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    • El Torro
    • By El Torro 4th Jan 18, 3:38 PM
    • 294Posts
    • 270Thanks
    El Torro
    The Permanent Portfolio
    • #1
    • 4th Jan 18, 3:38 PM
    The Permanent Portfolio 4th Jan 18 at 3:38 PM
    Sorry if this has been discussed already, but I found an interesting article on Monevator about something called a Permanent Portfolio:


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


    I won't reiterate everything in the article as it's worth a read by itself. I'll just highlight some of the points:


    A Permanent Portfolio is made up of:


    25% in cash
    25% in gold
    25% in shares
    25% in long-term government bonds


    The idea is to rebalance the portfolio once a year, to take advantage of when certain parts peak and dip.


    What really piqued my interest was that if you had been invested from 1970 in the UK then you would have seen an annual return of 5%. Contrast that with a portfolio that has 60% shares and 40% bonds at 5.9% annual return, though with much higher volatility. So yes, the returns are higher but the ride's a lot rougher too.


    Currently in my SIPP I have 80% shares and 20% bonds. I still have a good 20 years or so before I plan to access any money in the SIPP, but maybe adding some gold to the mix would help with the volatility, due to its negative correlation with shares? I can't really see myself holding cash in a SIPP.


    What do y'all think of the permanent portfolio?
Page 1
    • jamei305
    • By jamei305 4th Jan 18, 3:44 PM
    • 338 Posts
    • 394 Thanks
    jamei305
    • #2
    • 4th Jan 18, 3:44 PM
    • #2
    • 4th Jan 18, 3:44 PM
    If you can't access the money for 20 years, why would you want to reduce volatility?
    • dunstonh
    • By dunstonh 4th Jan 18, 3:49 PM
    • 93,016 Posts
    • 60,403 Thanks
    dunstonh
    • #3
    • 4th Jan 18, 3:49 PM
    • #3
    • 4th Jan 18, 3:49 PM
    25% in cash
    25% in gold
    25% in shares
    25% in long-term government bonds


    The idea is to rebalance the portfolio once a year, to take advantage of when certain parts peak and dip.
    What shares?
    What Government bonds?
    Where is the cash? Is that before or after taxation (and the many changes in taxation that have taken place)

    What really piqued my interest was that if you had been invested from 1970 in the UK then you would have seen an annual return of 5%. Contrast that with a portfolio that has 60% shares and 40% bonds at 5.9% annual return, though with much higher volatility. So yes, the returns are higher but the ride's a lot rougher too.
    How can you work out volatility if you dont know what shares or bonds are held?

    What do y'all think of the permanent portfolio?
    Too much in Gold. Govt bonds with no corp bonds or high yield bonds seems daft and we dont know what Govt bonds (UK, global, index linked or not etc) and we dont know the spread of equities.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • bostonerimus
    • By bostonerimus 4th Jan 18, 3:49 PM
    • 1,940 Posts
    • 1,280 Thanks
    bostonerimus
    • #4
    • 4th Jan 18, 3:49 PM
    • #4
    • 4th Jan 18, 3:49 PM
    The Permanent Portfolio is just one of many "lazy portfolios". I don't like it; too much cash; too much gold and would you seriously put 25% of your portfolio in long term government bonds right now? As this was produced for US consumption the shares are usually something like S&P500 or Russell3000 and the bonds are 30 year T-bills.
    Last edited by bostonerimus; 04-01-2018 at 3:51 PM.
    Misanthrope in search of similar for mutual loathing
    • TBC15
    • By TBC15 4th Jan 18, 4:38 PM
    • 495 Posts
    • 251 Thanks
    TBC15
    • #5
    • 4th Jan 18, 4:38 PM
    • #5
    • 4th Jan 18, 4:38 PM
    Sounds like a portfolio for someone who canít tie his own shoe laces.Shame they only gave the chimp 4 darts.
    Last edited by TBC15; 04-01-2018 at 4:43 PM. Reason: chimp ref
    • philng
    • By philng 4th Jan 18, 4:46 PM
    • 621 Posts
    • 82 Thanks
    philng
    • #6
    • 4th Jan 18, 4:46 PM
    • #6
    • 4th Jan 18, 4:46 PM
    Seems a crazy split to me.

    So if you had a £1m portfolio you would have £250k in Cash & only £250k in Equities???? Seems a very poor option to me.
    • chockydavid1983
    • By chockydavid1983 4th Jan 18, 5:08 PM
    • 584 Posts
    • 355 Thanks
    chockydavid1983
    • #7
    • 4th Jan 18, 5:08 PM
    • #7
    • 4th Jan 18, 5:08 PM
    http://monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/

    Too much cash and gold in the permanent one for my liking in particular.
    • A_T
    • By A_T 4th Jan 18, 5:27 PM
    • 442 Posts
    • 288 Thanks
    A_T
    • #8
    • 4th Jan 18, 5:27 PM
    • #8
    • 4th Jan 18, 5:27 PM

    What do y'all think of the permanent portfolio?
    Originally posted by El Torro

    I think it's not going to grow much
    • redux
    • By redux 4th Jan 18, 6:50 PM
    • 18,229 Posts
    • 24,112 Thanks
    redux
    • #9
    • 4th Jan 18, 6:50 PM
    • #9
    • 4th Jan 18, 6:50 PM
    What really piqued my interest was that if you had been invested from 1970 in the UK then you would have seen an annual return of 5%. Contrast that with a portfolio that has 60% shares and 40% bonds at 5.9% annual return, though with much higher volatility. So yes, the returns are higher but the ride's a lot rougher too.
    Originally posted by El Torro
    If someone had cash and bonds since 1970, the interest rates might have spent some of the time at 6% to 9%

    Completely irrelevant right at the moment

    But that might make 5% overall sound like underperformance.
    • kidmugsy
    • By kidmugsy 5th Jan 18, 12:01 AM
    • 10,870 Posts
    • 7,432 Thanks
    kidmugsy
    Well, El Torro, you certainly provoked some pearl-clutching.
    Free the dunston one next time too.
    • Malthusian
    • By Malthusian 5th Jan 18, 10:17 AM
    • 4,251 Posts
    • 6,693 Thanks
    Malthusian
    Regurgitating a previous post: Simultaneously a highly speculative portfolio (25% in a single commodity with no yield) and a highly cautious one (50% in cash and gilts, and only 25% in investments which can be expected to provide a long-term real return).

    Long-term gilts are inherently (*edit*: in the current economic climate) unsuitable for most UK private investors as they can get higher returns from cash with less risk. Gilts are for institutional investors who don't have access to loss-leader savings accounts.

    It makes literally no sense, and is an illustration of why you shouldn't take investment advice from people writing in a different country 40 years ago.
    Last edited by Malthusian; 05-01-2018 at 3:09 PM.
    • ChesterDog
    • By ChesterDog 5th Jan 18, 1:09 PM
    • 879 Posts
    • 1,650 Thanks
    ChesterDog
    It does have one thing going for it.

    It appears to be pretty much constant in its unsuitability for anyone, at any stage of their life.

    So at least you never have to worry about adjusting it as you go along to maintain its level of suitability for your changing circumstances.

    And if you ARE tempted to do so, you'd have to be pretty clueless to make things any worse.
    I am one of the Dogs of the Index.
    • username12345678
    • By username12345678 5th Jan 18, 2:46 PM
    • 215 Posts
    • 111 Thanks
    username12345678
    Harry Browne's PP is a master-stroke of simplicity with a very long-term performance that I think most of us would jump at if we could time travel.

    Whilst at first glance the asset allocation is horrifying the logic behind the composition is compelling.

    I couldn't do it though and seemingly the biggest problem with the PP isn't during market drawdowns, it is when markets are on a rip and you are sat grinding out a few percent at best.
    • bostonerimus
    • By bostonerimus 5th Jan 18, 3:41 PM
    • 1,940 Posts
    • 1,280 Thanks
    bostonerimus

    It makes literally no sense, and is an illustration of why you shouldn't take investment advice from people writing in a different country 40 years ago.
    Originally posted by Malthusian
    This was taken from a UK based article that tried to translate some US oriented lazy portfolios for UK use. Unfortunately the translation has been literal so US domestic equity becomes UK domestic equity - which is stupid. These portfolios have been around for ages and many "Bogleheads" have settled on simple core 3 of 4 fund portfolios. A lot of folks also add small amounts of other sectors in a Fama Franch sliced and dice strategy. If I was in the UK I'd probably just go with 70% Vanguard Global All Cap index and 30% Vanguard Global Bond Index Fund and then sit back and sip a Manhattan.
    Misanthrope in search of similar for mutual loathing
    • Malthusian
    • By Malthusian 5th Jan 18, 3:49 PM
    • 4,251 Posts
    • 6,693 Thanks
    Malthusian
    Whilst at first glance the asset allocation is horrifying the logic behind the composition is compelling.
    Originally posted by username12345678
    As compelling as the logic that says a 10kg weight will fall faster than a 5kg weight.
    • username12345678
    • By username12345678 5th Jan 18, 4:00 PM
    • 215 Posts
    • 111 Thanks
    username12345678
    As compelling as the logic that says a 10kg weight will fall faster than a 5kg weight.
    Originally posted by Malthusian
    I'm sorry, i'm not sure what you're getting at?
    • dunstonh
    • By dunstonh 5th Jan 18, 4:29 PM
    • 93,016 Posts
    • 60,403 Thanks
    dunstonh
    Harry Browne's PP is a master-stroke of simplicity with a very long-term performance that I think most of us would jump at if we could time travel.
    Honestly, it is rubbish. The whole equity content in UK equity and the whole fixed interest sector in UK gilts. No-one in their right mind would invest like that.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • ColdIron
    • By ColdIron 5th Jan 18, 4:43 PM
    • 4,260 Posts
    • 5,392 Thanks
    ColdIron
    Harry Browne's PP is a master-stroke of simplicity
    Originally posted by username12345678
    For every complex problem there is an answer that is clear, simple, and wrong - H.L.Mencken
    • username12345678
    • By username12345678 5th Jan 18, 4:49 PM
    • 215 Posts
    • 111 Thanks
    username12345678
    I think perhaps you chaps are judging the PP from a UK perspective rather than from Harry Browne's original thinking.

    I would not try to make a case for it, and nor would I invest that way.

    That said, it has been written off as unsuitable/unworkable/outdated etc for many years and yet has kept working its magic with minimal volatility.
    • bostonerimus
    • By bostonerimus 5th Jan 18, 4:57 PM
    • 1,940 Posts
    • 1,280 Thanks
    bostonerimus
    Honestly, it is rubbish. The whole equity content in UK equity and the whole fixed interest sector in UK gilts. No-one in their right mind would invest like that.
    Originally posted by dunstonh
    A bad translation reflects poorly on the translator, not the original author. That being said the Permanent Portfolio is not one that I would implement. Better lazy portfolios, with a range of styles, can be found here. A good exercise would be to sensibly translate them for a UK investor

    https://www.bogleheads.org/wiki/Lazy_portfolios#Three_fund_lazy_portfolios

    and here

    https://www.marketwatch.com/lazyportfolio
    Last edited by bostonerimus; 05-01-2018 at 5:23 PM.
    Misanthrope in search of similar for mutual loathing
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