Multi National PP

[Clive]

?

[nomamesbuey]

Clive,

I am a US citizen living in the US.

I am interested in your posts on currency diversification in the PP, to protect against an Iceland-style economic collapse, while still having returns similar to a classical (all domestic) HBPP.

I'd like to define (for lack of better term)
Single International PP (SIPP) - eg your example from another post of Canadian stock, US bonds (LT Treasury), Euro cash, gold (the 1 non-country specific asset)
vs
Multiple Domestic PP (MDPP) - eg 33% Canadian PP (with CAN stock, CAN bonds, CAN cash), 33% US PP, 33% Eurozone PP

I am more interested in the Single International PP.  I don't know if it's even practically possible to implement a Multiple Domestic PP, without having accounts in various countries.  For example, from a US domiciled custodian account, & using the example, would it even be possible for me to say purchase CAN bonds, & if so, without excessive fees &/or tax rates or excessive tax paperwork?

[nomamesbuey]

Clive,

What's your take on this Single International PP, for a US citizen.  It differs from the classic HBPP only in the stock asset class

stock: 14% VEA (rich-non US nats, 0.15%expense ratio, 0.03%avg bid ask ratio), 11% VWO (emerging nats 0.27%ER, 0.02%BA)

bonds: TLT (iShares 0.15%ER, 0.01%BA)

cash: SHY (iShares 0.15%ER, 0.01%BA)

gold: GLD (SPDR 0.40%ER, 0.01%BA)
--

this leaves the portfolio in 2/4 assets priced USD, 1/4 in non-US currencies.

Perhaps being in 2/4 USD priced assets is acceptable because
1 it's not clear there is practical (exist, low cost, low tax, even possible to hold in tax advantaged account) vehicle for me to own non-US cash &/or non-US bonds, even if I wanted to

2 USD reserve currency status (for now & say next decade at least?) makes it acceptable to be in 2/4 USD priced assets

[nomamesbuey]

Perhaps allocating your PP CASH to currency ETF's might be another option?

Clive, thx again, interesting idea, which I did not even know existed (did not know of existence of currency ETFs).

Questions
1 From a US tax perspective, could I even hold a foreign currency ETF like Canada's FXC, in an IRA just as if it were US Treas-based SHV or SHY?

2 If in a taxable account, are the dividends from say FXC taxed at the same rate as if they were SHV/SHY?

3 My gut says that for non-rich IRA investors like myself, these ETFs are only cost effective in a Wellstrade, no trading fee type account.  If there were a $7 fee for each buy or sell, holding say even 2 ETFs for cash say SHY & FXC, would not be worth the extra cost of holding the 1 ETF SHY for cash.  Do you agree or am I missing some concept here?

Since Clive is UK-based, due to US specific IRA/tax law questions, perhaps one of my fellow USians, might drop their $0.02 (pun intended) on these questions?

BTW this board rocks!  You gurus' knowledge & altruistic willingness to share it is impressive.

[nomamesbuey]

Thx again Clive,

ISHG seems analogous to SHY, 1-3 yr Treasuries.  SHY is US, ISHG non-US rich nations.  ISHG seems to thinly traded however, 0.21% avg bid ask ratio (0.35% expense ratio).  I want any ETF I use to be reasonably highly traded.

It seems like if a US citizen & US domiciled custodian account person wanted to invest non-US for cash, picking a few strong countries' currency with enough trading volume, would be superior to ISHG.  Canada (FXC) & Switzerland (FXF) are attractive, as stable countries in general, & specifically with a significant trade surplus to GDP ratio, & reasonable government debt to GDP ratio.

Perhaps to be paranoid, I should just contact the IRS "Customer Support" to discern if ETFs like FXC are "allowed" within an IRA, maintaining the same tax shielding status as if it where "US" ETFs like SHY, TLT, or VTI.

[nomamesbuey]

For information/clarification, I called the Currency Shares nbr, 18777933934, for clarification on tax treatment of FXC for USians

The Currency Shares Cust Support Rep claimed:

in IRA or other non-taxable: sheltered from tax; same treatment as if it was VTI

in taxable account:
1 Any dividend/interest taxed at ordinary income rates. 

2 Unlike stocks (like say VTI or VEA), the "capital gain" say in FXC is always taxed at ordinary income rates.  Specifically I asked what if FXC was held for 5 yrs (via purchasing FXC on Jan 1 2010 & selling FXC on Jan 1 2015), it would still be taxed at ordinary income rate, whereas say VTI & VEA would be taxed at "long term capital gain" rates.  The "33 Act Grantor Trust" law/rules governs a currency ETF like FXC

3 What if there is a "capital loss" in FXC?  Could that be "tax loss harvested" if FXC is sold for a loss in the same year against say if VTI is sold in the same year for a "capital gain"?  Support Rep was unhelpful here, gave the generic "consult your tax advisor" boilerplate.

[nomamesbuey]

Clive mentioned this from his UK & non-UK/foreign perspective

In the UK I can buy Gilts (LT's) directly.  For US exposure TLT, Canadian XLB.TO, Euro IBGL ETF's can be traded.  I can't find any easy access into Japanese treasuries however - anyone have any suggestions as to a possible Japanese LT type holding?

Could someone analyze this from a USian perspective?

1 It seems that any non-US equivalent of TLT is just not available on a US exchange, correct?  There are non-US funds, but of much shorter maturity, than the 20-30 yr bonds in TLT.

2 Could a USian purchase XLB.TO within a US custodian account? XLB.TO is apparently analogous to TLT, but of Canadian Treasuries, priced in CAD, on the Toronto Stock Exchange.  If if my US custodian allows me to purchase XLB.TO, do I have to first purchase CAD, & possibly get screwed by an unfair exchange rate?  Can XLB.TO be held in an IRA?

I was thinking that for non-USD diversification, I'd much rather diversify the "bonds" portion than the "cash" portion.  If for no other reason, in future years if I max out the 401K & IRA limits, I could still be eligible to purchase up to $10K in I-Bonds from the US Treasury.  These I-Bonds could be considered as the "cash" portion.

[Plurimus]

I am hearing & reading about Harry Browne and the Permanent Portfolio theories only for a little while and so far I find it a great investment model, as it allows you to not worry about it constantly.  Invest & forget seems again somewhat possible, which enables me to focus more on friends, family and myself instead of the financial markets.  

As I got completely sick of the quality and ideas of the bankers that advised my friends and family recently, I am now trying to gradually teach myself the concepts of different investment approaches and test them.
Yesterday was my first try to create and test a Permanent Portfolio in Swiss Francs, which I posted on www.plurimus.net/blog/permanentportfolioinswissfrancs, which I hope some of you find interesting too. I would obviously appreciate any comments and corrections. You can freely download the entire spreadsheet, which I used more this project.  
I really enjoyed this little project and will try to improve it by adding better and more diversified funds. Also I plan to do the same in other non-US Dollar currencies, like EUR, HKD, JPY and GBP.  

[Plurimus]

Clive, many thanks for the reference link!

I have now added an updated version of the PP in Swiss Francs on http://www.plurimus.net/blog/permanentp ... ncsupdated. Feel free to download the Excel spreadsheet for free.
That is enough for now with the PP in Swiss Franc 

Maybe next I try to replicate it in JPY. Or does anyone have a preference for another currency? 

[Plurimus]

Today I tried the same test in Euro for the period from 31-Dec-2002 until now.  Results are quite consistent so far in US Dollar, Euro and Swiss Francs.  In my opinion this raises the credibility of the permanent portfolio.  Quite impressive. 

Download the excel for free, if you like to
http://www.plurimus.net/blog/permanentp ... ktestineur

I will still test some other currencies. But soon I am ready to put some of my savings into this strategy as I am getting more convinced. Also what is still intriguing me, is the question what effect would an addition of small caps for stocks or another metal and agricultural commodity have on the PP performance.

[southieguy]

Just joined this site today.  When I go to the Plurimus site I dont see any spreadsheets in the files section.  Can anyone point me to where I can download same?
Thanks,
SouthieGuy

[Plurimus]

Hello SouthieGuy

I will upload them again sometime in the next couple of weeks with updated data.
Sorry I had to take them off the site a few weeks ago.

[southieguy]

Thank you for the reply Plurimus.
Will you please post a reply here when you have had a chance to
put your speadsheets back there?  That way I'll get a notification.

Thanks again,
SouthieGuy

[Plurimus]

Hi southieguy

I hope you get the notification. Now found some time to improve and restart my blog www.plurimus.net. I hope keep working on it.
But the excel (free in download section of my site) is still the same old one, just updated upto 1 October 2010. I will post one with investable ETFs soon.

[southieguy]

Hi Plurimus:
Thank you,  Yes, I did get the notification. 
Best,
Dick

[Plurimus]

Hi southieguy

Now I took the time to study available ETFs in Euro, so I could replicate the Harry Browne Permanent Portfolio with easily investable and cheap funds, without currency risks versus the U.S. Dollar.
It was not all that easy. If you are interested then http://www.plurimus.net/investing/2010/ ... n-eur.html

Best regards

[southieguy]

Thank you Plurimus.
Southieguy