Gyroscopic Investing

I have a hard time getting a hold of assets equivalent to and Long term bonds and short term treasuries. What I can get is something akin to funds made up of Short to mid( 2-10 year ) bonds from various state, and institutions, corporations or a mix of them.

So I used the portfoliocharts to see what one could do. a 33% Stocks, 33% Bonds and 34% Gold performs worse than 40% Stocks, 40% Bonds and 20% Gold.

The 40/40/20 has slightly more volatility than the permanent portfolio but it has also better gains so I am thinking of investing as such.

Perhaps not... I have no idea what to do!

Hej!
As a Swede I feel your pain. I tried implementing the PP but the instruments we have at our disposal is not that great and accepting currency risk is a real pain. Even gold can be problematic because it might not respond to local chaos as it would in a US PP.

My solution has been something very similar to the "desert portfolio". It also resembles Larrys fat tail portfolio. I won't recommend it to anyone but I do belive in it myself.

10% Gold
Prefably physical or allocated physical (bullionvault etc.)

20% Cash
Bank accounts with state insurance (prefably serveral if a large bank crisis occur.)

30% Stocks (0.2 exp ratio)
Avanza zero 33% (Swedish index)
Lansforsakringar Global 34% (Global index)
Lansforsakringar Tillvaxtmarknad 33% (Emerging index)

40% Bonds (about 0.29 exp ratio)
-75%:
AMF rantefond mix (about 50% treasuries and 50% corporates in the last time i checked). I do not like the corporates but have not found any alternative that. At least they are diversified across US/UK/Euro/Sweden (currency hedged).

-25%
TIPS/realranteobligationer (Ohmans right now)


The portfolio is alot like desert but the stock part is a little riskier and the bonds include TIPS to complement the gold for an inflationary environment.

Where did you find, that chart?
Currently my plan is to have:

• 40% Avanza Zero ( Large Cap Swedish Stocks )
• 40% TLT iShare 20+ Years Long Term US Bonds
• 20% IAU iShare  Comex Gold Trust

I choose these because Avanza Zero is free and rather volatile.
TLT is the most volatile bonds I know and they also hedge against Swedish hyper-inflation as they are in USD.
IAU because it is a very convinient gold and hedges against crisises

I am not overly concerned about the occurence of a local crisis because crisises usually are global in nature. Except for hyper-inflation but because I got Gold and Bonds traded in USD that will work itself out perfectly anyway.

https://www.portfoliovisualizer.com/backtest-portfolio
http://portfoliocharts.com/portfolio/pixel/

These are wonderful tools for backtesting.

All crisis won't be global. I'm looking at you, Mr Realestate- and private debt bubble. (We did not get a large correction in 2008/9, it just kept going up, up and up.)

I dont't think your plan is bad but I would be a little nervous of large currency swings. If you stick with it you will probably do just fine. Just be prepared that one day the dollar might depreciate during an event when the bonds should have dampening effect. Another option would be to increase the bond allocation (decrease cash) and use intermediate bonds instead of long. The effect would be fairly similar.

Also consider that the stock index isn't very diversified. It's largest holding H&M is over 10% of OMX30. The swedish stock market is about 1% of global market capitalization, this could be risky. Consider an black swan event wiping out the entire market.

I started a PP-ish in march (definition: bought gold).
Currently:
10% gold
30% equity, half swedish, half global and a minimal amount emerging markets
60% a mix of bonds, some international, some corporate, some cash, also a hedge fund (Brummer Multistrategy, an old sin, will keep it at least for rest of the year).
I got some cleaning up to do ...

Also a hefty mortgage.

I have the same problems you have, no long duration bonds and doubts gold doesn't work as well for non-US.

Also not to happy having a enormous mortgage considering real estate and equity is highly correlated.

AnotherSwede wrote: Also a hefty mortgage.
...
Also not to happy having a enormous mortgage considering real estate and equity is highly correlated.

At least we will burn together. If hell breaks loose we could create our own "Swedish house market" screamroom!

Can you prepay your large mortgage to make it smaller?

Reub wrote: Can you prepay your large mortgage to make it smaller?

Yes, but then most will have NO savings.

In Sweden you don't even have to pay off your mortgage, paying interest is enough.
Interest payments can in part be deducted from income.
You can't walk from your mortgage so the banks risk is less.
The interest rate is about 1% after tax deduction.

We haven't had a price correction since early 90s. Renting is pretty much not an option.

Prices are quite sick compared to income. Still the monthly payments are small thanks to NIRP, but you only have to go back to 2012 for 3x interest rate level.

lordmetroid wrote: Where did you find, that chart?
Currently my plan is to have:

• 40% Avanza Zero ( Large Cap Swedish Stocks )
• 40% TLT iShare 20+ Years Long Term US Bonds
• 20% IAU iShare  Comex Gold Trust

I choose these because Avanza Zero is free and rather volatile.
TLT is the most volatile bonds I know and they also hedge against Swedish hyper-inflation as they are in USD.
IAU because it is a very convinient gold and hedges against crisises

I am not overly concerned about the occurence of a local crisis because crisises usually are global in nature. Except for hyper-inflation but because I got Gold and Bonds traded in USD that will work itself out perfectly anyway.

40% TLT is pretty risky for US investors, but even more so for non-US investors. Why don't you take the currency risk on the equity side and just use Swedish intermediate treasuries? Or split it between stocks and bonds: 50% global stocks/bonds and 50% Swedish stocks/bonds.

Your gold and international stocks should protect you against Swedish hyperinflation, no need to take so much risk with foreign bonds.

As one can observe from this image(USD/SEK in green and TLT in yellow). The currency will add a whole additional volatility. I am still unsure If this is a good trait or not. I am not entirely sure but it seems that the currency fluctuations enhances rather than nullifies the fluctuations of the long term bonds.



I want to use TLT because it has great volatility. The asset needs to be volatile in order to counteract the volatility of the other assets.
The best Swedish bond fund I have been able to find is the AMF R�ntefond L�ng(a fund consiting of a mix of 2-10 year bonds from corporate, state, mortgage institutes). As you can see from this image(TLT in green, AMF in yellow, Gold in red and Equities in blue) , the volatility is non-existent, sure it will steadily add to the bottom line but it will not counteract the volatility of the Gold and Equities.
Considering the AMF funds looks rather similar to short term bonds, I suppose one could use that as short term bonds if one really would like to have a 25/25/25/25 portfolio?

Swedish bonds is a pain. All the bond funds are managed and the duration is short. I hate to complicate things but maybe a split between AMF lang and TLT could be a solution. If you keep 75% AMF and 25% it might be enough to create a decent tail response to long interest rates without large currency exposure. If your theory of added volatility in the same direction is right, it could work. I am considering this because I'm satisfied the volatility of my AMF rantefond mix.

Another solution would be to add a euro treasuries fund (Evli Statsobligationer B", high fee sadly and managed). The euro seems to track the SEK a little better but I'm not a fan of lendning money to Spain, Portugal, Italy etc.

What would suck in a downturn would be if Sweden were seen as a safe haven and started stengthening the SEK and offsetting TLT:s response.

Considering the AMF funds looks rather similar to short term bonds, I suppose one could use that as short term bonds if one really would like to have a 25/25/25/25 portfolio?

This could work for a 5 * 20 portfolio as well. There are a couple of threads about increasing equity to 40% and keeping the other assets at 20%.
For you situation you might consider:

20% global stocks
20% swedish stocks
20% LT US or German bonds (or both)
20% ST swedish bonds or savings accounts
20% Gold

This setup would be more diversified than your original allocation of 40% Swedish stocks and 40% TLT.
For many non-US investors there's just no perfect solution, the best you can do is have a portfolio with PP'ish elements.

As one can see from portfoliocharts, 40/40/20 and 25/25/25/25 seems almost identical. The 40/40/20 has a little bit more volatility but on the other hand it also have more backtested gain.

Another Swede here, finding this thread very interesting! I've also concluded that an orthodox PP is far less appealing for a non-US investor, an especially for us Swedes, given that it is practically impossible for a retail investor to buy swedish government debt. All bond funds I've reviewed have  1) short duration and 2) lower quality bonds(either swedish agency/mortgage debt or corporate/southern european government debt). Given this, I'd rather own a mix of US and german treasury ETF:s. I'd rather take the volatility the currency fluctuations will create than the risks investing in low quality assets entails. However, I am planning to use 10-year treasuries, but I am also going for 40/40/20.

My personal favorite portfoliocharts.com config:

10% total stock market
10% total international (or just 20% total stock market)

20% long treasuries
20% short treasuries
20% REIT
20% gold

REIT's are an interesting asset class. They are mostly correlated to equities, but by no means is it a 1.0 correlation. The correlation is about 0.7 over the past 10 years over the past 3 years the correlation is only 0.5. They are totally uncorrelated to treasuries.

They offer a prosperity tilt but seem to provide the extra upside without adding significantly to risk measurements.

lordmetroid wrote: The 40/40/20 has slightly more volatility than the permanent portfolio but it has also better gains so I am thinking of investing as such.

I think this a completely reasonable approach, and probably what I would do if I didn't use the PP. 

Just make sure it's something you can commit to.  Not a lot of people have that asset mix, so you might feel lonely at times.  Can be psychologically difficult for some.

People tend to underestimate the impact that psychology has on their investment returns.