Permanent Portfolios

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Post Reply
Topic Author
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Permanent Portfolios

Post by rockstar »

Does the current market have people revisiting other asset classes beyond bonds and equities? For example, the Golden Butterfly has a gold portion to it. The All Weather has a commodity portion.
Church Lady
Posts: 820
Joined: Sat Jun 28, 2014 7:49 pm

Re: Permanent Portfolios

Post by Church Lady »

I added Gold when I learned about the Golden Butterfly. That was all prior to covid and the current economy.

So far, it's been the right thing to do.
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.
User avatar
topper1296
Posts: 836
Joined: Fri Apr 03, 2009 10:50 pm
Location: Nashville TN

Re: Permanent Portfolios

Post by topper1296 »

I'm a fan of gold for "portfolio insurance"/geopolitical hedge reasons, however I don't have nearly as big of an allocation in it as the permanent portfolio/golden butterfly (I'm closer to 5%). I've also checked into other alternative assets and most of the them have pretty high expense ratios. $MNA (merger arb ETF) is okay at 0.77%, GNR (global natural resources ETF) is at 0.40% and GLDM is at 0.10% (this is what I use for gold).
Phyneas
Posts: 336
Joined: Tue Apr 27, 2021 9:10 pm

Re: Permanent Portfolios

Post by Phyneas »

topper1296 wrote: Wed May 18, 2022 9:35 pm I'm a fan of gold for "portfolio insurance"/geopolitical hedge reasons, however I don't have nearly as big of an allocation in it as the permanent portfolio/golden butterfly (I'm closer to 5%). I've also checked into other alternative assets and most of the them have pretty high expense ratios. $MNA (merger arb ETF) is okay at 0.77%, GNR (global natural resources ETF) is at 0.40% and GLDM is at 0.10% (this is what I use for gold).
Isn't GLDM's MER 0.18% Otherwise I need to sell my SGOL immediately.
60% AVGE | 20 Year TIPS LMP | 5% Cash
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Permanent Portfolios

Post by secondopinion »

rockstar wrote: Wed May 18, 2022 7:02 pm Does the current market have people revisiting other asset classes beyond bonds and equities? For example, the Golden Butterfly has a gold portion to it. The All Weather has a commodity portion.
I already have a little bit of precious metal physically. Despite how commodities have behaved as of late, I do not have any holdings. I could never find a reasonable commodity fund fee-wise.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
User avatar
topper1296
Posts: 836
Joined: Fri Apr 03, 2009 10:50 pm
Location: Nashville TN

Re: Permanent Portfolios

Post by topper1296 »

Phyneas wrote: Wed May 18, 2022 11:15 pm
topper1296 wrote: Wed May 18, 2022 9:35 pm I'm a fan of gold for "portfolio insurance"/geopolitical hedge reasons, however I don't have nearly as big of an allocation in it as the permanent portfolio/golden butterfly (I'm closer to 5%). I've also checked into other alternative assets and most of the them have pretty high expense ratios. $MNA (merger arb ETF) is okay at 0.77%, GNR (global natural resources ETF) is at 0.40% and GLDM is at 0.10% (this is what I use for gold).
Isn't GLDM's MER 0.18% Otherwise I need to sell my SGOL immediately.
I'm seeing 0.10%.

https://www.ssga.com/us/en/individual/e ... trust-gldm
Phyneas
Posts: 336
Joined: Tue Apr 27, 2021 9:10 pm

Re: Permanent Portfolios

Post by Phyneas »

topper1296 wrote: Thu May 19, 2022 7:04 am
Phyneas wrote: Wed May 18, 2022 11:15 pm
topper1296 wrote: Wed May 18, 2022 9:35 pm I'm a fan of gold for "portfolio insurance"/geopolitical hedge reasons, however I don't have nearly as big of an allocation in it as the permanent portfolio/golden butterfly (I'm closer to 5%). I've also checked into other alternative assets and most of the them have pretty high expense ratios. $MNA (merger arb ETF) is okay at 0.77%, GNR (global natural resources ETF) is at 0.40% and GLDM is at 0.10% (this is what I use for gold).
Isn't GLDM's MER 0.18% Otherwise I need to sell my SGOL immediately.
I'm seeing 0.10%.

https://www.ssga.com/us/en/individual/e ... trust-gldm
That's awesome, nice catch, none of the main listing sites have updated the info, I just read the circular here. Switching in 3 ... 2 ... 1 ...
60% AVGE | 20 Year TIPS LMP | 5% Cash
User avatar
burritoLover
Posts: 4097
Joined: Sun Jul 05, 2020 12:13 pm

Re: Permanent Portfolios

Post by burritoLover »

rockstar wrote: Wed May 18, 2022 7:02 pm Does the current market have people revisiting other asset classes beyond bonds and equities? For example, the Golden Butterfly has a gold portion to it. The All Weather has a commodity portion.
If all you do is respond to the current market by changing to different asset classes, your returns will suck as this almost always means you are getting rid of (or reducing an allocation to) the lower performing asset (locking in losses) to buy (or buy more of) the asset that is performing better in the current market conditions.
User avatar
TheTimeLord
Posts: 12130
Joined: Fri Jul 26, 2013 2:05 pm

Re: Permanent Portfolios

Post by TheTimeLord »

Church Lady wrote: Wed May 18, 2022 8:46 pm I added Gold when I learned about the Golden Butterfly. That was all prior to covid and the current economy.

So far, it's been the right thing to do.
What year did you add gold? Has it outperformed your stocks and bonds or is it just doing better in 2022?
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Call_Me_Op
Posts: 9881
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Permanent Portfolios

Post by Call_Me_Op »

The problem with the Permanent Portfolio is you start to see people's interest piqued only when the conventional portfolio is not doing well. Then when the PP starts to fall behind, they tend to abandon it. A Permanent Portfolio only works when it's permanent.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
User avatar
windaar
Posts: 1674
Joined: Thu Mar 08, 2012 6:31 am

Re: Permanent Portfolios

Post by windaar »

rockstar wrote: Wed May 18, 2022 7:02 pm Does the current market
Boglehead philosophy is to develop a long-term plan that works and not make sudden moves based on events.
Nobody knows nothing.
RedDog
Posts: 289
Joined: Sat Dec 05, 2015 3:36 pm

Re: Permanent Portfolios

Post by RedDog »

burritoLover wrote: Thu May 19, 2022 7:34 am
rockstar wrote: Wed May 18, 2022 7:02 pm Does the current market have people revisiting other asset classes beyond bonds and equities? For example, the Golden Butterfly has a gold portion to it. The All Weather has a commodity portion.
If all you do is respond to the current market by changing to different asset classes, your returns will suck as this almost always means you are getting rid of (or reducing an allocation to) the lower performing asset (locking in losses) to buy (or buy more of) the asset that is performing better in the current market conditions.
+1

By far the best advice on this post yet.
Tamalak
Posts: 1989
Joined: Fri May 06, 2016 2:29 pm

Re: Permanent Portfolios

Post by Tamalak »

I don't like gold. Its historical performance has been very good for its purpose (anti-correlation, inflation resilience) but conceptually it's.. one thing. A single element on the periodic table. It doesn't produce anything, and anything can happen to it as far as how society values it and its utility.
NoRegret
Posts: 505
Joined: Sat Dec 16, 2017 1:00 am
Location: California

Re: Permanent Portfolios

Post by NoRegret »

topper1296 wrote: Thu May 19, 2022 7:04 am
Phyneas wrote: Wed May 18, 2022 11:15 pm
topper1296 wrote: Wed May 18, 2022 9:35 pm I'm a fan of gold for "portfolio insurance"/geopolitical hedge reasons, however I don't have nearly as big of an allocation in it as the permanent portfolio/golden butterfly (I'm closer to 5%). I've also checked into other alternative assets and most of the them have pretty high expense ratios. $MNA (merger arb ETF) is okay at 0.77%, GNR (global natural resources ETF) is at 0.40% and GLDM is at 0.10% (this is what I use for gold).
Isn't GLDM's MER 0.18% Otherwise I need to sell my SGOL immediately.
I'm seeing 0.10%.

https://www.ssga.com/us/en/individual/e ... trust-gldm
The ER was at 0.18% but there was a 2:1 reverse split and attendant fee reduction. It’s now the low cost leader.
Market timer targeting long term cycles -- aiming for several key decisions per asset class per decade
Topic Author
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: Permanent Portfolios

Post by rockstar »

windaar wrote: Thu May 19, 2022 7:55 am
rockstar wrote: Wed May 18, 2022 7:02 pm Does the current market
Boglehead philosophy is to develop a long-term plan that works and not make sudden moves based on events.
Things change like the long bond. When the research is backward looking and projecting a bond bull market to continue indefinitely, you have to think for yourself and adjust. Sometimes things change and the long term plan has to change. I'm also not immortal, so I need to adjust for my age. All of the permanent portfolios I have looked at seem to assume a continuation of the bond bull market. And back testing has shown failures during the 70s when bond rates went up.

What I need to think about as I get back into the market is what makes sense for the long term given the state of the market, rather than blindly following a portfolio that was built off of different assumptions.
Kbg
Posts: 355
Joined: Thu Mar 23, 2017 11:33 am

Re: Permanent Portfolios

Post by Kbg »

Commodity/gold related investments are streaky. They are a diversifier which is indisputable. Whether they help or hurt is highly time dependent/economic conditions dependent.

Commodities/gold aren't good nor bad. They're an asset class that responds differently than stocks or bonds.
User avatar
burritoLover
Posts: 4097
Joined: Sun Jul 05, 2020 12:13 pm

Re: Permanent Portfolios

Post by burritoLover »

rockstar wrote: Thu May 19, 2022 9:12 am
windaar wrote: Thu May 19, 2022 7:55 am
rockstar wrote: Wed May 18, 2022 7:02 pm Does the current market
Boglehead philosophy is to develop a long-term plan that works and not make sudden moves based on events.
Things change like the long bond. When the research is backward looking and projecting a bond bull market to continue indefinitely, you have to think for yourself and adjust. Sometimes things change and the long term plan has to change. I'm also not immortal, so I need to adjust for my age. All of the permanent portfolios I have looked at seem to assume a continuation of the bond bull market. And back testing has shown failures during the 70s when bond rates went up.

What I need to think about as I get back into the market is what makes sense for the long term given the state of the market, rather than blindly following a portfolio that was built off of different assumptions.
Then your problem is that you built your original portfolio based on some forecast and the current market conditions at the time and you're determined to repeat the same mistake yet again.
technovelist
Posts: 3611
Joined: Wed Dec 30, 2009 8:02 pm

Re: Permanent Portfolios

Post by technovelist »

Call_Me_Op wrote: Thu May 19, 2022 7:47 am The problem with the Permanent Portfolio is you start to see people's interest piqued only when the conventional portfolio is not doing well. Then when the PP starts to fall behind, they tend to abandon it. A Permanent Portfolio only works when it's permanent.
Of course that's not a problem with the Permanent Portfolio, but a problem with people (and is certainly not limited to this particular asset allocation). As Harry Bernstein puts it:

"because of its huge tracking error relative to more conventional portfolios, it attracts assets and adherents during crises, then sheds them in better times. There's nothing wrong with Harry's portfolio -- nothing at all -- but there's everything wrong with his followers, who seem, on average, to chase performance the way dogs chase cars."

(http://www.efficientfrontier.com/ef/0adhoc/harry.htm)
In theory, theory and practice are identical. In practice, they often differ.
cheezit
Posts: 493
Joined: Sat Jul 14, 2018 7:28 pm

Re: Permanent Portfolios

Post by cheezit »

rockstar wrote: Thu May 19, 2022 9:12 am Sometimes things change and the long term plan has to change. I'm also not immortal, so I need to adjust for my age.
Considering that the world has changed at some given inflection point is certainly valid, but also tremendously muddles the analysis of all the major diversifiers of equities. Eg. looking at how well gold and Treasurys work in concert to diversify a portfolio heavy in US equities will give very different answers depending on whether you think the world last changed at the end of the Nixon shock, at the complete end of Bretton-Woods, or at the end of the Volcker shock. Such is life, I guess.


Whether this matters to you depends on what the purpose of bonds were in your portfolio, especially the interplay between low monthly correlation with equities and interest rate/reinvestment risk.

Overall, the changes in your remaining expected investment horizon would matter more than the changes in your estimation of future interest rate movements with respect to the duration of bonds that make sense for you.
Topic Author
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: Permanent Portfolios

Post by rockstar »

cheezit wrote: Thu May 19, 2022 10:26 am
rockstar wrote: Thu May 19, 2022 9:12 am Sometimes things change and the long term plan has to change. I'm also not immortal, so I need to adjust for my age.
Considering that the world has changed at some given inflection point is certainly valid, but also tremendously muddles the analysis of all the major diversifiers of equities. Eg. looking at how well gold and Treasurys work in concert to diversify a portfolio heavy in US equities will give very different answers depending on whether you think the world last changed at the end of the Nixon shock, at the complete end of Bretton-Woods, or at the end of the Volcker shock. Such is life, I guess.


Whether this matters to you depends on what the purpose of bonds were in your portfolio, especially the interplay between low monthly correlation with equities and interest rate/reinvestment risk.

Overall, the changes in your remaining expected investment horizon would matter more than the changes in your estimation of future interest rate movements with respect to the duration of bonds that make sense for you.
Interest rates are whatever they are when you purchase. It's not so much prediction as expectation if held to maturity. It is what is. The volatility comes into play when you sell before maturity. I feel like a better way to talk about bonds and equities is that equities is the money you're actively gambling with at any given point in time and bonds is the money in the bank that's not being gambled but that you can't really touch until it matures into cash. Otherwise, if you're moving bonds funds before maturity, you're adding risk trying to capture the impact of rates moving up and down on top of the coupon.
Church Lady
Posts: 820
Joined: Sat Jun 28, 2014 7:49 pm

Re: Permanent Portfolios

Post by Church Lady »

TheTimeLord wrote: Thu May 19, 2022 7:44 am
Church Lady wrote: Wed May 18, 2022 8:46 pm I added Gold when I learned about the Golden Butterfly. That was all prior to covid and the current economy.

So far, it's been the right thing to do.
What year did you add gold? Has it outperformed your stocks and bonds or is it just doing better in 2022?
It's hard to say exactly when I started as I sold some off for rebalancing. Current holdings are acquired 2018-2020. I don't have detailed performance records, but ....

Ticker, ytd, 5 year
AGG, -9.04%, -5.845 <---- read it and weep :( :( :( . What a dog.
SPY, -18.445%, 62.63%, <---- what have you done for me lately?
BAR 2.29%,37.91% <---- thank goodness I learned about the golden butterfly

I don't compute detailed performance of my holdings over time, but the above figures I grabbed quickly off the web show it is outperforming this year, and outperforming bonds over time. (Too bad I don't have annualized figures since 2018).

But you are asking the wrong question. The question is not whether gold always keeps up. (Some poster will surely flame me for holding gold because "it under performs". But look! It has far outperformed bonds. Should I then swap my bonds for gold? Because bonds under perform? This year, gold is outperforming stocks. Should I then swap my stocks into gold because stocks under perform?)

The question is, has gold helped protect my portfolio? Yes, it has. So far.

The point of holding bonds, or stocks, or cash, or real estate, or gold, or anything else, is that different holdings thrive in different economies. If I could predict or read the economy perfectly, I'd hold only the optimal asset class for that economy. But I can't, so I diversify.
He that loveth silver shall not be satisfied with silver; nor he that loveth abundance with increase: this is also vanity.
Topic Author
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: Permanent Portfolios

Post by rockstar »

Church Lady wrote: Thu May 19, 2022 11:07 am
TheTimeLord wrote: Thu May 19, 2022 7:44 am
Church Lady wrote: Wed May 18, 2022 8:46 pm I added Gold when I learned about the Golden Butterfly. That was all prior to covid and the current economy.

So far, it's been the right thing to do.
What year did you add gold? Has it outperformed your stocks and bonds or is it just doing better in 2022?
It's hard to say exactly when I started as I sold some off for rebalancing. Current holdings are acquired 2018-2020. I don't have detailed performance records, but ....

Ticker, ytd, 5 year
AGG, -9.04%, -5.845 <---- read it and weep :( :( :( . What a dog.
SPY, -18.445%, 62.63%, <---- what have you done for me lately?
BAR 2.29%,37.91% <---- thank goodness I learned about the golden butterfly

I don't compute detailed performance of my holdings over time, but the above figures I grabbed quickly off the web show it is outperforming this year, and outperforming bonds over time. (Too bad I don't have annualized figures since 2018).

But you are asking the wrong question. The question is not whether gold always keeps up. (Some poster will surely flame me for holding gold because "it under performs". But look! It has far outperformed bonds. Should I then swap my bonds for gold? Because bonds under perform? This year, gold is outperforming stocks. Should I then swap my stocks into gold because stocks under perform?)

The question is, has gold helped protect my portfolio? Yes, it has. So far.

The point of holding bonds, or stocks, or cash, or real estate, or gold, or anything else, is that different holdings thrive in different economies. If I could predict or read the economy perfectly, I'd hold only the optimal asset class for that economy. But I can't, so I diversify.
My challenge on the bonds side is picking between two things: duration and inflation protection. I'm considering building out a golden butterfly as I already have about 15% now between GLD and GLDM anyway. I've been buying over the last couple of years. I'm considering TIPS (since they're currently positive yielding) for the long term treasuries in the golden butterfly and t-bills for the short term. I just prefer actual bonds over bonds funds.
Call_Me_Op
Posts: 9881
Joined: Mon Sep 07, 2009 2:57 pm
Location: Milky Way

Re: Permanent Portfolios

Post by Call_Me_Op »

technovelist wrote: Thu May 19, 2022 10:00 am
Call_Me_Op wrote: Thu May 19, 2022 7:47 am The problem with the Permanent Portfolio is you start to see people's interest piqued only when the conventional portfolio is not doing well. Then when the PP starts to fall behind, they tend to abandon it. A Permanent Portfolio only works when it's permanent.
Of course that's not a problem with the Permanent Portfolio, but a problem with people (and is certainly not limited to this particular asset allocation). As Harry Bernstein puts it:

"because of its huge tracking error relative to more conventional portfolios, it attracts assets and adherents during crises, then sheds them in better times. There's nothing wrong with Harry's portfolio -- nothing at all -- but there's everything wrong with his followers, who seem, on average, to chase performance the way dogs chase cars."

(http://www.efficientfrontier.com/ef/0adhoc/harry.htm)
Right - just used a bit of verbal license.
Best regards, -Op | | "In the middle of difficulty lies opportunity." Einstein
technovelist
Posts: 3611
Joined: Wed Dec 30, 2009 8:02 pm

Re: Permanent Portfolios

Post by technovelist »

Call_Me_Op wrote: Thu May 19, 2022 11:13 am
technovelist wrote: Thu May 19, 2022 10:00 am
Call_Me_Op wrote: Thu May 19, 2022 7:47 am The problem with the Permanent Portfolio is you start to see people's interest piqued only when the conventional portfolio is not doing well. Then when the PP starts to fall behind, they tend to abandon it. A Permanent Portfolio only works when it's permanent.
Of course that's not a problem with the Permanent Portfolio, but a problem with people (and is certainly not limited to this particular asset allocation). As Harry Bernstein puts it:

"because of its huge tracking error relative to more conventional portfolios, it attracts assets and adherents during crises, then sheds them in better times. There's nothing wrong with Harry's portfolio -- nothing at all -- but there's everything wrong with his followers, who seem, on average, to chase performance the way dogs chase cars."

(http://www.efficientfrontier.com/ef/0adhoc/harry.htm)
Right - just used a bit of verbal license.
Sure, no problem.
In theory, theory and practice are identical. In practice, they often differ.
User avatar
1789
Posts: 2223
Joined: Fri Aug 16, 2019 3:31 pm

Re: Permanent Portfolios

Post by 1789 »

Gold/silver/crypto are all speculative assets. There is no earnings or anything that comes out from them. Their value depends on human emotions.
"My conscience wants vegetarianism to win over the world. And my subconscious is yearning for a piece of juicy meat. But what do i want?" (Andrei Tarkovsky)
User avatar
calmaniac
Posts: 1325
Joined: Fri Jan 30, 2015 2:32 pm

Re: Permanent Portfolios

Post by calmaniac »

rockstar wrote: Wed May 18, 2022 7:02 pm Does the current market have people revisiting other asset classes beyond bonds and equities?
No.

Looking back over the past 100 years, the current market seems pretty routine. Sometimes it goes down, most of the time it goes up. Not that I am liking the current market, but don't see why it would change my fundamental approach to investing, as laid out in my Investment Policy Statement.

OP, do you have an Investment Policy Statement?
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
Tamalak
Posts: 1989
Joined: Fri May 06, 2016 2:29 pm

Re: Permanent Portfolios

Post by Tamalak »

1789 wrote: Thu May 19, 2022 11:36 am Gold/silver/crypto are all speculative assets. There is no earnings or anything that comes out from them. Their value depends on human emotions.
Technically they have a future expected return of inflation, especially in crypto's case as you can't make more bitcoins past a limit, plus bitcoins are slowly being lost forever.

You don't need a "greater fool" for these commodities to return inflation, but I still don't trust them..
technovelist
Posts: 3611
Joined: Wed Dec 30, 2009 8:02 pm

Re: Permanent Portfolios

Post by technovelist »

1789 wrote: Thu May 19, 2022 11:36 am Gold/silver/crypto are all speculative assets. There is no earnings or anything that comes out from them. Their value depends on human emotions.
Also you can't eat them! :sharebeer
In theory, theory and practice are identical. In practice, they often differ.
secondopinion
Posts: 6011
Joined: Wed Dec 02, 2020 12:18 pm

Re: Permanent Portfolios

Post by secondopinion »

Maybe this is slightly off topic, but I want to kind of include a tad of a discussion about optimality. I will use a modified Permanent Portfolio using 20% gold, 25% cash, 27.5% S&P 500, and 27.5% long-term treasuries to show my point. Maybe the choice of funds is debatable, but I am trying more to explain how optimality works here and why the majority of benefits are obtained without taking the optimal choice.

If we compare it against two other portfolios (where the other two use less gold for more stocks/treasuries in 10% changes), what we see is that the volatility appears to be lower for the middle portfolio (10% gold). Now, this is sensitive to dates; but the point is that the optimal objective of lowest volatility is obtained very close to here for these dates. https://www.portfoliovisualizer.com/bac ... tion4_3=25

If we take the side of being not as fond of gold and elect for a mere 5%, we obtain in fact most of the volatility reduction (getting about 75% of that benefit for 50% less gold). And no, the optimal is not lower than 10% here. https://www.portfoliovisualizer.com/bac ... tion4_3=25

On the other hand, if one is fond of gold, then they could go 15% in gold. Again, most of the volatility reduction is had (maintaining about 75% of the benefit while adding 5% more gold). Although the optimal is a tad above 10% (maybe like 10.5%), this still is a valid argument. https://www.portfoliovisualizer.com/bac ... tion4_3=25

Now, which one is wrong? We really do not know for certain. However, when we see arguments for some version of optimality, we do not have to match the optimal to get most of the benefits. Maybe this is not as meaningful of a difference, but I think the point remains. I hold a small amount of gold (my cap is 5%); I know the benefits risk-wise of having it, but I do not need to be as fond of it to get much of these benefits.

So when I see portfolios that try to optimize something by being kind of lopsided on an alternative, I see it that most of the benefits can be obtained with a considerably smaller amount.
Passive investing: not about making big bucks but making profits. Active investing: not about beating the market but meeting goals. Speculation: not about timing the market but taking profitable risks.
Simple Simon
Posts: 166
Joined: Sat Apr 26, 2014 4:37 am

Re: Permanent Portfolios

Post by Simple Simon »

Call_Me_Op wrote: Thu May 19, 2022 7:47 am The problem with the Permanent Portfolio is you start to see people's interest piqued only when the conventional portfolio is not doing well. Then when the PP starts to fall behind, they tend to abandon it. A Permanent Portfolio only works when it's permanent.
This is true.

Also, in multi year equity bull markets, doubt can creep in.
25% stock, 25% bonds, 25% cash, 25% stuff
User avatar
HanSolo
Posts: 2313
Joined: Thu Jul 19, 2012 3:18 am

Re: Permanent Portfolios

Post by HanSolo »

secondopinion wrote: Thu May 19, 2022 2:22 am I already have a little bit of precious metal physically. Despite how commodities have behaved as of late, I do not have any holdings. I could never find a reasonable commodity fund fee-wise.
There's Vanguard Commodity Strategy (VCMDX), ER is lower than the ETFs (GSG, DBC, etc.), but there's a $50K minimum.
rockstar wrote: Thu May 19, 2022 9:12 am Things change like the long bond. When the research is backward looking and projecting a bond bull market to continue indefinitely, you have to think for yourself and adjust. Sometimes things change and the long term plan has to change. ...

What I need to think about as I get back into the market is what makes sense for the long term given the state of the market, rather than blindly following a portfolio that was built off of different assumptions.
Sounds like you're assuming that the PP has assumptions that certain things wouldn't change. My understanding is that the PP was built with the assumption that each asset class will have periods of underperformance.

Perhaps you're also assuming that, even if long bonds are arguably overvalued, other asset classes are not, or are less so.

Those are interesting assumptions.

That said, if you find a way to improve on the PP, great... you could become more famous than Harry Browne.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
Topic Author
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: Permanent Portfolios

Post by rockstar »

HanSolo wrote: Thu May 19, 2022 6:09 pm
secondopinion wrote: Thu May 19, 2022 2:22 am I already have a little bit of precious metal physically. Despite how commodities have behaved as of late, I do not have any holdings. I could never find a reasonable commodity fund fee-wise.
There's Vanguard Commodity Strategy (VCMDX), ER is lower than the ETFs (GSG, DBC, etc.), but there's a $50K minimum.
rockstar wrote: Thu May 19, 2022 9:12 am Things change like the long bond. When the research is backward looking and projecting a bond bull market to continue indefinitely, you have to think for yourself and adjust. Sometimes things change and the long term plan has to change. ...

What I need to think about as I get back into the market is what makes sense for the long term given the state of the market, rather than blindly following a portfolio that was built off of different assumptions.
Sounds like you're assuming that the PP has assumptions that certain things wouldn't change. My understanding is that the PP was built with the assumption that each asset class will have periods of underperformance.

Perhaps you're also assuming that, even if long bonds are arguably overvalued, other asset classes are not, or are less so.

Those are interesting assumptions.

That said, if you find a way to improve on the PP, great... you could become more famous than Harry Browne.
I don't know if something is over or under valued. An asset is only worth what someone is willing to pay for it at a given point in time.

I'm looking at implementing the Golden Butterfly portfolio, but I'd rather use individual bonds than funds. And I'm looking at TIPS instead of nominal bonds. I might also look at splitting the equity portion across VOO, QQQ, and VBR. This is where my heads at right now. I'm brainstorming it now. I'm willing to give up some return for more stable returns.
User avatar
HanSolo
Posts: 2313
Joined: Thu Jul 19, 2012 3:18 am

Re: Permanent Portfolios

Post by HanSolo »

rockstar wrote: Thu May 19, 2022 7:40 pm I don't know if something is over or under valued.
What I was responding to was this...
rockstar wrote: Thu May 19, 2022 9:12 am
windaar wrote: Thu May 19, 2022 7:55 am
rockstar wrote: Wed May 18, 2022 7:02 pm Does the current market
Boglehead philosophy is to develop a long-term plan that works and not make sudden moves based on events.
Things change like the long bond. ...
It appeared that you were disagreeing with the post that you responded to. In my understanding, the long-term plans under consideration (whether Boglehead-type or PP) already take into account that certain kinds of things change. So when one of those kinds of things change, logically, following the plan means staying the course with that plan.

In other words, the changes you're observing are already accounted for in the long-term plans under consideration. Tailoring a plan for "the current market" is usually referred to as market timing, which is not a popular concept here on BH. I'm not against it in principle, just pointing out that it would carry different assumptions from the existing plans (like PP, Golden Butterfly, etc.). My point was to be careful about assumptions, whatever they are.

If you come up with a strategy that can be expressed in the form of an IPS, then that could then be the new long-term plan that you could conceivably stay the course with (including predetermined adjustments for market conditions, if any). It would be interesting to know what that plan is.
Strategic Macro Senior (top 1%, 2019 Bogleheads Contest)
averagedude
Posts: 1772
Joined: Sun May 13, 2018 3:41 pm

Re: Permanent Portfolios

Post by averagedude »

I have always questioned my investment strategy when the market is down and I'm sure most other investors do too. This is why it is important to have a reasonable investment strategy that you believe in that will accomplish your goals, and that you can stick with when (not if) your investment strategy becomes out of favor.
e5116
Posts: 867
Joined: Mon Oct 05, 2009 11:22 am

Re: Permanent Portfolios

Post by e5116 »

It's pretty crazy that this year the OG "Permanent Portfolio" (Harry Browne's version) has a -17.4% YTD return (which will be even worse after today). Gold and Bonds have NOT provided a ballast against a decline in the stock market this year. How rare is this? Well, the absolute worst year since 1985 was 2015 when it returned -2.9%. There have been only 5 years since 1985 (38 years) that have had a negative return at all (13% of the time). So, a nearly 20% decline is truly historic. We'll see what the rest of the year holds! But the "flight to safety" to gold/treasuries (or even to the new "c" place) have not helped much and no matter what you've held, you're down significantly this year for the first time in recent memory. Total stock is down 24% so the "safe" permanent portfolio being "only" down 17% isn't all that much better.

Sources:
https://portfolioslab.com/portfolio/har ... -permanent
https://www.bogleheads.org/blog/2022/01 ... 21-update/
newbie001
Posts: 438
Joined: Mon Nov 24, 2008 12:50 am

Re: Permanent Portfolios

Post by newbie001 »

e5116 wrote: Thu Sep 29, 2022 10:16 am It's pretty crazy that this year the OG "Permanent Portfolio" (Harry Browne's version) has a -17.4% YTD return (which will be even worse after today). Gold and Bonds have NOT provided a ballast against a decline in the stock market this year. How rare is this? Well, the absolute worst year since 1985 was 2015 when it returned -2.9%. There have been only 5 years since 1985 (38 years) that have had a negative return at all (13% of the time). So, a nearly 20% decline is truly historic. We'll see what the rest of the year holds! But the "flight to safety" to gold/treasuries (or even to the new "c" place) have not helped much and no matter what you've held, you're down significantly this year for the first time in recent memory. Total stock is down 24% so the "safe" permanent portfolio being "only" down 17% isn't all that much better.

Sources:
https://portfolioslab.com/portfolio/har ... -permanent
https://www.bogleheads.org/blog/2022/01 ... 21-update/
Yep, absolutely brutal year for the PP. And even worse in real terms!
seajay
Posts: 1656
Joined: Sat May 01, 2021 3:26 pm
Contact:

Re: Permanent Portfolios

Post by seajay »

e5116 wrote: Thu Sep 29, 2022 10:16 am It's pretty crazy that this year the OG "Permanent Portfolio" (Harry Browne's version) has a -17.4% YTD return (which will be even worse after today). Gold and Bonds have NOT provided a ballast against a decline in the stock market this year. How rare is this? Well, the absolute worst year since 1985 was 2015 when it returned -2.9%. There have been only 5 years since 1985 (38 years) that have had a negative return at all (13% of the time). So, a nearly 20% decline is truly historic. We'll see what the rest of the year holds! But the "flight to safety" to gold/treasuries (or even to the new "c" place) have not helped much and no matter what you've held, you're down significantly this year for the first time in recent memory. Total stock is down 24% so the "safe" permanent portfolio being "only" down 17% isn't all that much better.

Sources:
https://portfolioslab.com/portfolio/har ... -permanent
https://www.bogleheads.org/blog/2022/01 ... 21-update/
March to October 2008 PP down -13.3%, stocks down -26.3%
Logan Roy
Posts: 1838
Joined: Sun May 29, 2022 10:15 am

Re: Permanent Portfolios

Post by Logan Roy »

I think the Permanent Portfolio needed rethinking the moment TIPS came into existence. And possibly again, when monetary policy created an artificial bubble in bond prices (negative nominal yields in Europe?).

This has happened before - during tightening in the past periods of stagflation, everything went down (inflation-linked bond data, simulated). Gold and commodities bounced back when we went back to easing – why? Probably because the dollar gets so expensive when we're tightening?

Image

One thing that's rescued my portfolio this year is long dollar, short Euro and Pound positions. I'm normally aware of currency diversification, but don't like currency trading. However, dollar strength is a really good diversifier (see chart) when we're tightening. I also think valuations, at some point, probably should impact asset allocation. We knew what Treasuries were likely to do from >1% yields.
cheezit
Posts: 493
Joined: Sat Jul 14, 2018 7:28 pm

Re: Permanent Portfolios

Post by cheezit »

Logan Roy wrote: Thu Sep 29, 2022 8:22 pm However, dollar strength is a really good diversifier (see chart) when we're tightening.
I'll make the obvious unstated point that the absolute tightening by the US isn't what does this, but rather the relative tightening vis-a-vis the central banks associated with other currencies.

That is, if the ECB and the BoE were tightening in lockstep with the Fed (rather than lagging behind the Fed in their interest rate and QT moves), the dollar wouldn't be gaining against the euro and the pound.
Topic Author
rockstar
Posts: 6326
Joined: Mon Feb 03, 2020 5:51 pm

Re: Permanent Portfolios

Post by rockstar »

cheezit wrote: Fri Sep 30, 2022 9:45 am
Logan Roy wrote: Thu Sep 29, 2022 8:22 pm However, dollar strength is a really good diversifier (see chart) when we're tightening.
I'll make the obvious unstated point that the absolute tightening by the US isn't what does this, but rather the relative tightening vis-a-vis the central banks associated with other currencies.

That is, if the ECB and the BoE were tightening in lockstep with the Fed (rather than lagging behind the Fed in their interest rate and QT moves), the dollar wouldn't be gaining against the euro and the pound.
Which means they would have to tighten even more. This turns into a nasty currency spiral.
Post Reply