Gyroscopic Investing

stone wrote: It seems as though the PP appeals to people who do NOT have a professional knowledge of money. That did actually spook me a bit.

My experience was the opposite. It was the discovery that relying on a "professional knowledge of money" can earn you a 40% negative return that spooked me into using the PP.

jackh, I guess I presumed they managed their own money very differently to customers'. 

stone wrote: jackh, I guess I presumed they managed their own money very differently to customers'. 

You are probably right about that. The only time I had a financial adviser I found out she had put me into mutual funds I had to pay a fee to get into and another fee to get out of once I realized how bad they were. She wasn't around to ask how much of it went into her pocket but I vowed never again.

jackh, we also initially asked a financial advisor what to do. Neither me nor my better half had ever given financial matters a thought at that time and neither of us knew what stocks, bonds etc etc were. I thought getting financial advice was just like going to the dentist. I get dental work without doing any of my own research. I got a total shock. He recommended to be almost entirely in a "kickout plan". Basically I'd describe it now as selling put options but with a massive opaque comission paid to the advisor etc. What it would have entailed would have been locking the money up in the illiquid scheme and getting a fixed 7% return only if the FTSE index did well. If the FTSE did badly, there was full downside exposure. Basically it seemed a way to rope the stupid into taking a side of a trade that no-one is willing to take. That made me realize that the ethic of finance seems to be "never miss a chance to seperate a sucker from their money" .

To my mind schemes such as SS cut out much of that industry. To my mind the more of the finance industry that can be cut out the better. It seems to me to be essentially just an administrative burden on the real economy. On the whole to me it comes across as more wasteful and unpleasant than much or most of government.

An older gentleman came by my Mother's house a while back selling investments.  I think he was one of these Edward Jones guys.

He asked my Mother whether she had any investment assets that he might be able to help her manage.

She told him that her son said that investment advisors tend to invest their clients' money in what is best for the investment advisor, and not necessarily what is best for their clients and that was why she had stopped using them.

She said the man looked very alarmed for a moment and then told her it wasn't supposed to be that way.  She started to ask him how he made his money if it wasn't by investing his clients' money in a way that was first and foremost profitable for him, but he was already on his way to the neighbor's house.

MT,

We need a facepalm emoticon!  I'm glad you're a good son.

stone,

I think there's a legitimate financial services industry somewhere in there.  Smart tax planning for people nearing retirement (earning the most they every have/will, paying the highest taxes they ever will (probably), and are going to have various sources of wealth to tap at a time of very sensitive marginal tax rate volatility (SS taxation makes tax-rates in retirement a fickle b!tch).

I also think that if a typical honest PP'er could really help most people invest wisely.

Lastly, the financial industry serves often as a trustee, or creates options/futures markets for agriculture, etc.

That said, these areas are poisoned with greed right now, and if we can't regulate in some responsibility, maybe it's safe to assume that they're forever broken and we're just best figuring it out on our own.


PS,

It's MT's mom's scenario that makes me not 100% opposed to Social Security... I don't like 12.6% payroll taxes as much as the next guy, and think it should probably be a smaller amount, but challenging the very existence of social security may have some unfortunate consequences.

moda, you have said yourself that SS has low admin costs. It seems to me to just cut out the middle man. Basically in the asset based pension scheme, asset prices are just a conduit through which money getting paid in by workers today goes to retirees today. Nothing gets stored up for tomorrow in reality. The SS system simply does the same thing but without all the nonsense inbetween.

stone,

I wasn't stating that there isn't a ton of parasitic syphoning of money and unnecessary administration, but instead that there is a place for financial services.

I hate the industry with a passion the way it exists... but I think some people could improve their position by dealing with the right financial professionals... few and far between as they are.

I'm 28.

Goal #1: 25x yearly expenses invested in the PP, to support withdrawing 4% of it per year to live on

Goal #2: 33x yearly expenses invested in the PP, to support withdrawing 3% of it per year to live on

This will mean that I'm financially independent and can spend my time however I want, with the PP covering my expenses.  I'm hoping to get there in another couple of years.

49

Goal #1: no more 2008s
Goal #2: accumulate enough money not to *have* to work, even though I *like* to work...

akratic wrote: I'm 28.

Goal #1: 25x yearly expenses invested in the PP, to support withdrawing 4% of it per year to live on

Goal #2: 33x yearly expenses invested in the PP, to support withdrawing 3% of it per year to live on

This will mean that I'm financially independent and can spend my time however I want, with the PP covering my expenses.  I'm hoping to get there in another couple of years.

I'm 31 and this is my goal, verbatim. I'll extend it to be:

Goal #3: Use my time in early retirement to do fun and exciting revenue creating activities (such as working with startups, provided I can do it revenue-neutral so that I don't tap into my PP), and shield that money from creditors into vessels such as a home in TX that is 100% protected from creditors, or annuities in Florida. If my activities generate a huge windfall I intend to create a non-profit that promotes Libertarian beliefs.

34.  I might be in a very small minority of investors here who were previously 100% PP, then switched out for opportunities elsewhere.  I still hold a 20% core PP and believe in it immensely.  I suppose my primary goal will be to use the PP in retirement for a steady 4-5% real yield so I can continue to work on start-ups without any need for a big exit.  I've already accomplished one goal which is to have a solid AA recommendation for family and friends who are less interested in these things than I am.

Adam1226 wrote:

HB Reader wrote: My background is in finance and law enforcement. 

Was that combined into one career?

Yes, at the US Treasury Department.  I started as an analyst working on a study of foreign portfolio investment in the US (related to the "TIC data" they talk about sometimes on CNBC), but after President Carter froze Iranian assets in 1979 I got transferred to the office in Treasury that enforces asset freezes and trade embargoes.  I worked there for most of my career. 

I am 20 and I use the PP to protect my parents retirement money. They had a terrible investment experience before the PP with an incompetent, greedy, Smith Barney broker. My parents now both fully understand and love the PP.

For my own purposes, I use the PP as an all encompassing portfolio. A portion of my PP cash is in FDIC bank accounts for emergency fund use. This is a slight deviation from the HBPP, but the liquidity allows me to view all of my finances as part of the PP.

I am not worried about not taking on "enough risk" just because I am young. I love investing in the PP so my savings rate is likely to continue to be very high. Also, it is possible for the PP to outperform equities over the next 40 years. Crazier things have happened in finance 

melveyr,

Would you mind sharing your parents' experience?  Most of my expreiences with bad advisors don't come with a big, organized series of events, but just general impressions of ulterior motives.

My dad had been a real estate investor for most of his life. He has a practical knack for owning properties and treating them as a business. Anyways he had sold one of his properties and was hunting for another property to buy so that he could avoid paying capital gains tax.

Long story short, the broker convinced my dad to load up with equities, on margin, at basically the peak of the tech bubble.

They have been with the PP as of February, avoiding some of the recent pain. When they left their broker he had them at a 90% equity allocation with 10% short term corporate debt. He was convinced that rates "had to go up." The most shocking part about this allocation is that my parents are in their mid 50s. The amount of risk with the portfolio was clearly too much for someone that close to retirement.

Oh and the equity allocation was strictly actively managed funds with sales loads and 1+% expense ratios.

Thanks for sharing.  My dad's advisor had him in less equities than 90%, but all the funds, including the bond funds, were over 1% expense ratio, with most stock funds over 2% and there was no financial planning being done.  None of the funds performed admirably at all, with one "income fund" (a mix of risky bonds and what I assume must have been dividend stocks) having crashed as much in 2008 as the S&P, but with flatter performance afterward.

Pathetic to even call themselves professionals.

moda0306 wrote: Pathetic to even call themselves professionals.

"If you go with our firm, I see 100-200 basis points of annual management fees in your future."

I'm 66 and 3/4 and going on 21. 
I'm retired, grateful for all the PP posters and hope some of your wisdom rubs off on me.

Age: 43

PP purpose: Retirement savings, hope for inflation + 4%.

Went into 2008 with cash in an Icelandic bank and a 85/15 portfolio... yep I even paid for that advice.

Chanced upon the PP concept in late 2010, reading through the rationale and critiques of the approach was an education. I don't think any approach has had such a thorough, sustained kick in evaluation and emerged (mostly) unscathed. 

2011 is the first time that a (non cash) investment of mine has actually been worth more than I put in.

41 and growing my PP as an early semi-retirement slush fund to be drawn upon in 5-10 years.  Currently saving ~50% of my salary for this purpose.

I stumbled upon the PP while exploring investment options that would provide a reasonable rate of return with reasonable stability under most economic conditions.  Things were looking grim until I found Craig's blog.  The rest is history.

Considering this is my first experience at investment (aside from generic 403b options), I consider myself unbelievably lucky to have found the PP & this forum.

46 retired a couple years ago.

I saw no way to preserve what i've saved using a typical Vanguard bond heavy retirement portfolio.  There's simply too much risk in either bonds or stocks.  The PP is easily the best way to protect youself against an economic calamity which I'm afraid will happen in the next couple years. 

My wife and I (34) have tried (and been burned by) various stock investing strategies in the past and have come to realize that depending on hopes and wishes for what the stock market will do over the next ten years or whether the hot investment advisor will continue his winning streak just isn't going to cut it.  

Enter the HBPP.  We're looking for it to protect our hard-earned savings in any market condition while still providing reasonable growth. And perhaps just as important, we want it to take worrying about investing off the table completely so that we can reallocate that time to enjoying life right now.

33 here.

My first goal is to protect and grow what we've earned using an investment strategy that I trust.  The Permanent Portfolio is the first strategy I've encountered that truly earned that trust.

A bonus has been a sort of "inner quiet" about finance and investing that has spread to other areas of my life.  I like it.  I believe that life is meant to be good, with stress discarded whenever possible.  My secondary goal is to pass on that sense of "inner quiet" about money on to my children.

Lone Wolf wrote: A bonus has been a sort of "inner quiet" about finance and investing that has spread to other areas of my life.  I like it. 

Another way of looking at this important feature of the PP is that we all need some of that "inner quiet" in order to make good decisions.  When we lose that inner quiet we tend not to make as good a decisions ("no one is wise on horseback", as they say).

I think what happens to many investors is they go into investing with inner quiet.  They pick a strategy with a long term return that is appealing to them.  After investing in the strategy they have selected, however, they discover that it is subject to lots of volatility, which tends to undermine their inner quiet.  One day, often in the middle of a market decline, the inner quiet is overwhelmed by fear or even panic and they simply sell to relieve the tension. 

I think that the Wall Street black boxes have figured out a way to program around this erosion of inner quiet in retail investors and periodically overwhelm their inner quiet knowing that it will lead to capitulation from many investors.

The "you" you should fear is not the rational you with a sense of inner quiet, it's the frightened "you" who is making decisions out of a sense of panic and not rational calculation.

Another way of putting it is to say that successful investing requires a strong sense of one's own identity, but fear has a way of eroding one's sense of identity, which leads to decisions that are out of synch with one's fundamental identity.  The key is to stay out of such fear-driven, "identity eroding" circumstances.