Gyroscopic Investing

Hi,

I see many topics where people face many difficulties setting up a PP. As we are in an economic melt down Harry Browne had probably not seen during his life time, I would suggess we share some ideas, etf solutions etc about how to implement a global PP.

I am in the eurozone, we are facing here a very particular situation as well. There is no one month without a breaking new frightening again the monetary zone (now Italy as an ex). Central bank and governments are overhelmed with debts, no one knows if these will be or will not be paid. It will probably end with a general debt write off  and maybe with a eurozone big change if not a desintegration.

I think Harry Browne could not probably imagine such a melt down few years after he passed. I think in such a situation, the best is probably a global PP.

As the melt down is global, the solution could be global as well


Sincerely
Spark

Hi,

I have same doubt,

but what about :

65% US HBPP
+
35% EU HBPP


Regards

Funny, the more people speak about a economic melt down the better the performance
My portfolio performance this year (half global, half euopa): 13%
Cash: 2,0 %
LR eur Bonds: 11 %
Gold: 10 %
Stocks (50 % allocation): 16 %

I think i just act like a ostrich

frugal wrote: Hi,

I have same doubt,

but what about :

65% US HBPP
+
35% EU HBPP

Regards

I was thinking about something little different
As an ex :

Gold
- It  is already global so you can have the ETF in your own currency.

Stocks
- Its quite easy to get a tracker world (ex MCSI world ) that quote in the currency where you live.

Bonds
- It becomes some more complicated the ideal would be a globa tracker long bonds quoting in your currency
for the moment i only found iShares Global Government AAA-AA Capped Bond but it quotes in GBP althought I am in EuroZone. As the PP should be global, it may not be so important to have all in the same currency anaway.

(I give the GBP because it is where there is some volume - no volume in euro places for the moment on this ETF)

Cash
- As for cash, i could keep an Euro zone very short term treasuries (0-1 year)


In a way, this is why I started this topic to collaborate to set up a global portfolio that could feet for many users in different areas.


Sincerely 

I looked into this a while ago, and came to the same conclusion. It is easy to find instruments for global stocks and cash, and gold is inherently global. But buying global long term treasury (aka sovereign) bonds seemed practically impossible.

A few brokers made passing references to transacting foreign bonds at very high commissions. Apparently they may be subject to significant taxes by both the issuing government and US government. The coupon payments would be made in a different currency than what's in your sweep account and owed to the IRS, and I have no idea how that works out, but I'm guessing it's complex and annoying.

Even if you get past all that, you still need to diversify the bond portfolio. You would probably need to create your own index (to my knowledge no suitable one exists) and implement it yourself with great discipline. Depending on the number of bonds your index calls for and their denominations, this may impossible with smaller portfolios. E.g. if your policy calls for 15 different bonds that transact in $10k increments then you need to buy $150k+ bonds which would have to be in a $600k+ PP.

There are a few global or ex-US treasury/sovereign bond funds, but to my knowledge none of them are acceptable. Most ex-US bond funds intended for US investors are currency-hedged, which undermines the goal of currency diversification. The few unhedged funds I found targeted short or intermediate duration, not long term.

So I don't think this can work until someone creates something like an unhedged global version of TLT.

KevinW wrote: I looked into this a while ago, and came to the same conclusion. It is easy to find instruments for global stocks and cash, and gold is inherently global. But buying global long term treasury (aka sovereign) bonds seemed practically impossible.

BWX fits the bill. It is intermediate so you skip the cash.

Ex US PP:
50% BWX
25% GLD
25% VEU

You can blend it with a US PP:
25% BWX
25%GLD
12.5% VEU
12.5% VTI
12.5% TLT
12.5% BIL

It is more volatile if you only spend in US dollars. But if you spend significant time traveling outside of the US than this portfolio reduces your risk.

I was angling for a conventional 4x25 which necessitates a strict long term bond fund. But I guess if one is OK merging cash and bonds into a 25x25x50, then BWX looks OK for the ex-US intermediate bonds.

I guess you could simplify your blend a bit by merging the stocks, and domestic bonds/cash:

25% VT
25% GLD
25% BWX
25% IEI

IMO. The biggest issue really is that each government is going to respond differently to their own economic problems. So buying their bonds as a non-resident can actually increase your risks if they do something that works against your interests.

In essence, the cash/bonds is the biggest problem. You can diversify US/Intl. but it seriously breaks the monetary/central bank link of the portfolio. This may be an acceptable risk to some people though. I'd still be inclined to tilt it towards where you live and simply add on intl. bonds and stocks to your liking as others have pointed out.

But again, you could find risk increases for the cash/bonds instead of decreases. Then there is the whole idea of how all these currencies mix in with the gold if you use unhedged assets. It gets complicated very quickly.

Living in the small Uruguay, and without much knowledge of finance, I have been struggling with this problem from the beginning.
Keep going for different allocations I never got to any that make me feel comfortable.
As Craig says: "In essence, the cash / bonds is the biggest problem" and "Then there is the whole notion of how All These currencies mix In with the gold if you use unhedged assets".

With what I've done so far is:
VTI / ILF
TLT
GLD
SHV

And, like I have been suggested in another topic, probably end up replacing SHV by Uruguayan Pesos. Without knowing exactly what can get out of this mixture.

escafandro,

how much % of your portfolio is in USD ?

Do you have forex position to reduce risk?

Thanks

frugal wrote: escafandro,
how much % of your portfolio is in USD ?
Do you have forex position to reduce risk?

Except gold, all in USD.
I don't really know exactly how forex works. And how to apply respect to the portfolio. 

craigr wrote: I'd still be inclined to tilt it towards where you live and simply add on intl. bonds and stocks to your liking as others have pointed out.

How?

I don't see a lot of risk in holding US LTT and STT for my cash and bonds if I'm outside the US.  The US dollar is the world's reserve currency still and any time there is trouble in the global economy, money pours into our bond market as the world's safe haven. 

25% TLT
25% SHV/SHY
25% Gold
25% VT

Sounds like a sensible solution for most non-US residents with access to those funds.

clacy
Executive Member


and if one day 1 Dollar becomes 0,5 EUROS ?

There is a good article about this on Marc de Messel's blog:

http://europeanpermanentportfolio.blogs ... anent.html

Anyone outside the US who uses a US PP is taking on significant currency risk. You may or may not get higher returns than if you invest in your own country, but you will almost certainly get higher volatility. As low volatility is one of the main selling points of the PP, it doesn't sound like a particularly great idea to me.

frugal wrote: clacy
Executive Member


and if one day 1 Dollar becomes 0,5 EUROS ?

I guess I would say in that scenario, gold and stocks are going up significantly

Implementing a PP with assets denominated in a currency you don't use is always risky. However, the PP is probably less risky than most due to its gold allocation. Still, sticking to your own currency is probably the sanest choice unless you're in the unenviable position of living in a tiny country with a small economy and its own currency. At least for you EU folks, the common currency can actually help in this particular situation!

chrish wrote: There is a good article about this on Marc de Messel's blog:
http://europeanpermanentportfolio.blogs ... anent.html

A comment from someone who read this article: "Don't understand, as european you can use american permanent portfolio and have the same return. Simply hedge dollar!..."

Could anyone give a practical example (with which ETFs for example) of how to do this?

Scrap the Long term bonds. The rates are pitiful and the risks are huge. If the risk is the governments will default if rates rise or they need to print to keep them low then they are defaulting on them either way. Cash only has the inflation risk. 1/3 global cash 1/3 gold 1/3 global stocks should protect your wealth no matter what happens. Maybe there is a big global fiat deflation (I doubt it though). In that case use your cash to load up on stocks after they sell-off 50%. Gold might even shine right through since it's money and some will not want to hold the paper. I'm personally just holding gold and global stocks and have been doing so for years. Volitile? Yeah but not as much as you think and the prospects of real growth are double what they than if you're holding paper right now.

Browne wrote about situations liek this. Pick up "How you can profit from the coming devaluation" and "You can profit from a monetary crisis". They are fantastic. They were written after a period of serious money printing and when rates were very low. He wrote them when the future was uncertain just like now but they lay out a conservative strategy to see through it.

Europe has a lot of similar problems that the US has imo.

You don't have a global portfolio with just those two anyway. You have a western/socialist/democracy/debt-ridden economy permanent portfolio.

If you had to hold Aussie dollars or Euros for the next ten years which would you choose? How about Yuan vs USD? Not sure? Why not hold all four? Same for stocks IMO for safety's sake.

My point is if it's not a US only HBPP, might as well really go global. Western Europe doesn't look like it's about to break out into peace and prosperity anytime soon. Calm before the storm.

escafandro wrote:

chrish wrote: There is a good article about this on Marc de Messel's blog:
http://europeanpermanentportfolio.blogs ... anent.html

A comment from someone who read this article: "Don't understand, as european you can use american permanent portfolio and have the same return. Simply hedge dollar!..."

Could anyone give a practical example (with which ETFs for example) of how to do this?

you have to open position in FOREX, here in europe we would have to buy near the same amount in EUR/USD .

The historical optimum % is around 70%

Kshartle wrote: 1/3 global cash 1/3 gold 1/3 global stocks should protect your wealth no matter what happens.

Skip the long term bond... Controversial. In 2008 and 2011 were more than helpful.
But I must say that I am concerned too about the problem that has U.S. in dealing with the issue of the deficit.

i would second the opinion here that it would be prudent to consider multiple, maybe 2 but not more than 3 versions of PP with perhaps US, Europe and Asia blend. I think these could be set up using 2 or 3 currency bases - USD, Euro/Swiss and perhaps a Singapore dollar or even Hong Kong dollar and RMB . The point of emphasis here would be to try and establish the PP allocations in the different currencies to further hedge away from solely the USD. I know that this may not apply to alot of members here, but this strategy would be especially true if you think you might be apt to actually spend the drawdown in those currencies. In my particular case, i have set up 2 PP - one based in USD (75%) and another based on Singapore dollar (25%). that is primarily because i plant to spend a good portion of retirement in Singapore or some other locale in Asia and use those funds in the location that i am going to spend it. One of the hardest parts of constructing this is long term govt. bonds - it is possible in Singapore and Hong Kong, but may not have the same effect as US LT bonds do. Who else hates to put money into US LT bonds ? It is like taking a bad medicine. You know you need it to make this whole portfolio perform the way it does, but it is real bitter tasting.

hi ChinaBull...which broker do you use for foreign holdings?

Also, do you use ETFs / mutual funds in foreign brokerage acct? I ask because it seems that this can create many difficulties with the US IRS.