Gyroscopic Investing

I stumbled on a website of an author who uses the Permanent Portfolio:

http://personalmba.com/permanent-portfolio/

He advocates it, which is great, and he also makes use of an online broker known as Folio Investing to manage his portfolio. The reason he uses Folio Investing is because you can automatically rebalance your portfolio.

https://www.folioinvesting.com/brokerag ... -tools.jsp

Does this sound like a good idea? I think I might use them if it does. But Craig recently wrote an article on why stop/loss orders were a bad idea and I'm worried this might be similar.

Is it completely automatic?  I don't think I'd want that.  There are tax consequences when you sell so I like "having my hands on the wheel" for that, so to speak.

What little effort is required of me to maintain the portfolio is mostly to make sure I stay as tax-efficient as I can.

Lone Wolf wrote: Is it completely automatic?  I don't think I'd want that.  There are tax consequences when you sell so I like "having my hands on the wheel" for that, so to speak.

What little effort is required of me to maintain the portfolio is mostly to make sure I stay as tax-efficient as I can.

It looks like they allow you to do things like "buy only rebalance" to avoid tax consequences, but I'm not really fond of it for another reason:  they buy and sell partial shares.  What this means is that most likely you are not the actual owner of the shares - they are, and if Folio ever went insolvent, you might have to stand in line with other creditors to try to get your stock back.  With a normal brokerage you can get the shares from them if necessary.

Storm wrote:

Lone Wolf wrote: Is it completely automatic?  I don't think I'd want that.  There are tax consequences when you sell so I like "having my hands on the wheel" for that, so to speak.

What little effort is required of me to maintain the portfolio is mostly to make sure I stay as tax-efficient as I can.

It looks like they allow you to do things like "buy only rebalance" to avoid tax consequences, but I'm not really fond of it for another reason:  they buy and sell partial shares.  What this means is that most likely you are not the actual owner of the shares - they are, and if Folio ever went insolvent, you might have to stand in line with other creditors to try to get your stock back.  With a normal brokerage you can get the shares from them if necessary.

Ok I didn't see that. Never mind, I will not be using their services.

Storm wrote:

Lone Wolf wrote: Is it completely automatic?  I don't think I'd want that.  There are tax consequences when you sell so I like "having my hands on the wheel" for that, so to speak.

What little effort is required of me to maintain the portfolio is mostly to make sure I stay as tax-efficient as I can.

It looks like they allow you to do things like "buy only rebalance" to avoid tax consequences, but I'm not really fond of it for another reason:  they buy and sell partial shares.  What this means is that most likely you are not the actual owner of the shares - they are, and if Folio ever went insolvent, you might have to stand in line with other creditors to try to get your stock back.  With a normal brokerage you can get the shares from them if necessary.

The automatic rebalancing may or may not be a good idea. 

Although their policies may vary a little about outright direct purchases, virtually all brokerages will buy and sell partial shares under certain conditions (e.g., as a result of dividend reinvestments).  The partial shares at FolioFN are legally yours --- just like the partial shares at most other brokers (e.g., Schwab, Fidelity and Vanguard).  You may or may not have to sell the partial shares for cash if you decide to have the ownership transferred directly to your name on the books of the transfer agent, but just like with any other brokerage firm that small amount of residual cash would legally be yours, regardless of their solvency status.  I have used FolioFn for 20% of my PP for about eleven years.

Historically, there have been only a handful of (annual) rebalancing events in the PP's 40-year life.  Perhaps when you're DCA'ing into the PP or transitioning it might be helpful, but once you're all in it really just works by itself. 

SmallPotatoes wrote: Historically, there have been only a handful of (annual) rebalancing events in the PP's 40-year life.  Perhaps when you're DCA'ing into the PP or transitioning it might be helpful, but once you're all in it really just works by itself. 

I count 12 rebalancing events between 1972 and 2008 (based on https://web.archive.org/web/20160324133 ... l-returns/).  You must have a pretty big hand.  This is based only on year-end data, not intra-year triggers, and for 10% bands. 

For 5% bands, it's 30.

I really like Folio Investing and would recommend people go take a look to see if it suits them. For the PP it seems there is no clear winner between keeping it balanced or letting it go to the 35% band or anything in between. Less is more generally. I would not have a problem using Folio Investing's rebalanced abilities.

phil