Gyroscopic Investing

Posted: **Sun Oct 30, 2011 8:43 pm**

Hi:

I took Harry Browne's book out of the library and a have a few questions about the permanent portfolio.

1. Browne includes a list of banks that store gold for individual customers and for gold dealers. To meet the 25% gold allocation, will you buy gold and keep it stored? If not, how do you meet the gold allocation?

2. Browne lists about seven "very volatile" mutual funds suggested in order to meet the stock allocation requirement. This book was authored back in the 80s. Are there more current low fee mutual funds that meet Browne's suggested stock investments that are deemed "very volatile"? As a somewhat conservative investor, putting 25% of my assets into "very volatile" stocks is somewhat disconcerting to me. Do some people using the Permanent Portfolio just use a broad index mutual fund?

3. Browne addresses tax considerations. He says that the tax bill on the PP should not be a burden. (From the book) If interest yields are around 10%, treasury bills and bonds (if they comprise half the portfolio) will lead to a max yearly tax equal to only about 1.5% of the total value of the portfolio. (From the book) And if gold or stocks were to double in value in one year, the sale generated by the annual adjustment would lead to a tax of no more than 2.5% of the value of the portfolio. (My example) If the portfolio is $600,000, the tax would be around $24,000. Last year, my taxes were only about $12,000 to $14,000, for both my income and taxes on investments, so a $24,000 tax bill seems high to me. Am I viewing this the wrong way?

4. Browne mentions opening up an account in Switzerland. He even identifies suggested Swiss banks. Do you have any intention to do this? This seems kind of complicated to me, and the potential value of the PP seems to be the simplicity, the low standard deviation, and the consistent reasonable rate of return.

5. Browne identifies gold coin dealers in the book. Do you purchase and maintain your own gold coins?

6. Brown identifies some money market funds that invest only in treasury bills. For your treasury bills allocation, will you use a money market fund?

7. Browne mentions that if you are going to have a variable portfolio, you need to decide how much of your wealth is precious to you and must be retained under all circumstances. He suggests having that amount, plus another 20% of that amount in the permanent portfolio, and then the rest of your total assets can be in the variable portfolio. As someone who wants to retire early, how do I figure out how much of my waelth is precious to me and must be retained under all circumstances?

8. Is Browne saying that I can safely withdraw 5% of the total value of the portfolio on a yearly basis? What if I only have a permanent portfolio, and the total value of the portfolio goes down, and 5% of the annual value is not enough for me to pay for my annual costs in early retirement? Am I up a creek without a paddle? I am more used to using FIRECalc, and I believe that it is designed so that I can take my set amount of retirement expenses every year from my portfolio, and add 3% on an annual basis for inflation, and know with a certain level of confidence that my retirement assets will not be depleted. With FIRECalc, I can take the retirement expenses in good years and in bad. Do we lose the security of knowing our retirement money will be there when we need it when we use the permanent portfolio?

9. If using the PP, of the four asset classes, what is the best class to keep in 401k and ROTH IRA accounts?

10. Have you thought about using the Permanent Portfolio mutual fund to set up your Permanent Portfolio allocation? It looks like the returns have not been as good with the Permanent Portfolio mutual fund though.

11. Do you know what the rate of return was like for the Permanent Portfolio in 2008? If it wasn't too bad, that would give me greater confidence in putting all of my assets into this type of asset allocation because you remember how bad the stock market was hit in 2008. My current allocation is set up to be 80% stocks and 20% bonds.

Sorry for all of the questions, but I do appreciate your help!

Posted: **Sun Oct 30, 2011 9:58 pm**

I'd suggest you read through the forum. All of these answers have been discussed. Welcome!

Posted: **Sun Oct 30, 2011 10:07 pm**

Hi Heddy1, welcome!

I can help answer some of your questions.

Harry Browne's books about personal finance were published between 1970 and 1999, meaning they are based on the way things were 12 to 41 years ago. He died five years ago, in 2006. So it's best to read them like the classics they are, to get the general principles of the PP (the general philosophy, why you might want a PP, why it works, what assets make it up, why certain asset classes and not others, the PP vs. the VP, etc.) and not for specifics because:

-many of the banks he lists are no longer in business, having been merged with others,

-some of the coin dealers no longer exist, having been bought out by others; others changed their business models to specialize in numismatic coins, and new ones have arisen,

-the money market and mutual fund companies he listed have been merged into others (and some of the funds he mentioned were closed after the merger),

-tax laws have changed substantially,

-Switzerland devalued the Swiss Franc (it is now tied to the value of the Euro)

-new securities have been developed, like ETFs, which did not exist when HB did his writing, and a few of them are useful in the PP.

A lot can happen in 41 years. He had a radio program (that ended in 2005, a few months before his passing) where he gave more updated information, and you can find it archived here:

http://www.harrybrowne.org/Archives/Arc ... stment.htm

Also, you can look at the faqs on this forum--each of the separate sections on gold, stocks, bonds, cash, etc. has its own faq where you can get updated info. And our Craigr (who is responsible for starting this forum and bringing Harry Browne's Permanent Portfolio to a wider audience online) writes a blog were you can find up to date guidelines and information:

http://crawlingroad.com/blog/

And be sure to listen to Craigr's podcasts (which you can find on his blog page) which give a good overall updated view on how the Permanent Portfolio works and how to put it together.

Here are a couple of answers:

4. The reason he recommended storage outside the country was because of the protection geographic diversity gives these assets. And Swiss banks because 12 to 41 years ago, Switzerland still had a reputation for bank secrecy and privacy, which is no longer the case. Switzerland was forced (a year or so ago) by the American government to cause their banks to eliminate secrecy for American clients; as a result many Swiss banks will no longer accept Americans as clients and some have given their current American clients a deadline to close their accounts--all because of oppressive tax reporting requirements. If you're are not an American citizen, but a permanent resident in the USA, Swiss banks may still not want to do business with you, because you fall under American tax laws.

9. Since IRA and 401K accounts are tax-advantaged, the best assets to keep in them (for the PP) are the stock allocation and the Long-Term Treasury Bond allocation. The main reason is these assets generate dividends and interest, which are taxable when held outside a retirement account, and which can grow to be substantial over time.

10. Many of us started our PP with the Permanent Portfolio Fund. Many of us are still with them, even though we've put new assets in a HBPP. After Swiss devaluation in August, some of us decided it was time to leave the Permanent Portfolio Fund. The Permanent Portfolio Fund is similar to the earlier versions (1970s, 1980s) of Harry Browne's Permanent Portfolio. Some of us may say it is still a good way to start; others may disagree. If you decide to go this route, be aware that some brokerages will charge a substantial fee if you sell certain mutual funds within 6 months of investing in them, and the Permanent Portfolio Fund is often on such lists of funds.

I hope this helps.

Posted: **Mon Oct 31, 2011 5:02 pm**

Welcome to the site.

As part of your PP due diligence, I suggest you read as many of the posts here as you can. Most of your questions are addressed from multiple angles.

To touch on a few of the questions you posed:

1. There are now several gold ETFs and closed end funds available that some PP investors find to be suitable. I encourage you to read up on funds like GLD, IAU and GTU.

2. The PP is about as safe as it gets when it comes to investing. You are, however, trading safety for the possibility of larger returns, but with the PP you also don't have to worry about large losses, which is IMHO the bigger risk most investors seem to face.

3. In 2008 the PP had a small gain (1% or so).

Posted: **Sat Nov 05, 2011 6:08 am**

Hi,
I have just finished converting 1/3 portfolios to the HB PP after reading Craig's article in the Canadian Moneysense Magazine. I love it's simplicity and safety. I had to make 16 sells yesterday and 4 Buys to achieve this so my heartrate was right up there for awhile. I will probably wait until the end of the year to convert the other 2 portfolios as I want to start with a rebalancing program for each and every new year. Buying stocks and bonds is about a defensive strategy not making huge gains, it's about time I learned this again. I'm using all ETF's as suggested in the article, keeping costs low currently .25%. Own the whole Cdn and International market. Using the Cdn version of IAU for Gold and a Cdn long bond fund from a bank ZFL with 13 Bonds comprising the fund. I will only touch/look at this portfolio once a year. Thanks to all here for this forum and advice. Will update when I redeploy the rest of my holdings to the PP.

Posted: **Thu Nov 10, 2011 12:24 pm**

In the matter of not checking one's PP portfolio too frequently...

Is there software that will trigger a re-balancing alert? Please advise.

Posted: **Thu Nov 10, 2011 2:21 pm**

Shadow,
It is so easy to purchase individual bonds that you could consider to ditch ZFL (and it s fees) and buy directly the CAN 01.12.2045. On top of that, duration will be higher.
I would also suggest to do the same with cash: 3 years ladder (6 rugs/6months JUN&DEC).
Ciao.

Posted: **Thu Nov 10, 2011 4:53 pm**

longeyes wrote: In the matter of not checking one's PP portfolio too frequently...

Is there software that will trigger a re-balancing alert? Please advise.

I'm not aware of any. I think a lot of people just key the figures into a spreadsheet. I made a pretty cool one today, IMHO, to help take the hassle out of juggling the PP between taxable and non-taxable accounts when I get ready to do that next year.

I've actually been toying with the idea of writing a program like this just as a learning experience in Android development. Would be an interesting project for my very first "app".

Posted: **Thu Nov 10, 2011 5:05 pm**

I am tracking my portfolio closely via spreadsheet; no problem there. But that requires inputting the data and seeing the numbers--exactly what I'd like to avoid.

Posted: **Thu Nov 10, 2011 5:13 pm**

I got the book from the library too instead of paying for it. Wonder if that's common to PP'ers.

Just a few comments....

1. All 4 of the sectors (well, 3 if you don't count cash) are volatile. It's the overall PP that is not volatile. That's the beauty of it.

2. A lot of HB's suggestions seemed complicated to me also but folks here have simplified things a lot, if you want to take their suggestions. I don't know if HB would approve of the exact details but I tend to think he would agree with the simplification in general.

3. I will tell you about tax considerations next year when I move my taxable accounts into the HB PP. Maybe this forum needs a separate section just for taxes?

4. I started with PRPFX as HB himself suggested and still use it in my taxable account. I converted my non-tax account to a full HB PP plan so I could watch the two side-by-side and I've decided to convert everything to the HBPP in January. HB PP has outperformed PRPFX lately but that's not the primary reason I'm going to do it. The reason is I don't know why PRPFX moves the way it does. I can sit and watch the HB PP and see very clearly how things are moving but PRPFX is a mystery, as are all mutual funds. You don't even know how well it correlated with the HBPP until the next day and sometimes it doesn't correlate the way you expected it to at all.

heddy1 wrote: Hi:

I took Harry Browne's book out of the library and a have a few questions about the permanent portfolio.

1. Browne includes a list of banks that store gold for individual customers and for gold dealers. To meet the 25% gold allocation, will you buy gold and keep it stored? If not, how do you meet the gold allocation?

2. Browne lists about seven "very volatile" mutual funds suggested in order to meet the stock allocation requirement. This book was authored back in the 80s. Are there more current low fee mutual funds that meet Browne's suggested stock investments that are deemed "very volatile"? As a somewhat conservative investor, putting 25% of my assets into "very volatile" stocks is somewhat disconcerting to me. Do some people using the Permanent Portfolio just use a broad index mutual fund?

3. Browne addresses tax considerations. He says that the tax bill on the PP should not be a burden. (From the book) If interest yields are around 10%, treasury bills and bonds (if they comprise half the portfolio) will lead to a max yearly tax equal to only about 1.5% of the total value of the portfolio. (From the book) And if gold or stocks were to double in value in one year, the sale generated by the annual adjustment would lead to a tax of no more than 2.5% of the value of the portfolio. (My example) If the portfolio is $600,000, the tax would be around $24,000. Last year, my taxes were only about $12,000 to $14,000, for both my income and taxes on investments, so a $24,000 tax bill seems high to me. Am I viewing this the wrong way?

4. Browne mentions opening up an account in Switzerland. He even identifies suggested Swiss banks. Do you have any intention to do this? This seems kind of complicated to me, and the potential value of the PP seems to be the simplicity, the low standard deviation, and the consistent reasonable rate of return.

5. Browne identifies gold coin dealers in the book. Do you purchase and maintain your own gold coins?

6. Brown identifies some money market funds that invest only in treasury bills. For your treasury bills allocation, will you use a money market fund?

7. Browne mentions that if you are going to have a variable portfolio, you need to decide how much of your wealth is precious to you and must be retained under all circumstances. He suggests having that amount, plus another 20% of that amount in the permanent portfolio, and then the rest of your total assets can be in the variable portfolio. As someone who wants to retire early, how do I figure out how much of my waelth is precious to me and must be retained under all circumstances?

8. Is Browne saying that I can safely withdraw 5% of the total value of the portfolio on a yearly basis? What if I only have a permanent portfolio, and the total value of the portfolio goes down, and 5% of the annual value is not enough for me to pay for my annual costs in early retirement? Am I up a creek without a paddle? I am more used to using FIRECalc, and I believe that it is designed so that I can take my set amount of retirement expenses every year from my portfolio, and add 3% on an annual basis for inflation, and know with a certain level of confidence that my retirement assets will not be depleted. With FIRECalc, I can take the retirement expenses in good years and in bad. Do we lose the security of knowing our retirement money will be there when we need it when we use the permanent portfolio?

9. If using the PP, of the four asset classes, what is the best class to keep in 401k and ROTH IRA accounts?

10. Have you thought about using the Permanent Portfolio mutual fund to set up your Permanent Portfolio allocation? It looks like the returns have not been as good with the Permanent Portfolio mutual fund though.

11. Do you know what the rate of return was like for the Permanent Portfolio in 2008? If it wasn't too bad, that would give me greater confidence in putting all of my assets into this type of asset allocation because you remember how bad the stock market was hit in 2008. My current allocation is set up to be 80% stocks and 20% bonds.

Sorry for all of the questions, but I do appreciate your help!

Posted: **Fri Nov 11, 2011 2:23 am**

Clive,
Have a look at: http://www.pfin.ca/canadianfixedincome/Default.aspx
It is not comprehensive of all CA bonds but good enough for me. It has data for CAN DEC2045 and shorter ones for the Cash component. Not historical data , unfortunately.

Posted: **Sat Nov 12, 2011 10:48 am**

1. The list is outdated. Under $50K you are better off buying cheap bullion or low-premium semi-numismatic gold coins. Over 50K you can look at storage options in insured private vaults. Do note that in the U.S., bank deposit boxes are not insured.

2. Stocks are still the primary driver of long term real returns in any portfolio, so to best capture the gains with the PP, a high beta/volatility/growth stock fund is necessary. A total market index fund is diminished in terms of bouncing back from drawdowns or providing fundamental growth. But you should assess your own personal comfort level before deciding.

3. 4% doesn't sound that high back when the highest marginal income tax rate was 90% or so.

4. The list is outdated. Having an offshore bank account is always a good idea, but Switzerland is expensive and very difficult nowadays to get your foot in the door as an American. There are easier options, but it will cost you.

5. The list may be outdated. Use reputable dealers that are online like Gainesville Coins or Daivd Hall Rare Coins. There's still a lot of huckster dealers selling gold at crazy markups.

6. Take a look at PRTBX, which is one of the very few Treasury Bill Money Market funds. Note the expense ratio and the trajectory over the past several years.

7 & 8. 5% is too high. You need to do retirement planning with sophisticated software (I suggest http://www.retirementoptimizer.com/) before you adopt any portfolio to make sure you will meet your needs in any economic condition. The PP's biggest weakness in terms of real growth is an orderly rationing or deflation scenario as during World War II or Japan. Based on market history, having more than 20% exposure to equity with a 4% withdrawal rate will blow up any retirement portfolio in real terms. So you need to be very careful and investigate history before making any asset allocation decisions.

9. Gold since it has a 35% tax rate. The mainstream advice is to keep income investments in tax-deferred accounts, but equities are actually superior as you don't really want to sell them off once you need income. This is a complex topic that requires alot of homework and before and after comparisons.

10. PRPFX is worse than the PP because it is over-weighted to commodity exposure.

11. Based on my data and mutual funds, the PP closed out 2008 with a -2.9% loss and a peak to trough drawdown of 15.07% that year. PRPFX had a peak to trough drawdown of 27.16% that year.

MG

heddy1 wrote: Hi:

I took Harry Browne's book out of the library and a have a few questions about the permanent portfolio.

1. Browne includes a list of banks that store gold for individual customers and for gold dealers. To meet the 25% gold allocation, will you buy gold and keep it stored? If not, how do you meet the gold allocation?

2. Browne lists about seven "very volatile" mutual funds suggested in order to meet the stock allocation requirement. This book was authored back in the 80s. Are there more current low fee mutual funds that meet Browne's suggested stock investments that are deemed "very volatile"? As a somewhat conservative investor, putting 25% of my assets into "very volatile" stocks is somewhat disconcerting to me. Do some people using the Permanent Portfolio just use a broad index mutual fund?

3. Browne addresses tax considerations. He says that the tax bill on the PP should not be a burden. (From the book) If interest yields are around 10%, treasury bills and bonds (if they comprise half the portfolio) will lead to a max yearly tax equal to only about 1.5% of the total value of the portfolio. (From the book) And if gold or stocks were to double in value in one year, the sale generated by the annual adjustment would lead to a tax of no more than 2.5% of the value of the portfolio. (My example) If the portfolio is $600,000, the tax would be around $24,000. Last year, my taxes were only about $12,000 to $14,000, for both my income and taxes on investments, so a $24,000 tax bill seems high to me. Am I viewing this the wrong way?

4. Browne mentions opening up an account in Switzerland. He even identifies suggested Swiss banks. Do you have any intention to do this? This seems kind of complicated to me, and the potential value of the PP seems to be the simplicity, the low standard deviation, and the consistent reasonable rate of return.

5. Browne identifies gold coin dealers in the book. Do you purchase and maintain your own gold coins?

6. Brown identifies some money market funds that invest only in treasury bills. For your treasury bills allocation, will you use a money market fund?

7. Browne mentions that if you are going to have a variable portfolio, you need to decide how much of your wealth is precious to you and must be retained under all circumstances. He suggests having that amount, plus another 20% of that amount in the permanent portfolio, and then the rest of your total assets can be in the variable portfolio. As someone who wants to retire early, how do I figure out how much of my waelth is precious to me and must be retained under all circumstances?

8. Is Browne saying that I can safely withdraw 5% of the total value of the portfolio on a yearly basis? What if I only have a permanent portfolio, and the total value of the portfolio goes down, and 5% of the annual value is not enough for me to pay for my annual costs in early retirement? Am I up a creek without a paddle? I am more used to using FIRECalc, and I believe that it is designed so that I can take my set amount of retirement expenses every year from my portfolio, and add 3% on an annual basis for inflation, and know with a certain level of confidence that my retirement assets will not be depleted. With FIRECalc, I can take the retirement expenses in good years and in bad. Do we lose the security of knowing our retirement money will be there when we need it when we use the permanent portfolio?

9. If using the PP, of the four asset classes, what is the best class to keep in 401k and ROTH IRA accounts?

10. Have you thought about using the Permanent Portfolio mutual fund to set up your Permanent Portfolio allocation? It looks like the returns have not been as good with the Permanent Portfolio mutual fund though.

11. Do you know what the rate of return was like for the Permanent Portfolio in 2008? If it wasn't too bad, that would give me greater confidence in putting all of my assets into this type of asset allocation because you remember how bad the stock market was hit in 2008. My current allocation is set up to be 80% stocks and 20% bonds.

Sorry for all of the questions, but I do appreciate your help!

Posted: **Sun Nov 13, 2011 5:33 am**

CA PP wrote: Shadow,
It is so easy to purchase individual bonds that you could consider to ditch ZFL (and it s fees) and buy directly the CAN 01.12.2045. On top of that, duration will be higher.
I would also suggest to do the same with cash: 3 years ladder (6 rugs/6months JUN&DEC).
Ciao.

Hi CA PP,
I will definitely look into implementing that strategy. Can you please clarify what you mean for the cash component? Is it purchase 3yr Cdn long bonds and ladder them expiring in June & Dec?

Posted: **Sun Nov 13, 2011 6:13 am**

Shadow,
For the cash component of the CA PP, I like the idea of 1-3 yrs bond / 6rugs ladder. Since dividend is paid twice a year, it makes good sense to me that every time there is a bond payment (from cash component bonds and long term bond 2045), a rug matures, then I shovel every thing up to the higher rug of the cash ladder (a 3 year bond).

Posted: **Sun Nov 13, 2011 6:46 pm**

CA PP wrote: Shadow,
For the cash component of the CA PP, I like the idea of 1-3 yrs bond / 6rugs ladder. Since dividend is paid twice a year, it makes good sense to me that every time there is a bond payment (from cash component bonds and long term bond 2045), a rug matures, then I shovel every thing up to the higher rug of the cash ladder (a 3 year bond).

Ok I follow you now, makes sense to generate more cash, mine at present is only paying 1% a month in a HISA. I was looking for a better way to stay ahead of inflation. Thx again

Gyroscopic Investing

Some Questions about the Permanent Portfolio from a Newbie

Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie

Re: Some Questions about the Permanent Portfolio from a Newbie