The Elephant in the room: How should we prepare for the collapse of the US?

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The Elephant in the room: How should we prepare for the collapse of the US?

Post by StinkyToes » Sun Jul 05, 2020 6:05 am

I am a relatively new member of this Forum. I looked but could not find the rules on political posts.* I hope this post falls within the rules. If not, I hope a one-time exception can be made given the seriousness of the subject matter and because (I assume) many of us are asking ourselves this question.

It's becoming increasing obvious that the US faces existential challenges. You all know what I'm talking about. With each passing day, the mob's power grows. Where all this all ends I have no idea. But for those who value law, order, civility, harmony, and stability, the result will not be good. It seems increasingly likely that the US will not exist in its current form a few decades from now. Many other Western countries seem to face similar problems.

What effect, if any, should all of this have on one's investment portfolio? Is it reasonable to assume that time-tested strategies that have worked well over the last 50 years will continue to work going forward? Or is a new paradigm needed? Should we all be increasing our allocation to gold? Should we be diversifying our cash holdings into foreign currencies? Or bitcoin? Or perhaps the best investment at the moment is a second passport?

*The Forum rules page links to this: https://web.archive.org/web/20160324133 ... topic=45.0
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Hal » Sun Jul 05, 2020 6:45 am

A few brief thoughts....

1. If you can afford one, a second passport is a good idea regardless of where you live.
2. The Permanent Portfolio was primarily designed for use with the reserve currency. How well would a Zimbabwe PP do :)

3. In the near term holding some international equities in the PP wouldn't hurt. Try modelling some allocations on Portfolio Charts.
4. Unless you live overseas, I wouldn't bother holding foreign currencies. Most reserve banks hold a large USD allocation. If the USD goes all major currencies will drop.

5. If things really look like they are getting out of hand consider a portfolio like Anthony Dedens. If fact, let someone like him manage your funds - you will probably be too busy avoiding pitchforks and burning torches to do it your self :)

You can always come down to Australia and say hello to Lord Humungous....

https://www.youtube.com/watch?v=i2gVXd7FzhQ
https://www.youtube.com/watch?v=y75h8_QyOlg

Edit: Whatever you decide, please teach your children/grandchildren. When I reach my use-by date, I want to know I did everything I could for the ones I loved.
Last edited by Hal on Sun Jul 05, 2020 10:25 am, edited 1 time in total.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by pp4me » Sun Jul 05, 2020 10:10 am

History seems to be repeating itself from 50 years ago. Maybe there is some kind of cycle to these things as I've heard some people claim.

We didn't have Covid back then but we had the very real threat of nuclear annihilation followed by the race riots and Vietnam war protests followed by a wild inflationary period. At times we thought the apocalypse was upon us. HB's book on the PP was heavily influenced by this period.

And if you look at the whole history of the USA there have been many bleak periods. For my parents, the period described above was preceded by the great depression and WWII.

Always prudent to prepare for a collapse though. That's why I use the PP.
Last edited by pp4me on Sun Jul 05, 2020 10:59 am, edited 2 times in total.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by blue_ruin17 » Sun Jul 05, 2020 10:36 am

Always maintain physical exposure to lead and brass.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by drumminj » Sun Jul 05, 2020 10:50 am

blue_ruin17 wrote:
Sun Jul 05, 2020 10:36 am
Always maintain physical exposure to lead and brass.
The other two "precious" metals to include in your investment strategy!
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by StinkyToes » Sun Jul 05, 2020 2:02 pm

blue_ruin17 wrote:
Sun Jul 05, 2020 10:36 am
Always maintain physical exposure to lead and brass.
i've got this covered.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Smith1776 » Sun Jul 05, 2020 2:08 pm

This won't be a new insight on this forum at all, and it's really just preaching to the choir, but the biggest thing financially is to hold physical gold (with silver to taste I suppose). Some Bitcoin might not be a bad idea either.

Having a bug-out bag like Mike Ehrmantraut from Breaking Bad is also probably prudent. Having a reasonably planned destination to go to in the event of some kind of disaster is good too.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by blue_ruin17 » Sun Jul 05, 2020 3:59 pm

StinkyToes wrote:
Sun Jul 05, 2020 2:02 pm
blue_ruin17 wrote:
Sun Jul 05, 2020 10:36 am
Always maintain physical exposure to lead and brass.
i've got this covered.
The problem I see with fiddling and fussing with the Permanent Portfolio in reaction to current events is that it puts you on the path of forever having to do so, which nullifies who whole reason for utilizing the Permanent Portfolio in the first place.

Imagine the captain of an icebreaker spotting a patch of ice, panicking, and massively steering the ship off-course . . . if you're worried about sociopolitical turmoil, well, you're already on the best investment "icebreaker" that I know of; this is an investment vehicle that was designed for just these kinds of rough waters.

If the situation were to really spiral out-of-control, then you're investment portfolio won't save you anyways. This is why you should have other preparations in place if you're truly concerned, such as a passport, physical cash, firearms, beans 'n' rice, etc. But these measures have nothing to do with "investing" or "asset allocation" any more than stockpiling batteries and bottled water in preparation for a hurricane does. Prudent measures, yes; but they don't have anything to do with your investment portfolio.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by bitcoininthevp » Wed Jul 08, 2020 10:28 am

I think that guns, passport, bitcoin, increased physical gold allocation, increasing your digital privacy, land, upping self sufficiency skills (gardening, etc) and overall vigilance are good "variable portfolio" ideas here.

I think trying to invest international or changing %s of the PP is a really bad idea. The PP is made for the different conditions a (single) economy could be in. If you start investing in other countries, you could be exposed to their potentially differing economic conditions for part of the portfolio and exposed domestically for others. Could be double right or double wrong. Or in PP land, quadruple wrong since there are 4 assets.

Side note: I remember Harry saying to do the PP in your home currency. I do NOT remember anything about only/primarily investing in the world reserve currency. Please send any sources of that.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Hal » Wed Jul 08, 2020 11:31 am

bitcoininthevp wrote:
Wed Jul 08, 2020 10:28 am
I think that guns, passport, bitcoin, increased physical gold allocation, increasing your digital privacy, land, upping self sufficiency skills (gardening, etc) and overall vigilance are good "variable portfolio" ideas here.

I think trying to invest international or changing %s of the PP is a really bad idea. The PP is made for the different conditions a (single) economy could be in. If you start investing in other countries, you could be exposed to their potentially differing economic conditions for part of the portfolio and exposed domestically for others. Could be double right or double wrong. Or in PP land, quadruple wrong since there are 4 assets.

Side note: I remember Harry saying to do the PP in your home currency. I do NOT remember anything about only/primarily investing in the world reserve currency. Please send any sources of that.
Hi Bitcoininthevp,

With regards to the reserve currency, he alluded to that in his radio show.

He stated that gold was the most popular "money" after the USD, and if people lost faith in the USD, the funds would flow into gold.
The resultant increase in gold price would cover any losses in the rest of the PP.

Marc DeMessel(?) covered what happened to the PP in Iceland during the GFC. Gold did not increase in value to cover the losses in the rest of the PP.

Have a look at the SmithPP for further discussion on this :D

PS: Hope my memory is correct on what I quoted, been a while since I looked/listened to those references

PPS: Your other points are spot on in my opinion. Would also suggest having a couple of weeks worth of army ration packs. These really came in handy when bushfires prevented food deliveries!
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by sophie » Wed Jul 08, 2020 11:46 am

I think we will have plenty of warning if a wealth tax that could capture middle to upper middle class US citizens becomes a real danger. They'll start with ultra-high wealth individuals, then they will gradually ratchet down the threshold, just as happened with the AMT. I imagine that a low threshold e.g. $2M would be exceedingly difficult to get passed, so they won't start there. A number like $10M is about the minimum I'd expect.

I also don't think the U.S. will "collapse". If you define "collapse" you'll likely come up with a hyperinflation or severe deflation/depression scenario. The PP can handle both of those well enough - and certainly better than your standard stock/bond portfolio.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by blue_ruin17 » Wed Jul 08, 2020 12:43 pm

Hal wrote:
Wed Jul 08, 2020 11:31 am
Marc DeMessel(?) covered what happened to the PP in Iceland during the GFC. Gold did not increase in value to cover the losses in the rest of the PP.
Image

From the article "Permanent Portfolio Rescues Iceland From Total Collapse"
The Permanent Portfolio also got a serious beating. Expressed in euros, 50% of your purchasing power is lost. Also painful, but you still have 146 krona instead of 110 krona like the saver, meaning you have 30% more purchasing power than a savings account. You have 146 krona instead of 72,5 krona for a traditional ‘defensive’ portfolio investor, meaning you now have more than double his purchasing power.

You quadrupled your purchasing power versus a neutral investor with 50% stocks and 50% bonds and fifteen folded your purchasing power versus a traditional aggressive investor with 100% stocks.

The experience in Iceland shows that the Permanent Portfolio is unable to perform miracles. It remains a fact that an Icelander, even with the Permanent Portfolio, can buy a lot less imported goods. However, its relative purchasing power compared to other savers and investors went up considerably.
I guess my question would be, what was the alternative for the Icelander who desired a conservative, defensive investment portfolio? Considering the economic collapse that occurred, I think the Permanent Portfolio preformed quite well. In particular, its ability to preserve domestic purchasing power is highly significant because -- at least for me -- that is the most important factor. You can always do without foreign imports as long as you can still afford food, supplies, and can pay the rent.

Could or should the Icelander have simply invested in a Euro PP? Maybe, but then they'd have to deal with the constant problem of unpredictable foreign exchange fluctuations. Since most people spend most of their money in their home country, this introduces a volatility factor that doesn't actually enhance portfolio performance or enhance risk adjust performance.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by D1984 » Wed Jul 08, 2020 12:50 pm

Hal wrote:
Wed Jul 08, 2020 11:31 am
bitcoininthevp wrote:
Wed Jul 08, 2020 10:28 am
I think that guns, passport, bitcoin, increased physical gold allocation, increasing your digital privacy, land, upping self sufficiency skills (gardening, etc) and overall vigilance are good "variable portfolio" ideas here.

I think trying to invest international or changing %s of the PP is a really bad idea. The PP is made for the different conditions a (single) economy could be in. If you start investing in other countries, you could be exposed to their potentially differing economic conditions for part of the portfolio and exposed domestically for others. Could be double right or double wrong. Or in PP land, quadruple wrong since there are 4 assets.

Side note: I remember Harry saying to do the PP in your home currency. I do NOT remember anything about only/primarily investing in the world reserve currency. Please send any sources of that.
Hi Bitcoininthevp,

With regards to the reserve currency, he alluded to that in his radio show.

He stated that gold was the most popular "money" after the USD, and if people lost faith in the USD, the funds would flow into gold.
The resultant increase in gold price would cover any losses in the rest of the PP.

Marc DeMessel(?) covered what happened to the PP in Iceland during the GFC. Gold did not increase in value to cover the losses in the rest of the PP.
The permanent portfolio in Iceland in 2008 DID rise enough in total value to protect an Icelander's savings (and gold was indeed the asset that carried the portfolio). IIRC the total Icelandic PP was up about 45.5% or 46% for the year 2008 in Icelandic Krona terms whereas inflation in Iceland for the year 2008 was at around 18%. Mr. Demesel then went deep into "inflation truther" territory and said that the Icelandic PP did not protect the value of an Icelander's savings during the GFC because the Icelandic government was lying about/understating inflation. If you accept that the Icelandic's governments inflation numbers are more or less correct then the PP in Iceland did pretty well in 2008; even if inflation in 2008 was TWICE what the official Icelandic government numbers claimed it was the PP still returned almost 9% or 10% over inflation.

With that said I would definitely agree that in a country as small and economically un-diversified as Iceland one should hold at LEAST half of one's stock allocation in non-Icelandic stocks (i.e. in a world index fund or something of that nature); doing so would've chipped a few performance points off the portfolio in 2002 to 2007 but would've made up for that several times over in 2008!
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by blue_ruin17 » Wed Jul 08, 2020 1:26 pm

D1984 wrote:
Wed Jul 08, 2020 12:50 pm
With that said I would definitely agree that in a country as small and economically un-diversified as Iceland one should hold at LEAST half of one's stock allocation in non-Icelandic stocks (i.e. in a world index fund or something of that nature); doing so would've chipped a few performance points off the portfolio in 2002 to 2007 but would've made up for that several times over in 2008!
I think that is entirely reasonable.

In fact, sometimes I have even considered doing so for the Canadian PP, just because the Canadian economy is not that well diversified, and (IMO) is massively over exposed to the financial sector.

But ultimately I don't bother because of certain tax considerations, and more over because I always opt for sheer simplicity whenever possible.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Smith1776 » Wed Jul 08, 2020 6:42 pm

I am personally extremely partial to further diversifying the PP into international assets as well as factors. My big fear for a vanilla domestic PP? Japan. The following is the drawdown chart for a traditional PP in Japan.

japan.png
japan.png (58.71 KiB) Viewed 8321 times

When we diversify the equity portion of the portfolio with half global cap weighted stocks and half global SCV stocks we gain a lot of benefit.

japan2.png
japan2.png (40.62 KiB) Viewed 8321 times
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by jalanlong » Wed Jul 08, 2020 8:08 pm

blue_ruin17 wrote:
Wed Jul 08, 2020 12:43 pm
Hal wrote:
Wed Jul 08, 2020 11:31 am
Marc DeMessel(?) covered what happened to the PP in Iceland during the GFC. Gold did not increase in value to cover the losses in the rest of the PP.
Image

From the article "Permanent Portfolio Rescues Iceland From Total Collapse"
The Permanent Portfolio also got a serious beating. Expressed in euros, 50% of your purchasing power is lost. Also painful, but you still have 146 krona instead of 110 krona like the saver, meaning you have 30% more purchasing power than a savings account. You have 146 krona instead of 72,5 krona for a traditional ‘defensive’ portfolio investor, meaning you now have more than double his purchasing power.

You quadrupled your purchasing power versus a neutral investor with 50% stocks and 50% bonds and fifteen folded your purchasing power versus a traditional aggressive investor with 100% stocks.

The experience in Iceland shows that the Permanent Portfolio is unable to perform miracles. It remains a fact that an Icelander, even with the Permanent Portfolio, can buy a lot less imported goods. However, its relative purchasing power compared to other savers and investors went up considerably.
I guess my question would be, what was the alternative for the Icelander who desired a conservative, defensive investment portfolio? Considering the economic collapse that occurred, I think the Permanent Portfolio preformed quite well. In particular, its ability to preserve domestic purchasing power is highly significant because -- at least for me -- that is the most important factor. You can always do without foreign imports as long as you can still afford food, supplies, and can pay the rent.

Could or should the Icelander have simply invested in a Euro PP? Maybe, but then they'd have to deal with the constant problem of unpredictable foreign exchange fluctuations. Since most people spend most of their money in their home country, this introduces a volatility factor that doesn't actually enhance portfolio performance or enhance risk adjust performance.
So a gold/cash portfolio would have been the best choice then if choosing more than one asset? Tech would like that portfolio!
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by blue_ruin17 » Wed Jul 08, 2020 8:25 pm

jalanlong wrote:
Wed Jul 08, 2020 8:08 pm
So a gold/cash portfolio would have been the best choice then if choosing more than one asset? Tech would like that portfolio!
A gold/cash portfolio sure would have been tough to live with in the early 2000s when stocks were on a rampage year after year. And remember, during this time the Permanent Portfolio would have been systematically harvesting those crazy stock gains through the rebalancing mechanism.

Investing would be easy if we all had save states so that we could go back and get into the "right" allocation for a particular period of time. But the reality is we're all locked in iron man mode and the fog of war is thick.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Xan » Wed Jul 08, 2020 8:50 pm

Smith1776 wrote:
Wed Jul 08, 2020 6:42 pm
I am personally extremely partial to further diversifying the PP into international assets as well as factors. My big fear for a vanilla domestic PP? Japan. The following is the drawdown chart for a traditional PP in Japan.


japan.png


When we diversify the equity portion of the portfolio with half global cap weighted stocks and half global SCV stocks we gain a lot of benefit.


japan2.png
It would be interesting to see those charts superimposed against inflation/buying-power. I believe Japan was in deflation at the time and the PP actually did more-or-less its normal thing in real terms.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Mark Leavy » Wed Jul 08, 2020 9:05 pm

Xan wrote:
Wed Jul 08, 2020 8:50 pm
Smith1776 wrote:
Wed Jul 08, 2020 6:42 pm
I am personally extremely partial to further diversifying the PP into international assets as well as factors. My big fear for a vanilla domestic PP? Japan. The following is the drawdown chart for a traditional PP in Japan.


japan.png


When we diversify the equity portion of the portfolio with half global cap weighted stocks and half global SCV stocks we gain a lot of benefit.


japan2.png
It would be interesting to see those charts superimposed against inflation/buying-power. I believe Japan was in deflation at the time and the PP actually did more-or-less its normal thing in real terms.
I thought all of Tyler's charts were inflation adjusted.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Hal » Thu Jul 09, 2020 2:41 am

Here is Marcs YouTube channel, so there may be more info in here.
I notice there are some PP talks.
https://www.youtube.com/user/Marcdemesel/videos

And for Canadians reading, 25% MSCI World vs 25% Canadian TSM Permanent Portfolios
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Smith1776 » Thu Jul 09, 2020 5:40 am

Yeah you're correct, Mark. Tyler's charts are inflation adjusted. In defence of the PP, while that first chart in my previous post doesn't look too pleasant, it's much better than alternative portfolio's like 60/40. O_O

Still, I think diversifying the PP internationally and amongst factors makes eminent sense. The thing about the PP is that it was conceived of during a time in which international investing was not as accessible as it is today. Factor ETFs were a nothing more than a gleam the eye of some academics. Now, this extra diversification is easy and cheap to access. And if you implement allocations such as the Goldsmith PP it actually simplifies the strategy (from 4 funds down to 2).

I'd imagine if Browne were alive today there's a good chance he'd embrace this increased diversification.

To be clear, I think the international diversification benefit can be extended to bonds. Having exposure to multiple yield curves simultaneously can deliver additional benefit. I was going to include global bonds in the charts included in my previous post regarding Japan, but I can't be sure if they're currency hedged on Tyler's site or not.
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Hal » Thu Jul 09, 2020 7:47 am

Smith1776 wrote:
Thu Jul 09, 2020 5:40 am
Yeah you're correct, Mark. Tyler's charts are inflation adjusted. In defence of the PP, while that first chart in my previous post doesn't look too pleasant, it's much better than alternative portfolio's like 60/40. O_O

Still, I think diversifying the PP internationally and amongst factors makes eminent sense. The thing about the PP is that it was conceived of during a time in which international investing was not as accessible as it is today. Factor ETFs were a nothing more than a gleam the eye of some academics. Now, this extra diversification is easy and cheap to access. And if you implement allocations such as the Goldsmith PP it actually simplifies the strategy (from 4 funds down to 2).

I'd imagine if Browne were alive today there's a good chance he'd embrace this increased diversification.

To be clear, I think the international diversification benefit can be extended to bonds. Having exposure to multiple yield curves simultaneously can deliver additional benefit. I was going to include global bonds in the charts included in my previous post regarding Japan, but I can't be sure if they're currency hedged on Tyler's site or not.
There you go ;)
<snip>
While the data does not explicitly contain corporate bonds, most high-grade corporate bonds will have very similar returns to government bonds of the same average maturity. This also applies to popular total bond market funds.

While Europe stocks include the UK and Switzerland, Europe bonds represent the common currency Euro area only. The numbers use all credit ratings and changing EU composition as defined by the European Union. Numbers prior to the Euro are measured in ECU.

All bond funds on Portfolio Charts are unhedged.
<snip>
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by mathjak107 » Thu Jul 09, 2020 4:41 pm

Total bond funds were down or hardly up in 2008 ...they behaved nothing like treasuries
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Smith1776 » Thu Jul 09, 2020 5:21 pm

Hal wrote:
Thu Jul 09, 2020 7:47 am

There you go ;)
<snip>
While the data does not explicitly contain corporate bonds, most high-grade corporate bonds will have very similar returns to government bonds of the same average maturity. This also applies to popular total bond market funds.

While Europe stocks include the UK and Switzerland, Europe bonds represent the common currency Euro area only. The numbers use all credit ratings and changing EU composition as defined by the European Union. Numbers prior to the Euro are measured in ECU.

All bond funds on Portfolio Charts are unhedged.
<snip>
Thanks! Mystery solved.

Instead of "can't be sure" I should have said "too lazy to check." ;D
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Re: The Elephant in the room: How should we prepare for the collapse of the US?

Post by Hal » Fri Jul 10, 2020 6:28 am

Considering the OP's questions a bit more.....

A little thought experiment about a typical retirement account :)

From the ERE page about the PP https://wiki.earlyretirementextreme.com ... o#Variants

1. PP can be replicated by 25% Shares/25% Gold/50% Intermediate Bonds

401(k) lemonade
In such cases the lemonade modification to the PP could be used (as in "turn lemons into lemonade"). In theory, the cash and bond allocations, which are short- and long-term treasury bonds respectively, behave equivalently to intermediate term treasury bonds. So the cash and bond allocations could be merged into one large intermediate term treasury allocation:

25% stock
25% gold
50% intermediate Treasury bonds


2. OK, so now we have 25/25/50 allocation, but HB said the economy refers to "whatever economy the investor participates in"

Outside the US
The original books describing the PP were written by US authors for US audiences, so they described the PP assets in terms of US securities.

However, in a radio show (TODO: add reference), Browne explained that the economy referenced in the four-condition analysis is a variable which refers to whatever economy the investor participates in. For an American, economy means the US economy, while for a German, economy means the German economy, and so on.


3. What if we want to participate in "the developed world" economy? We get the Portfolio Charts screenshot

4. Interesting enough, the worst Ulcer Index of all the countries is about 10. Try plotting Ulcer Index against average return and change the country

5. Hals thought to himself... "I wonder if Hedged International Bonds would improve things?"
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