Gyroscopic Investing

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Thanks for the post. Over the years I've come to conclude that a portfolio really should contain ownership in businesses (stocks), ownership in loans (bonds), and ownership in hard assets (gold, etc.). I think there is room to debate around the edges for sure (should hard assets be gold or real estate or timber, etc.). But I think the core idea to spread your money around to all of these basic areas will serve investors well.

I find a common problem with most portfolio advice is they don't include hard assets in the allocation or overweight a favorite pet asset (like stocks). I think a more balanced approach that includes all these assets will serve investors well even if they vary a bit from the orthodox permanent portfolio. Although I do disagree with the idea of avoiding any particular asset due to a perceived high price. I've just found that excluding any one asset can just as much work against an investor if they are wrong.

Clive wrote: What springs to mind (and yes I know this will likely upset PP purists) is that if you own or are buying your own home and that is valued at more than a 25% of your total wealth, then the 'property' exposure might be considered as already sufficient (if not you might like to include some additional REIT exposure).

For the other three components I imagine that the choices are

1.  Gold or cash (if cash then around 25% to 33% of funds should be in a diverse range of foreign currencies/investments to hedge against domestic currency risk).

2.  Long dated treasuries, corporate loans (bonds) or some other loan type investment.

3. A business or stocks.

Whilst some might be content for example to accept buying gold and long dated treasuries at current levels, others might not (I'm personally more in the NOT camp).  Accordingly instead of gold and/or LT's I might opt to hold foreign currencies/corporate bonds.

Similarly there's the option to be more refined about which stocks to hold, I might opt say for small cap value instead of a total stock market set for example.  Or I could totally pass on stocks and use those funds to start/grow a business.

In the UK for example some PIB's are currently yielding 11.5% type rates such as Yorkshire 13.5% Convertible Notes (maturity 1st April 2025)  http://www.thisismoney.co.uk/pibs-psbs as just one example.  Combine that perhaps with some VISVX (US Small Cap Value that would also provide a hedge against the GB Pound from a UK investors perspective), and invest the last third in perhaps UK Gilt ladder (1 to 5 years) as the 'cash' component and potentially that might fair as well, possibly better than that of a gold, LT's, cash and TSM blend.  Whilst still being somewhat in the PP ethos.

Clive,

Thank you for the post.

I have always been attracted to the simplicity of the Fugger, ancient Talmud, and, by extension HBPP allocation, and find it interesting that despite, or possibly due to the complex nature of our global economic system, they have performed so well. That philosophy of simplicity coupled with the not so dissimilar general Boglehead approach (though less equity oriented) have led me to embrace a modified version of both.

So, after much reading, analysis, soul-searching, quiet contemplation and a very careful evaluation of my own personal circumstances, I have finally decided on the following modified version of the HBPP strategy with a twist of Boglelism thrown in, and one active component as part of the variable portfolio to appease my tinkering and just as an experiment:

25% Global Equity

VTI 12%
VEU  6%
Either VSS or the new Russell 2000 Global value ETF (when it is released, assuming emerging exposure and depending on ER) 6%
HAO 1% (a nod to China in a small Roth)

25% Bonds

TLT 12.5%
BAB 12.5% (my attempts to help the economy)

25% Gold/TIPS

IAU 21%
TIILX 4% (TIAA-CREF 403b)

25% CASH

Alliant Credit Union (1.5%) 15%
SHY  9%
I-Bonds 1%

Variable Portfolio (3% of total portfolio)

PTHDX - PIMCO Global Pathfinder (An active management experiment)

I own my home, the value (very high six figures) of which is currently approximately equal to 2x my entire investable portfolio. So, enough real estate exposure there I should think.

I also don't plan on retiring in the conventional sense ever, good health provided

It will be interesting to see how this all works out. I have enjoyed reading this forum and the epic thread on the Bogleheads forum and look forward to becoming a somewhat active member of this valuable resource!

Cheers!

Maestro G

Clive wrote:

craigr wrote: ...Although I do disagree with the idea of avoiding any particular asset due to a perceived high price. I've just found that excluding any one asset can just as much work against an investor if they are wrong.

My concern with respect to LT's Craig is that at some point within the next 30 years base rates are likely to be higher than at present which will impact the price of LT's (potentially quite significantly).

Understood. But as you point out we had LT rates spike during the late 70s/early 80s and the portfolio did OK. The gold allocation went up so much it wiped out the bond losses. This would have forced investors to rebalance down their gold and buy LT bonds potentially yielding in the double digits. However the rewards of this process were dramatic as gold prices collapsed and bond prices had outstanding returns going forward.

The point of course is we just don't know what is going to happen. Even LT rates could go lower and stay there. Japan has had rates in the 2% range for about two decades now. That was their fallout from their own real estate bust in the late 1980s. So there is no reason to think it couldn't happen in the US or even the UK as well.