Thanks,
Scott

Using 33% allocation to each of stocks, bonds and gold, 80% stock, 20% cash initial settings in each of the three AIM’s (i.e. so near 25% initial allocations to each of stocks, bonds, gold and cash) and with 10% Buy Safe, 0% sell Safe, 10% Min Trade Size – so far between 2005 and 2008 AIM is around 1% p.a. ahead of yearly rebalanced PP.

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I will try to bring everything up to 25%, but give priority to the lowest priced assets first with the money. Prioritize buying the assets that are on sale.

I liked / agreed with your reply to Ed. Didn’t want to write that much myself. With what I do with AIM I don’t try to catch the exact tops or bottom either.

One more question:

When one security wants to be rebalanced I assume you bring EVERYTHING to 25% at that time and not just dump it all in the lowest price security or vise versa leaving the other two the same.

Harry Browne advocated using rebalancing bands. 15% to buy and 35% or higher to sell. He also said you could use 20% to buy and 30% to sell just as long as you are aware of the higher transaction costs. He also advocated not looking at the portfolio except for every year or so or if you heard about something big happening in the markets.

You stated:

“If you rebalance while your portfolio is increasing, you are moving growing assets to a flat or declining category. In this case you are foregoing upside potential.”

The problem is you don’t know when the upside can turn into downside. The Permanent Portfolio requires you to rebalance when your bands are exceeded to help protect you from market declines. Sure, you may not sell out at the very tippy-top of the market (Then again, nobody does unless they are lucky or lying IMO). But you also aren’t going along for the ride if that asset decides to take a swan dive.

“If you rebalance during a declining market, you are moving moving growing or flat assets to a declining category. How is this not “throwing good money after bad?””

In 2009 I made two rebalancing transactions:

1) In the winter I sold down LT Treasuries and bought stocks which were rapidly falling in value.

2) In the Spring/Summer I sold down gold and bought more stocks which were still falling.

By this writing, the money I used to purchase the stocks from LT bonds is up something like 20+% while the LT bonds had fallen in value. The money I took from the gold to buy stocks is up near 50% in value.

What I’m saying is that the portfolio’s rebalancing bands forced me to sell assets that have gone up in price and purchase assets that fell in price. This took no thinking on my part except running the numbers in a calculator/spreadsheet on how much to buy and sell of each.

In 2007, an investor would probably have been selling their stocks and buying gold and LT bonds with that money. Another good move in retrospect.

We need to remember that the portfolio helps limit our risks and profit from our money by enforcing this buy/sell regimen. It takes the guesswork out of the markets.

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Ed: your method requires a decision as opposed to following a set rule. I like to take the emotion out of my investing. I could go either way with time or investing bands or a combination.

First of all I ignore everything I read in the news about what may or may not happen in the markets. So yes I hear the same LT bond arguments and perhaps early in 2009 there was an argument there as they were yielding something like 2%. Then by Spring they went up to about 4.5% (going down in price as well). Now they are around 4.2%.

Suppose the deflation forces continue and bond yields drop back down to 2% this year or next? That would be a 30% appreciation in bonds that you’d miss out. So there are risks on both sides of this bet that need to be considered.

I hear all this inflation talk and it may happen, but I’m not seeing it right now because spending levels seem to be way down. The collapse of the real estate markets removed a tremendous amount of wealth from the US economy. For all we know, it could take many years of Japan like deflation to recover.

Lastly, I’m serious about ignoring what I hear in the news. A couple years ago I went back and listened to old investment podcasts that were made the previous year. I made mental notes of what people were saying the markets would and would not do. I also heard to bull market and dire predictions being made. You know what I found? Virtually nothing they said came true.

Sure maybe you could provide some wide interpretation of statements to say maybe it kind of sort-of came true. But that’s not actionable for an investor. It’s not even something you can put a number on because people come up with all sorts of scenarios that they think are going to play out. Yet, if one little variation shows up in the course of events then the entire prediction falls apart.

So my advice has to be to ignore the market predictors and just rebalance as needed. If you are very worried about this, then dollar cost average into the LT bonds. But realize that you need to do it mechanically and not turn it into a market timing endeavor. Just remember that the LT bond bears could be dead wrong.