Gyroscopic Investing

Dear PPeers,

I have recently completed the construction of a Permanent Portfolio based in Europe , fully denominated in euros. This allocation suits my objectives of long-term capital preservation, low volatility, and resilience across economic cycles.

At this stage, I am considering further diversification — both geographically and in terms of currency.
Specifically, I am evaluating two potential options in the United States :

Building a Golden Butterfly Portfolio in USD , seeking a slightly higher expected return while accepting moderate volatility;

Alternatively, replicating a second Permanent Portfolio in USD , maintaining maximum stability but adding currency diversification.

My main concern is the currency risk involved.
While the U.S. economy offers long-term growth potential and the dollar remains a global reserve currency , introducing foreign exchange exposure could add complexity and volatility to my overall strategy.

I would highly appreciate your thoughts:

Would you prioritise a Golden Butterfly approach for higher growth, or stay conservative with a second Permanent Portfolio?

Do you think holding assets in both EUR and USD is a smart move for long-term resilience?

Are there any practical considerations I should keep in mind when managing two portfolios in different currencies?

Thank you very much in advance for your valuable insights.

Kind regards

Currency is top of mind for US investors too, at least for me it is. I should probably change my handle to "MrTactical".

I think US diversification is a worthy goal over the long term, but I think you're facing a number of challenges:

The US has a tremendous amount of short-term debt coming due (Yellen's Folly) which has to be refinanced. If market sentiment around the trustworthiness of the US as debt issuer is poor, then we will see the results in the 20 and 30 year Treasury auction results. Why would market sentiment be poor? I do think the Republicans are trying to clone the Liz Truss lettuce... they want to retain and even extend tax breaks, however the DOGE spending cuts in no way offset these tax breaks. I think one could argue that even the 2017 tax cuts were too much, and then COVID stimulus got piled on top of all that. We're at the point where the interest on the existing debt is huge... equal to defense spending, and the US spends a lot on defense. The bottom line is... the 20-30 year bond rates could go higher, unless the Treasury buys the debt to push rates down across the yield curve (yield curve control). But YCC will cause the US Dollar will become the North American Peso. Which would lower investor confidence even more... a negative feedback loop.

https://treasurydirect.gov/marketable-s ... ury-bonds/

US stocks - just straight-up overvalued. As overvalued as US real estate. It's all the same asset bubble, the Everything Bubble.

Gold - it's just gold!

US Treasury Bills (Cash) - they pay well (4.35%), but if the Dollar is going down, you don't get anything once you land your earnings in the EU to use them to fund your life. I do think it's the aim of the US Administration to devalue the Dollar, I think it's not hard to imagine -20% more from here. It has been there before, in 2011.

Maybe go slowly in small steps?

Regarding US-HB-PP with european ETFs in euros, what do you think?

Is the risk covered and hedged or they are the same as USD ETFs ?

If you could hedge away all currency risk by 100%, and just look at the ETF holdings... then you have to ask yourself, why has the US outperformed?

The US has really pumped money into the markets by issuance of government debt over many decades. We are so indebted, though I think we do rival France in our level of indebtedness. All of that debt actually went into the real economy.

Also the US markets are heavy tech-weighted. Tech has outperformed for years, and you have to ask yourself... do you want to bet that it still will over the next 10 years?

I know I'm speaking as Mr. Tactical here, probably speaking about it in the wrong place, but if investors willfully choose to ignore these facts of overconcentration and overvaluation, and seek the solace of a media- and socially-approved label of "This Thing is Really The Market" then that willful ignorance is a kind of a choice in and of itself.

Life always demands choices of us. It's a burden we only escape when we are in the ground.

So let me ask you... are you thinking about only a bi-polar world, EU and US? What about equity and bond exposure to Japan, Korea (developed per some indices), Taiwan, Australia, Canada?

Just today I bought big tranches of IGOV, which is offered in the USA.

https://www.ishares.com/us/products/239 ... y-bond-etf

Instead of having to setup and maintain two separate PPs, you could simplify and construct a more globally diversified PP. For example:

25% Global stocks (unhedged, example ETF: VWRL/VWCE)
25% Gold
50% Intermediate-term global government bonds (hedged to the euro, example ETF's: VGGF, DBZB)

Or, for an even simpler—though slightly more unorthodox—approach:

75% Vanguard LifeStrategy V40A, which holds 40% global stocks and 60% intermediate global bonds, hedged to the euro
25% Gold

These global portfolios already have significant exposure to U.S. assets, which might make maintaining two separate PP's redundant

Hi ,

My main question remains: is it worth having 20–40% direct exposure to USD , through US-domiciled ETFs traded in dollars?

At one point, I seriously considered building a US-style Harry Browne Permanent Portfolio (HB-PP-USA) using US-domiciled assets. After all, that’s where the strategy originated and where it historically worked best—thanks to the availability of ideal instruments and asset correlations . But I ran into the usual issues for European investors:

15% US withholding tax on dividends, often non-recoverable;

US estate tax risks above $60,000 for non-resident aliens;

And frankly, a loss of simplicity when managing it from Europe.

An intermediate solution could be to use Irish-domiciled ETFs traded in USD (like VUAA or IUSA), which still give direct currency exposure to the dollar while avoiding the legal and tax complications of US-domiciled funds.

So my central doubt remains:

Is direct USD exposure via ETFs worth it , or is the embedded USD exposure in global UCITS ETFs already enough for a long-term European investor?

Curious to hear from others who have thought about or even tried replicating a US-based PP from Europe .

Thanks for reading and all the best!

Irish-domiciled ETFs that expose you to US assets are certainly good enough. You don't need those ETF's to be domiciled in the US.

Is direct USD exposure via ETFs worth it , or is the embedded USD exposure in global UCITS ETFs already enough for a long-term European investor?

You already get quite a bit of USD exposure just by holding non-hedged global stocks. This year, with the falling dollar, it's feeling like that for sure... Don't forget that you can view gold as a foreign currency as well.

If you want to increase your US dollar exposure you can keep part of your fixed income in US dollars, for example by combining a hedged with a non-hedged global bond ETF.

Personally I like to keep things simple, so the only dollar exposure I have is through my global equities. All my fixed income is in euro or hedged to the euro.

Hello WhiteElephant,

Gold is exactly the same to be in USD or EUR ?

Regards!

Yes, Gold trackers are usually not hedged. The performance in your home currency should be the same whether you buy a euro or dollar denominated tracker

Hi WhiteElephant,

So, in that case, does it make sense to hold gold in EUR, cash in EUR, and then allocate stocks and bonds in USD?

Curious to hear your thoughts!

Cheers,
Frugal

Gold is a currency agnostic asset. It's just a metal... it gets expressed in different currency units. It doesn't matter where you hold it. Your considerations are index tracking error, annaul expense ratio, TAXATION - look up "USA gold commodity tax".