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Starting a topic on this strategy because I find it one of the most intriguing and compelling ideas.

The PP was originally devised by Harry Browne in the 1980s as an "all-weather" portfolio consisting of

25% equities
25% government bonds
25% cash/short-term treasuries
25% gold

The basic premise is that by having these 4 assets your portfolio will have at least one asset class that will thrive in any economic condition. Also, by periodically rebalancing, you are automatically ensuring that you sell asset classes that are overpriced and buying assets that are underpriced

Historical modelling of the PP shows that it produces a remarkably good risk-adjusted return that would almost certainly put 100% of professional money managers to shame.

Over the years there have been many variation on the PP, but the original still holds up remarkably well and in fact has outperformed nearly all of the variants.

 

more to follow..

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From: https://monevator.com/the-permanent-portfolio/

> "The key to the Permanent Portfolio’s stabler returns is its diversification, especially the out-sized allocation to gold."

This is something with we have already discussed. Gold and PMs are the single asset class that most negatively correlate with financial paper assets:

 

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From 1972-2011 the PP almost matched an equity-only portfolio with much less volatility

https://www.thepermanentportfolio.com/permanent-portfolio-performance-and-historical-returns-us/

PermanentPortfolio.1972-2011.png

 

However, it should also be noted that the PP has not done very well comparatively in the last few years, as the equities bull market has gone on.

That suggests to me that now is a good time to start building a PP, as we will see reversion to the mean in the coming years.

Edited by vand

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It is attractive. I spent some time studying it, experimenting and built a portion into my SIPP using low cost trackers for bonds and stocks, and using blackrock gold and general for gold proxy and I am using sterling as cash which is perhaps a mistake. The graphs look good, but I believe are misleading as they are capturing average returns.

If I remember correctly the book recommends re-balance once a year yet the returns on the graphs presented are based on average returns, not returns from buying/selling December 12th every year for example. You could re-balance more often and can accumulate, cost averaging, which is what I am attempting to do as an experiment, I can accumulate or rebalance monthly with the trackers I have chosen, without additional cost. I don't expect the portfolio to match average returns but near enough hopefully we will see.

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Yes, I'm looking at building a modified version of it across a combination of my Pension & SIPP.

Currently considering:

"Gold" portion:
12.5% ETFS Phys Gold
12.5% ETFS Phy Silver

"Bond" portion:
15% Scottish Widows Fixed Interest Pension (UK gilts)
10% Scottish Widows Strategic Income Bond Pension (Corporate investment grade bonds) 
 

"Equity" portion:
25% Equity: StateStret 50:50 Global Equity Index (50% UK, 50% global)  
 

Other:
12.5% Real Estate fund
12.5% Cash

The "Gold" portion will be held in my SIPP, and the other parts will be held in my company pension. The fund choices are as they are due to the selection of funds available.

Basically have until tax deadline to get it set up and running, and chuck large wad of £££ at it to get it started.

Edited by vand

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@vand @KDave what resources do you guys use to research what ETF to invest or what bonds to buy or shares to buy?

I'm interested in starting to invest but want to do a lot of research before i do.

At the moment im looking at using either AJ Bell, Interactive Investor or Vanguard as an investmet platform. I think one of these 3 should be good starting out, im just dont know how to do the proper due diligence and research.

Grateful for any advice :) 

 

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Every strategy has its pros and cons.
I see where you are going with this. However without wanted to get myself too involved ill just say a couple of things to maybe get your brain thinkng about angle angle of attack :). Nothing i say below is right or wrong or supposed to be an answer. its just things to consider. 

25% equities
25% government bonds
25% cash/short-term treasuries
25% gold

 

^
This is your distribution suggestion.
I would immediately question why you believe gold is just weighted the same as say, equities. Do you feel gold hold the same level of risk? I could lose everything in a day (potentially) with equities. do i still have the same potential chance to lose everything with gold? Risk correlates with reward/loss.

the Equities. if you apply 25% here, equities is such a large area, hw would you split this into sub funds? is AIM a better growth than Emerging Markets? FTSE less volitile than S&P?
We cant predict the future, but the risk must be identified and quantified.

 

Me personally, for my level of investment and risk, if i comply with your 4 splits i currently have something like this:
55% equities
25% government bonds (*Corp Bonds)
0% cash/short-term treasuries
20% gold

In my opinion, i am currently overweight on bonds and gold, however i am trying to hedge against Brexit, China and Trump a little. otherwise i would be almost all equity. for me, this is because i have little fear or need of my investment pot. if it drops, i can ride it out.
Also cash. This is 0 for me on purpose. This is because i already have a watchlist of specific stocks i wish to buy, and i watch and wait for them to be attractive to me OR i buy preecding an ex-Div date. I have 0 cash because i invest everymonth. So, it doesnt make sense to me to hold cash for a 'smash and grab' bargin. that is emotional (bad!).

(unless you mean to hold cash to prevent selling investments if you need cash in personal life. in which case, i personally hold enough cash to cover all my bills for 3 months. but i dont count this as part of a portfolio ,and it is also a fixed amount and not a %age. )

Keep discussing. always good to see other views. :)

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follow from above, i decided it good time for me to actually check my asset allocation to see if i was accurate.
Appears i am nearer 12% gold, with higher weight to Bonds as a result.

 

also, as for platform. i am looking for a new one myself, as i am not covered by FCA any longer. But HL (hargeaves Lansdown) do quite a good good at analysis. some examples of how you can check your portfolio for those who are interested.

fundanalysis1.PNG

fundanalysis3.PNG

fundanalysis2.PNG

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1 hour ago, Pritchard said:

Every strategy has its pros and cons.
I see where you are going with this. However without wanted to get myself too involved ill just say a couple of things to maybe get your brain thinkng about angle angle of attack :). Nothing i say below is right or wrong or supposed to be an answer. its just things to consider. 

25% equities
25% government bonds
25% cash/short-term treasuries
25% gold

 

^
This is your distribution suggestion.
I would immediately question why you believe gold is just weighted the same as say, equities. Do you feel gold hold the same level of risk? I could lose everything in a day (potentially) with equities. do i still have the same potential chance to lose everything with gold? Risk correlates with reward/loss.

the Equities. if you apply 25% here, equities is such a large area, hw would you split this into sub funds? is AIM a better growth than Emerging Markets? FTSE less volitile than S&P?
We cant predict the future, but the risk must be identified and quantified.

 

Me personally, for my level of investment and risk, if i comply with your 4 splits i currently have something like this:
55% equities
25% government bonds (*Corp Bonds)
0% cash/short-term treasuries
20% gold

In my opinion, i am currently overweight on bonds and gold, however i am trying to hedge against Brexit, China and Trump a little. otherwise i would be almost all equity. for me, this is because i have little fear or need of my investment pot. if it drops, i can ride it out.
Also cash. This is 0 for me on purpose. This is because i already have a watchlist of specific stocks i wish to buy, and i watch and wait for them to be attractive to me OR i buy preecding an ex-Div date. I have 0 cash because i invest everymonth. So, it doesnt make sense to me to hold cash for a 'smash and grab' bargin. that is emotional (bad!).

(unless you mean to hold cash to prevent selling investments if you need cash in personal life. in which case, i personally hold enough cash to cover all my bills for 3 months. but i dont count this as part of a portfolio ,and it is also a fixed amount and not a %age. )

Keep discussing. always good to see other views. :)

 

25% for each component is the split suggested by Harry Browne. Why? Why not?  While it is tempting to want to increase the allocation to growth assets (equities) and decrease the allocation to idle money (cash), the strength of the portfolio is that it has components that are uncorrelated. Returns are captured by rebalancing so you are buying cheap assets and selling expensive ones. As I say, there are many variations of the PP, but if you backtest them you'll find they either don't hold up as well in pure performance, or they give up a lot of the benefits of the smoothness of returns in exchange for not much extra performance (ie the risk-adjusted return goes backward). 

0% cash is an option, and as shown in the SeekingAlpha article it would have improved average performance by 1%, which is nothing to be sniffed at, but at the cost of bumpier ride; maximum 12 month drawdown doubled from -7.65% to -14.75%. Worth it? You'll have to decide for yourself. But the point is the cash portion plays a pricing and allocation role it itself; it's not just idle money sitting there.

Edited by vand

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3 hours ago, QStack said:

@vand @KDave what resources do you guys use to research what ETF to invest or what bonds to buy or shares to buy?

I'm interested in starting to invest but want to do a lot of research before i do.

At the moment im looking at using either AJ Bell, Interactive Investor or Vanguard as an investmet platform. I think one of these 3 should be good starting out, im just dont know how to do the proper due diligence and research.

Grateful for any advice :) 

 

My options are limited to the funds available in my Scottish Widows pension and the instruments provided by Fidelity as my SIPP provider. I think any of those providers you list should fine.

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''You dont make money buying or selling, You make money while you wait'', a quote that i like alot. i believe it came from Charlier Munger originally.  But it can be taken in several ways.

Most people understand that to mean 'dont buy a stock until its 'on sale' '. Others may think it means buy at any point, but hold onto it. the 'waiting' part its its growth / appreciation over time.
Myself, i now understand it to mean something like this: buy when you are ready, not when the market is ready'. The waiting part is your research (in your case, reading about this strategy). Its learning and understanding the intricacy of a particular film, and knowing their books, corporate goal, and the wider market. Whether or not its 'cheap' or not comes in as a final decision. for me at least anyway.

There are many books and strategies available. ive read some good ones, and some i think are complete kak. but, you must keep reading and learning. the best strategy will always be your own (because you have learnt and understood it!) not one mimicked from another.

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You make money exploiting the spread between buying AND selling, and not until you have done both. This is just a truism. Anyone who claims otherwise is only seeing half the picture.

The difference between the price of your entry position and the current market price is equity. It doesn't actually become money (profit or loss) until you have closed your position.

The only exception to this is when you receive a dividend payout from the stock; this is profit from holding the stock, and is very real.

If you want to challenge this, I suggest you try filing a tax receipt with your theoretical profits/losses from your open positions ^_^

Edited by vand

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On 20/03/2019 at 11:53, KDave said:

It is attractive. I spent some time studying it, experimenting and built a portion into my SIPP using low cost trackers for bonds and stocks, and using blackrock gold and general for gold proxy and I am using sterling as cash which is perhaps a mistake. The graphs look good, but I believe are misleading as they are capturing average returns.

If I remember correctly the book recommends re-balance once a year yet the returns on the graphs presented are based on average returns, not returns from buying/selling December 12th every year for example. You could re-balance more often and can accumulate, cost averaging, which is what I am attempting to do as an experiment, I can accumulate or rebalance monthly with the trackers I have chosen, without additional cost. I don't expect the portfolio to match average returns but near enough hopefully we will see.

 

I would be wary of using Blackrock Gold&General fund as a gold proxy, as it is more a miners index, which can and does perform very differently to gold itself.

Nothing wrong with having exposure to miners. I hold the fund too, but consider it part of my active investments. Maybe you should consider some of your physical stack a part of your PP instead?

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Aye its not the best as a gold proxy. Perhaps as part of the experiment I can allocate the equivalent value in my stack as the gold portion as you say, would make a more accurate reflection of the performance of the principle over time, even though cost averaging goes out of the window a bit. The issue is the cost of buying a few grams of gold each month vs saving up and cutting premiums/postage costs. All factors in the actual performance of the portfolio. I need to remember to discount the 20% tax return if I do swap the SIPP fund for physical. 

I have a gut feeling sense that the Permenant portfolio is one of those looks good in principle things which is why I am not committing much to it. Get the chart up, over time it looks great. That's because the data points give the price average, usually several price points over each month. In reality most people will be accumulating once a month, luck of the draw as to high/low, there are often dealing costs, holding fees. They are rebalancing once a year if following instructions, could be any point in the year, again luck of the draw as to price point at that time - suddenly their average is different from my average which is different to your average which is different again from the price chart average. :D I am giving this a go to see how close to the chart average I can get, an experiment.

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On 20/03/2019 at 15:33, Pritchard said:

follow from above, i decided it good time for me to actually check my asset allocation to see if i was accurate.
Appears i am nearer 12% gold, with higher weight to Bonds as a result.

 

also, as for platform. i am looking for a new one myself, as i am not covered by FCA any longer. But HL (hargeaves Lansdown) do quite a good good at analysis. some examples of how you can check your portfolio for those who are interested.

fundanalysis1.PNG

fundanalysis3.PNG

fundanalysis2.PNG

Only 0.04 % in Aus?  seems very low. some very very good holes in the ground there, maybe have a look yourself.

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I used the PP investment plus inc real estate. so @20% this altered significantly through out the year.  It worked for me for the following reason as an asset went up i could divert into other assets this saved me when the £ went tits up, and in 2000.  When 2008 banking crisis i was able to invest at the bottom when others could not.  

  

Edited by Pipers

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I came across the following YouTube video and I thought was very insightful. My portfolio currently stands

25% Indian equity mutual funds
25% Indian Government bonds
45% UK rental properties
5% Physical Silver/Gold

 

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I like Tony Robbins', but I also think his advice is very much geared towards the layman. It basically boils down to: Cost average into index trackers and minimize your fees. This passive investment advice is probably suitable for 85% of investors, but it is also a very narrow view of the world, seen through a lense of the S&P during the era of the the US as the world superpower.  There are many ways to invest and they are proportional to your circle of competence and how interested you are about finance. 

 

 

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This is my breakdown:

Capture.png

 

 

Notes- 

Take those Equities/Bonds/Hard Assets/Cash totals with a pinch of salt. In reality my equities exposure is very skewed towards commodities, Asia, and emerging markets, with very little exposure in developed markets.


Cash seems high at 33%, but in reality I need a lot of cash to fund my APing operations. This is actually the part of my portfolio that is earning the most (by far!). 

This is very much a WIP and I expect it to morph considerably over the next 12-24 months!

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2 hours ago, Abyss said:

I came across the following YouTube video and I thought was very insightful. My portfolio currently stands

25% Indian equity mutual funds
25% Indian Government bonds
45% UK rental properties
5% Physical Silver/Gold



 

He makes a great point though: equities are 3 times as volatile as bonds, so a "50:50 balanced portfolio" (of traditional equities/bonds) still sees most of your risk in equities. That is the point that I've been trying to hammer home in this thread 

 

And this is why strategies like the Permanent Portfolio work so well! Because they harvest volatility from uncorrelated asset classes to generate the returns. You don't need to put all your eggs in one basket and hope you have the stomach to ride out the downturns. The risk adjusted returns of this strategy are outstanding.

 

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