What is the best way to establish the Perm Portfolio ?

[ranger1013]

I have recently been " retired " and I am grateful to have found this forum. I took my pension as a cash balance lump sum and would like to transform the cash balance into a perm portfolio. The questions I have are about timing. Should I enter all 4 categories at one time or should I stagger my category buys ? Should I start the portfolio with the non-equity portions first and as stocks fall buy the equity portion ?
Any advice would be welcome as I dont want to make mistakes with this money.

Thank you

[Roy]

I have recently been " retired " and I am grateful to have found this forum. I took my pension as a cash balance lump sum and would like to transform the cash balance into a perm portfolio. The questions I have are about timing. Should I enter all 4 categories at one time or should I stagger my category buys ? Should I start the portfolio with the non-equity portions first and as stocks fall buy the equity portion ?
Any advice would be welcome as I dont want to make mistakes with this money.

Thank you

Hi, Ranger. 

Despite the understandable temptation to assess the valuations of each asset class, I would advise against actually implementing the PP with any guess-timations in mind. Valuations are a slippery slope, particularly here and now (with Gold soaring, again, Treasuries rising—again, despite their dead-in-water "bubble" status—and Stocks getting pounded, yet again). 

One strategy to consider, (primarily for emotional reasons) is to DCA on schedule into the Permanent Portfolio but using the quartile approach with each chunk invested.  This has the advantage of easing-in slowly, and also taking advantage of buying opportunities—rebalancing on schedule with each subsequent installment.  This establishes a plan based on something other than guesswork and you don't "risk" the lump sum in one shot. 

None of this is easy, especially in volatile down markets but the problem is typical for the HB Permanent Portfolio because volatile parts of it are often moving in different directions at high velocities, regardless of market conditions;  this is why it works.

Enjoy your retirement!

Roy

[ranger1013]

Thanks Guys ,

Thank you for the well thought out responses, it's a lot to consider. I am going to spend the weekend " noodling " through an implementation strategy.

Have a nice weekend !

[simata]

Clive,

can you post numbers in spreadsheet for each year, not only CARG, so we can see how you got there?

As an example, a UK PP investor achieved 11.41% annualised return between 1972 and 2008.  A UK investor buying into a Japanese PP achieved a 6.25% return over those same years however the Yen rose at an average 5.11% p.a. producing a 11.36% total return for the UK investor.  Had a UK investor bought a US PP then that achieved a 9.8% return whilst the US Dollar rose at an average 1.2% producing a combined 11% return for the UK investor.

[simata]

To put a bit more meat as to why, it looks to me that a PP might be constructed using pic-n-mix from a range of stock, LT and cash components from across a range of foreign PP's.  For example perhaps you might opt to hold Japanese stocks, US treasuries and Euro Cash.  Gold is common to each anyway.

[/quote]

If your calculations are true that all PP's in different currencies are producing almost the same result in Pounds I have to agree with you that one must have some (or all) different currency PP's probably equally weighted. Point is to find best areas for 4 asset classes: cash in Australia (or New Zeland) for highest interests, LT bonds UK (50 years) - do somebody knows for longer maturity somewhere else? -, Stocks (areas with young population, high GDP growth, open to business). 

[simata]

Rebalancing between those might have added some benefits.

Everybody talks about rebalancing not only for lowering volatility but also achieving higher profit. As I mentioned before I made simple simulation in excel (I can send through email) for 2 assets going: up up, up down, down down; sometimes faster and sometimes slower (up or down). There was not even one case where rebalancing would lead to higher profits. Unfortunatelly I don't have mathematical proof for that. Did I miss something? Without rebalancing from 1972 to 2009 for $PP: http://www.riskcog.com/portfolio-theme2 ... 074874c74f
Result 9,32% looks almost the same as with rebalancing. Why?