Starting a PP in 2020

[Lonestar]

Suppose someone showed interest in starting a PP today, and asked your advice. Certainly the equity and cash positions are not an issue at this time. Equities are certainly volatilie right now, but that is always an issue.

LTT's are experiencing the highest price in 20 years. Appears they have very little upside, but on the other hand, it's hard to believe rates will go up anytime soon.

Now, the most difficult call would be the gold position of the PP. Most proponents of the PP advocate holding physical gold, usually in the form of bullion coins. I posted in the "gold" section of this forum my concern with the horrendous markups currently being charged for coins. Would you advise a new PP convert to pay these markups to get into their gold position? Or is the holding of gold ETF's just as effective? What would your advice be?

[pmward]

Suppose someone showed interest in starting a PP today, and asked your advice. Certainly the equity and cash positions are not an issue at this time. Equities are certainly volatilie right now, but that is always an issue.

LTT's are experiencing the highest price in 20 years. Appears they have very little upside, but on the other hand, it's hard to believe rates will go up anytime soon.

Now, the most difficult call would be the gold position of the PP. Most proponents of the PP advocate holding physical gold, usually in the form of bullion coins. I posted in the "gold" section of this forum my concern with the horrendous markups currently being charged for coins. Would you advise a new PP convert to pay these markups to get into their gold position? Or is the holding of gold ETF's just as effective? What would your advice be?

In the last 20 years we have seen 1 major decade long stock market secular bear markets, and one major gold secular bear market. The PP carried on just like it always does in both those situations. It will do the same if we go into a secular bond bear market. There is nothing uniquely risky about bonds in the PP. And like you mentioned, the odds of the Fed letting a bond blowup happen are incredibly slim. They're already on record in their minutes discussing yield curve control. It's only a matter of time until they employ it. They have no reason to employ it now though, as bond yields are staying down without it.

For gold, yes ETF's. I would not pay the current markups when one can get a dirt cheap ETF. How many years would one have to hold an ETF to equal the premium? A LOT. Like decades. I personally think that the worries about gold ETF's are way overblown. If someone is just purchasing gold for price exposure to hedge the stocks and bonds, ETF's are fine. Unallocated accounts might also be worth looking into (I'm not sure if those have the same ripoff premium at the moment or not). Gold dealers are ripping people off right now, because they can. Supply and demand for gold in general and supply and demand for gold coins are completely separate things. BUT it is the supply/demand for gold in general that drives the price up and down. The supply/demand for gold coins specifically just dictates how much the gold dealers can rip you off at that point in time. You don't gain any extra price exposure with coins vs an ETF though. You're paying an a whole lot more for the same exposure at the moment. The gold coin market is ripe for disruption, imo. I sure hope somebody disrupts it because it is a very consumer unfriendly market at the moment. "Your margin is my opportunity" - Jeff Bezos

[mathjak107]

Suppose someone showed interest in starting a PP today, and asked your advice. Certainly the equity and cash positions are not an issue at this time. Equities are certainly volatilie right now, but that is always an issue.

LTT's are experiencing the highest price in 20 years. Appears they have very little upside, but on the other hand, it's hard to believe rates will go up anytime soon.

Now, the most difficult call would be the gold position of the PP. Most proponents of the PP advocate holding physical gold, usually in the form of bullion coins. I posted in the "gold" section of this forum my concern with the horrendous markups currently being charged for coins. Would you advise a new PP convert to pay these markups to get into their gold position? Or is the holding of gold ETF's just as effective? What would your advice be?

if rates go negative , which they have already on the short end there is no upside limit on LT bonds..you have entire countries that don't mind paying for the safety and security of our bonds , rather then keep their own money in their country

[sophie]

I would have the hardest time with the bond allocation, but in the end, the only thing to do is buy in. There is nothing to prevent bonds from going up if the stock market falters again.

Good question about gold. I've also not been anxious to pay high markups, so look for opportunities to avoid them. ETFs do in fact have markups (i.e. premium price) so research those carefully. The Perth Mint depository accounts give you effectively a zero percent markup, so that may be a good alternative. The fee structures aren't directly comparable to ETFs so again, your friend needs to research the options.

[Smith1776]

The Goldsmith PP variation may be of help in this case.

By having the bond, cash, and stock components all in one security, the fluctuations for each are masked. That may be of emotional benefit to the investor.

[sophie]

Nah. Find out if the friend has the intestinal fortitude to go all in and buy the assets.

I have to think also that if you go with one of those combined funds with intermediate term bonds instead of the barbell, you not only give up the flexibility of having cash separate (acting as part or all of your emergency fund) but also some of the rebalancing bonus. See William Bernstein's article linked in another thread - many thanks to whoever posted that.

[blue_ruin17]

When you commit to the Permanent Portfolio, you are committing to purchasing all four component assets with the full and explicit knowledge that one of them will almost certainly preform ruinously over the next decade or so.

We all have our thoughts and opinions regarding what that asset will be going into the future; some of us will even be proven right -- yet, if we start playing games with the calibration of this finely tuned machine we risk catastrophically breaking it if we are wrong about our predictions, which we may very well be.

I agree with Sophie when she says that LTT probably have a bleak future. Yet, who knows? I'm not willing to compromise the integrity of the Permanent Portfolio gambling that I know how the future is going to play out.

The Permanent Portfolio is a "machine", an "emergent system" that is greater than the sum of its parts. It is a conservative, defensive investing strategy by design, but that implies accepting trade-offs for that safety and security ... and one of those trade-offs is buying LTT right now.

[mathjak107]

When you commit to the Permanent Portfolio, you are committing to purchasing all four component assets with the full and explicit knowledge that one of them will almost certainly preform ruinously over the next decade or so.



I agree with Sophie when she says that LTT probably have a bleak future. Yet, who knows? I'm not willing to compromise the integrity of the Permanent Portfolio gambling that I know how the future is going to play out.

The Permanent Portfolio is a "machine", an "emergent system" that is greater than the sum of its parts. It is a conservative, defensive investing strategy by design, but that implies accepting trade-offs for that safety and security ... and one of those trade-offs is buying LTT right now.

i agree 100%


i won't mess with the pp allocation ..i take it as it comes . each part hinges on the other part as designed .

BUT HAVING SAID THAT !

i also don't bet the ranch on it at this stage , especially because of the LT BOND holdings .

so i split my invest able assets between my regular model which while 25% equities too is way way way less interest rate sensitive .
this is because i still believe a long term trend of rising rates , which we have not seen in 40 years , will be kryptonite to the PP ..

as the chart shows we have had only short speed bumps in the road for more than 40 years in a ski slope slide of rates .

i take the opposite view when it comes to the age old question WHAT IF I AM WRONG , and apply that to the PP as the portfolio i am hoping does well when rates rise towards their historical norms but that may very well not be the case . so i am comfortable running both models with equal dollars just in case the pp is the portfolio that gets stung and not the other way around ..

while the pp concept makes provisions for a variable portfolio , i prefer to view it as TWO permanent portfolio's ..both can be kept in place forever .

the other model i use is 25% equities , but the bond side is high yield , ultra short term bonds , intermediate term bonds . but not just treasuries and of course a higher yield which being retired is important too .

with multiple 7 figures in each portfolio i have to be careful and not bet on one model only but rather hedge the bet the pp will stand up under a long term rising rate scenario without a lot of pain .