The Permanent Portfolio

Ray_Singh-Blue

bowlhead99 wrote: »

It's perhaps a portfolio for when you have made all the money you want to make and have been put out to pasture.

Yes, and bring on that happy day.

In the meantime many of us will have a leveraged "portfolio" dominated by a house, with some form of pension, a bit of saving, and maybe some shares if we dabble.

I wonder about different ways of bridging the gap from now to then & enjoy discussing them here.

Pork&Beans

grey_gym_sock wrote: »

i'm still sceptical about whether you're as committed to the PP as you make out. not because i think you're fickle, but because i think it's very difficult for anybody.

the commitment required, to keep rebalancing into a component that has been losing money for perhaps most of the last 20 years, away from components that have been doing better, is vast. this can happen with any of 3 of the 4 components, i.e. everything except cash.

personally, i suspect i would have less problem with rebalancing into equities after a long bear market in equities, because i have a strong belief that equities will eventually bounce back and give decent returns. but i'd have a much bigger problem rebalancing into gold or into long-term bonds after they've been losing money for 20+ years. and those are perfectly realistic scenarios.

if you might not stick with an asset allocation, it would be better not to adopt it in the first place, and to go for 1 you could stick with instead. because if you (e.g.) were to drop gold or long-term bonds from your portfolio 20 years after they've entered a bear market, you'll be selling them at what might be the worst time.



well, that isn't the permanent portfolio. you've replaced gold (which is the component i least like) with property - and specifically, with owning your own home.

1 odd-looking thing about the PP is that only 25% is in what i would call high-return asset classes (viz. the equities). property is another high-return asset class, so you've increased the high-return assets to 50%, which is very different.

and there are also some big advantages in owning your home, rather than other property.

also, if the proportions are different, it isn't the PP. e.g. a bit of cash? yes, everybody could do with that. but 25% cash? that seems very high. there is an argument for why the PP has so much cash, to do with cash doing well in some economic conditions, but that's very different from the point that everybody could do with a bit of cash on hand in case their boiler breaks or they need to attend a funeral in peru.

I think I will stick to it .I recently read the ascent of money,interesting book.....until relatively recently in the history of finance the world has pretty much revolved around the gold standard.I believe it may one day return to this as the global debt bubble cannot continue forever.

That being said.......as boring as the PP is I get my kicks out of investing in highly speculative oil companies and previously mentioned my pension is 100% equities.The PP for me is my safe haven or fall back fund it it all goes Pete Tong!

Pork&Beans

By the way slightly of topic however since property has been mentioned .....I for one don't own a property,not because I cant but because I choose not to at this time.A few friends of mine have mortgaged themselves to the hilt on these ultra low interest rates.I cant see the interest rates staying low forever but can see a potential correction looming on the horizon......I may be wrong.....who knows!

Ray_Singh-Blue

If your property forms 25% of your portfolio and there is a correction, you shrug

coyrls

It is the equity in your property that would be counted and so if you had negative equity and that represented 25% of your portfolio you really would have no choice but to shrug.

kidmugsy

I'm interested in Harry Browne's idea of the portfolio for all seasons, lucidly explained by other posters. In a way, he simply asks "from what do you wish to defend yourself?".

We are retired: we live in the south east quadrant of England - houses are pricey. Guessing at the value of our house I'd say that our wealth is roughly 50% DB and State Pensions, 40% house, 10% portfolio. In addition we have a bit of cash put aside for foreseeable expenditures (next car, new carpets, and whatnot) and the unforeseen emergency.

So what I incline to do with the portfolio is provide what the other 90% doesn't: divisibility, liquidity, insurance against the world of fiat currencies and particularly the GBP, ......

I expect to hold plenty of cash and "stuff". We are lucky in that part of our portfolio "cash" is in the form of the prized index-linked savings certificates, currently yielding 1% AER above CPI inflation. We won't part with those in a hurry; no "rebalancing" for them, if at all possible.

If we were richer the "stuff" might include foreign farmland and forestry, and Lord knows what. In our case it's likely to include precious metals (in the form of ETCs - don't waste your time visiting us, Mr Burglar), agricultural commodity futures, foreign exchange, and whatever else strikes me as a useful diversification while still being divisible and liquid. No time shares.

Ray_Singh-Blue

You could choose to count it that way. Or you could count the actual value of your house. In which case you could account for your mortgage in a couple of ways. As Gearing against all your gross assets. Or as a negative in your bond allocation. I prefer the last option.

Edit: crosspost with kidsmudgsy, that was a reply to corlys

I entirely agree with KM and my asset split is similar. 57% house, 33% DB pension minus mortgage, 5% shares, 5% cash. That's because we bought a family house in an expensive corner of England. Suits us right now, but when I tire of busting my !!! over a hot computer 45 hours per week, 25% all round is the goal.

A_T

Ray_Singh-Blue wrote: »

If your property forms 25% of your portfolio and there is a correction, you shrug

Indeed that's all can you do - because you can't easily liquefy it's value and rebalance - which is the whole point of Brown's PP.

Ray_Singh-Blue

A_T wrote: »

Indeed that's all can you do - because you can't easily liquefy it's value and rebalance - which is the whole point of Brown's PP.

Disagree. In this scenario you could snap up a extra terraced house in Neath-Port Talbot

kidmugsy

Ray_Singh-Blue wrote: »

but when I tire of busting my !!! over a hot computer 45 hours per week, 25% all round is the goal.

45 hours, pah! 80 hours when I was young. We wuz giants in them days.