Doomer Portfolio

[AndrewJackson]

Ok, I am a little different than the usual bogelhead or fire candidate when it comes to investing. I am trying to create a portfolio that will address my main concerns with the economy going forward. To give some background on myself, I am 22 and refuse to invest in government and corporate bonds (this includes tips) at this point. I am very worried about inflation in the medium to long term and can very easilly picture an age of massive staglation. Basically, I need to figure out the best way to protect from the asteroid.

Here is my Idea:

Emerging Markets 33.3%: Would invest in vanguards emerging market index and possibly their energy fund. However, do to the high correlation between the two, I will probably just use the emerging market fund. I think this investment will go absolutely bonkers if inflation is rocking.

Developed Markets 33.3%: This is the middle ground of my portfolio that I am using just in case I am wrong about my worries. I want to divide this potion between vanguard's total market and their foreign developed market stock index fund.

Dividend Fund 33.3%: I am very open to suggestions on this category and am uncertain which fund would fit best. I am thinking of choosing vanguards Dividend appreciation fund. They seem to have a lot of staple companies that consumers can't go without. Also, in a high inflationary environment, I imagine that they could pass costs onto consumers.


Given my worries and objective, does this plan work? Is it diversified enough? What other funds would better match my objective than the funds I have allready stated. I would really like to keep my # of funds at 5 or less.

Oh and lastly, if someone suggests gold, I have allready got some invested in my local safety deposit box. I am mainly wondering about my equity investment plan.

[brewer12345]

Quote:

Originally Posted by AndrewJackson I am very worried about inflation in the medium to long term and can very easilly picture an age of massive staglation.

A few ideas:

- If you own a house get a 30 year fixed mortgage and don't pay anything early.

- Commodity producer equities (in modest amounts) would be an extremely good idea. I like PEO in the closed end fund world, but there are ETFs that would do it.

- Something tied to ag would probably be a good idea. I'd be shocked if there weren't an ETF floatimg around on that sort of thing.

[Lsbcal]

If it were me and I was 22 again, I'd go 100% equities right now. So I agree with you.

Regarding the mix, I'd consider what my US/international ratio should be. For the international I'd do:

VEU: large cap, has 25% or so EM
VINEX: mid/small cap international

For US I'd decide whether I wanted to value tilt or not. If I wanted to value tilt I'd go with a mix of large/mid/small cap value(instead of focusing on dividends). It could be made up from:

VTV, VOE, VBR

Currently I own all of the above.

[Alex in Virginia]

If your mind is set on a "doomer portfolio", then you probably won't do better that adopting Harry Browne's Permanent Portfolio. From what I have read, it's built to hedge/protect you against whatever hits (financially speaking).

If you search for "permanent portfolio" on this blog, you should find a goodly amount of info on it.

Cheers!

Alex in Virginia

[AndrewJackson]

Quote:

Originally Posted by Alex in Virginia If your mind is set on a "doomer portfolio", then you probably won't do better that adopting Harry Browne's Permanent Portfolio. From what I have read, it's built to hedge/protect you against whatever hits (financially speaking). If you search for "permanent portfolio" on this blog, you should find a goodly amount of info on it. Cheers! Alex in Virginia

I have looked into that and appreciate the idea to minimize volatility. However, a full 50 % is invested into intermediate bonds.

[jon-nyc]

You should give some thought to a portfolio that is designed to do well in more than one scenario. What's your plan if things don't go pear-shaped?

[JPatrick]

Quote:

Originally Posted by brewer12345 A few ideas: - Something tied to ag would probably be a good idea. I'd be shocked if there weren't an ETF floatimg around on that sort of thing.

MOO is a pretty active ag ETF.
Finally a name that fits the product...

[REWahoo]

Quote:

Originally Posted by JPatrick Finally a name that fits the product...

+1

Let's hope we don't end up saying the same about VFSUX...

[Animorph]

You might try a Frontier Markets fund. Not sure that Vanguard has that, but FRN is one ETF.

I'd probably add an active global fund to provide some dynamic selection.

[JPatrick]

Quote:

Originally Posted by AndrewJackson Here is my Idea: Emerging Markets 33.3%: Would invest in vanguards emerging market index and possibly their energy fund. However, do to the high correlation between the two, I will probably just use the emerging market fund. I think this investment will go absolutely bonkers if inflation is rocking. Developed Markets 33.3%: This is the middle ground of my portfolio that I am using just in case I am wrong about my worries. I want to divide this potion between vanguard's total market and their foreign developed market stock index fund. Dividend Fund 33.3%: I am very open to suggestions on this category and am uncertain which fund would fit best. I am thinking of choosing vanguards Dividend appreciation fund. They seem to have a lot of staple companies that consumers can't go without. Also, in a high inflationary environment, I imagine that they could pass costs onto consumers. .

Just a couple of thoughts--
I think 33% in EM is too aggressive regardless of age. I would take that 33% and split between EM, EFA, and SCZ. Still plenty of EM along with broad exposure to the rest of the foreign markets.
Regarding dividends, I would throw IDV into the mix. Large foreign companies with nice yields.

[frank2009]

I sort of like it for someone your age. I certainly commend you for starting early. I think you will do well no matter what you decide as long as you steadily contribute. My concern is volatility of these funds. Are you sure you could stomach a 40% decline? Certainly possible. There is going to be some overlap between the developed market fund and the dividend fund. I assume that you have an emergency fund in cash, CD's etc as life can get in the way. You don't want to pull from these funds during a downturn.

[explanade]

So if doomsday comes, how are you going to get the gold out of the safety deposit box? Is the bank going to be around to open the vault for you?

And how does one redeem gold for food, fuel and other necessities? Drop a few coins? Can't have that much gold right?

Of if you have it in big bars, what are you going to do, shave off bits of it to trade for some grain?

[Ready-4-ER-at-14]

Andrew, when I read this thread, I found myself wondering if you are a buy and hold forever, A balance routinely, or a total trader.

I find the trader part of me at war with the long term part eternally.

To sort of answer this to yourself consider the hypothetical situation.
One part of your holdings implodes 33% while another part doubles and a third part stays similar. Gold has appreciated 20% and any realestate you may own has halfed.

Do your reblance or just put new money toward the sectors doing the worst?
I actually knew a person who did what he called reverse scalar investing, which is essentially putting more money into what is going up.

[Accumulating Wealth]

It seems to me you are just trading one type of risk for another. If you held a short term bond fund and reinvested the dividends your downside risk would be minimal compared to what could happen to an emerging markets equity fund if the world economy blew up. Diversify, diversify, diversify.

[AndrewJackson]

Quote:

Originally Posted by Ready-4-ER-at-14 Andrew, when I read this thread, I found myself wondering if you are a buy and hold forever, A balance routinely, or a total trader. I find the trader part of me at war with the long term part eternally. To sort of answer this to yourself consider the hypothetical situation. One part of your holdings implodes 33% while another part doubles and a third part stays similar. Gold has appreciated 20% and any realestate you may own has halfed. Do your reblance or just put new money toward the sectors doing the worst? I actually knew a person who did what he called reverse scalar investing, which is essentially putting more money into what is going up.

I want to do this as a buy and hold. I have a high risk tolerance and expect this thing to be a roller coaster ride. I am guessing that I would rebalance this once every year or so. My main worry is high inflation. Maybe "doomer portfolio" was the wrong choice of words. To me a world that has very high inflation and poor economics is the "doom scenario". I want to be diversified, just in case, the can kicking can keep this puppy going longer than expected or if I am wrong. Heck, japan still hasn't had a debt crisis.

My goal of this is to have a diversified portfolio that will be set for some decent market outperformance in my high inflation/stagnant scenario. Just so you know, I would expect this to take years to play out. I don't want to trade. I just want to set a plan that makes sense with what I expect and execute it.

Quote:

Originally Posted by explanade So if doomsday comes, how are you going to get the gold out of the safety deposit box? Is the bank going to be around to open the vault for you? And how does one redeem gold for food, fuel and other necessities? Drop a few coins? Can't have that much gold right? Of if you have it in big bars, what are you going to do, shave off bits of it to trade for some grain?

My dad knows the people at the bank it is stored. If there was ever a lockdown, I feel that I would have a pretty good chance at getting my pms (I don't think this would be an issue). If life ever came to it, I have silver that I could use for smaller purchases. However, the majority is gold. I am sure I could do a black market swap for more silver if need be.

...And in a real mad max world, I have spent probably $1500 on keeping a solid 90 day supply of food/water/fuel. This gets rotated, so I don't really have costs going forward to maintain this particular option. But this is highly unlikely and taking quite a tangent.

[jclarksnakes]

You do not say but I am going to assume that you are still working. It seems to me that your choices are fine fore a working 22 year old. If you were already retired something a little more diversified and less risky might be a better choice. I say, go for it.

[photoguy]

Quote:

Originally Posted by AndrewJackson I want to do this as a buy and hold. I have a high risk tolerance and expect this thing to be a roller coaster ride.

Are you sure about that? I don't think this is something anybody can say with certainty until they've lived through it. It is one thing to rationalize a 50% drop as a hypothetical scenario, it's totally another thing when your portfolio is down hundreds of K representing years of savings/investing. Or the market has a bad day and you've lost 50-100k.

Although the outlook for bonds is not rosy, I wouldn't underestimate the value of liquidity the next time there is a crisis. The best thing in that case would be cash or government bonds.

[MichaelB]

Quote:

Originally Posted by brewer12345 A few ideas: - If you own a house get a 30 year fixed mortgage and don't pay anything early.

This is the best option. It's a leveraged bet with a fixed interest rate and a sizable chunk of the asset price increase is tax exempt.

The problem with equities, in general, is that when inflation and interest rates increase above expectations, equity prices decline. I would be especially cautious about EM equity valuations, as policy mechanisms in developing countries are not as effective and demand is much more sensitive to changes in price.

Timber is an excellent inflation hedge. Energy infrastructure via MLPs should be as well.

[LOL!]

Emerging markets will go into the tank whenever US markets go into the tank. The reason is pretty obvious: If US consumers aren't buying, then EM corps can't be selling.

So there is no where to hide as far as equities are concerned, so a normal "total US" and "total int'l" will do as well as anything else.

If you don't like bonds, then you need to get some CDs. You might like I-bonds though.

[AndrewJackson]

Quote:

Originally Posted by photoguy Are you sure about that? I don't think this is something anybody can say with certainty until they've lived through it. It is one thing to rationalize a 50% drop as a hypothetical scenario, it's totally another thing when your portfolio is down hundreds of K representing years of savings/investing. Or the market has a bad day and you've lost 50-100k. Although the outlook for bonds is not rosy, I wouldn't underestimate the value of liquidity the next time there is a crisis. The best thing in that case would be cash or government bonds.

This is true regarding actually going through the 50-70 percent drop. However, I am young and I have time on my side. I don't plan on drawing on any of this money for 20 years at the absolute extreme minimum, so I am ok taking a bath. This money is completely separate from house savings/emergency funds/college funds/etc. So that should help ease some of the temptation to go and pull funds out.

Also, from reading and learning about personal finance over the last couple years, it seems that the ones that succeed are the ones that stay the course. I just want to have my plan deadset in my mind so I can in fact stay the course.