Jumping in the deep end of the pool...

[PP67]

As Medium Tex once said (in effect) to those standing around the pool, watching all the PPers splashing around and having "fun"', "Jump on in!...It may seem a bit cold at first but soon you will get acclimated and enjoy yourself (investment-wise)...

It can be very "cold" indeed at first depending a great deal on what day you decide to take the "plunge"...

I put about half my investable assets in a 4x25 PP allocation on 1/4/2012... It is currently up 3.34%... I put the rest in on 1/30/2012 and it is barely "above water", up just 0.23%... Sure would have been nice to have taken the plunge 100% back on 1/4 but it is of course all hindsight... I should be grateful I didn't start it all on 1/30! (although I realize it is just way too soon to be looking at returns)..

Speaking of looking at returns, a shout-out and curse to whoever recommended smart money.com portfolio tracker...  For a newbie, it is like crack cocaine or PPorn to be able to see the daily gyrations of your portfolio...  Way cool but way too addictive...  I suspect when things get wild, I will not be able to resist the temptation to check it on the hour... Thank!

[6 Iron]

PP67,

I strongly suggest restraining yourself from frequent checking, because I can guarantee you that we will have another uncomfortably long period of sideways or even down portfolio valuation, and the leading cause of this may be your least favorite asset. Then comes doubt, and a desire to modify. Rather, the Smart Money site is best used to play (or for variable portfolio strategies): see Wonk's thread on a leveraged PP, or the suicide portfolio thread.

Besides, on any given day, you can get an impression of what your assets have done from the headlines: market up or down, dollar up or down, interest rates up or down, and is the world calm or crazy. I do not know of anyone that has the discipline not to frequently check when they first start, and I think it would be unreasonable to not want some feedback when you start something new. But continuing this, you miss out on what is the best part of the portfolio, the peace of mind from the relative consistency of this asset alloy.

Welcome, and congrats to to you on a confidence-inspiring start.

[Gosso]

PP67,

Congrats!!  I like to think of starting a new PP as being similar to starting a new relationship.  At your stage I think you have just gotten her (I'm assuming you're a straight male) phone number and are debating when to call her back.  You then come back to brag to your PP buddies and they are giving you their best advise on how to proceed.  Here's a clip from Swingers (one minute):

http://www.youtube.com/watch?v=2aN4w2AfkEY

Really it all seems like conflicting advise, but you gotta do what feels right.  You know you cannot be too creepy or anxious, or else you're gonna scare yourself and her off.  So just be cool and relaxed, and before you know it you'll be on your second and then third date and things will start to feel more comfortable.

So Money!!

[MediumTex]

The PP is up 3.34% since 1/4/2012?  That's awesome. 

I had no idea.

After you've been with the PP long enough and you've seen it power through enough market conditions you really kind of stop thinking about it.  Obviously, I still think about the PP a lot (I'm writing a dang book about it), but as far as how the actual portfolio is working on a given day or week I really don't think about that much at all.  It's wonderful.

It's funny, but I have four smart money portfolios set up and the PP is one of them.  I will look at the other three frequently (I'm still tracking the "Arsenic House" portfolio), but I have to remind myself to occasionally look at the PP.  I guess I just feel like there won't be any surprises with the PP, so why bother looking at it?

[smurff]

The time spent worrying and fiddling with a portfolio gets given back to you after adopting a PP. You can then use that time for other fun stuff like working longer or harder to earn more. Or indulging your hobbies.

Of course if you watch your portfolio every day, that defeats the purpose.

[l82start]

i have my own pattern for checking the PP, i have only had a PP for one or two years depending how i count it (one year full PP two if i count the variation i held as i moved into it) so the pattern may change with more time in...
  so far my pattern has been checking with increasing frequency in the months before April 15th comes around (contributions and re-balancing and figuring taxes all happen around then) then i check it every day or two for the weeks following that, and after a couple weeks i end up checking maybe once a week, then once a month by the time the first 1/4 to1/3 of the year is gone by i am letting it ride and seldom bother looking at all till the months before tax time come around again...  i don't tend to worry about the little ups and downs much, so this pattern seem to satisfy both my curiosity about how it is working/works and the leave it alone philosophy... 

- i am also still tracking the bankrupt bankroll for amusement

[bluedog]

PP67,

I can totally feel the mix of feelings that come with taking "the plunge"...

I have been researching the PP since I read about it in Moneysense magazine in Sept.
I followed Craig's blogs on the Moneysense website which directed me to this wonderful forum.

I sold all of our equities (nothing radical - CDN dividends, REITs, pipelines and utilities) on "up days" in the market during the market turmoil in Oct/Nov before we left Canada in Dec.
I feared things may get worse. How am I going to manage a stock portfolio on the road in our RV when we do not always have an internet connection?

I now had 25% in gold ETFs, bought after 2008 (although I later had to switch to an unhedged one), bought the total bond market and left the rest in cash.
Felt this was fairly conservative and safe. There was no way I going to buy stocks again...too time consuming, gut wrenching and stressful.

So, off we went down South Dec 11th...still researching and fence-sitting...

I found it was the decision to take the plunge that took the most soul searching, the diving more mechanical; sell and buy.

I dove in Jan 17th w/a simplified CA PP using 4 ETFs while snowbirding in California.

And yes, I confess, I do check, but as time passes, this is improving.

I know veterans have cautioned about "checking", but, let's be honest I think esp if you are new.
We are, afterall a) human
                     b) want feedback to see if we have made the right decision (although, we know intuitively, this decision may take years to unfold)
                     c) basically impatient, another human frailty.

This is where we put "money we cannot afford to lose".
This is a serious decision, especially if the portfolio is of considerable size and especially if you are the one making the "family decision".
My mate, for example, is one of those who chooses to put his head in the sand when it comes to investing or anything remotely connected to 'paperwork'.

The one thing I do find, is a new sense of inner calm that others have alluded to.
I no longer listen to the news. I find this is mostly negative and sensationalized. Besides, there is nothing I can do about it.

I have a feeling that this calmness will continue to flow and grow and, in time, calm the checking.

All the best to all new PPers ...I feel what you are going through.

And many thanks to all the wisdom and support of the veterans... we probably would not be here if it were not for you.

[Tyler]

I jumped into the PP in full force around September of last year.  The market was crazy as hell, so of course my natural instinct (bred from years of needing to worry about that type of stuff) was to check every day.  In a way, that was the best time to be checking constantly, as it very quickly demonstrated how the PP works -- the market cratered and skyrocketed daily, but the PP just kept on chugging and remained relatively stable.  I still check more than I should, but it's more out of habit and awe than out of worry. 

Now that investment strategy is off the table mentally (safely placed into the steady hands of the PP), I've found that early retirement has taken its place.  For me, that's a much more rewarding financial obsession to spend my mental energy on.

[MediumTex]

I used to check the PP constantly, several times a day.

It's just something I got away from over time.

Some are able to accomplish this sooner than others.  It probably took me longer than most because I'm sometimes a little compulsive about things.

[pershing83]

I do not think it matters when you jump in... I'm sure some could come up with a scenario where it does but it won't.

Classic pp doing well but PRPFX even better, up 6.5% YTD. So, if pp does 3% and PRPFX 6%??? Well thats 18% for the classic and 36% for the fund. HOT DOG! Heh, heh.

[Storm]

I now had 25% in gold ETFs, bought after 2008 (although I later had to switch to an unhedged one), bought the total bond market and left the rest in cash.
Felt this was fairly conservative and safe. There was no way I going to buy stocks again...too time consuming, gut wrenching and stressful.

So, off we went down South Dec 11th...still researching and fence-sitting...

I found it was the decision to take the plunge that took the most soul searching, the diving more mechanical; sell and buy.

Welcome to the PP... You made the exact same mistake I made back in 2009 when I first started my PP - I was convinced stocks were going to be plunging further, so I overbought gold and bonds.  I was trying to predict the future, which cost me a few % in stock gains that year.  Now, I realize I can't predict the future.

In hindsight, would your portfolio have performed better during the last 2 months by having stock exposure than without?  I suspect it might have.

This is something that is extremely hard for people new to the PP - you just have to buy in to all 4 assets @ 25% on the exact same day.  Trying to market time it even by a few days or weeks is usually a recipe to lose a little bit (or a lot) of money.

[bluedog]

Storm,

That is so true...

It was that very fact (stocks performed well in Jan) that tipped the scales for me, and  I finally dove in headfirst 4/25 all in one day.
I had to see firsthand the power of each asset working, before I was convinced that the PP did make sense and would work for us.

It is hard when you have been badly burnt not to play with fire again.

The other thing that made the decision more difficult, for me personally, was setting up a CA PP and trusting that it would work as well as the traditional US PP.

I waded through various opinions on what assets a CA PP should hold...a dash of TLT, some XWD or US PP with CDN cash.

Ultimately, I just went with the KISS philosophy...I decided to go w/basic HB PP theory and hold all CDN assets.

[Gosso]

I waded through various opinions on what assets a CA PP should hold...a dash of TLT, some XWD or US PP with CDN cash.

Ultimately, I just went with the KISS philosophy...I decided to go w/basic HB PP theory and hold all CDN assets.

As a fellow Canadian, I also debated whether or not to shift a certain portion of the PP into US assets.

But then I came to the conclusion that the USD is just as likely to collapse as the CAD.  In fact some 'celebrity investors' such as Marc Faber and Jim Rogers prefer the CAD over the USD (if that even means anything?).  And then back-testing showed that there was no or very little benefit for a Canadian to own US assets inside the PP.  That was enough to convince me so that I could continue sleeping like a baby Canadian after drinking 26er of Canadian Crown!

For the record I use XWD for 5% of total assets, and was debating if I should use TLT for another 5%, but decided against it.

[metta2006]

I bought some TLT yesterday as CAD is above par and TLT was down recently. I think it does not hurt to have some TLT for Canadians when CAD is strong for rebalancing purpose. TLT is more liquid than ZFL and more convenient to buy and sell 40yr Canadian LTT (I think the minimum purchase and sell amount is $5000).  

I have been also hesitating to set up a CA pp for the same reason, whether it will work as well. I also think there is a case for Canadian dividend stocks for dividend tax credit. Please someone post another thread for CA pp for more ideas!

[Gosso]

I bought some TLT yesterday as CAD is above par and TLT was down recently. I think it does not hurt to have some TLT for Canadians when CAD is strong for rebalancing purpose. TLT is more liquid than ZFL and more convenient to buy and sell 40yr Canadian LTT (I think the minimum purchase and sell amount is $5000). 

I think it is perfectly fine for a Canadian to hold some TLT in their PP.  The only downside is the cost to transfer from CAD to USD...at a cost of 2-3% each way, I figured it was not worth it.  But if you got USD's laying around then I'd say go for it.

I would still keep the majority of you assets in CAD, since gold is meant to be the main defence against the CAD declining in value.  If you have too many USD assets then this skews the balance towards defending against a declining CAD.  Personally I wouldn't go above 15% USD in the PP.

[Gosso]

I have been also hesitating to set up a CA pp for the same reason, whether it will work as well. I also think there is a case for Canadian dividend stocks for dividend tax credit. Please someone post another thread for CA pp for more ideas!

Metta, the dividend tax credit is mainly designed for people with large taxable accounts and a low income.  Also, if most of your savings are in a RRSP and TFSA, then there is literally no benefit to the dividend tax credit.

Even if you're 50% taxable, then you should have gold and cash (because of low interest rates) in your taxable account, while long bonds and stocks should be in the RRSP and TFSA.

If you do decide to own stocks in the taxable account then you will still receive the dividend tax credit on the XIC (provided you make less than $80,000/year). 

Ultimately it's your money, but IMO you are making a mistake using XDV over XIC.

Don't let the tax tail wag the investment dog.

[CA PP]

For a Canadian resident or future resident it makes sense to hold mainly CAD assets in the form of a CA PP.

I tend to agree that US PP exposure for Canadians could be in the 15% of assets.  It is true that looking at 41 years of data, there is practically no difference in return/volatility. However, I appreciate the superior performance of the US PP over CA PP (and other PPs for that matter) when the world face adverse situations: 2008, 2011.

Just an extra small layer of diversification at the cost of a small tracking error and some minimal marginal volatility (1972-2011). I find it a good idea to have a firewall between the PPs.  No re balancing between them and across assets. Just leaving them function independently of each other.

[bluedog]

CA PP,

I'm not quite sure what you are suggesting, but I am interested in your thoughts as a fellow Canadian.

I, too, am concerned re: CA PP vs US PP performance in times of adverse conditions.

Are you suggesting 2 separate PP's?

One, 85% of your total assets is 100% CA PP and the other is 15% of total assets in a  100% US PP?

What would you hold in each?

Many thanks for your thoughts.

[CA PP]

Exactly the idea: about 85% of your total assets is 100% CA PP and the other is 15% of total assets in a  100% US PP.

My preferred holdings are:
CA PP: XIC, CAN DEC2045, 6 rungs ladder (1-3years) CAN bonds, IGT/physical.
US PP: VTI, USA OCT2041, 6 rungs ladder (1-3years) USA bonds, IAU/physical.

Each PP held independently. I would not bother with with yearly re balance between each other.  Reviewing 41years data did not evidence a significant advantage from yearly re balancing between each other.  However I would contribute to the lagging PP in accumulation phase... for simplicity.

This is not to reach for higher return but to allow for some added protection against adverse conditions when demand for CAD assets goes down and USD assets demand go up significantly (see extreme case, Island, 2008, see www.marcdemesel.be).  In very extreme conditions I might consider to re  balance between PPs.

In 2008, a CA PP (CAD) returned some 0.2% while a US PP (CAD) 26.4%.  This behavior and the Island case made me start the reflction about having exposure to the world reserve currency.

[Gosso]

CA PP,

Can you actually buy US bonds directly from your Canadian discount broker?  I checked on Scotia iTrade and they don't offer US bonds.

I think having separate US and CAN PP's could be an option, but personally I blend the two.  Here is an example for the stock portion:

- 20% XIC
- 5% XWD

I then simply add the two stock values together to calculate the stock value of the blended PP.  Since I am still in the accumulation phase, I buy the asset that has fallen below its target percentage of either 5 or 20%.  If the total stock value ever fell outside of the 15/35% bands then i would sell/buy both XIC and XWD to balance things out, although it may be possible to sell/buy only one depending on how far off they are from the targets.

[bluedog]

CA PP and Gosso,

Thanks for your thoughts.

The blended  (5% XWD) version seems far simpler to me, perhaps with 5% TLT. and a USD cash account

CA PP - what were the historical returns for 2008 and 2011 CA PP vs US PP?

I know that past performance cannot predict the future.

But, I am interested in understanding how each of the 4 assets performed in both PP's during adverse conditions.

And, I'm still trying to wrap my head around the impact of USD being the world reserve currency and how that affects a CA PP (or any other smaller country) in extreme circumstances.

[MediumTex]

And, I'm still trying to wrap my head around the impact of USD being the world reserve currency and how that affects a CA PP (or any other smaller country) in extreme circumstances.

In extreme circumstances the U.S. would always be expected to strengthen in relation to the currencies of most other nations.

2008 provided a great example of this as the U.S. dollar strengthened (sometimes dramatically) when compared to almost all other currencies with the exception of the Japanese yen.

After 2008, though, there were probably some very dramatic gains for those who bought foreign currencies at their depressed levels.

I would think that any time there is a rush for liquidity, the U.S. dollar and the U.S. treasury market are going to do well.

It's also important to remember that in today's world no one really wants to have a strong currency, which means that everyone is basically engaged in a simultaneous (and hopefully orderly) devaluation effort.

[CA PP]

Here are the returns for the period 1972-2011.
Source US: Simba spread sheet
          CA: Stingy investor tool

Notes: Cash portion uses treasuries
          Long term bonds certainly have different durations.

YEAR CA PP US PP US PP
  (CAD) (CAD) (USD)


1972 21.3% 17.8% 18.6%
1973 18.7% 14.6% 14.6%
1974 12.2% 13.6% 14.1%
1975 3.1% 9.0% 6.3%
1976 9.8% 10.0% 10.8%
1977 15.2% 14.3% 5.4%
1978 22.7% 21.8% 12.3%
1979 44.2% 37.1% 39.3%
1980 15.9% 16.0% 13.5%
1981 -6.5% -5.8% -5.2%
1982 21.6% 25.8% 21.3%
1983 9.9% 4.8% 3.5%
1984 3.0% 8.7% 2.4%
1985 18.4% 25.7% 18.8%
1986 13.9% 15.3% 16.7%
1987 7.8% 0.3% 6.5%
1988 2.4% -4.0% 4.6%
1989 10.8% 9.8% 13.1%
1990 0.5% 1.6% 1.4%
1991 9.2% 11.3% 11.8%
1992 5.2% 14.0% 3.6%
1993 20.6% 16.5% 11.8%
1994 0.4% 4.4% -1.5%
1995 11.6% 14.8% 18.0%
1996 10.8% 5.3% 5.0%
1997 4.7% 11.7% 7.1%
1998 5.6% 17.8% 10.0%
1999 6.4% -0.9% 5.0%
2000 6.0% 6.3% 2.3%
2001 1.2% 5.6% -0.6%
2002 6.4% 4.7% 5.5%
2003 9.3% -7.1% 13.5%
2004 6.0% -1.0% 6.3%
2005 13.6% 4.9% 8.3%
2006 12.2% 10.9% 10.9%
2007 7.4% -4.6% 12.5%
2008 0.2% 21.6% -1.9%
2009 12.3% -5.7% 10.3%
2010 13.2% 5.3% 13.8%
2011 5.4% 15.5% 10.0%

CA PP US PP US PP
(CAD) (CAD) (USD)
CARG 10.00% 9.27% 9.24%
STDEV 8.64% 9.68% 7.85%
Average 10.3% 9.7% 9.5%

MAX 44.23% 37.13% 39.27%
MIN -6.5% -7.1% -5.2%

[CA PP]

Grosso,
I cant tell about Canada-based brokers and availability of US bonds in Canada.
I find it surprising that US bonds would not be available though.
You can ask your broker to make it available to you?

[Gosso]

Bluedog,

I'm not sure how much you'll need to convert to USD (or if you'll even need to), but if it's over $10,000 then you should look at Norbert's Gambit.  It is a cheap way to transfer CAD to USD (Edit: and vise-versa), but your discount broker won't like it so you might have to argue with them.  It is completely legal, but can be a hassle.  I have never done it myself.  Here is a short article on it:
http://www.moneysense.ca/2012/01/20/nor ... s-dollars/

Here is where the original idea came from (warning: it runs 24 pages):
http://www.financialwebring.org/forum/v ... f=38&t=198


CA PP,

Thanks for that analysis.  It seems clear to me that a standard 4x25 Canadian PP is fine, even during years like 2008.  But what I find really interesting is when USD and CAD assets are combined as in the '50/50 Option', the overall volatility of the CA PP decreases to a STDEV of 8.20%, while maintaining the 10.0% return.

Just for fun I ran a '65/35 Option' (like we suggested earlier in this thread, and the option that I'll likely stick with) and it returned the following between 1971-2011:

Average Gain (Geometric) 10.038%
Average Gain (Arithmetic) 10.326%
Median Annual Gain 9.605%
Standard Deviation 8.293%
Total Growth (%) 4949%
Total Value of a $1000 Investment $50493.86
Total Down Years 1 years (2%)
Total Years < 5.00% 8 years (20%)
Total Years < 10.00% 23 years (56%)
Total Time Span 41 years
Source: http://www.ndir.com/cgi-bin/downside_adv.cgi

That looks good to me.  It also makes sense from a logical standpoint, since whether we like it or not the US has a big impact on the Canadian economy.  The only downside is that it is more complex and it will cost a little more to operate.

Also, I'm not sure about buying US bonds directly--since I will only use 5% it is easier for me to just use TLT.