Gold in context of PP

[gyro_joe]

I first started dabbling in the PP around a year and a half ago.  I have VERY slowly added funds to my PP (my PP only makes up about 10% of my assets).  I initially got started in the PP as I wanted to purchase some gold, but didn't feel comfortable just buying some as I felt that long term it will be a loser at recent prices.  However, I rationalized that if I bought equal amounts TLT (LTT bond ETF) and VT (vanguard total world ETF) as well as Tbills that I could justify my purchases.

I am at a point where I'd like to make gold 10% of my total portfolio and I'd like the rest of my portfolio split 50/50 between stocks and bonds/cash.  What are your thoughts of just adding enough gold to bring me up to 10% and using cash to bring my stock and bond ratios up to where I want them?  OR, should I just continue to add to my PP until gold is at 10% (i.e. PP would make up 40% of my total assets) and then use use the remaining 60% to adjust my stocks/bonds to where I want my ratios to be (basically a variable portfolio)?

I think the PP is fairly brilliant in design, but I'm just not willing to commit fully to it at this time.  I tend to think that cash and stocks will outperform over the next 10-20 years as gold and LTT's have come so far in recent years, hence my hesitation.

Thanks to Craig and MT for writing the book.  It certainly is a compelling read, convinced me to buy physical gold and Tbills...now if I can just be convinced to buy LTT's directly over TLT (it's just so darn convenient!).

Joe

[sophie]

I vote for plan B.  50% PP, 50% your preferred stock/bond mix.

There have been many discussions on the forum about how to transition to a PP.  Most people have done it in stages, and that's fine.  There's no need to do anything you're not comfortable with.

[stuper1]

Regarding the convenience of TLT over buying LTTs directly, if you have an account with Fidelity, Vanguard, or probably others, buying LTTs directly is very simple.  I am very much a newbie at this stuff, and I've already done it.  It's very easy.  Just buy one that's close to 30-years left, hold it for 9 years, selling parts of it off if needed to rebalance, then sell it, and buy another.  If you need more LTTs in the meantime, just buy another at any time.  You'll only have a few different ones to keep track of, which is easily done in a spreadsheet.  If you haven't read the bond buying tutorial at the beginning of the Bond page, it walks you right through it.  Your brokerage will tell you each day the new value of your bond holdings for whenever you want to check your allocations.

[gyro_joe]

Sophie - thanks.  I figure that's what most will say, but would like to hear from some others.

stuper - I have a Vanguard account.  I have already purchased T bills for cash, so I'm aware of how easy it can be.  However, if buying T bills or bonds directly at Vanguard, I have to buy in ~ $1,000 increments.  When I add to my PP I purchase whole 1 oz gold coins and that cost determines how much I add to the other asset classes.  This is easy to do with ETF's - I just buy the amount to bring that asset up to my new gold allocation.  The last time I added I purchased far less in stocks than bonds and my bond purchase wasn't close to the nearest $1,000.  I'm aware of the added safety of purchasing directly, but Vanguard does not have a feature to automatically roll over my Tbills as the mature.  In addition, managing a bunch of LTT's with different maturity as money is added to the portfolio seems somewhat cumbersome...the ETF is just simple and easy, but has obvious downsides, so I'm still a bit torn...slowly being convinced though.

[MachineGhost]

I think the PP is fairly brilliant in design, but I'm just not willing to commit fully to it at this time.  I tend to think that cash and stocks will outperform over the next 10-20 years as gold and LTT's have come so far in recent years, hence my hesitation.

I think you should decide on what kind of risk you would be comfortable with holding the four assets, then increase or decrease your cash and the other three proportionately to target that risk level based on history (nothing can come close to the 1970's for killing bonds or or 1980 for killing gold).  That's what I decided upon to be conservative (i.e. targeted risk), with an eye towards implementing risk parity and slicing and dicing in the future.  As you probably suspect, the standard PP is very overweight to gold's risk.

Your instincts about bonds are correct, but the timing is in question.  Cash outperformed bonds from 1948 to 1981.  But the underperformance was only about 1% a year.  So unless you have the ability to modify the barbell duration according to the current risk outlook, I am not sure its worth losing sleep over.  The important thing is to make sure you have enough gold to hedge the barbell.  10% will probably not cut it vs a 45% barbell.

[BP]

I think that someone that is presumably new to PP, and even to some who are experienced in PP, seem to forget the basic premise on which PP is founded.  Simply put, the future cannot be accurately predicted consistently and profitably.  Once one accepts his inability to predict future events, portfolio construction is easier as one no longer has to guess which asset will under perform, but simply build the portfolio to respond to unpredictable economic events just like the PP does.

As I new PPer (portfolio now in place) I can tell you that the mental transition to the PP philosophy takes time as we have been trained to think exactly the opposite - that we can predict the future.  My suggestion is to read HB's books and listen to the radio shows.  Ultimately, if you do not agree with the PP theory, then don't do it or simply commit less assets to it.

[sophie]

However, if buying T bills or bonds directly at Vanguard, I have to buy in ~ $1,000 increments.  When I add to my PP I purchase whole 1 oz gold coins and that cost determines how much I add to the other asset classes.  This is easy to do with ETF's - I just buy the amount to bring that asset up to my new gold allocation.

Rounding to the nearest $1000 is fine.  You don't have to keep everything in perfect 25% proportions all the time.

I did sort of the same thing when I first started, using GTU for small amounts of gold.  I soon realized that this was a really stupid idea - the result of over-thinking the details.  Your bond idea at least doesn't involve paying commissions and having to file special tax forms, but it's more complex than is strictly necessary.

[MachineGhost]

I did sort of the same thing when I first started, using GTU for small amounts of gold.  I soon realized that this was a really stupid idea - the result of over-thinking the details.  Your bond idea at least doesn't involve paying commissions and having to file special tax forms, but it's more complex than is strictly necessary.

What sophie said.  Its important not to overthink things.  It doesn't really matter what kind of portfolio you implement, 60/40, Boglehead, PP, AWP, etc. they will all return roughly the same gain over the long-term short of SHTF scenarios, just with different risk path dependencies.