End of the World Potforlio

[craigr]

from Alex Green:

Constructing An "End-of-the-World Portfolio"

Here's how it could be structured:
-Put 40% of your liquid portfolio in a laddered portfolio of AAA-insured tax-free bonds. (Be sure to buy state-specific bonds if you're in a high tax state.) Laddering means varying your portfolio between short-, medium- and longer-term bonds. This is your protection against deflation and the virtual certainty of higher taxes.
-Put 40% in a laddered portfolio of inflation-adjusted Treasuries, also AAA-rated. (For tax reasons, these are best owned in your retirement account.) This is your protection against inflation, as central banks might opt to spend us out of a crisis and argue that "temporary" hyperinflation is preferable to national bankruptcy.
-Put 20% in defensive, blue-chip, dividend-paying stocks. I'm referring to food companies, healthcare companies, utilities, defense contractors, gold mining companies and the like. This should provide some growth and income. Why include stocks at all? Because 200 years of history shows that an 80/20 split between stocks and bonds is actually less risky than a 100% bond portfolio. And, remember, you need to hedge for prosperity, as well.

Thoughts on performance of this portfolio vs PP?

1) States have a much higher chance of budget problems in the future than the national government. For instance, California is riskier IMO than Treasuries in this regard.

2) TIPS - Why do I want to buy inflation insurance from the same people causing the inflation? Are their interests really aligned with mine in terms of protecting my purchasing power?

3) I'd rather own the total stock market than selecting stocks by hand. Much more diversified and almost certainly more likely to outperform.

But you know there's nothing wrong with using your variable portfolio money to try these things...

[clacy]

I'll stick with the PP

[AdamA]

Odd that something called "the end of the world portfolio" holds no hard assets.

[Pointedstick]

Yeah, I would really imagine that an end of the world portfolio should be composed of food, water, medicine, fuel, guns, land, livestock, etc. You know, stuff that would be useful in a TEOTWAWKI scenario.

[AgAuMoney]

Yeah, I would really imagine that an end of the world portfolio should be composed of food, water, medicine, fuel, guns, land, livestock, etc. You know, stuff that would be useful in a TEOTWAWKI scenario.

+1

It sounds like he is thinking the 80% bonds is protection for the end of the world, and the other 20% for "prosperity" is in case he is wrong.  But bonds for the end of the world?!?

[Pointedstick]

I know, right? I can't eat bonds! They're just fancy pieces of paper or ephemeral electronic impulses. How 'bout a cow, a cornfield, a rifle... anything! I wonder what kind of "end of the world" this guy is envisioning where bonds and shares in publicly-traded corporations will have any use at all.

[stone]

I guess he considers TEOTWAWKI scenario to be a waning influence of the "Bernanke Put".