How secure is an all ETF PP if a second market crash happens like in 1929?

[ILoveMoney]

I read some concerning news today that might postpone the creation of my PP. Almost certainly the stock part of it.

You can read the article here.
http://www.marketwatch.com/story/scary- ... 2014-02-11

Some quotes about the date of all the happening.

If this correlation continues, the market faces a particularly rough period later this month and in early March.

But between now and May 2014, there is plenty of reason for caution.”?

I will follow this closely and when setting up my PP certainly won't buy any stock index fund until June/July when this mess is sorted out.

Now, what about the other parts of the PP (Gold, Cash & Bonds). If they are all ETF how will they perform under this kind of pressure?

This post is not intended to be negative, it just worries me...

[dragoncar]

My psychic told me it would be OK

[Dieter]

According to various pundits / analysts:
* Interest rates have nowhere to go but up (killing Long Term bonds)
* Fair market vale of Gold is $600 (aka, 50%+ drop)
* Quantitative easing is going to cause massive inflation, destroying the value of cash
* Stock market is at an all time high (NOT inflation adjusted); looks like 1929 all over again
* Don't fight the Fed : commited to low interest rates and high stock valuations; lack of demand recession, so don't fear the reaper (inflation)
* Start of the next bull market!

0..n of those may come be true.

PPers take the tack that no one can predict which will happen.

Note: I'm not a commited PPer - I overweight (45%) stock even in the portion (50% ish) of my portfolio that is PP-like (LTT, Gold, "cash", slice & dice stock, including intl.)

[rocketdog]

If I was just getting ready to create a PP for myself today, I would probably dip a toe into the water by dollar cost-averaging every few months.  Depending on the investing time horizon I was looking at, I'd also change the weightings to be stock-heavy and bond-light... at least for the time being.  So only a percentage of my portfolio would be a true PP, with a "modified PP" sitting on top of it.  My PP is all ETFs, incidentally.  In fact 2/3 of my retirement money is in ETFs, with the only mutual funds we own being in our 401K accounts. 

This is pretty much what I did a year ago when I put a portion of my retirement assets into a PP.  I don't believe in embracing any single investment strategy for 100% of my portfolio, so I carved out a chunk that would be a dedicated PP and then turned the rest into a VP that is like a modified PP in some ways, with extra stuff thrown into the mix.

After reading dozens of investing books and academic white papers, I've settled on a few other approaches that I like in addition to the PP.  I like the Boglehead approach, the Ivy Portfolio approach, the All Weather approach, and the Merriman approach.  I tried to come up with a way to take the best features of each of those approaches and make a portfolio customized to my liking.  What I wound up with looks more or less like this:

5% Cash
5% Commodities
10% Gold
10% LTTs
10% Total bond market
10% REITs
30% US Stocks
20% Foreign Stocks

As you can see, only 35% of my portfolio is a PP (5% Cash, 10% LTTs, 10% Gold, 10% Stocks), with the other 65% leaning heavily towards stocks at an additional 40%, 10% in REITS and 5% in Commodities on top of that, and 10% total bond market to round it off.  I basically didn't like being without REITs and broad basket commodities in the PP, and I wanted some broader bond exposure.  Plus I have a 15-20 year time horizon before I'll begin withdrawals so loading up on stocks makes sense for me based on historical performance. 

I should add that my stock investments are all indexes, but I have a mix of different things besides simply a total stock market fund or S&P 500 fund.  I also have a High Dividend fund, a Low Volatility fund, several Value funds, and an Equal Weight fund.  On the foreign side I have developed markets, emerging markets, large caps, small/mid caps, and low volatility funds.  Basically I have a "core" total market fund, then I tilted the rest of my stocks towards funds that I think have the best long-term chance of outperforming the S&P. 

I may be unusual in having nerves of steel, since I didn't sell anything when 2008-2009 hit.  Sure it made me sick to my stomach, but I knew it wouldn't last so I started shifting more heavily into stocks the lower they went.  I viewed it as getting a bargain, and I've since become very contrarian in my investing outlook.  As soon as something in my portfolio goes down, my immediate reaction is not to panic and sell, but rather to purchase more of it to bring down my cost basis. 

Sorry for the long post, but I've been off the message boards for a while. 

[rickb]

Now, what about the other parts of the PP (Gold, Cash & Bonds). If they are all ETF how will they perform under this kind of pressure?

ETFs are intended to closely track the valuation of the underlying assets.  The authorized participants (i.e. not you) can make money if the ETF drifts in either direction.  So, assuming ETFs perform as intended, your question boils down to how do gold, cash, and LT treasuries perform in a depression environment.

Bridgewater Associates has what they call a "Safe Portfolio" - designed to preserve capital even in a depression environment, see http://sdcera.granicus.com/MetaViewer.p ... 9141.  It apparently consists of 10% gold, 30% T-bills, 40% TIPS, and 20% T-bonds.  There's a performance chart showing (simulated) returns from 1929 to 1933, where this portfolio is basically a flat line (0%), while a conventional 65/35 stock/bond portfolio loses 70% of its value and even Bridgewater's All Weather portfolio (conceptually similar to the PP) loses more than 40% of its value.

So, I think the answer to your question is gold, cash, and t-bonds do OK in a depression-style environment. 

If you're actually asking whether gold, cash, and bond ETFs will continue to track the underlying assets in a depression-style environment, that's a different question.  JPMorgan apparently has their fingers in essentially every gold ETF on the planet - for example, they're the custodian for both IAU and SGOL and an authorized participant in GLD (meaning they can trade shares for GLD's gold whenever they want).  If a depression causes them to go belly up, I'm not entirely sure what might happen to these ETFs.  LT-bond ETFs (in particular TLT) seem to loan an awful lot of their assets out in return for "cash" they then put in their own money market funds (see TLT considered harmful).  If BlackRock goes belly up in a depression I'd expect TLT holders to take a serious haircut.  Cash ETFs (SHV, SHY, etc.) seem less risky, but in a depression-style environment who knows what the Wall Street folks who run these ETFs might do.

If you're looking for safety in a depression-style environment, I'd stay away from ETFs.  Buy gold coins.  Buy LT-bonds directly (either through a broker or TreasuryDirect).  And either buy short term treasuries directly (broker or TD) or use a reputable mutual fund (e.g. Vanguard).  ETFs add a layer between you and your assets that I don't think has been tested in a depression-style environment.  They might work out fine.  But they might not.

[Libertarian666]

Now, what about the other parts of the PP (Gold, Cash & Bonds). If they are all ETF how will they perform under this kind of pressure?

If you're looking for safety in a depression-style environment, I'd stay away from ETFs.  Buy gold coins.  Buy LT-bonds directly (either through a broker or TreasuryDirect).  And either buy short term treasuries directly (broker or TD) or use a reputable mutual fund (e.g. Vanguard).  ETFs add a layer between you and your assets that I don't think has been tested in a depression-style environment.  They might work out fine.  But they might not.

Good analysis; I'm pretty sure HB would agree.

[BP]

PP vs Bridgewater's All Weather

http://seekingalpha.com/article/878251- ... -portfolio

All investing carries risk.  There is no portfolio that will eliminate risk (risk being defined as loss of assets and/or purchasing power).

If you would like a look at many other portfolios:

http://whitecoatinvestor.com/150-portfo ... han-yours/

[frugal]

PP vs Bridgewater's All Weather

http://seekingalpha.com/article/878251- ... -portfolio

All investing carries risk.  There is no portfolio that will eliminate risk (risk being defined as loss of assets and/or purchasing power).

If you would like a look at many other portfolios:

http://whitecoatinvestor.com/150-portfo ... han-yours/

Portfolio 54:  The Permanent Portfolio

25% Vanguard Total Stock Market Index Fund
25% Vanguard Long-term Treasury Fund
25% Gold ETF (GLD) or, better yet, gold bullion
25% Vanguard Prime Money Market Fund

Here’s another popular portfolio, this one from Harry Browne.  He felt you wanted a portfolio that would do well in prosperity (stocks), deflation (long treasuries), inflation (gold), and “tight money or recession”? (cash).  There are lots of variations.  There is even a one-stop shop mutual fund for 69 basis points that’s been around since 1982 with 15 year average returns of a little over 8%.  Not only did it lose money in 2008, it managed to do so in 2013 as well.  It hasn’t been as popular lately for some reason.