The Permanent Portfolio, Investing, Finance and Random Thoughts.
Posts by craigr
Happy Thanksgiving! Now, continue to ignore your portfolio.
2 months ago
A poster on the forum was concerned about his portfolio performance short-term. Watching the markets go up and down can get nerve wracking and I understand the concern.
Let me be blunt: You will go nuts if you look at your portfolio each day. You’ll go nuts faster if you look at the assets in isolation and try to guess what they will do or “protect” yourself by collaring them, etc. with options.
Regular readers probably know that I do very little trading or monitoring of my portfolio. But every year I go to my accountant and he remarks that I outperform all the other clients he sees (he sees a ton of portfolios, investments, taxes on investments, etc.). I do this because I don’t go in and mess with the Permanent Portfolio allocation except to rebalance it if needed or possibly some tax loss harvesting. Other than that, I don’t touch it. Seriously.
Further, calls, puts, options, etc, to protect your assets is a primrose path. All these things are products made to be sold and not bought. They have a reason for certain groups to insure themselves. But other than that, they are just expensive and likely contribute very little except to cause more aggravation and muck up an otherwise simple portfolio for the average investor.
Because of the latest worries, I have now looked at YTD numbers again from Morningstar.
The Permanent Portfolio with 25% in stocks, bonds, gold and ST bonds is up +14.49% this year.
A 60/40 total stock market and total bond market portfolio is -0.67% this year.
David Swensen’s Portfolio advocated in his book Unconventional Success is -0.82% this year.
The Permanent Portfolios is up over +14% by doing nothing all year but sitting on our hands. Beat that CNBC!
The portfolio has been positive year over year for the vast majority of its existence. It could do worse next year, but then again so could another strategy. But I don’t see anything right now that offers a better solution so let’s not go changing things.
I have gone over a month now not reading the news (called a “News Fast” – Try it, you’ll like it). Apparently something is going on in Europe and something with the budget in the US. But because I own low risk US Treasury Bonds and Notes I don’t care if the European banks blow up because it’s not going to hurt my cash and bonds. This is because I have no exposure to risky commercial paper and neither should anyone holding Bonds and Cash in the Permanent Portfolio as advised.
If the US Govt. wants to keep fighting over the budget I don’t really care because I have gold to protect me from that.
If the markets turn around by year end I have the stocks.
I continue to sleep like a baby with this portfolio just as I have been doing for years. But I do this because I ignore the financial news (I don’t really read it even when not doing a total news fast). I also ignore all market predictions. But most of all, I ignore the assets in the portfolio and allow them to do their thing. This is what I always recommend investors do: Set your asset allocation and ignore it.
This Thanksgiving I give thanks to the reader of this blog and forum. Thank you for the contributions. I hope the Permanent Portfolio is keeping your money safe so you can focus on the more important things in your own life you are thankful for having.
Happy Thanksgiving!
Keep the Dogma on a Leash
3 months ago
by craigr
in Permanent Portfolio
Sometimes I get a question about implementing the Permanent Portfolio using tools that might not fit the exact strategy laid out by Harry Browne. For instance, someone will want to know if they can use an FDIC insured account vs. a Treasury Money Market account for their cash. Or if a gold ETF is OK if they can’t hold gold physically or store it overseas.
My answer is: Do it. The basic diversification using these products is much better than doing nothing in almost every case.
I’m a huge advocate of following the strategy as closely as possible. But we should also recognize that the dogma behind the Permanent Portfolio shouldn’t interfere with the implementation if you have limited options. Delaying the diversification because we want a perfect option may leave us seriously exposed to market risks in other ways.
For instance, someone looking to do the portfolio but decides they don’t have a good cash option may decide to keep it in some risky money market sweep fund at their brokerage. This is making a mistake. They should probably put the money in a bank CD under FDIC limits if they don’t have a Treasury money market fund to put it into. Why? Because this is a better option than what they are currently doing. It’s all about making better choices on how to invest, and a FDIC account is better than an uninsured money market fund run by your broker.
Likewise for Exchange Traded Funds (ETFs) for gold and long term treasuries (GLD and TLT). If your option is to not implement the full portfolio or do it only with ETFs, then buy the ETFs! You are better off with GLD and TLT ETFS for your gold and bonds than no gold and bonds whatsoever.
The take-away is that you do the best you can with the tools you have. When better and safer options make themselves available to you, then use them. But don’t delay implementing the portfolio because you can’t achieve perfection. You can still get a lot of protection from the Permanent Portfolio even if you implement it in the most basic way with imperfect options.
Tutorial on Buying Bonds from Fidelity
3 months ago
Forum member Gumby has put up a great tutorial on how to buy bonds directly if you are with Fidelity:
Buying bonds directly for the Permanent Portfolio is always the best way to own them. You eliminate fund risk and save on management fees as well. Most brokerages have similar interfaces to allow this (or you can call up the bond desk and ask for help). Fidelity’s interface should be a model for others to follow.
Thanks again to Gumby for the tutorial.
iShares ETFs – Synthetic or Direct Holdings?
Relating to this post about funds holding things they otherwise shouldn’t:
Vanguard Treasury Bond Funds Filled with Mortgage Garbage
A reader wrote to iShares to ask about their ETFs and find out which had direct holdings and which were synthetically run with derivatives. The directly held funds have less moving parts involved around counter-party risk and are theoretically safer than synthetic versions. Here was iShare’s response which I was given permission to repost (H/T to R):
Thank you for your interest in iShares.
Further to your email, we have stipulated which of the funds you are holding are physical/synthetic below:
TLT – Physical
ACWI – Physical
IWRD – Physical
EEM – Physical
IDVY – Physical
IUKD – Physical
JSC – Non iShares ETF – Statestreet -
EWJ – Physical
XMWO – Non iShares ETF – DBX Trackers – Synthetic ETF
SHY – Physical
SHV – Physical
As of 19th September 2011, iShares managed 113 ETFs domiciled in Ireland of which only two were synthetic. Please note some of the products listed above are not Irish domiciled iShares ETFs. Should you require any further assistance please do not hesitate to contact us.
Best regards,
iShares Feedback
Looking at the above, the Treasury Long Term (TLT), and Short Term Treasury Funds (SHY and SHV) are directly held by the bond funds. I still recommend you hold bonds directly if you are able. However, if you are not able, the iShares funds still appear to be one of the better choices out on the market especially compared to Vanguard’s Treasury bond funds.
Harry Browne on Economic Consequences of Inflation 1970
Harry Browne discusses the consequences of inflation back in 1970. Note this was before Nixon’s attempt to do price and wage controls which were, of course, a disaster as Browne predicted. H/T to the Harry Browne fan page on Facebook.
