The Poor Man's PP...

[Hobbery]

In one of Harry's investment shows, he points out how big a difference 5 years makes with investing.  He points out that there's a huge difference between starting out at 30, then 35...  (hit home because I'm 35...).

I'm poor.  After a horrible year, I'm finally beginning to get some traction.  I have no debt.  No mortgage.  No car payment.  No children.  I have $1,000 to put away, and I could arrange to put away around $300 a month from here. ...But then, 1oz of gold is $1,700 right now. 

My PP book is on it's way (the new one).  But please put yourself into my shoes for a moment.  How does a person starting out saving, begin to invest in the Permanent Portfolio.  Is there a bare minimum that I need before I can? 

I appreciate your help.  I really do.



   

[Early Cuyler]

Have you considered the permanent portfolio mutual fund, prpfx? It has an initial minimum of 1k. Also congratulations on getting started!

Best wishes,

Ryan

[melveyr]

I wrote about this in a posting here:
http://www.stableinvesting.com/2012/04/ ... start.html

Here are the contents of the post:

"Thanks to extreme competition in the discount brokerage industry, it is surprisingly easy to start a Permanent Portfolio. I have been using the PP for a while now, but I was curious to see what options are available to new investors.

It is extremely important to focus on commissions and luckily the discount brokers have been in a race to the bottom, offering free trades on certain ETFs. This is nice for a new PP investor because the strategy is so passive, meaning ETFs are a good vehicle for gaining exposure to the asset classes. When looking for a broker to illustrate this point, TD Ameritrade really stood out because they have no account minimums. Combined with their free  trades for certain ETFs, investors encounter little friction getting started.

Example:
Stocks- $500 in VTI
Long Bonds- $500 in TLT
Short Bonds (Cash)- $500 in SHY
Gold-$500 in GLD

Through TD Ameritrade, all of these instruments can be bought with no commission with the exception of GLD ($10 commission). The larger the portfolio is the less that $10 commission is going to sting, so I think a self-imposed $2,000 dollar minimum is prudent. If available, tax advantaged accounts (Roth or Traditional IRA) would be best for this PP especially because GLD has some tax complications if held in a taxable account.

Two thousand dollars is nothing to scoff at, but that is an extremely low minimum for how sophisticated of a portfolio you are constructing. The PP has the ability to perform well in a variety of economic/financial crises while still churning out respectable returns in times of prosperity. Many investors turn to hedge funds for this kind of performance and those vehicles require millions of dollars to get started. Realistically, you are likely getting a better portfolio than the average hedge fund and at far less cost."

[AdamA]

I'm poor.  After a horrible year, I'm finally beginning to get some traction.  I have no debt.  No mortgage.  No car payment.  No children.  I have $1,000 to put away, and I could arrange to put away around $300 a month from here.

I think you're far from poor, and probably better off than many many people. 

Have you considered the permanent portfolio mutual fund, prpfx? It has an initial minimum of 1k.

If you AIP, you can start with as little as $100.  I think this is a very good option, if you want to use PRPFX.

You could also use ETF's.

Or...You could just save up a bunch of cash and then buy everything.

 

[KevinW]

I think the alternatives to consider are

1) PRPFX - $1000 minimum, trades free, but high expense ratio
2) PERM - ~$25 shares, moderate ER, but every trade costs a commission
3) Ameritrade, and also Schwab and Vanguard, will let you trade stock/bond/cash for free, and charge $7-$10 commissions on gold ETFs
4) save PP-style cash until you have maybe $3-5k and it gets easier to trade the 4 assets

Keep in mind that, when your monthly deposits are large relative to your total portfolio, you will hit rebalance bands absurdly often. If you set up a 4x25 with $1000, then your next $300 deposit will add ~30% to cash and trigger a rebalance. That pattern will continue for many months.

Recently I helped my wife set up a Roth IRA PP starting from $0. I had her put the $416.66 into a bank savings account and wait until that amassed about $3000, and then opened the IRA with $1k each in stocks/bond/gold. The monthly deposits went into cash and, even starting from 33/33/33/0, after a few months cash was overweighted and it was time to rebalance.

So, I would recommend doing the same thing, option (4) above. If you're raring to go, PRPFX probably makes the most sense so you don't get soaked on commissions every month. But I would transition out of that by around the $10,000 mark due to its rather high ER.

[Ad Orientem]

Congrats on getting started. Operating on the KISS (keep it simple stupid) rule I suggest you go with PRPFX until you have $10,000 invested. Then convert to an HBPP using TLT SCHO VTI and IAU. When you have $50,000 invested convert IAU into physical gold.

[craigr]

In one of Harry's investment shows, he points out how big a difference 5 years makes with investing.  He points out that there's a huge difference between starting out at 30, then 35...  (hit home because I'm 35...).

Yes it is a large difference, I don't have the charts in front of me. But losing five years of compounding can add up. However, at least you are starting and many people can't even say that. So good for you and keep it up!

I'm poor.  After a horrible year, I'm finally beginning to get some traction.  I have no debt.  No mortgage.  No car payment.  No children.  I have $1,000 to put away, and I could arrange to put away around $300 a month from here. ...But then, 1oz of gold is $1,700 right now.  

My PP book is on it's way (the new one).  But please put yourself into my shoes for a moment.  How does a person starting out saving, begin to invest in the Permanent Portfolio.  Is there a bare minimum that I need before I can?  

I appreciate your help.  I really do.

With $1,000 you may want to consider first building up the savings so you have at least several months of living expenses in cash. That way you can have funds that will be stable if you need them for an emergency like job loss, etc. The Permanent Portfolio is a good strategy, but it can have shorter term volatility and emergency funds may be better off in something that won't bob up and down so much.

After your initial cushion you could also build up positions in the ETFs over time. For the gold, you may want to consider building up your cash until you get enough to buy a single gold coin and ramp it up from there as a stop-gap. Just beware that those services may offer "free" trades to get  you into much more expensive funds from places like Pimco, ING, etc. It's worth it to pay the small fees and get the index funds instead from Vanguard, Fidelity or iShares. Or you can consider buying PERM to make things easier or even PRPFX if you hit the minimums.

Then there are services like sharebuilder.com or folioinvesting.com that make building a portfolio with smaller share purchases more affordable and easy with direct deposit investing, etc. You should check them out. Perhaps set them up to do quarterly purchase of the stock, bond and cash ETFs for you and buy the gold physically at first when you are able.

[Ad Orientem]

I will amend my original post to second Craig's very excellent observation. I did not consider that you might not have an emergency cash reserve. That takes precedence over pretty much anything other than the essentials of life.

[AdamA]

Just because it's been mentioned a couple in this thread, I wanted to make sure everyone is aware that all you need to invest in PRPFX is $100, not $1000 (as long as you use their automatic investment program).

[Pointedstick]

Also keep in mind that eTrade offers commission-free trades on PERM.

[Hobbery]

First of all, you guys are AWESOME.  There really is an intellectual barrier to entry into finance and investing for people like me.  And it would seem that part of the solution is finding someone to explain things to me like I'm a 12 year old...  (Harry Browne was actually sensational at that).

For instance, I've never bought a stock or a mutual fund.  Where is the PRPFX store?  And does the new book have an index that will explain the 20 initial-isms that I just read in your responses? (...If I AIP?  Moderate ER? Using TLT SCHO VTI and IAU?) 

I've got some work to do.  I think one of the 16 rules was not to invest in something I don't understand.  (God, I miss that guy). 

Certainly, Craig is right.  I should amass an emergency fund before I do anything else.  I'm embarrassed that that didn't even cross my mind.  And that will buy me some time to read and learn.  I'll investigate these avenues you've all offered me, here. 

Thank you for your help...  You guys rock. 

[MediumTex]

First of all, you guys are AWESOME.  There really is an intellectual barrier to entry into finance and investing for people like me.  And it would seem that part of the solution is finding someone to explain things to me like I'm a 12 year old...  (Harry Browne was actually sensational at that).

For instance, I've never bought a stock or a mutual fund.  Where is the PRPFX store?  And does the new book have an index that will explain the 20 initial-isms that I just read in your responses? (...If I AIP?  Moderate ER? Using TLT SCHO VTI and IAU?) 

I've got some work to do.  I think one of the 16 rules was not to invest in something I don't understand.  (God, I miss that guy). 

Certainly, Craig is right.  I should amass an emergency fund before I do anything else.  I'm embarrassed that that didn't even cross my mind.  And that will buy me some time to read and learn.  I'll investigate these avenues you've all offered me, here. 

Thank you for your help...  You guys rock. 

We've all been where you are now.  Successful investing isn't that hard if you can just avoid all of the speculative traps that people fall into.  Investing shouldn't be about gambling systems, fortune tellers and constant tinkering.  It's getting tangled up in all of this stuff that I think makes investing such a frustrating experience for many people.

I think that a person can study the PP and learn a lot of useful stuff about investing, even if they decide on another strategy.  To give you a solid alternative to the PP, I would say take a look at the Vanguard Wellesley Fund (symbol VWINX) if you want to see what another type of conservative investment looks like.  VWINX has been a long-time favorite of many conservative non-PP investors.

[Early Cuyler]

First of all, you guys are AWESOME.  There really is an intellectual barrier to entry into finance and investing for people like me.  And it would seem that part of the solution is finding someone to explain things to me like I'm a 12 year old...  (Harry Browne was actually sensational at that).

For instance, I've never bought a stock or a mutual fund.  Where is the PRPFX store?  And does the new book have an index that will explain the 20 initial-isms that I just read in your responses? (...If I AIP?  Moderate ER? Using TLT SCHO VTI and IAU?) 

I've got some work to do.  I think one of the 16 rules was not to invest in something I don't understand.  (God, I miss that guy). 

Certainly, Craig is right.  I should amass an emergency fund before I do anything else.  I'm embarrassed that that didn't even cross my mind.  And that will buy me some time to read and learn.  I'll investigate these avenues you've all offered me, here. 

Thank you for your help...  You guys rock. 

I think you understand more than you give yourself credit for. I'm sure we are all pulling for you!

best wishes,

Ryan

[Lone Wolf]

I'm poor.  After a horrible year, I'm finally beginning to get some traction.  I have no debt.  No mortgage.  No car payment.  No children.  I have $1,000 to put away, and I could arrange to put away around $300 a month from here.

The average American has something like $47,000 in debt.  You have no debt and $1,000 on hand.  You're richer than you think.

The best advice for anyone of any age is to start today.  That's what you're doing, you're not too late, and I congratulate you!

I think you understand more than you give yourself credit for. I'm sure we are all pulling for you!

I agree -- much more.  Hobbery, if you stick with it, stay curious, stay motivated, and keep asking the right questions, you are going to amaze yourself.

The fact that you've received so much good advice in this thread leaves me with little to add.  For ideas on how to maximize the amount that you can contribute to your emergency fund and/or Permanent Portfolio, you might like checking out PointedStick's recent thread on how he minimizes his expenses as much as possible without (as far as we know) engaging in any dumpster-diving. 

[Pointedstick]

PointedStick's recent thread on how he minimizes his expenses as much as possible without (as far as we know) engaging in any dumpster-diving. 

No dumpster diving! I intend to update the thread with this month's performance in a few days.