Gyroscopic Investing

I started my Canadian PP in October 2011.
By October 2012, it had gained 5.39%.
Since October 2012, it has lost 5.29%, and would have lost more had I not invested in the S&P500 in December-ish timeframe.

My Gold yesterday got to <20% of my portfolio so I'm going to have to buy some more. It's hard. I'm not a gold bug at all.

In Canada, the small gains in the TSX are not compensating for the downturn in gold and bonds.

Sigh. When will I ever win at this game?
Venting...

Frustrated...

You've only had your PP for 18 months now.  It's been up, it's been down, it's been sideways, and you're essentially even at this point.  I would be breathing a sigh of relief in light of what's happened over that time period. 

It's easy to get frustrated when it feels like the PP is spinning its wheels.  But when everything is collapsing around you and the PP is holding firm, you'll be breathing another sigh of relief. 

Personally, I moderate those feelings by holding a VP that takes on more risk than the PP.  So when things are going great I'm happy I've got the VP, and when things are going bad I'm happy I've got the PP.  So one way or another I'm always happy. 

standaard bounderies is 10 % so to buy Gold below 15 % portfolio value

Hi -
I've felt more comfortable using 20% and 30% boundaries, so that's what I've been doing.
I did end up buying gold yesterday. If the PP strategy hadn't been there telling me that it was time to buy, I never would have bought it.

We'll see what happens, and I feel good knowing it's only 25%.

I still feel discouraged, but there is something nice about have a game plan.

Yes, Canada has lagged recently.  Probably due to the fact that your economy is heavily tied to natural resources and most of the resource heavy countries have been lagging. 

Because of this heavy correlation to commodities, I personally would probably split my stock portion into 50% Canadian, 50% US.

Either way, it will probably even out in the wash though so I wouldn't fret too much as a 5% DD is pretty mild all things considered.

I agree it's not a bad idea to have some VTI. VTI saved me.
I can hear your pain. I spent a lot of time thinking about Canadian pp but so far it has been pretty stressful and not so rewarding. Big part of it is that I am not patient enough and terrified and not fully convinced of pp in this economic situation. The most I'm uneasy about it is gold. I was going back and forth in my head between pp and couch potato portfolio (40/60 of bonds and stocks). I don't want to spend any more time stressing about it so I was even thinking of putting the rest in GIC.

Question for some you international folks. So generally when the world economy slows down the dollar goes up in value because it is the world's reserve currency... Does that make the US markets look really attractive from a return/risk perspective when viewing things from your currency lens? It would seem that the US markets have a built in hedge against global slowdowns because of the exposure to the dollar.

christina wrote: I started my Canadian PP in October 2011.
By October 2012, it had gained 5.39%.
Since October 2012, it has lost 5.29%, and would have lost more had I not invested in the S&P500 in December-ish timeframe.

My Gold yesterday got to <20% of my portfolio so I'm going to have to buy some more. It's hard. I'm not a gold bug at all.

In Canada, the small gains in the TSX are not compensating for the downturn in gold and bonds.

Sigh. When will I ever win at this game?
Venting...

Frustrated...

These following numbers might make you feel a bit better.  I track a bunch of different PP's on Google Finance.  Here are their returns since October 1, 2012:

Standard Canadian PP = -5.7%

US PP (in USD) = -3.5%

Blended Canadian PP (50/50 XIU/XWD) = -2.4%

Also I have used GTU for the Canadian PP's so once the NAV recovers then the Canadian PP's will look a bit better.

melveyr wrote: Question for some you international folks. So generally when the world economy slows down the dollar goes up in value because it is the world's reserve currency... Does that make the US markets look really attractive from a return/risk perspective when viewing things from your currency lens? It would seem that the US markets have a built in hedge against global slowdowns because of the exposure to the dollar.

Yes and no.  The downside is of course from the domestic currency strengthening against the USD, like the Canadian Dollar has done for the past 13 years.  From 2000 to 2011 the S&P500 has a CAGR of 1.18% in USD (from Simba Spreadsheet) while in CAD it is -2.3% (from Stingy Investor).

A good example of where it helped was during 2008 when the Canadian dollar fell ~20% against the USD.  This boosted gold and US/International assets by 20% priced in Canadian dollars.

To help simplify the matter I usually think of the non-US PP in two parts:

Part 1: All World Stocks and Gold.  Gold doesn't care about any specific country, and so to counteract it we need an All World Stock ETF (or simply US stocks work too...the US investor can get away with holding only US stocks since the majority of the multinational companies are based in the US).

Part 2: Domestic Stocks and Bonds.  Basically a very conservative Bogleheads Portfolio.  This is the anchor of the portfolio that lowers the leverage of Part 1, and also ties the portfolio to the domestic currency.

I generally follow this formula for a non-US PP:
20% All World Stocks
20% Gold
10% Domestic Stocks
50% Domestic Bonds

If one wants to maintain the 25% in gold and stocks then they can do the following:
15% All World Stocks
25% Gold
10% Domestic Stocks
50% Domestic Stocks

The country also needs to have its own central bank, debt denominated in its own currency, and a lowish corruption rate.

Slotine wrote: I lean closer to Gosso's split Canada/World portfolio just for the added industry diversification at the expense of slightly choppier waters.  Canada's CPI is close/under the world average so I think that's allowable.

According to the Stingy Investor backtester, adding US/International stocks actually lowered the standard deviation for a Canadian PP from 8.6% down to 8.0%.

I don't understand why you say that world stocks "counteract" gold for Canadians.
I understand that gold acts an alternative currency for Canadians, and is useful to us in times of inflation. Are world stocks also supposed to act as a foreign currency, and be useful in times of inflation?

christina wrote: I don't understand why you say that world stocks "counteract" gold for Canadians.
I understand that gold acts an alternative currency for Canadians, and is useful to us in times of inflation. Are world stocks also supposed to act as a foreign currency, and be useful in times of inflation?

Gold and World Stocks are detached from the Canadian economy.  They are going to act however they want whether the Canadian economy is doing well or not.  Having said that, the Canadian economy shouldn't stray too far from the US, since we are literally attached at the hip and share similarly structured economies.

You are correct and could view world stocks and gold as alternative currencies that will do well when/if the Canadian dollar falls in value.  As for "counteracting" each other, well, generally when one is in a bull market the other is in a bear market.

The domestic bonds and stocks are there to protect from a rising domestic currency, although this won't necessarily show up in the CAGR, but rather a decrease in inflation since imports will be cheaper.  Although currency speculators may buy up Canadian assets simply because they believe the Canadian dollar will increase in value, which will lower our bond yields, and boost stocks and real estate.  This may lead to a bubble, which is fine since you would be rebalancing out of CAD into gold and world stocks.

The trick is to find the right balance between domestic and foreign assets -- backtesting shows ~60/40 respectively, works well.