New to Permanent Portfolio

General Discussion on the Permanent Portfolio Strategy

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eufo
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New to Permanent Portfolio

Post by eufo » Mon Dec 05, 2016 7:50 pm

Ok, so I've been investing for quite awhile. In June... I had 25% TLT, 25% VTI, 25% VNQ and 25% Cash (literally, not even T-bills) I felt like the Cash was being wasted (gaining like a micro fraction of a percentage point every year) and the VNQ was just too correlated with VTI for my liking. I sold off my VNQ (which seemed bad at first, but eventually ended up being a good thing). I learned about the Permanent Portfolio through a "lazy portfolio" list and liked the simplicity of it. After researching it for a bit, I bought Craig Rowland's book about it and thought it made a lot of sense.

In early July I bought into IAU and SHY to round out my portfolio, keeping my TLT and VTI holdings. Needless to say, I really chose the wrong moment to buy gold. Ironically, I was worried about this exact thing. I'd never liked gold for an investment vehicle and had avoided it like the plague. The moment I decide to try it out... poof goes 15%! It doesn't help that my TLT has been falling like a rock either.

Was I just unlucky or is this a sign of things to come? I know no one has a crystal ball, but I'm more just curious how you all feel about this mess I've stepped into. Do you like the Permanent Portfolio today? I wanted stability and it seems I've made my portfolio much less stable... or maybe it just feels that way at the moment.
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drumminj
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Re: New to Permanent Portfolio

Post by drumminj » Mon Dec 05, 2016 8:57 pm

Welcome to the PP and the forum! I can totally understand your concern, having bought in and having prices drop immediately.

I'm a lurker here, but one good question I see asked here is "if not the PP, what else would you be invested in that would make you more comfortable?". Sure, it sucks when the PP's value drops, but all portfolios suffer from drawdowns.

I'm relatively new to the PP myself -- just closing in on the end of year two. For me, it's something I don't have to worry about, though I check balances regularly (mainly just to get comfortable/familiar with it). If not in the PP, I'd either be all cash (what I was prior to averaging into to the PP), or in something so volatile I'd likely be stressed and sell at the low. So of all the options, the PP still works for me. It aligns with my temperament and world view, and ensures I'm exposed to 'prosperity' assets, which I'd likely shy away from otherwise given my negative outlook and aversion to risk.

The one thing to remember is any asset allocation isn't about what happened today, or this month, but about the long term. There will always be swings. That doesn't mean it's broken/not working. I personally still struggle with this in all my investments, but something I can "set and forget" is likely to work out for me, and the PP so far meets that requirement.

BTW, I'm currently tax-loss harvesting TLT and buying 30-year treasuries directly. Haven't cleared it with my CPA, but I'm assuming this won't be subject to the wash sale rule. Something to consider...
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eufo
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Re: New to Permanent Portfolio

Post by eufo » Wed Dec 07, 2016 9:08 am

Thank you for the response and the welcome, drumminj.

I definitely haven't given up yet. If not this, I'd likely be into some sort of allocation like 33% VTI, 33% TLT, 33% SHY. It's gold that's my main worry, though I'm not sure I can come up with a logical reason why. It's received a lot of hate lately, which actually makes me like it more. I'm a contrarian at heart. I have no problem scooping up more TLT at these levels. Gold is a little harder for me, but it's already becoming a little easier.

The PP aligns with my temperament as well. I'm not looking to make a fortune, just need a stable place to put money for future use. Savings accounts were another option for me, but the interest rates are a joke and they almost always lose to inflation, so not a strong option. I'm really sold on the idea of the PP, just a bit tired of getting beat up the last 4 months... August -1.18%, September -0.04%, October -2.33%, November -3.36%. Here's hoping for a positive December.
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ochotona
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Re: New to Permanent Portfolio

Post by ochotona » Wed Dec 07, 2016 10:59 am

I truly sympathize. I dove into the PP also in late January 2015, then immediately long Treasuries and gold took a swan dive so I jumped out. I'm doing other things with my money now. That said, this is still a very good forum to participate in, because the four PP components are representative of just about the only things ordinary people can invest in (I can't get into private equity as far as I know), so if you keep your fingers on the pulses of the four components, you have good view of what's going on.
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Cortopassi
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Re: New to Permanent Portfolio

Post by Cortopassi » Wed Dec 07, 2016 12:00 pm

eufo, it has taken me 5 years to not love/hate gold and I am still in recovery.

You are using IAU. I would recommend that you slowly start converting some of that to physical. Doesn't have to be a lot, but it makes a difference, with it being real, in your hands. Sure it is still subject to ups and downs but it is one of the few things you can own that should have value forever.

As for timing, probably 90% of the time whatever I have bought goes down immediately, 10% goes up. You are not alone. After 8 years of buying gold, I am still below my average cost, so I know what I'm talking about. Sucks, but one day it will have its day again and I'll be able to recapture some gains with a rebalance out of gold. Hasn't happened yet, and not likely this year.
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Re: New to Permanent Portfolio

Post by stuper1 » Wed Dec 07, 2016 12:06 pm

The thing to do is look back at a long-term graph of PP real returns (i.e., adjusted for inflation). First, make sure that you are comfortable with the long-term results. Then, look at the recent short-term results and compare them to previous down times, and I'm pretty sure that what you will find is that what we've been through recently is no different than what the PP has been through many times before, and it has always come through the other side just fine. Of course, there is no guarantee that things will turn out the same this time. There is never a guarantee. However, if you really want to be safe, you will hold at least some of your gold as physical gold (my personal goal, which I haven't met yet, is to have at least half of my gold as physical gold). If you do that, and if half the earth gets wiped out by a meteor strike, you will definitely be better off than most people (and not just the ones that got obliterated immediately).

Another good thing to do is to look at a graph of rolling 4-year average real returns for the PP and for other portfolios. The PP is much more stable than most portfolios. It has some ups and downs, but nothing like most portfolios.
Mr Vacuum
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Re: New to Permanent Portfolio

Post by Mr Vacuum » Wed Dec 07, 2016 4:50 pm

Also look at the distribution of returns for a few portfolios to keep in mind that all portfolios with volatile assets get beat up often, like a third of the time. https://portfoliocharts.com/portfolio/annual-returns/
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ochotona
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Re: New to Permanent Portfolio

Post by ochotona » Thu Dec 08, 2016 5:55 am

I joined the PP in the last days of January 2015, from that point until today, my CAGR would've been -0.58% if I had stayed in.
barrett
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Re: New to Permanent Portfolio

Post by barrett » Thu Dec 08, 2016 6:41 am

eufo wrote:Was I just unlucky or is this a sign of things to come? I know no one has a crystal ball, but I'm more just curious how you all feel about this mess I've stepped into. Do you like the Permanent Portfolio today? I wanted stability and it seems I've made my portfolio much less stable... or maybe it just feels that way at the moment.
ochotona wrote:I joined the PP in the last days of January 2015, from that point until today, my CAGR would've been -0.58% if I had stayed in.
Indeed if one is going to put everything into the PP at the same time, the entry point obviously matters. There have been a lot of discussions on here about whether or not it's best to just throw everything in at once or to DCA in over a year or so. Obviously the correct answer can only be known in retrospect. There are several posters on this forum who had unlucky entry points and they have probably struggled more with the PP than others. I had a good entry point in January of 2014 so it's been a bit easier for me.

The general pattern over my (almost) three years in the PP has been outperformance in the early part of the year followed by drawdowns in the latter part of the year. I don't see any reason why this pattern would be significant in any way, but I know that for me and my wife we have both tended to add money (IRA contributions) the last three years after a decent run up. My wife was basically just starting to invest back in March/April of 2014 and has very little to show in terms of gains. Fortunately she doesn't seem to care what her account balances are as she is way more focussed on just working and trying to set money aside. The investing side of things just doesn't interest her so it's my job to protect what she and I have made. As Cortopassi and others are always pointing out, if not the PP, then what?

Some on here have shifted a bit toward a Golden Butterfly. I like that allocation as well but am hesitant to go for a prosperity tilt when much of the world is still struggling economically.

eufo, are you familiar with Tyler's site portfoliocharts.com? The "heat maps" on there give a good idea as to whether or not a particular AA is performing within its historical range. Tyler has created some great tools over there and the fact that everything he posts is in real returns, as opposed to nominal, saves us all the extra math of trying to account for inflation.

Hopefully, you are still at the point where you are able to throw some new money into the PP. That certainly mitigates the pain of an initially high entry point. Sorry for the ramble but good luck to you.
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Re: New to Permanent Portfolio

Post by tarentola » Thu Dec 08, 2016 3:57 pm

Because of having moved to Euroland for work, I have accumulated share accounts in sterling and in Euros. I have a Euro PP and a speculative sterling VP, as well as a high-yield portfolio of US, UK and Euro shares. The HY port does all right, mainly because I don't trade in it. I would like to eventually include it in the PP, but as a first step I want to combine the speculative VP and PP. Now that I am retired, I want to abandon speculative investing, as I realise I am not good at it.

Including the VP contents in the PP essentially means shoehorning Emerging Market and Japan ETFs and some sector ETFs (Health and Tech) into the PP share allocation, and adding cash from savings. The resulting PP is now 26-18-30-26% shares-long bonds-gold-cash, so is within normal rebalance bands.

The PP's present 26-18-30-26 percentages are by circumstance, and not because any asset has gained or lost. So rebalancing has no meaning here, as this portfolio was never balanced. I have got this far without buying or selling anything, and of course want to keep trading to a minimum.

My question is - as this is effectively a new PP, should I do some buying and selling so I start the portfolio at 4x25, or simply wait until a rebalancing band is hit, and rebalance to 4x25 then? Does it matter either way? I would be grateful for any advice.
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buddtholomew
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Re: New to Permanent Portfolio

Post by buddtholomew » Thu Dec 08, 2016 7:10 pm

tarentola wrote:Because of having moved to Euroland for work, I have accumulated share accounts in sterling and in Euros. I have a Euro PP and a speculative sterling VP, as well as a high-yield portfolio of US, UK and Euro shares. The HY port does all right, mainly because I don't trade in it. I would like to eventually include it in the PP, but as a first step I want to combine the speculative VP and PP. Now that I am retired, I want to abandon speculative investing, as I realise I am not good at it.

Including the VP contents in the PP essentially means shoehorning Emerging Market and Japan ETFs and some sector ETFs (Health and Tech) into the PP share allocation, and adding cash from savings. The resulting PP is now 26-18-30-26% shares-long bonds-gold-cash, so is within normal rebalance bands.

The PP's present 26-18-30-26 percentages are by circumstance, and not because any asset has gained or lost. So rebalancing has no meaning here, as this portfolio was never balanced. I have got this far without buying or selling anything, and of course want to keep trading to a minimum.

My question is - as this is effectively a new PP, should I do some buying and selling so I start the portfolio at 4x25, or simply wait until a rebalancing band is hit, and rebalance to 4x25 then? Does it matter either way? I would be grateful for any advice.
Flip gold and stock percentages and you arrive at approximately my current allocation - 29/20/26/25

I personally would not rebalance if the transaction resulted in any taxes. Some investors have tighter rebalance bands and others don't rebalance at all.
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Kriegsspiel
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Re: New to Permanent Portfolio

Post by Kriegsspiel » Thu Dec 08, 2016 7:41 pm

Don't be too hard on yourself, everyone who gets into the PP immediately sees gold get kicked in the junk. Everyone.
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