Multiple PPs, each in different countries?

[Sam Brazil]

In the interest of geographic diversification, would it make sense to maintain a USA PP, and then, say, a German PP and a Japanese PP?

Or does PP theory posit that no matter what happens in a given geography, at least one of the asset classes will carry the portfolio? And in that case, it doesn't make a difference which geography you're picking?

[rickb]

The PP orthodoxy is that you maintain a PP in the country in which you live because that's where you'll be spending your money.  You're not looking for "geographic" diversification.  However, if you don't live in a "first world" country, then some sort of "international" PP may be more appropriate.

For example, if you live and spend money in the US you really don't care what happens in Germany or Japan.  The German and Japanese stock markets and their bonds don't really matter to you.  However if you don't live in a first world country, with its own stock market and bonds, then you have some pondering to do. 

[barrett]

Hey Sam,

Just thinking that your idea might make sense if you split your time fairly evenly between two first-world countries and plan to continue doing so for quite a long time. In that case you would always be dealing with taxes and other financial rules in the country where you actually hold the assets.

[LC475]

The PP orthodoxy is that you maintain a PP in the country in which you live because that's where you'll be spending your money.

In my personal opinion, the PP orthodoxy is that you own US assets.

The Permanent Portfolio only really works with US cash and US bonds.  That's how it was designed.

Let's say you have a Indian Permanent Portfolio (so-called, because I do not think that's a real Permanent Portfolio).  The Indian currency crashes and burns.  You lose all your Indian cash and all your Indian bonds, and your Indian stock holding is probably not looking so hot either.  Did gold just shoot up and cover your losses?

Let me tell you: No, it did not.  Gold is a worldwide commodity.  It does not care what happens to the rupee.  You might see a little rise, but you can't count on that, and certainly not big enough to counteract all the other losses you're taking.

Gold only cares about the dollar.  Why?  Because the dollar is the #1 money in the world, and gold is #2.  If the dollar burns, and you so you lose all your US cash and US bonds, then what does gold do?  Let me tell you: It just shot up and more than covered all your losses.

The PP only works for US cash and bonds, and, in my opinion, the design works best using US stocks as well.

So, to answer your question "Or does PP theory posit that no matter what happens in a given geography, at least one of the asset classes will carry the portfolio?": it does not posit that.  Or, if it did, it would simply be wrong.  But it doesn't.

[murphy_p_t]

this strategy seems like a way to increase geographic diversification...part of the cost might be underperformance

[LC475]

this strategy seems like a way to increase geographic diversification...part of the cost might be underperformance

Under-performance would be one thing. That's not too bad.

The real problem is that it's not actually an all-weather portfolio if it's not US cash and bonds.

What would have happened to a Greek PP when they crashed?  It would not have weathered the storm.
An Icelandic PP?
A Zimbabwean PP?
Anyone want to make a 30 or 40 year chart of a Japanese PP?

This idea of non-US PPs, in my humble opinion, just does not work.  It breaks the PP.

[murphy_p_t]

http://europeanpermanentportfolio.blogs ... o.html?m=1

[murphy_p_t]

does that link change your opinion?

[LC475]

I haven't gone through all of it in detail, but it is nice that my wish was his command, in that right there he gives us a 30-some year chart for a Japanese PP, and sure enough, it's done poorly for a long time now.

For me, no, it does not change my opinion, because it doesn't address the reason I think that the idea of international PPs doesn't work.  With an actual PP, for every economic condition you can look at it and see a solid reason why a given asset will of necessity be performing very well.  With an international so-called PP, you can't. 

At least I can't. 

If the Rupee or the Peso or even the Yen or the Euro crashes and burns, gold will not necessarily skyrocket and pick up the slack.  It may.  But it may not.  If the Dollar crashes and burns, I believe that it is much more of a sure thing that gold will pick up the slack.  That is the way I see it.

[Ad Orientem]

Normally we base our PP in the country in which we reside. Exceptions exist for investors who reside in countries with limited economies or stock markets that are not broad based or widely traded. Also, common sense here, if you live somewhere with an unstable government and or a poor track record for the rule of law and respect for property rights, you probably will want to run your PP elsewhere. But I see nothing to be gained by running separate PPs for all these different countries, other than added work and potentially higher fees, expenses and taxes. If you really want a little bit of global diversification in your investments considering putting 10-20% of your assets in a variable portfolio consisting of VT or VEU.