this topic when I presented the idea to him. MediumTex recommended that I not move forward with this approach and instead rebalance to 4x25 using tolerance bands.

The more I tinker, the more I realize that this portfolio is truly "permanent" and should be left alone to produce small and steady returns over a lifetime of investing. I haven't reached the point where I can set it and forget it, but I hope to someday arrive at the conclusion that this passive approach to investing is the "best" one we know, given our poor ability to predict future events and their impact on our holdings.

Budd

[craigr]

You're going to drive yourself nuts if you look at it everyday.

I do very little trading or monitoring of my portfolio. But every year I go to my accountant and he remarks that I outperform all the other clients he sees (he sees a ton of portfolios, investments, taxes on investments, etc.).

Calls, puts, options, etc, all these things are products made to be sold and not bought. They have a reason for certain groups to insure themselves. But other than that they are just expensive and likely contribute very little except to cause more aggravation and muck up an otherwise simple portfolio.

Because of this thread I have now looked at YTD numbers again from Morningstar. The Permanent Portfolio with 25% in stocks, bonds, cash and ST bonds is up +14.49% this year.

A 60/40 stock bond portfolio is -0.67% this year.

David Swensen's Portfolio advocated in his book Unconventional Success is -0.82% this year.

I am surprised the portfolio is up so much at +14%, but not surprised that it is positive. The portfolio has been positive year over year for the vast majority of its existence. I don't see anything right now that offers a better solution. Just wait longer and it will get its feet under it and hopefully we can all ignore the markets together in beautiful bliss.

I have gone over a month now not reading the news. Apparently something is going on in Europe and something with the budget in the US. But because I own low risk US Treasury bonds I don't care if the Euro defaults because it's not going to hurt my cash and bonds.

If the US Govt. wants to keep fighting over the budget I don't really care because I have gold to protect me from that.

If the markets turn around by year end I have the stocks.

I continue to sleep like a baby with this portfolio just as I have been doing for years. But I do this because I ignore the financial news (I don't really read it even when not doing a total news fast). I also ignore all market predictions. But most of all I ignore the assets in the portfolio and allow them to do their thing. This is what I always recommend investors do: Set your asset allocation and ignore it.

[moda0306]

To be honest, if we look historically and use "reversion to mean" logic, I wouldn't be surprised if the next year for the PP was a very weak one... 4% or less, and possibly negative.

Assuming we hold these gains, we've had 8%, 14% and 14% the last three calendar years.

I still love the PP, but I don't think now's the time to start a 3x33 w/o cash PP.

[MediumTex]

But every year I go to my accountant and he remarks that I outperform all the other clients he sees (he sees a ton of portfolios, investments, taxes on investments, etc.).

That's a really interesting piece of information there.

[craigr]

But every year I go to my accountant and he remarks that I outperform all the other clients he sees (he sees a ton of portfolios, investments, taxes on investments, etc.).

That's a really interesting piece of information there.

The flip side is even though I explain what I do, he still talks about speculative investing opportunities with me!

The urge to beat the market is powerful.

He doesn't keep a running tally, but he is also amazed often at the low amount of taxes I pay vs. taxable portfolio size as well.

I can be pretty much assured when I see him again that I'll probably have beaten his other clients again if the YTD returns keep where they are. Anyone with a lot of stocks this year is not happy so far.

[moda0306]

Craigr,

Do you mind sharing what % of your investments are in retirement vs taxable and how your 4x25 is allocated into retirement vs taxable?

Just curious how people actually split up their portfolios.

Thanks!

[craigr]

I am something like 95% taxable. So most of my assets are taxable. I am very aware of tax efficiency and the Permanent Portfolio is pretty efficient if you leave it alone. 

[dualstow]

I do very little trading or monitoring of my portfolio. But every year I go to my accountant and he remarks that I outperform all the other clients he sees (he sees a ton of portfolios, investments, taxes on investments, etc.).

It just occurred to me that my accountant may never know how well I'm doing, because he doesn't see the unrealized gains. He will only see modest gains, dividend payments, and occasional tax-loss harvesting.

[moda0306]

dualstow,

Are you sure he doesn't get your year-end Account statements along with your tax info?  Often I do.

[dualstow]

dualstow,

Are you sure he doesn't get your year-end Account statements along with your tax info?  Often I do.

Good question. This is a brand new guy, so we haven't worked out the details yet. He doesn't need me to fill out an organizer, which is a first for me. I don't think I sent year-end statements to my former accountant, but I'm not sure. I always remember sending the spreadsheets of sales, because I labor to create them myself.

[moda0306]

Well there are usually two different statements a brokerage will send at year end, one being for taxes and the other being informational for the client.... and it seems like half the time the clients send both.

Most accountants don't get into much financial advice, so all they usually want to see is your tax statements, and those don't necessarily show investment returns/balances.