Gyroscopic Investing

Finally, after lots of tinkering back and forth and comparing fees and correlations and taxation and so forth, I'll setup this portfolio next week.
I'm determined to run this portfolio for decades, so it's best to keep it as simple as possible.
If one of my fellow Germans on this board has further suggestions (specific ETFs, taxation, etc.), I'd be more than happy to reconsider, though.

Considerations.
1) The future of the EUR is a wildcard. I don't wanna put all my savings into the Euro area, for no other reason than being born here.
2) Nobody knows who's gonna perform well ten years ahead, Europe or USA. At present, USA leads, but that can change easily.
3) I have zero trust (I have some trust issues  )in Southern Europe, I don't want to hold their stocks. So I'll go for German DAX30.

25% Cash in a government-guranteed savings account, yield 0.5% at the moment (EUR)
25% Krugerrand coins in a safe deposit box (GOLD)
25% US 30yr bond A1ZSHE, maturing 2044 (USD)
12.5% DEKA DAX30 ETF, paying out, TER 0.15%, full replication, automatic taxation by the custodian bank
12.5% DEKA MSCI USA ETF, paying out, TER 0.3%, full replication, automatic taxation by the custodian bank

3/8th of the portfolio (Cash & DAX) are EUR-dependent.
3/8th of the portfolio (30yr bond & MSCI USA) are USD-dependent.
2/8th of the portfolio are GOLD-dependent.

The only high-handed assumptions baked into this are that the 30yr USG bond is the ultimate flight-to-safety destination in deflation (meaning that EUR bonds are less credible in terms of safe haven status).
And that German DAX will have a better long-term performance than say Greece & Italy stock indices.
(I have to add I actually dislike & distrust stock markets, buying stocks at today's valuations will be the most difficult part for me in setting up the Permanent Portfolio).

Hi.
I'm from Europe(southern countries  ) and I use a (kind of, all Europeans must tinker with the PP) european permanent portfolio for my investments. I struggled with the some worries that you had (more worries actually, specially on the bond side) and I share some conclusions that I had.
I use the same settings for gold and cash that you do.
On the bond side still struggling... I use the LYXOR UCITS ETF EuroMTS 15+Y Investment Grade(MTF.PA) for now, but my ideal setup for the bond part is 50% USA and 50% German. But right now I can't find any ETF or mutual fund good enough for this (have access to some long germans bonds, but the yield is so incredibly low... can't convince me to buy some).
I still think that Germany and Norway are the safer countries in Europe for bond holders. Germany as a reliable government and strong economy, Norway with a healthy oil pension fund.
Regarding the equity part I split it 50% World and 50% Europe. I think that in Europe there isn't a single reliable country stock index. All countries are biased to something (in some countries tied to export, in another energy, etc) and in comparison with the USA index there are really big differences in long stock investing on Europe countries.
Credit Suisse has a yearly publication called "Credit Suisse Global investment Returns Yearbook 2014/13/etc", I don't know if you know it. And it has the return of some European countries, some since 1900. German has one of the lowest returns in europe. Austria is the lowest (real long time return:0.67%!!!) I recommend this publication, it has some very interesting tables and it's helpful for us europeans.
So, I'm thinking that going with a 12.5% DAX it will impact your returns a bit.

Anyway this is my first post here, but I think that the Permanent Portfolio is the best portfolio i've seen (it helped me on the 2008 crisis and bond crises of 2011).

How would a transition from a Euro-denominated German bond to a Deutsche Mark-denominated German bond work, based on history?  I know Greece will just repudiate all Euro-denominated debt after exiting, but I can't see Germany doing that.

MachineGhost wrote: How would a transition from a Euro-denominated German bond to a Deutsche Mark-denominated German bond work, based on history?  I know Greece will just repudiate all Euro-denominated debt after exiting, but I can't see Germany doing that.

In addition of this transition, in the event of an Euro breakdown, in my opinion the main problem for German holders of an USD based PP would be the increase of value of the new German Mark with respect to the USD that will decrease the value of their USD PP in their new currency.

I don't think that germany would do that also.German bondholders would have the most to gain from that exit. In a situation of transition from Euro to "new mark" every country from europe would like to get german bonds, as the most secure.Meanwhile all other european country bonds would fall in value. Double wham: strong currency with high demand 
But because DAX has a lot of export companies I would expect that the stock part would take a hit.
I don't think that any country (even Greece) will repudiate their debt. Their will always try a "managed" exit.The alternative is so messy... ( the book of Rogoff,"This time is different" talks a little about this).
Lets see what the Greece elections bring, on the last of January.

And I agree with Kike Moreno on the currency depreciation. That's the problem of holding foreign currencies. I have some hope that in that case Gold would help a bit.

Just use Vanguard or iShares total world ETF for the equity part.

Pfanni wrote: Finally, after lots of tinkering back and forth and comparing fees and correlations and taxation and so forth, I'll setup this portfolio next week.
I'm determined to run this portfolio for decades, so it's best to keep it as simple as possible.
If one of my fellow Germans on this board has further suggestions (specific ETFs, taxation, etc.), I'd be more than happy to reconsider, though.

Considerations.
1) The future of the EUR is a wildcard. I don't wanna put all my savings into the Euro area, for no other reason than being born here.
2) Nobody knows who's gonna perform well ten years ahead, Europe or USA. At present, USA leads, but that can change easily.
3) I have zero trust (I have some trust issues  )in Southern Europe, I don't want to hold their stocks. So I'll go for German DAX30.

25% Cash in a government-guranteed savings account, yield 0.5% at the moment (EUR)
25% Krugerrand coins in a safe deposit box (GOLD)
25% US 30yr bond A1ZSHE, maturing 2044 (USD)
12.5% DEKA DAX30 ETF, paying out, TER 0.15%, full replication, automatic taxation by the custodian bank
12.5% DEKA MSCI USA ETF, paying out, TER 0.3%, full replication, automatic taxation by the custodian bank

3/8th of the portfolio (Cash & DAX) are EUR-dependent.
3/8th of the portfolio (30yr bond & MSCI USA) are USD-dependent.
2/8th of the portfolio are GOLD-dependent.

The only high-handed assumptions baked into this are that the 30yr USG bond is the ultimate flight-to-safety destination in deflation (meaning that EUR bonds are less credible in terms of safe haven status).
And that German DAX will have a better long-term performance than say Greece & Italy stock indices.
(I have to add I actually dislike & distrust stock markets, buying stocks at today's valuations will be the most difficult part for me in setting up the Permanent Portfolio).

hi,

some of my thoughts:

1- US econnomy is not EUR economy. Deflation in one doesn't mean deflation in the other. Maybe you should have Bonds and stocks both half-half.

2- Which safe deposit box you recommend?

3- You spend Euros. How do you cover the currency risk? What if when you need to withdrawal the portfolio, the 1USD=0,5EUR ?

Waiting your reply.

Regards.

Hi Pfanni,

I am a German PP holder since two years. The German PP was performing historically speaking bad in 2013 and very strongly recently.

But the biggest issue of all is the taxation. With the Abgeltungssteuer you lose quite a lot of money with every rebalancing. It makes the PP quite inefficient. You can compute that in a high-inflation environment, that may already eat up all your real gains! And it will become worse in the future.
Because some ugly heads have been raised in the media recently, concerning a further increase of it, I have been in contact with some representatives and at least the more conservative sides assured me that it will not be increased in this legislation period.

But I guess it may already change in the next legislation period. If we get a left (R+R+G) government, we may see 42% Abgeltungssteuer - or even higher together with increased peak taxation - and then you will lose all your real gains in the long run, especially in periods of high inflation. You simply cannot set up a naked PP in Germany right now anymore, without having a corporate or private fund shell somewhere, internally retaining profits and shielding against intermittent taxation when rebalancing.

So if you have enough wealth to efficiently get a legal shell somewhere - go get it. In LUX and Jersey it may become efficient when operating legally completely correctly from 2M€ onwards. If not: bad luck!

I strongly believe that the problems of the Euro etc. are irrelevant compared to these highly problematic tax issues or at most are causally coupled so that Euro problems will further increase unfair taxation. If you know a great way of shielding for the poor folks, I am not aware of, please let me know!

Best regards,
D. Kalder

Hi
first of all I think it is deeply immoral anyways to tax labour at 40% and capital gains at ~26%.
So blending tax rates somewhere in between is fine by me. If it does happen. The 0.1% have a big lobby in Berlin.
All the people I know who skewed their allocations in regards to (deferred) taxation lost their shirts. Real estate in Eastern Germany. Compounded Interest in life insurane accounts. Foreign accounts. When Germans hear "tax savings", they get irrational.

I would not do it and rather bite the bullet and accept taxation.

As for small people, let's call them shrimps, I am one myself, safe deposit boxes shield a good deal of your wealth. Gains on physical gold are tax-free after holding 1 year, how great is that!? You can buy offline up to 15.000 EUR, pay cash, and no record of the transaction exists (of course, as a good citizen you should always publish you own gold for example if there is HartzIV looming after one year of unenmployment, a personal bankruptcy etc.).

Again, think of the original Harry Browne. he stated that for most people most of their wealth will come from their jobs, not from investments.

1- US econnomy is not EUR economy. Deflation in one doesn't mean deflation in the other.
That's why I am doing it. I want to diversify.

Maybe you should have Bonds and stocks both half-half.
German 30yr bonds yield 1.13% at the moment.
I can get 1yr term-money at 1.2%.
Clearly, the market tries to discount a Deutsche Mark-revival with these low yields at some point in the future.
Which might never materialize. This 30yr bond is not a bond anymore, we should rename it to call option.
My cash account (25% of the portfolio) at a German bank would have to be payed out in Deutsche Mark, too, so I would have my revaluation moment anyways (again, it's not gonna happen, market participants are wrong, German politicans will never let this happen, believe me)

2- Which safe deposit box you recommend?
I like ProAurum, a gold dealership, they have offices in many cities throught Northern Europe, for example. They offer insurance (Allianz), too. Formally, they are not part of the banking system, so if there is a bank holiday, you should still be able to get to your box. Unfortunately, ProAurum has a waiting list for their boxes at present. But any normal bank branch should do. But one should buy insurance. There were two Hollywood-style tunnel attack burglaries in recent years in Germany.

3- You spend Euros. How do you cover the currency risk? What if when you need to withdrawal the portfolio, the 1USD=0,5EUR ?
That is what it is about. I want the currency diversification. I want USD exposure in case the EUR goes kaputt.

Pfanni wrote: Hi
first of all I think it is deeply immoral anyways to tax labour at 40% and capital gains at ~26%.
So blending tax rates somewhere in between is fine by me. If it does happen. The 0.1% have a big lobby in Berlin.
All the people I know who skewed their allocations in regards to (deferred) taxation lost their shirts. Real estate in Eastern Germany. Compounded Interest in life insurane accounts. Foreign accounts. When Germans hear "tax savings", they get irrational.

I would not do it and rather bite the bullet and accept taxation.

As for small people, let's call them shrimps, I am one myself, safe deposit boxes shield a good deal of your wealth. Gains on physical gold are tax-free after holding 1 year, how great is that!? You can buy offline up to 15.000 EUR, pay cash, and no record of the transaction exists (of course, as a good citizen you should always publish you own gold for example if there is HartzIV looming after one year of unenmployment, a personal bankruptcy etc.).

Again, think of the original Harry Browne. he stated that for most people most of their wealth will come from their jobs, not from investments.

I think, you do not understand the correlation of inflation and taxation of nominal gains in the scope of PP rebalancing. I I am not talking about taxation in general - e.g. when taking some money out of the funds to buy yourself something - but the intermittent taxation.

BTW commercial investment funds are freed from that kind of taxation, even in Germany, but the small investor holding assets directly is not. How fair is that?!

Indeed I do understand.
But it is pointless whining about things one cannot change.
If the day had 26 hours...if I could run a portfolio without taxation upon rebalancing. Not gonna happen.
One could setup a portfolio in Singapur and not report to German tax authorities. But that would be a breach of law and one would face severe punishment. Is that what you would suggest to do?
Let us keep the discussion focused towards things that can be accomplished within legal limits, how arbitrary and unjust they may be.

Looks nice to me, Pfanni!  I like your breakdown of 3/8, 3/8, 2/8.  That's innovative, and good thinking.

Hi,

you have another option, that is to open one account in a foreign country and build a USPP.

Like this you have both, EUPP + USPP.

Hi
foreigm accounts are too complicated tax-wise in Germany.
Besides I can invest in everything that trades on NYSE, so no need for US accounts.

Besides I think 'murica is in for a rude awakening. This week's EUR devaluation will kill your manufacturing rennaisannce, fracking is dead in the water and the Brady Bunch house in L.A. would cost more than a million nowadays.. impossible to live in California as a middle class citizen. Brady family would live off food stamps nowadays, how terrific is that!

Pfanni wrote: Besides I think 'murica is in for a rude awakening. This week's EUR devaluation will kill your manufacturing rennaisannce, fracking is dead in the water and the Brady Bunch house in L.A. would cost more than a million nowadays.. impossible to live in California as a middle class citizen. Brady family would live off food stamps nowadays, how terrific is that!

I think its more correct to say its impossible to live in California as a middle class citizen unless you are highly educated (or a successful entrepreneur in Silicon Valley).  Mr. Brady would still have a high paying job, though he would have to be earning well over six figures to live that kind of lifestyle today comparable to then.

MachineGhost wrote:

Pfanni wrote: Besides I think 'murica is in for a rude awakening. This week's EUR devaluation will kill your manufacturing rennaisannce, fracking is dead in the water and the Brady Bunch house in L.A. would cost more than a million nowadays.. impossible to live in California as a middle class citizen. Brady family would live off food stamps nowadays, how terrific is that!

I think its more correct to say its impossible to live in coastal California as a middle class citizen unless you are highly educated (or a successful entrepreneur in Silicon Valley).  Mr. Brady would still have a high paying job, though he would have to be earning well over six figures to live that kind of lifestyle today comparable to then.

FIFY.

Much of California is low-cost. Much of that part is also a shithole, but not that expensive to live in if you were silly enough to want to do so.