Investing, economics, finance and random thoughts.
Archive for February, 2009
Permanent Portfolio 25% Bond Allocation FAQ
Feb 9th
The Permanent Portfolio allocation is 25% stocks, 25% bonds, 25% gold and 25% cash. In this series of posts we’re going to talk about how to implement each one of these components to take advantage of the economic cycles of Prosperity, Inflation, Recession and Deflation.
This FAQ is divided into two sections: Short Answers and Long Expanded Answers. If you don’t want to know the details then just read the Short section and skip the Long Expanded section. This page will be updated from time to time as more common questions and answers are needed.
In this series we talk about the 25% bond allocation and how it protects you from deflation and helps during prosperity.
Permanent Portfolio 2009 Asset Class Contest
Feb 2nd
The polls are now closed in our “What Permanent Portfolio asset class will do best in 2009?” question. The results are:
Gold (39.0%)
Stocks (28.0%)
Cash (20.0%)
Bonds (13.0%)
In our highly scientific poll it looks like the barbaric relic will have a winning year. We’ll take a look in January 2010 to see what happens. Good luck to your favorite horse. 2009 is shaping up to be really interesting.
Avoid Extremes in Investing
Feb 1st
One of the fastest ways to lose money is to do extreme things with your investment portfolio. Yet, when people get nervous or over-confident this is exactly what they do. They may decide that a certain asset is best and put 100% of their money into it. Whether it’s 100% stocks, 100% bonds, 100% gold or 100% whatever. Whenever you position your portfolio to make extreme bets on the economy you are taking on a very high level of risk. This risk may not be rewarded with profits but devastating losses.
I was reminded of this today when I heard an investment advisor telling people to put their money in 100% gold, silver and gold mining companies. Last week I heard a different advisor telling people to stay 100% in bonds. Then there are some saying buy 100% Treasury Inflation Protected Securities (TIPS). Last year I heard advisors recommending 100% stocks. The year before that they were hocking real estate investments.
Here’s my take:
Never put 100% of your money into any single investment.
Ever.
Period.
All investments have risks. I don’t care what it is or how it’s being sold to the buyers. Whether it’s stocks, bonds, gold, TIPS, real estate, cash in your mattress, etc. There is no free lunch and the minute an investor thinks there is a free lunch is when they get into trouble.