Raising money via the Permanent Portfolio?
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Raising money via the Permanent Portfolio?
The PP is such a stable and balanced portfolio with few opportunities for decline...I'm wondering if any of you on this board have considered using it to save for something other than retirement. For instance, a down payment on a home, or for your child's college tuition. Does what I suggest sound too risky?
Last edited by Indices on Thu May 13, 2010 11:46 am, edited 1 time in total.
Re: Raising money via the PP?
Depends on how quickly you'll need the money. The closer you get to using the entirety of funds, you'll want to move to assets that have lower volatility. Consider if you had to save up for a car, house, etc and pay for it in October of 2008 after a 10% decline in the PP.
On the other hand, if it is a sizable pooled account (say, 6 figures+) and you are simply taking a portion (low 5 figures) to pay for a car or down payment on a house, you could take it out of the cash portion without affecting the rest of the portfolio.
On the other hand, if it is a sizable pooled account (say, 6 figures+) and you are simply taking a portion (low 5 figures) to pay for a car or down payment on a house, you could take it out of the cash portion without affecting the rest of the portfolio.
Re: Raising money via the PP?
As Wonk says, it depends on the time. For immediate cash I'd want in a year or so? I'd probably want it in a Treasury MMF just to avoid volatility risks. For college tuition which may not be needed for 10+ years? The Permanent Portfolio is a good idea.
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pplooker
Re: Raising money via the PP?
I do this very thing for amounts I know I need to save. Some random remarks about what I do, doesn't mean it's smart or a good idea but it's what I do:
First, I try to keep enough cash to serve as the "Emergency Fund" no matter what, even if it means having nothing in the other slices. This is how it was when I first started up the PP, but it shortly changed.
Then anything I am spending within the month goes into a savings account. Anything within the year goes into savings or a short term CD if I feel so inclined. All these amounts are divorced from either the PP or VP by the magic of mental accounting.
Then, I use a rule of thumb. If it is reasonable to definitively beyond any reasonable or at least tolerable doubt to determine how much something will cost and exactly when, I will use the least risky yet most productive vehicle to reserve or accumulate the money. Generally, I have a hard time nailing things down past 1 maybe sometimes 2 years so that's my usual cut off point.
For example, one of my lofty goals is to buy a home, cash. This will take years. I have no idea how much I'll spend exactly or when. All that money goes into the portfolio. If I knew I needed $103,129.32 on December 13, 2039 I might make a different choice.
Another goal I plan to address sooner is to buy a car, cash. I am hoping I can wait three years, so into the PP it goes for now. Once I'm more sure about when I'm going to make this move, I'll probably sell it out of the PP, rebalance, and stick it in a CD or something.
I have some sizable bills I may or may not have to pay up to a certain amount this year. I've kept the maximum amount in savings, and as I realize any possibility of not having to pay as much as the maximum, I'll shift it into the PP. But that's because I saw it coming and had pretty hard numbers.
Depends on what it is too. For example if my investments all take a hit, I can be creative and not buy a car or a house. If it was for say a life saving medical procedure, it'd be all T bills or something.
And just a random thought, when the PP has shown a loss in the past, it has taken it some time to recover that loss. While the future may not follow the past, examining the amount of time it historically takes to recover a loss with the PP might help guide your rules of thumb.
First, I try to keep enough cash to serve as the "Emergency Fund" no matter what, even if it means having nothing in the other slices. This is how it was when I first started up the PP, but it shortly changed.
Then anything I am spending within the month goes into a savings account. Anything within the year goes into savings or a short term CD if I feel so inclined. All these amounts are divorced from either the PP or VP by the magic of mental accounting.
Then, I use a rule of thumb. If it is reasonable to definitively beyond any reasonable or at least tolerable doubt to determine how much something will cost and exactly when, I will use the least risky yet most productive vehicle to reserve or accumulate the money. Generally, I have a hard time nailing things down past 1 maybe sometimes 2 years so that's my usual cut off point.
For example, one of my lofty goals is to buy a home, cash. This will take years. I have no idea how much I'll spend exactly or when. All that money goes into the portfolio. If I knew I needed $103,129.32 on December 13, 2039 I might make a different choice.
Another goal I plan to address sooner is to buy a car, cash. I am hoping I can wait three years, so into the PP it goes for now. Once I'm more sure about when I'm going to make this move, I'll probably sell it out of the PP, rebalance, and stick it in a CD or something.
I have some sizable bills I may or may not have to pay up to a certain amount this year. I've kept the maximum amount in savings, and as I realize any possibility of not having to pay as much as the maximum, I'll shift it into the PP. But that's because I saw it coming and had pretty hard numbers.
Depends on what it is too. For example if my investments all take a hit, I can be creative and not buy a car or a house. If it was for say a life saving medical procedure, it'd be all T bills or something.
And just a random thought, when the PP has shown a loss in the past, it has taken it some time to recover that loss. While the future may not follow the past, examining the amount of time it historically takes to recover a loss with the PP might help guide your rules of thumb.
Last edited by pplooker on Wed May 12, 2010 1:08 pm, edited 1 time in total.
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pplooker
Re: Raising money via the PP?
Haha.
It's doable. You just have to hunker down and buy modest property instead of McMansions. Many people pay their mortgages off in less than 15 years, there’s no reason it shouldn’t be viable to make a cash purchase. Just rent a place cheap enough you can afford to pay the rent twice each month and put the extra payment toward your savings. Even right now I'm saving $100 a month for it and I'm broke.
It’d be a lot easier if you were married obviously but I think I can swing it. Even if I don’t make it I’ll have a big down payment to avoid PMI.
Also, my brother’s a gearhead, graduated from UTI, is ASE certified in all sorts of things and loves to used car shop, so perhaps I have a resource there most people don’t. I even give him a finder's fee.
It's doable. You just have to hunker down and buy modest property instead of McMansions. Many people pay their mortgages off in less than 15 years, there’s no reason it shouldn’t be viable to make a cash purchase. Just rent a place cheap enough you can afford to pay the rent twice each month and put the extra payment toward your savings. Even right now I'm saving $100 a month for it and I'm broke.
It’d be a lot easier if you were married obviously but I think I can swing it. Even if I don’t make it I’ll have a big down payment to avoid PMI.
Also, my brother’s a gearhead, graduated from UTI, is ASE certified in all sorts of things and loves to used car shop, so perhaps I have a resource there most people don’t. I even give him a finder's fee.