New to Permanent Portfolio

General Discussion on the Permanent Portfolio Strategy

Moderator: Global Moderator

User avatar
eufo
Executive Member
Executive Member
Posts: 243
Joined: Mon Dec 05, 2016 7:17 pm

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.
Don't agree with me too strongly or I'm going to change my mind
User avatar
drumminj
Executive Member
Executive Member
Posts: 310
Joined: Wed Jul 22, 2015 9:16 pm

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...
User avatar
eufo
Executive Member
Executive Member
Posts: 243
Joined: Mon Dec 05, 2016 7:17 pm

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.
Don't agree with me too strongly or I'm going to change my mind
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

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.
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3186
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html
Contact:

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.
stuper1
Executive Member
Executive Member
Posts: 1149
Joined: Sun Mar 03, 2013 7:18 pm

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
Executive Member
Executive Member
Posts: 164
Joined: Tue Jan 19, 2016 11:51 am

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/
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

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
Executive Member
Executive Member
Posts: 1747
Joined: Sat Jan 04, 2014 2:54 pm

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.
tarentola
Full Member
Full Member
Posts: 98
Joined: Wed Aug 17, 2011 6:55 am

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.
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2396
Joined: Fri May 21, 2010 4:16 pm

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.
User avatar
Kriegsspiel
Executive Member
Executive Member
Posts: 3932
Joined: Sun Sep 16, 2012 5:28 pm

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.
User avatar
eufo
Executive Member
Executive Member
Posts: 243
Joined: Mon Dec 05, 2016 7:17 pm

Re: New to Permanent Portfolio

Post by eufo » Thu Dec 08, 2016 9:00 pm

Wow! Thanks everyone for the responses! I especially enjoyed the link to PortfolioCharts.com. The Golden Butterfly allocation is VERY alluring. I may slowly morph into that, though the timing seems awful to buy more equities... VERY slowly morph into that.

I'm really glad I stumbled onto this site!
Don't agree with me too strongly or I'm going to change my mind
tarentola
Full Member
Full Member
Posts: 98
Joined: Wed Aug 17, 2011 6:55 am

Re: New to Permanent Portfolio

Post by tarentola » Fri Dec 09, 2016 3:12 am

buddtholomew wrote: 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.
Thanks budd. I will probably avoid taxes by not selling anything as you suggest, and try to pluck up the courage to buy bonds with remaining cash, as discussed in another thread (http://www.gyroscopicinvesting.com/foru ... &start=204). But would welcome any other opinions on whether or not a "new" PP should start well balanced at 25x4.

To encourage the PP doubters: have a look at this thread "Is the successful salaried retail investor a myth?" which is unfortunately a bit hidden in the Other Discussions forum: see http://www.gyroscopicinvesting.com/foru ... 7&start=12. This is one of the most reassuring threads I have read about the PP. Start about halfway down page 2. Maybe the thread, or some of it, should be made more visible: moved to Permanent Portfolio Discussion, retitled and made a sticky, for example. A quote from Tyler, in the thread:
The average "Tyler" SWR for the PP historically is a pretty amazing 5.3%. The best year to retire was 1978, where one could have supported a ridiculous 7.7%WR for ten years without depleting capital at all. The worst year to retire was 1987 where the max WR was still a healthy 3.8%. I haven't run a full analysis of a 50/50 BH portfolio yet, but I can tell you that using the same methodology the max SWR is -2.5% if you retired in 1972. That's not a typo -- if you didn't add at least 2.5% to your portfolio every year, you would have lost value ten years later. That's why long-term SWR discussions for stock/bond mixes usually center around very conservative numbers.

Frankly (assuming I haven't screwed up somewhere, of course) I find this astonishing and very reassuring. Basically, from what I can tell the conservative SWR for the Permanent Portfolio to last indefinitely is right around 4%. And an older retiree with less worry about maintaining principal could easily push to 5% without much argument from me. Compare this to most SWR calculations for "traditional" portfolios (where 4% may only sustain you for 30 years before you're broke), and the PP is one great retirement portfolio.
User avatar
ochotona
Executive Member
Executive Member
Posts: 3214
Joined: Fri Jan 30, 2015 5:54 am

Re: New to Permanent Portfolio

Post by ochotona » Fri Dec 09, 2016 6:24 am

The PP really would be a good retirement portfolio. CAGR and low volatility both contribute to SWR.
Alanw
Executive Member
Executive Member
Posts: 279
Joined: Fri Jan 06, 2012 11:05 am

Re: New to Permanent Portfolio

Post by Alanw » Fri Dec 09, 2016 3:12 pm

Have been checking the forum the past couple of weeks and noticed a number of posts regarding PP being down quite a bit from the years high and also noticed my PP was down too. I started the PP in early 2011. Actually my portfolio consists of around 60 - 70% HBPP and 20 - 30% VWINX with a little extra cash. I had noticed in the past that my portfolio balance wasn't changing much so I thought I had better check to see where I was compared to previous years. This Dec. I am up 1% from the beginning of the year, up 1% from the beginning of 2013 and down about 1% from early 2011. Basically no change in portfolio balance while withdrawing 4 - 5% in retirement. I am quite happy with the results especially the low volatility. If only I would have heard about the PP 25 years ago. The one thing that Harry Browne wrote about that many of us fail to adhere to is "Only look at your portfolio once a year and rebalance if necessary". That one rule would make life a lot easier for most of us.
Keep up the great posts on this forum and enjoy the Holidays.
User avatar
I Shrugged
Executive Member
Executive Member
Posts: 1649
Joined: Tue Dec 18, 2012 6:35 pm

Re: New to Permanent Portfolio

Post by I Shrugged » Fri Dec 09, 2016 6:33 pm

I think I have been in the PP for 7+ years. So I have gains in all classes. Over the long run it looks good. I am sure there will be better allocations going forward, but I don't know how to find them. :)
barrett
Executive Member
Executive Member
Posts: 1747
Joined: Sat Jan 04, 2014 2:54 pm

Re: New to Permanent Portfolio

Post by barrett » Sat Dec 10, 2016 6:32 am

Alanw wrote:Have been checking the forum the past couple of weeks and noticed a number of posts regarding PP being down quite a bit from the years high and also noticed my PP was down too. I started the PP in early 2011. Actually my portfolio consists of around 60 - 70% HBPP and 20 - 30% VWINX with a little extra cash. I had noticed in the past that my portfolio balance wasn't changing much so I thought I had better check to see where I was compared to previous years. This Dec. I am up 1% from the beginning of the year, up 1% from the beginning of 2013 and down about 1% from early 2011. Basically no change in portfolio balance while withdrawing 4 - 5% in retirement. I am quite happy with the results especially the low volatility. If only I would have heard about the PP 25 years ago. The one thing that Harry Browne wrote about that many of us fail to adhere to is "Only look at your portfolio once a year and rebalance if necessary". That one rule would make life a lot easier for most of us.
Keep up the great posts on this forum and enjoy the Holidays.
Thanks for checking in, Alanw. We don't hear much from the satisfied PP users! How did you decided on adding the 20-30% VWINX? Just looking for a bit more income overall?
curlew
Executive Member
Executive Member
Posts: 287
Joined: Thu Mar 24, 2016 4:14 pm

Re: New to Permanent Portfolio

Post by curlew » Sat Dec 10, 2016 10:26 am

Alanw wrote: Actually my portfolio consists of around 60 - 70% HBPP and 20 - 30% VWINX with a little extra cash.
I had about the same mix up until the end of last year, funding my Roth IRA's exclusively with VWINX and calling it my VP. In January I read about the Golden Butterfly and switched out the VWINX for Small Cap Value. Turned out to be a good year for SCV so I'm happy with the results so far.
Alanw
Executive Member
Executive Member
Posts: 279
Joined: Fri Jan 06, 2012 11:05 am

Re: New to Permanent Portfolio

Post by Alanw » Sat Dec 10, 2016 12:59 pm

barrett, Income was part of the reason plus wanting some exposure to corporate bonds, which Wellesley has and not wanting to put all eggs in one basket. It's a very conservative portfolio but suits me well in retirement. Of course the first half of the year when the PP was on a tear, I wished all assets were in the PP. The last several months not so much. I think the main thing is staying with the allocation and not looking at the portfolio so often which I am guilty of.
tarentola
Full Member
Full Member
Posts: 98
Joined: Wed Aug 17, 2011 6:55 am

Re: New to Permanent Portfolio

Post by tarentola » Sun Dec 11, 2016 8:43 am

barrett wrote:Thanks for checking in, Alanw. We don't hear much from the satisfied PP users! How did you decided on adding the 20-30% VWINX? Just looking for a bit more income overall?
Yes it would be great to hear from other satisfied (or even unsatisfied) users, particularly those who have an long-established PP. How do you manage your PP in terms of adding and withdrawing funds, in combination or not with other investments?
Alanw
Executive Member
Executive Member
Posts: 279
Joined: Fri Jan 06, 2012 11:05 am

Re: New to Permanent Portfolio

Post by Alanw » Sun Dec 11, 2016 1:25 pm

My own personal PP is completely separate from VWINX and outside cash. It is held in both IRA, one other brokerage account and savings account. I rebalance using 30 - 20 bands. I know that 35 - 25 bands may produce a slightly higher CAGR but my primary interest is portfolio stability with nominal after inflation returns. So far, so good.
User avatar
sophie
Executive Member
Executive Member
Posts: 4588
Joined: Mon Apr 23, 2012 7:15 pm

Re: New to Permanent Portfolio

Post by sophie » Mon Dec 12, 2016 8:24 am

Welcome, tarentola. And, thanks for linking to that thread (discussing safe withdrawal rates). I second the vote to sticky it.
tarentola
Full Member
Full Member
Posts: 98
Joined: Wed Aug 17, 2011 6:55 am

Re: New to Permanent Portfolio

Post by tarentola » Mon Dec 12, 2016 1:25 pm

Thank you for the welcome, Sophie.

On withdrawal rates: "it is reasonable to expect a Permanent Portfolio to earn, over a period of years, an average yearly return of at least 5% above the inflation rate", Harry Browne wrote in Why the Best-Laid Investment Plans Usually Go Wrong. In a footnote, he added: "For the 1970-1987 period, the average growth rate in the hypothetical portfolio was 12.0%, or 5.2% above the inflation rate." Very close to Tyler's calculated 5.3% SWR.
Kbg
Executive Member
Executive Member
Posts: 2243
Joined: Fri May 23, 2014 4:18 pm

Re: New to Permanent Portfolio

Post by Kbg » Mon Dec 12, 2016 3:11 pm

Alanw wrote:My own personal PP is completely separate from VWINX and outside cash. It is held in both IRA, one other brokerage account and savings account. I rebalance using 30 - 20 bands. I know that 35 - 25 bands may produce a slightly higher CAGR but my primary interest is portfolio stability with nominal after inflation returns. So far, so good.
This is a misnomer and is highly path dependent. The only thing 30/20 guarantees is less tracking error.
Post Reply