Gyroscopic Investing

Hi,

Like a few other members on the forum, I am having a hard time throwing down hard earned money into US government paper for the PP. This arises from US dollar devaluation risk and/or direct or indirect default risk (indirect default meaning an effective default through inflation).

So what comments would anyone have about setting up the bond component of the portfolio in an ETF like CAD or AUD or AUNZ that invests in the paper of Australia, Canada, New Zealand? I realize I might give up some of the volatility the PP likes from the long Treasury, but the bonds should respond to interest rate changes in the way we want, and I like the currency hedge. Any thoughts?

Thanks

Gold is the only currency hedge you need unless you regularly transact in Australian or Canadian dollars. Any bond will be vulnerable to a "soft default" through inflation; for an American citizen, I'd take US bonds over Canadian or Australian ones because their smaller economies are less stable and less important in the world economy. Also, they aren't blessed with the world's reserve currency.

I think replacing US Treasuries with foreign bonds effectively nullifies that component of the PP since they are designed to protect you from a dollar based deflation. If you are really worried about inflation/currency debasement I would suggest the appropriate place to play that fear is in your VP. Alternatively you could diversify your equities since prosperity is much less a currency oriented phenomenon and holding some of your stock in a foreign stock market ETF or just using VT vice VTI would add to your currency diversification without weakening your deflation hedge.

A third option is to just use PRPFX since it is weighted towards an inflationary scenario while still being somewhat diversified.