The Permanent Portfolio

[Abyss]

@vand we have inverted yield curve USA, global slowdown, massive increase debt at all levels government/corporate/consumer and we are trying to find a portfolio that provides asset growth/protection we must bear in mind that what has worked in the past may not work in the future. I don't know what the optimum portfolio would suit the current interconnected global economy. I have the ability to switch between between equity mutual funds and government bonds very quickly within my portfolio if/when the need arises. My strategy switch equity mutual funds to government bonds in the next global recession interest rates should be slashed close to 0% and use equity rental properties (mortgage/debt free) as collateral to increase rental portfolio. Classic saying buy when there's blood in the streets. Timing is the key and nobody knows when to pull the trigger and execute the plan.

[vand]

16 minutes ago, Abyss said:

@vand we have inverted yield curve USA, global slowdown, massive increase debt at all levels government/corporate/consumer and we are trying to find a portfolio that provides asset growth/protection we must bear in mind that what has worked in the past may not work in the future. I don't know what the optimum portfolio would suit the current interconnected global economy. I have the ability to switch between between equity mutual funds and government bonds very quickly within my portfolio if/when the need arises. My strategy switch equity mutual funds to government bonds in the next global recession interest rates should be slashed close to 0% and use equity rental properties (mortgage/debt free) as collateral to increase rental portfolio. Classic saying buy when there's blood in the streets. Timing is the key and nobody knows when to pull the trigger and execute the plan.

 

The point of a diversified strategy is that they will have some components that work in all economic conditions; growth/recession and inflation/deflation. Whichever combination of these inputs causes one asset to tank will cause another to rocket.

Trying to accurately assess the prevailing macro economic conditions, and then trying to guess what the market's reaction to it and position yourself accordingly seems a far harder game. Yes, there is a timing component if you are an active investor, but all-weather strategies have a component of this with rebalancing.

 

[Abyss]

Thanks @vand the diversified strategy goal work in all economic times and keep investor emotions out of the equation. There is only one caveat largest economy in the world USA defaulting or resuming QE meet its current obligation/interest payments but because the strategy has 25% gold should protect the investor. During the next global recession should create deflation because the stock/property market crash and I am guessing that Gold will initially reduce in price as well which may prove to be the best opportunity to buy gold. I understand the goals/merits Permanent Portfolio but sometimes the spectator in me wants to take on risk.

[vand]

A article from a fairly mainstream outlet also advocating for a diversified multi-asset portfolio:

https://www.marketwatch.com/story/this-investing-strategy-gives-you-a-little-less-return-but-a-lot-less-risk-2019-04-03?siteid=bigcharts&dist=bigcharts

""Most idiots have an 80/20 portfolio (80% stocks/20% bonds) or a 90/10 portfolio or even a portfolio that is 100% stocks."

 

"How about a 35/55/3/3/4 portfolio? That’s 35% stocks, 55% bonds, 3% broad commodities, 3% gold, and 4% REITs. If you think about what this is, it’s a stock/bond portfolio with a really good inflation hedge.

Want to know the risk/return of that portfolio? It gives you almost the return of the 80/20 portfolio with half the risk."

[vand]

I've been read more articles on PortfolioCharts, which is really one of the most fantastic and useful finance sites I have ever come across.

This is a brilliant article on the relationship between risk and reward:

https://portfoliocharts.com/2019/02/25/every-portfolio-has-a-tradeoff-but-its-not-as-clear-cut-as-you-think/

[vand]

Some very good discussion here from the MMM forum about a a similar portfolio, the Golden Butterfly, with plenty of comment from the owner of Portfoliocharts (Tyler):

https://forum.mrmoneymustache.com/investor-alley/portfolio-charts-the-golden-butterfly/

[vand]

How do different asset classes do during periods of higher vs lower inflation?

https://www.aaii.com/journal/article/asset-returns-during-high-and-low-inflationary-periods

[vand]

This is an excellent article explaining why you should still hold some bond funds despite the apparent low interest rates:

https://portfoliocharts.com/2019/05/27/high-profits-at-low-rates-the-benefits-of-bond-convexity/

[Pipers]

Thanks for the info @vand this thread is really interesting band enjoyable.

[vand]

On 04/04/2019 at 15:27, vand said:

A article from a fairly mainstream outlet also advocating for a diversified multi-asset portfolio:

https://www.marketwatch.com/story/this-investing-strategy-gives-you-a-little-less-return-but-a-lot-less-risk-2019-04-03?siteid=bigcharts&dist=bigcharts

""Most idiots have an 80/20 portfolio (80% stocks/20% bonds) or a 90/10 portfolio or even a portfolio that is 100% stocks."

 

"How about a 35/55/3/3/4 portfolio? That’s 35% stocks, 55% bonds, 3% broad commodities, 3% gold, and 4% REITs. If you think about what this is, it’s a stock/bond portfolio with a really good inflation hedge.

Want to know the risk/return of that portfolio? It gives you almost the return of the 80/20 portfolio with half the risk."

That article was written by Jarred Dillian:

 

He also has a great blog on Mauldin Economics:

https://www.mauldineconomics.com/jared-dillian

 

[Zhorro]

On 04/04/2019 at 15:27, vand said:

A article from a fairly mainstream outlet also advocating for a diversified multi-asset portfolio:

https://www.marketwatch.com/story/this-investing-strategy-gives-you-a-little-less-return-but-a-lot-less-risk-2019-04-03?siteid=bigcharts&dist=bigcharts

""Most idiots have an 80/20 portfolio (80% stocks/20% bonds) or a 90/10 portfolio or even a portfolio that is 100% stocks."

 

"How about a 35/55/3/3/4 portfolio? That’s 35% stocks, 55% bonds, 3% broad commodities, 3% gold, and 4% REITs. If you think about what this is, it’s a stock/bond portfolio with a really good inflation hedge.

Want to know the risk/return of that portfolio? It gives you almost the return of the 80/20 portfolio with half the risk."

A recent article by Zerohedge.com reports that J.P. Morgan Private Bank is advising its clients to diversify away from the Dollar and to include gold (XAU in the chart below – top line in the right bar) in their portfolios.

https://www.zerohedge.com/news/2019-07-23/jpmorgan-we-believe-dollar-could-lose-its-status-worlds-reserve-currency

“Given the persistent—and rising—deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and gold (see chart – Source: J.P. Morgan Private Bank as of June 13, 2019).”

[Michal]

Hmm why they don't advise to put in silver if they accumulate it so much ? 🤥

[Zhorro]

2 hours ago, Michal said:

Hmm why they don't advise to put in silver if they accumulate it so much ? 🤥

Good point!

I think in the article they talk about "precious metals", but then they do seem to focus on gold.

[vand]

Diversified portfolios will have fared pretty well in the last year as their gold and bond components will have taken up the slack as the equity markets have whipsawed.

Here is my version of PP vs FTSE-All World over the last 4 months.. similar return but much more stable. You can see that Bonds have actually be the biggest contributor to its growth, and makes a strong case for just applying the strategy without trying to second-guess the underlying fundamentals for each of its individual components.

Here is my active portfolio over the last 10 months vs FTSE-350...you can see that contribution for most of the outperformance has come from the Gold miners fund. VaR of 1.35% for 21% outperformance is a record any money manger should be happy with

[vand]

People often ask "overpay the mortgage or invest?"

And the answer to this depends is really complicated because it boils down to your attitude to debt, your tolerance for risk and what your expected return is from choosing to invest.

We've discussed it at length even in some of the threads on this forum.

 

One thing that you can do is to combine them with a strategy like the PP and an offset mortgage. You keep the "cash" part of the portfolio as cash in your mortgage's bank account. That way you effectively get paid the mortgage rate on your cash, you overpay the mortgage with extra payments each month, but you critically don't tie up your captial if, say other parts of the portfolio drop and you need to rebalance with the cash. 

Best of all worlds. 

[goluckystayhappy]

What software/site are those screenies from. Thanks.

[vand]

16 hours ago, goluckystayhappy said:

What software/site are those screenies from. Thanks.

Statpro Revolution, which is a portfolio analytics platform aimed at professional money managers (I get access because I may or may not work for the outfit).
The key concepts it services are: Performance Measurement, Performance Attribution and Risk Analysis. These might mean something if you have a CFA, but otherwise probably not. I just use it to track my portfolios, but don't use a lot of the advanced features.

[Pipers]

On 05/06/2019 at 15:58, vand said:

How do different asset classes do during periods of higher vs lower inflation?

https://www.aaii.com/journal/article/asset-returns-during-high-and-low-inflationary-periods

Not sure the commodities at -1.9% and -4.0% respectively on low inflation years is true.  We have just seen Gold and silver rise.  

[vand]

On 02/09/2019 at 18:20, Pipers said:

Not sure the commodities at -1.9% and -4.0% respectively on low inflation years is true.  We have just seen Gold and silver rise.  

As ever, you can win any argument if you select the appropriate time horizon.

A better understanding requires more digging.

This is a pretty good start: https://www.schroders.com/en/sysglobalassets/staticfiles/schroders/sites/americas/canada/documents/investment-perspective-what-are-the-inflation-beating-asset-classes.pdf

[vand]

Dalio says: Diversify.

https://www.linkedin.com/pulse/diversifying-well-most-important-thing-you-need-do-order-ray-dalio?trk=related_artice_Diversifying Well Is the Most Important Thing You Need to Do in Order to Invest Well_article-card_title

[vand]

Once again the PP stands up amidst the carnage: 

https://portfoliocharts.com/2020/03/23/asset-allocation-in-the-most-painful-month/

[AuricGoldfinger]

On 20/03/2019 at 09:31, vand said:

Further reading/listening:

https://www.youtube.com/watch?v=lC36tq5qWcg

https://monevator.com/the-permanent-portfolio/

 

I am a big fan of the Monevator blog - only wish I’d wish I’d found it sooner!

[vand]

This diversification thing might have something about it if even belangp holds 42% of his portfolio in equities:

 

[MancunianStacker]

16 minutes ago, vand said:

This diversification thing might have something about it if even belangp holds 42% of his portfolio in equities:

 

After his previous video where a portfolio of 35% Gold, 65% Equities did very well, he may increase his Equities exposure now (or on a dip?). 

[vand]

2 minutes ago, MancunianStacker said:

After his previous video where a portfolio of 35% Gold, 65% Equities did very well, he may increase his Equities exposure now (or on a dip?). 

Well he gives his reasons for his AA, and that is essentially that his oversize gold position is due to his "speculative portfolio" being fully composed of PMs. So probably not significantly at least until he sees a much more favourable risk/return in equities. 

I personally find the dividing line between gold/equities to be massively blurred when you hold a significant portion of your portfolio in gold miners.. although technically they're equities they are obviously a play on gold too.