Gyroscopic Investing

I'm a big fan of Harry Browne's (both economically and politically) and I have been using the PP for several years.  However, I have some questions.

With 25% in US bonds and 25% in US treasuries, that means a full half of my portfolio is directly with the US government.  But I have reservations about that:

1) I have qualms about lending money to the US government due to its fiscal irresponsibility, with debts in the many trillions (some say hundreds of trillions).  I know that theoretically the government can't go bankrupt or run out of money -- it can always print more and tax more.  But of course that has its own terrible consequences.

2) The treasury rates are near-zero.  They can't go any lower.

3) I have moral qualms about lending money to the US government due to its anti-liberty positions (e.g. Patriot Act, TSA, foreign wars, disregarding the Constitution and Bill of Rights, etc., etc.)

So, I'm wondering if their are other investments that could be made (other than with the US government) that might accomplish the same or similar things.

I know in Harry's "Fail-Safe Investing" he has a footnote (page 111) that says:

  "If you object to investing in government securities, use long-term corporate bonds with AAA credit ratings that have no call provisions."

So, my specific questions are:

1) Are there perhaps some mutual funds or ETFs that can provide a similar benefit for the long-term bond portion of the portfolio? (Most of my assets are in a Vanguard IRA).

2) Similarly, are there alternatives to US treasuries for short-term bonds?


If the only way to follow the PP is to put half my money with someone I don't trust or believe in, that doesn't give me a warm feeling ...  which is partly what the PP is supposed to do!

tparker24 wrote: 2) The treasury rates are near-zero.  They can't go any lower.

They can!

I understand the reservations due to moral questions, but do you use cash? If not, how do you get around that?

tparker24 wrote:
3) I have moral qualms about lending money to the US government due to its anti-liberty positions (e.g. Patriot Act, TSA, foreign wars, disregarding the Constitution and Bill of Rights, etc., etc.)

Gold mining is terrible for the environment and many companies in the Total Market Index engage in fraudulent and unethical behavior that ultimately hurts our society. When it comes to investing, you might have to leave some of your morals at the door and just donate some of your earnings to charity. I think it is really hard to be a consistent with your morals while constructing a diversified portfolio.

melveyr wrote:

tparker24 wrote:
3) I have moral qualms about lending money to the US government due to its anti-liberty positions (e.g. Patriot Act, TSA, foreign wars, disregarding the Constitution and Bill of Rights, etc., etc.)

Gold mining is terrible for the environment and many companies in the Total Market Index engage in fraudulent and unethical behavior that ultimately hurts our society. When it comes to investing, you might have to leave some of your morals at the door and just donate some of your earnings to charity. I think it is really hard to be a consistent with your morals while constructing a diversified portfolio.

Gold mining really is a nasty business.

Any business that involves the use of cyanide on a regular basis is nasty.

melveyr wrote: When it comes to investing, you might have to leave some of your morals at the door and just donate some of your earnings to charity.

+1

that said,

Yes you could use corporate bonds for the cash and bond portions. Be advised that by definition corporates have more credit risk than Treasuries. So there is default risk, and also less of a flight-to-safety benefit during recession or deflation.

There are many kinds of accounts and funds for corporate cash, but AFAIK there is no appropriate long term corporate bond fund. You want AAA, non-callable, 25+ year bonds and I've never seen a fund that holds only those. Vanguard has the VWESX fund and VCLT ETF, but if you look at their duration and credit rating weightings on the Portfolio & Management tab, you'll see that neither is anywhere close.

So you'd need to manage a diversified portfolio of individual bonds yourself, which is a significant undertaking.

tparker24 wrote: 1) Are there perhaps some mutual funds or ETFs that can provide a similar benefit for the long-term bond portion of the portfolio? (Most of my assets are in a Vanguard IRA).

2) Similarly, are there alternatives to US treasuries for short-term bonds?

If the only way to follow the PP is to put half my money with someone I don't trust or believe in, that doesn't give me a warm feeling ...  which is partly what the PP is supposed to do!

I shared your same concerns about bonds, but unfortunately the world we live in is what it is.  There's simply no alternative.  You can rest in some solace that at least the taxpayer money that is collected isn't literally used against you (its destroyed or extinguished).  It's just the borrowing capability of Congress that is the problem.  It might help to have some skin in the game to get your priorities more aligned towards reform.

1. There's not enough AAA-rated corporate bond securities of sufficient duration.  Most corporate bonds max out at 10 years.  Disney came out with a 100-year bond once, but that is very unusual and I don't think they are AAA rated.

2. Use 1,2,3,4,5yr CD's from an >=A rated bank (Weiss Ratings) and ladder them.

MG

how about establishing a PP in another country, like Canada or Norway.

This will give you diversification from the US$. If you establish it outside the US, you also gain geographic diversification.