permanent portfolio questions

[norisk]

I am making up my conservative AA and exploring permanent portfolio as someone has recommended to me.

Do you hold a permanent portfolio PRPFX as part of your AA?

if not - why not?
if yes - what % of total AA is it?

if you were to buy it now - would you? it has a high percent in gold and the opinions I read here and elsewhere is that gold is too expensive right now (which sort of makes sens to me).

If I am just starting out with my AA (moving from cash into some mutual funds), does it make sense to put some in PRPFX? (perhaps 30% of the total pf amount)? I know, I am not really trying to time the market sicne I am investing for long term but still, that question is on my mind.

Also, do you hold PRPFX or do you replicate what they do on your own? and if the later - what funds/ETFs you use for that?


Thanks
norisk

[DoubleDown]

My taxable portfolio is 50% PRPFX. Of my total portfolio it is about 15%. I add to my taxable portfolio every two weeks and that means continually buying PRPFX. I do a semi value averging thing in this account with another conservative mutual fund (OAKBX). My goal is to keep both funds at the same value and that means adding more to the one that has dropped the most or gained the least at my time of investment.

I have no idea if gold is priced too high now nor do I care. The whole idea behind the permanent portfolio is it doesn't really matter long term you will make money somewhere. If you haven't read any work by Harry Browne I suggest you look into that.

I chose PRPFX instead of the 4 x 25 (most people use SHY for cash, TLT for long term bonds, GLD for gold and VTI for stocks) because it is very tax efficient and easy.

Also, you should check out www.crawlingroad.com/blog.

Good luck to you. DD

[ziggy29]

About 15% of my portfolio is in PRPFX, but don't use that as part of my AA for the other 85%. In other words, the 60/40ish AA I'm keeping is with the 85% outside of it.

I'm intrigued by its long term performance and lack of overall volatility with non-correlating assets, so I was willing to take a slug of it a couple years ago and so far, so good.

[hogtied]

90 % of my portfolio is in a do it myself non-taxable PP:

25% in CD's at Pentagon Federal CC
25% in VTSAX
25% in TLT
10% in physical gold coin / 15% in GTU, don't rebalance the coin
Draw down from CD's first.
Rebalance when any asset of the portfolio reaches 15 or 35%.

PRPFX is weak on long term bonds. If your sold on PRPFX then devote 10% in TLT. I'd go all in at once if your devoted to this conservatively proven 9.8% 10 year average total return portfolio. Sleep well!

[jIMOh]

I own it

search this forum for it- it has been debated a few times before

I own just shy of 200k in all accounts and PRPFX is less than 1% of my portfolio right now. I opened a position a few years ago to make sure I was in if fund closed, but have not had the cash flow to add to it until later this year.

It is held in a taxable account, and I consider it my secondary emergency fund- this is where I will put cash I might want to spend, but don't have a specific purpose or timeframe for. It is not part of my asset allocation.

[misanman]

I have about 5% in PRPFX and I've been pretty happy with it since I bought it three years ago.

[Spanky]

Quote:

Originally Posted by misanman I have about 5% in PRPFX and I've been pretty happy with it since I bought it three years ago.

Just curious - why only 5% if the fund can weather the storm and also provides "good" returns over the years?

[Spanky]

Quote:

Originally Posted by ziggy29 About 15% of my portfolio is in PRPFX, but don't use that as part of my AA for the other 85%.

That would make it:

Equity 54.75%
Fixed Income 37.75%
Cash 3.75%
Other 3.75%

[jIMOh]

Quote:

Originally Posted by Spanky Just curious - why only 5% if the fund can weather the storm and also provides "good" returns over the years?

This comment was not directed at me, but I will take a stab at the answer.

I love the philosophy of permanent portfolio, and generally like it as an investment. That being said, the toughest thing with owning it (IMO) is drawing the line where I know I have enough to weather some rough markets, but not too much where other tried and true investing strategies provide higher returns (with more volatility).

For me, that line is about 1 years expenses (my ultimate goal is 1 years expenses in the fund, maybe slightly more, so if all other part of portfolio tank, I can use PRPFX as a secondary emergency fund - I also have about 3 months expenses in cash now, and would expect to have 3 years expenses in cash at retirement)

[ziggy29]

Quote:

Originally Posted by Spanky That would make it: Equity 54.75% Fixed Income 37.75% Cash 3.75% Other 3.75%

That's probably pretty close, and I'm comfortable with that overall. Since my portfolio recovered substantially in the last big rally (now over), I'm comfortable with reducing my allocation to equities from here on out. I don't need the sleepless nights any more, especially when it feels more and more like the game is rigged.

[misanman]

Quote:

Just curious - why only 5% if the fund can weather the storm and also provides "good" returns over the years?

Well, even though I'm again net positive overall again after the last couple of years, it looks like I'd have been several tens of '000 better off if I'd gone all in with PRPFX. But that would certainly been a strange "asset allocation". And, of course, hindsight is 20/20. I couldn't say for sure without checking, but I don't know that my PRPFX ever went noticably negative over the time I've owned it.

As for why only 5%, I would chaulk this up to being a bit unfamiliar with the product. Also, I don't know that PRPFX gets a lot of respect in some investing circles. I have some friends that got a chuckle out of the whole gold/silver/Swiss Franc/stock thing.

And, of course, "past performance is not indicative of future results".

[Spanky]

Quote:

Originally Posted by ziggy29 ... I'm comfortable with reducing my allocation to equities from here on out. I don't need the sleepless nights any more, especially when it feels more and more like the game is rigged.

Agreed - sleepless nights are no fun. Our portfolio has 33.21% equity.

[Spanky]

Quote:

Originally Posted by misanman As for why only 5%, I would chaulk this up to being a bit unfamiliar with the product. Also, I don't know that PRPFX gets a lot of respect in some investing circles. I have some friends that got a chuckle out of the whole gold/silver/Swiss Franc/stock thing. And, of course, "past performance is not indicative of future results".

No respect? For the last 26 years, there were only 4 down years.
2008: -8.36
1994: -2.87
1990: -3.87
1984: -12.93
PRPFX: Performance Overview for PERMANENT PT - Yahoo! Finance

[frequenttraveler]

Some shy away from PRPFX due to its expense factor. Doing it yourself can end up very cheap, expense-wise.

In addition, the whole PP idea DOES provide for a Variable Portfolio too, which can contain...anything you want. The true PP has 25% each in cash, long US bonds ONLY--no corps, muni's, etc.; 25% equity index fund (which some slice and dice into US, small value, intl, etc.), and 25% gold--not precious metals, GOLD. Again, some slice and dice into coins, bullion funds, etc.

It seems to be a great concept--very low vol, strong LT track record; low expenses. I am starting one as I write this, with a portion of my retirement accounts as a test account.

As mentioned, The Crawling Road is a great website for research. Also, bogleheads has a 60-some page thread about this which is FABULOUS--I am reading it completely as I get time.

Jim

[kyounge1956]

I have two questions about the Permanent Portfolio—not the PRPFX fund but the 4x25% allocation to stocks, LT bonds, cash and gold. I haven't finished reading the lengthy discussion of the Permanent Portfolio at Bogleheads. Maybe the answers to these two questions are in there, but I'm guessing I will hear back on E-R before I finish reading the 60+ pages at Bogleheads.

1. I think I understand how the portfolio would operate in the accumulation phase—you put 25% of your portfolio into each of the asset classes and rebalance annually or whenever you drift too far from an even split of all four. But how do you use it after retirement? I would suppose you sell whatever asset went up that year, skim what you need for living expenses off the top, and then use the remainder to buy whatever asset(s) are below 25% of the remaining total. If nothing went up, make a withdrawal from the cash for living expenses, and maybe wait to rebalance until one of the assets does go up. Is that correct? I also wonder what would be the effect of using dividend-paying stocks, instead of the growth-oriented ones specified for the original PP (either during the withdrawal phase only, or for the entire time of holding the PP).
2. As I understand it the Permanent Portfolio has four asset classes because there are four basic economic states: inflation, deflation, prosperity and recession, and the PP works because each of the four asset classes tends to do very well in one of the four states. To me, these four states seem to arrange themselves along two axes, inflation/deflation and expansion/contraction, which makes me wonder if there is a third axis and if so, what is it? Does the economic "universe" have two-dimensions or three? If there is a third axis, what are the asset classes corresponding to the two directions?

[frequenttraveler]

Quote:

Originally Posted by kyounge1956 I have two questions about the Permanent Portfolio—not the PRPFX fund but the 4x25% allocation to stocks, LT bonds, cash and gold. I haven't finished reading the lengthy discussion of the Permanent Portfolio at Bogleheads. Maybe the answers to these two questions are in there, but I'm guessing I will hear back on E-R before I finish reading the 60+ pages at Bogleheads. I think I understand how the portfolio would operate in the accumulation phase—you put 25% of your portfolio into each of the asset classes and rebalance annually or whenever you drift too far from an even split of all four. But how do you use it after retirement? I would suppose you sell whatever asset went up that year, skim what you need for living expenses off the top, and then use the remainder to buy whatever asset(s) are below 25% of the remaining total. If nothing went up, make a withdrawal from the cash for living expenses, and maybe wait to rebalance until one of the assets does go up. Is that correct? I also wonder what would be the effect of using dividend-paying stocks, instead of the growth-oriented ones specified for the original PP (either during the withdrawal phase only, or for the entire time of holding the PP). As I understand it the Permanent Portfolio has four asset classes because there are four basic economic states: inflation, deflation, prosperity and recession, and the PP works because each of the four asset classes tends to do very well in one of the four states. To me, these four states seem to arrange themselves along two axes, inflation/deflation and expansion/contraction, which makes me wonder if there is a third axis and if so, what is it? Does the economic "universe" have two-dimensions or three? If there is a third axis, what are the asset classes corresponding to the two directions?

Very good questions, and please understand I am not a PP expert. I am intensely studying the subject, and have looked at it years ago (didn’t have the need for it then; thought I was too smart to need it. My how arrogance can take a back seat as one matures!)

Here are my thoughts. First, I am not sure about a third axis. However, I do maintain some reservations about the concept. The Boglehead poster “Clive”, a Brit, has some excellent comments on the research he has done on the PP based on Japanese results. The PP had long stretches when it didn’t do very well at all, such that your capital would have been impacted fairly severely. This is what concerns me a bit. If we hit a spot where gold, stocks and bonds fell, and this continued for awhile, one’s portfolio would be severely affected.

So, I have decided to maintain a couple portfolios—the PP for roughly half and what Harry Browne, the creator of PP, called a Variable Portfolio (VP)—which can be anything you want it to be. I will put income instruments, some individual equities (my PP will be straight up ETF’s), and whatever strikes my fancy. This gives me some variability of results and hopefully improves them.

The other comment you had, about value vs. growth stocks, somewhat is contrary to the PP idea. The original idea is to use only four broad ETF’s to capture the four areas. Yes, some folks slice and dice, and I will do that too (picking up some emerging markets and maybe using Wellesley for part of my $, among others). However, the key is to pretty well set and forget the PP, really only moving around at rebalancing time. BTW, you can rebalance annually or when the 15%/35% bands are reached. Not sure what I will do here, but probably use the bands to capture extreme moves like Tbonds in the fall of 2008.

As to how to draw income, I plan on taking mine from the cash portion when needed, and then rebalance according to my 15%/35% plan.

So, my holdings will look something like this:
25% SHY (for cash—increases yield with very little negative consequences)
25% government bonds, including EDV, TLT and others
21% VTI to capture broad US markets
4% DEM to pick up some EM exposure
25% GLD, maybe SGOL and GTU and maybe some physical gold

Hope this was helpful. And yes, I am struggling through the entire Bogleheads post!

Jim

[Free To Canoe]

Comments in the Bob Clyatt post got me interested in the pros and cons of the Permanent Portfolio concept.

http://www.early-retirement.org/foru...ml#post1059751

So instead of highjacking that thread I thought that I would bump this, one of many past permanent portfolio threads.
I compared PRPFX with Wellesley (VWINX) graphicly over time. The general gist of it is that PRPFX earned about 1% over the 1980s and VWIX greatly exceeded it most years except for the last 10.

[Free To Canoe]

Quote:

Originally Posted by Spanky No respect? For the last 26 years, there were only 4 down years. 2008: -8.36 1994: -2.87 1990: -3.87 1984: -12.93 PRPFX: Performance Overview for PERMANENT PT - Yahoo! Finance

Wellesley (VWINX) had negative years:
2008: -9.27
1999: -4.14
1994: -4.44

Standard Deviations-10Yr
PRPFX 9.27
VWINX 6.36

When comparing the graphs of gold and the funds over time it seems that during the last decade the returns of PRPFX were juiced by the precious metals.

The metals my add risk to this fund and move it away from conservative.
Especially so since, IMHO we are in a bubble situation with the Au and Ag.

[eytonxav]

I think this is an excellent fund that would fit in most portfolios and can be purchased at any point in time and held. I hold it and it represents about 5% on my port, but wish I had been holding more, however, I try not to exceed 5% in any specific fund/eft/stock.

[Free To Canoe]

Quote:

Originally Posted by DFW_M5 I think this is an excellent fund that would fit in most portfolios and can be purchased at any point in time and held. I hold it and it represents about 5% on my port, but wish I had been holding more, however, I try not to exceed 5% in any specific fund/eft/stock.

I agree, it is an excellent fund.
So you always keep an excess of 20 funds? 5% into 100=20.