Gyroscopic Investing

In general it is not good analogy to compare returns of a CD/cash with investment asset classes as equity/bonds/gold etc. But given this PP concept and its very low volatility does it make sense to hold to invest in PP for better returns than a CD as such ? Retaining money is important than retun on money.

Once you have your emergency cash put aside (6/12 months), would it make sense to hold PP in your taxable account instead of keeping them in CDs ?

How are people using this concept ,is PP truely for investement accounts  ? If this is not good idea, what would be other options with very low volatility and perceived safe heavens ?

Thanks.

If I understand your question correctly, you are asking if the PP is used for building a nest-egg for retirement or if it can be used by someone already retired?  Or perhaps you mean saving for short term vs long term goals?

I am sure others can comment on this better than I, but I think the PP can be used throughout one's investment and retirement life.  That is why Harry Browne referred to it as the Permanent Portfolio.  That said, if someone is extremely risk averse to any loss of principal, then the PP may not be the vehicle of choice for that person.  The PP will fluctuate in value, and I believe the largest peak to trough decline in the past has been on the order of 15% or so.  This is not a common occurrence, but is not a guarantee of a lower bound either.

But there are a lot of built-in protections with the PP that are not present in other investment vehicles.  CDs, for example, are not risk free.  Even with FDIC insurance, there is no way to know for certain that the Congress would provide adequate funding during a widespread bank failure scenario.  It is for this reason that CDs pay more than Treasury bills do.  Cash will be subject to inflation risk as well.  So while you may not "lose" any of your original investment with a CD, you may end up with significantly less purchasing power.  Having gold in the portfolio is a hedge against this.  Long term Treasury bonds are a hedge against deflation, and stocks are there to take advantage of prosperous times.  Personally I think that the PP is much safer, in the broadest sense of the word, than having all of one's money in CDs.

In terms of investing for long term vs short term goals, I would think that if you know you are going to need a certain amount of money in one to three years time, and cannot chance a loss of principal, then you should stick to short term government bonds.  If the savings is for something farther in the future, and some risk of loss can be tolerated, then the PP or other investments could be considered.

I think that the PP is better than CDs for almost all cases. One should keep a few months of living expenses in cash, but apart from that I think it is prudent to hold the PP.

Thanks. It is very useful thoughts.

Currently 50% of PP assets are at all time high (Treasuries and Gold). Given this is this a good time to start building up a PP ? I know market timing is not really meaningful for long run but I think "buy low, sell high" still counts for almost anything tradable around including PP.

What do experts think about good time to start creating PP ? I think risk/rewards do not favour creating PP at this time but then this portfolio is designed to work such that at any given time, there are few asset classes of this portfolio will be on high marks compare to others. What would be considered a good entry points ?

On the other note, would it be worth building a position only from asset classes that are not in favorable currently ?

How do people go about this ?

pfan wrote: Thanks. It is very useful thoughts.

Currently 50% of PP assets are at all time high (Treasuries and Gold). Given this is this a good time to start building up a PP ? I know market timing is not really meaningful for long run but I think "buy low, sell high" still counts for almost anything tradable around including PP.

What do experts think about good time to start creating PP ? I think risk/rewards do not favour creating PP at this time but then this portfolio is designed to work such that at any given time, there are few asset classes of this portfolio will be on high marks compare to others. What would be considered a good entry points ?

On the other note, would it be worth building a position only from asset classes that are not in favorable currently ?

How do people go about this ?

The ideal entry point for a PP is now, just as it was 5, 10, and 20 years ago. Of course some asset classes will bubble and burst, but as a portfolio the PP will march onward and upward. If you're worried about investing on a bubble (which is quite likely with a PP) just check your rebalancing bands every 4-6 months for a year.  The PP doesn't suffer from bubbles. It is fueled by them. 

Hello everyone, i am new to this site/forum and have stumbled upon the PP just recently, by accident. There is just something about the PP that makes you want to scratch your eyes and wonder if it can be as good as the historicals show.I guess i am conservative by nature, but i am considering the PP as the "variable" part of my assets, not in the sense of tinkering with the allocation. Rather i would consider the amount in PP (maybe 40-50% of assets) as "money i can afford to lose" - if this portfolio pulls in a CAGR of 7-9% over the next 20-30 yrs. i would be happy camper. For the remaining amount of assets (maybe 40-50%) of "cannot afford to lose any of it" and to at least tread water vs. inflation index, why not just short term T-bills and some CD's ? The most powerful words that rang a chord with me on Harry Brownes 12 rules was your greatest source of wealth accumulation should come from your profession. Not to get into details or sound arrogant, but in my situation and profession my net savings after all living costs,taxes are taken out is in US$five figures monthly and i work in China and get paid in China Yuan, which i keep some of that savings in to further hedge against US$. I am quite content and can reach my savings goals comfortably with just the savings that my profession brings me. Of course, i need to hedge against losing my job, but i do not need to generate 9% CAGR returns for 20 yrs. . I need to "hang on" for another 5 yrs at this savings rate to hit a comfortable net worth target.

Does anyone else have this kind of set up where they use the PP as their "play money" to maximize returns but then totally turtle up into something even more conservative like a CD or just ST treasuries ? thoughts ?

I am afraid I am not in a similar situation, but good for you.  

I do not think that CDs are necessarily "safer" than the PP.  Yes, most likely they will provide the promised return and have no volatility.  But the PP provides at least some protection against extreme events that we can't always presently imagine or that seem far fetched.  HB mentioned that FDIC insurance for CDs would be totally overwhelmed in the event of a widespread bank run.  This is why he advocated using short-term Treasuries.

I suppose that ST Treasuries are technically safer than the PP as a whole, but without sufficient gold in the portfolio you are at risk of inflation eating away your purchasing power.  The only issue with the PP that has me at all worried is some sort of calamitous event which causes the value of the US dollar to fall precipitously, since 75% is in USD.  But even in that event the 25% gold allocation would at least cushion the fall.

I suppose if I were in your shoes I'd put a substantial portion in the PP, say 75% or so, and the rest in foreign currencies.  

Hi Pfan, Gold is not at an all time high by any measure (except inflated dollars).

@China Bull; I second Pkg Man's last sentence. The PP is safer than anything else you are considering over the long term, though not necessarily less volatile in the short term.

pkg man and mcclary,

thanks for your input. i need to think this thru again from the standpoint that for me, in my situation and goals, that the PP is in fact more risky than just siiting on some ST treasuries,gold and some foreign currency and just take out stocks and LT bonds altogether - i don't need their upside. pkg man, i assume you meant to say "cd are not necessarily safer" than ST treasuries ? 

Clive,

Thanks for posting that analysis. I found it very interesting.

China Bull,

Yes, I meant to say that I DO NOT think CDs are safer than the PP as a package or ST Treasuries.  Thanks for pointing that out, I've corrected the post.

I suppose if you don't need the upside, then a mix of ST government bonds or bills, gold, and foreign currency would be a little safer than a pure PP, although probably not much.  If you look at a chart of TLT and VTI you will see that they generally move inversely to each other.  Of course I can imagine a scenario where they might both get hammered, but in that event you probably wouldn't want to be holding anything denominated in dollars.  I can also imagine a scenario where gold prices fall through the floor, in which case having LT bonds and stocks would be a good thing.

You might want to try a pure PP on for size with a bit of money just to get the idea for how it works in practice.  It really is a well-balanced, all-weather portfolio.  You can do it all with ETFs to make it ultra simple, although at some point I'd move to physical gold. 

thanks pkg man, Clive, et al. this forum is full of smart, but not egotostical, investors and willing to share their . it is apparent all have put deep thoughts into the PP - we have to get out of our way sometimes and not tinker with things like this.