Gyroscopic Investing

I have been thinking about Equity splitting in the EU PP, and I thought something like your solution. However, I am confused whether I should Hedge agaisnt currency risk or not.

I mean I don't know if only a few countries would leave the currency or if it would just cease to exist (doesn't seem very likely, as it would be too cumbersome). What I feel is most probable is countries like Greece and Portugal (where I'm from) leaving the euro. If that were to happen wouldn't I stand to gain from having my investments in euros? I assume the currency from those countries would devalue immensely after the switch.

In the case of a total euro breakdown, I guess the best would be to have investments in another currency, but at the same time I don't want to expose myself to unecessary currency risk.

Practical question: how do I know my euro investments will not be converted into a new Portuguese currency if the switch were to happen? Does that depend where the broker/custody institution is from?

I don't have a lot of answers on this (yet) but a lot of us should steal your tag line!

I really don't like taking on currency risk because if it goes in the wrong direction, it can really kill any portfolio gains. But your questions are fascinating to me because of the precarious situation the southern European nations are in.

The only obvious suggestion is to have your gold in physical form if at all possible. But that doesn't help you with the other 75% of your PP. Hopefully others will be able to add to this.

I don't have a clue what will happen when the eurozone breaks up. Certainly no expert on any of this so correct me if I'm wrong...

I guess if the euro breaks up the underlying assets will be converted to the new currencies. So German stocks you own will be converted to the new german currency, Portuguese to the new Portuguese currency etc.
So only your Portuguese bonds and stocks will be converted to your new currency.

In case of a Portuguese exit you will likely benefit from holding gold and possibly some foreign currencies. In your case that could mean other Eurozone (allright, German) assets, IF Portugal really leaves the eurozone.

So it's quite possible in my opinion that a Eurozone portfolio with enough German bunds offers enough protection in case of an exit.

barrett wrote: I don't have a lot of answers on this (yet) but a lot of us should steal your tag line!

I really don't like taking on currency risk because if it goes in the wrong direction, it can really kill any portfolio gains. But your questions are fascinating to me because of the precarious situation the southern European nations are in.

The only obvious suggestion is to have your gold in physical form if at all possible. But that doesn't help you with the other 75% of your PP. Hopefully others will be able to add to this.

Gold and Cash at home 

Introvert wrote: I have been thinking about Equity splitting in the EU PP, and I thought something like your solution. However, I am confused whether I should Hedge agaisnt currency risk or not.

I mean I don't know if only a few countries would leave the currency or if it would just cease to exist (doesn't seem very likely, as it would be too cumbersome). What I feel is most probable is countries like Greece and Portugal (where I'm from) leaving the euro. If that were to happen wouldn't I stand to gain from having my investments in euros? I assume the currency from those countries would devalue immensely after the switch.

In the case of a total euro breakdown, I guess the best would be to have investments in another currency, but at the same time I don't want to expose myself to unecessary currency risk.

Practical question: how do I know my euro investments will not be converted into a new Portuguese currency if the switch were to happen? Does that depend where the broker/custody institution is from?

Your broker is not the owner of your assets. Right?

Assets should stay in EURO. ETF's conversion doesn't seem possible. What does your broker says about that?



Regards

@Frugal

Off course the assets are mine. In general, I want no assets in any currency. But because there are a lot instability factors affecting the EU, I feel one must not rest on the Euro, as a 100% safe currency. Specially people like us, who are in the "bad" countries.

Just a clarification, when I say the probability is that Portugal or Greece leave the Euro, right now I don't see that happening. But if something BIG were to happen, that is what I feel is most likely.

The way I see the EU PP components is like this:

- Having 25% of our portfolio is EMU assets only doesn't seem right to me for 2 reasons: The union is not as stable as the United States of America and historically, the difference in returns of the EMU stock index vs the S&P500 is too big for my taste (you can check it here http://www.carterapermanente.es/evoluci ... ermanente/). And this is why I am tending towards splitting the 25% stocks part of the portfolio between other geographical areas.

- 25% Cash (short term debt from Germany or a pool of EU bonds), seems fine to me, I don't see the armageddon coming in such a short time.

- 25% Gold also seems fine. Off course I may buy an EFT quoted in Euros, but I won't have all my gold in paper form. I also want some physical.

- 25% Bonds. I trust the German government not to default, but again, the problem is in the currency. Maybe I could also get some US bonds for example, but I don't want to have currency risk. Maybe buying something Euro Hedged? But at the same time, as koekebakker pointed out, if my country were to leave the Euro, I would actually benefit from having the Euro Germany bonds.

Hello,

a) where will you keep the gold?

b) bonds and stocks work together on the PP. I am not sure that mixing is better.

c) Why not a US-PP outside? in a US broker

frugal wrote: Hello,

a) where will you keep the gold?

b) bonds and stocks work together on the PP. I am not sure that mixing is better.

c) Why not a US-PP outside? in a US broker

a) If you listen to some podcasts where Craig has been, he talks about option for people like us who want to own physical gold. I think one of the best is somewhere in Australia, but I am still not in that phase in the construction of my investment portfolio. I am also considering acquiring a few gold coins in the future + some ETFs

b) As I stated in my previous post, those are just ideas. I still haven't read the PP book, so I am still thinking about all this.

c) It is likely that I will spend my money in euros. Why Would I risk my wealth with currency risk?

Hi,

do you think that gold and some cash shall be physical ?

An US-PP in a US broker would provide some additional safety?

Regards

frugal wrote: Hi,

do you think that gold and some cash shall be physical ?

An US-PP in a US broker would provide some additional safety?

Regards

From what I've read, at least some portion of your gold should be physical Yes. I would trust a portion of my portfolio to a US Broker, but as I said before, I don't think I will build a US PP.

Maybe mix up your portfolio. Not all of what is called "Europe" is on the Euro.

I would have investments denominated in UK Pounds, Swiss Francs, Swedish krona, Norwegian krone, Euro, US Dollar, Yen, Aussie Dollar, Canadian Dollar, even Polish zloty. Just mix it up, I would say. Diversification.

ochotona wrote: Maybe mix up your portfolio. Not all of what is called "Europe" is on the Euro.

I would have investments denominated in UK Pounds, Swiss Francs, Swedish krona, Norwegian krone, Euro, US Dollar, Yen, Aussie Dollar, Canadian Dollar, even Polish zloty. Just mix it up, I would say. Diversification.

Hello,

you mean the stock portion - asset?

frugal wrote:

ochotona wrote: Maybe mix up your portfolio. Not all of what is called "Europe" is on the Euro.

I would have investments denominated in UK Pounds, Swiss Francs, Swedish krona, Norwegian krone, Euro, US Dollar, Yen, Aussie Dollar, Canadian Dollar, even Polish zloty. Just mix it up, I would say. Diversification.

Hello,

you mean the stock portion - asset?

The stocks, the bonds, and the cash. All of the financial instruments.

ochotona wrote:

frugal wrote:

ochotona wrote: Maybe mix up your portfolio. Not all of what is called "Europe" is on the Euro.

I would have investments denominated in UK Pounds, Swiss Francs, Swedish krona, Norwegian krone, Euro, US Dollar, Yen, Aussie Dollar, Canadian Dollar, even Polish zloty. Just mix it up, I would say. Diversification.

Hello,

you mean the stock portion - asset?

The stocks, the bonds, and the cash. All of the financial instruments.

And GOLD also?

Regards

frugal wrote:
And GOLD also?

Regards

The price of gold floats continuously with respect to every world currency. It does not represent any one country's policies or economic results.

If I was fearful of a Euro crash, then the price of gold would be higher in the future in Euro terms than it is today, so I would start buying some now.

I followDoug Eberhardt, who thinks gold is heading lower in US Dollar terms, possibly to $900 an ounce. I do have plans to re-buy, but am delaying. I joke about $250 per ounce to un-nerve the gold bugs.