Gyroscopic Investing

There was a follow-up by the Couch Potato about the Permanent Portfolio:

http://www.moneysense.ca/2011/09/10/the ... ch-potato/

I just posted my thoughts about it here. Thanks again to Dan (Canadian Couch Potato) for doing the interview and follow-ups:

https://web.archive.org/web/20160324133 ... portfolio/

Great articles, very interesting to see the objections from a person with a more normal portfolio. I recognized many of my own former beliefs, such as the "stocks perform well over the long haul" trap. There's really quite a compelling implicit narrative: if you steel your will and just be a man, clenching your chiseled jaw in the face of market swings, your investments will explode in value over the next 40 years!

Coming to understand that this generalized long-term upward trajectory mostly comes from short periods of tremendous growth was eye-opening to me. I had no idea how bad the 60s and 70s were for stocks in real terms, and I suspect most non PP-ers don't either. Same goes for the last decade, although I think people are starting to notice the total lack of real returns. "Maybe if I just slice and dice my stocks into even more sectors..." 

Once you understand this, it becomes very easy to see how investing in a stock-heavy portfolio is a crapshoot. What if your first 10 or 15 years of investing happen to occur during one of these stagnant periods of low-to-no returns? What if the stock market starts to shoot up right before your retirement; should you short-circuit your plans to migrate towards a more conservative allocation in order to try to capture some of that growth you missed earlier in life?

These are gut-wrenching questions that I'm very glad I no longer need to answer!

Sweet! A new excel spreadsheet to play with!

You guys nailed it.  It's all about providing a portfolio with an average real annual return of 3-6% over the period of a few years in any economic environment.  I'm not willing to bet my life savings on a repeat of 1980-2000, and if we do see this then I'm still covered by the PP, although obviously the stock heavy portfolio will outperform the PP during a period of prosperity.

Clive wrote: It would seem that more smaller countries/currencies tend to directly/openly default, whilst larger currencies default via stealth.

Historically, hyperinflation (capital flight) never happens to the core economy (i.e. Rome, UK, USA), only the fringe economies.