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Discussion Starter #1 (Edited)
I have been, like all of us, watching markets. How can you not be aware of the daily / weekly / monthly changes that are happening in the market. Our current market is faltering due to Covid-19, but in reality our economy was slowing for the later part of 2019. Covid-19 has just accelerated this process. In fact Covid-19 took our little Datsun and dropped the clutch on first gear and simultaneously pulled the e-brake at the same time! Our markets are treading water, they are not swimming. Given that the N. American Economy is just now looking to open up and there is justified concern that 10% of the lost jobs are gone for 5-10 yrs, that would mean that we are looking at high unemployment numbers for a very long time. Interest rates are Zero (0%) and Central Banks have dropped tons of cash into the economy, Federal govts have created numerous stimulus programs to again supply money to end users.

Our economy will come back but I think it will be 1-4 years where we are in a deflationary/stimulated environment. Given that backdrop, interest rates may go negative - I know there is resistance to this but it might be required. Companies Sm/Med/Lrg will report way lower sales/profit numbers. This will again stifle our economy. We can all just imagine these scenarios.

I got to thinking and if for the next few years we are looking at deflation. Yes deflation - the central banks will try to control it, but if it is here for a few years, I want to rejig my portfolio to better withstand these forces. I still want a portfolio but I want to really rethink it and bear in mind that after a few years we could see some inflation/stagflation, and have some forethought there also.

I have sold all equities a few days ago (good timing). This obviously has me wondering, pondering and thinking about my allocations and purchases. I want safety, but yet some diversity. I am OK with a lower yield/growth return at the end of the year if I feel my safety is higher.

Here are my thoughts...

25% Stocks
25% Cash
25% Bonds
25% Gold

Wait... we have seen this before, the PP. I used to be 40/20/40 Eq/Gld/Bnd and was happy, but right now I want to lower my std dev again.

In my stock category I was 1/2 Mawer (active) and 1/2 Indexes (passive). I think I want to look at a few select companies in the following categories - Utility/Residential Reit/Telecom/Bank/Pipeline these should all perform given my current multi year outlook. I know that banks are a bit of a risk if interest rates go neg but I think if you grab one of the big 5 then you should be safe. I say pipelines cause the costs to move oil are fixed compared to the oil itself. I was gonna put energy in there but for the next few years I dont see it really doing well.

In my cash category I am thinking of just using an ultra short term bond fund / HISA.

For Bonds, I am currently in Federal/Provincial long term and am happy with that, once some time has gone by I will adjust duration down to compensate for possible inflation and rising rates that would otherwise kill long duration bonds. I want no corporate debt at all.

Gold is pretty self explanatory.

So, if anyone has good opinions/ideas or feedback please add them. If you want to say 'your an idiot' or something along those lines please find some forum on Reddit.

Before I act on my evolving idea, I need to digest what I am doing.
 

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Then what people going to do with their RRSP & company matching. Is it the good ideas to change investment now? I just start matching in tfsa beginning of this year.
 

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Obviously, I'm a fan of the Permanent Portfolio. My own asset allocation is very close to it, except I collapse "cash and bonds" into a single 50% XBB allocation since this is much easier to maintain.

Here are some benefits I've seen first hand, from my PP allocation:
  • So far, 6.9% CAGR over the last 4 years... tremendously good
  • At the lowest point in the March crash, I was down only 5% YTD
  • As of today, I'm now +7% YTD ... up significantly this year
How can a person not be thrilled about this? I've been getting 6.9% annual return with very little risk. I barely felt the crash at all. The PP is performing exactly as promised.
 

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So, for FI your thinking GICs ?
Bonds are more or less equivalent to GICs. The only difference is that one has a volatile price, and the other doesn't. I hold both. Here's a good video from Ben Felix about GICs vs bonds.

I don't know what lonewolf is thinking, but it might be that all fixed income suffers a currency devaluation risk. If the CAD goes the way as various other fiat currencies, it could devalue significantly, which would give poor real returns from fixed income. This could happen due to the aggressive money-printing that's going on now.

But that's why the PP holds stocks & gold. Those are assets which would perform well during devaluation/high inflation.

The point of the PP is to hold various assets which respond to different economic scenarios. Gold is for the high inflation and devaluation, or currency destruction scenario. Stocks are for the mild inflation/growth scenario. Bonds are for the deflation or stagnant economic scenario.
 

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Bonds are more or less equivalent to GICs. The only difference is that one has a volatile price, and the other doesn't. I hold both. Here's a good video from Ben Felix about GICs vs bonds.

I don't know what lonewolf is thinking, but it might be that all fixed income suffers a currency devaluation risk. If the CAD goes the way as various other fiat currencies, it could devalue significantly, which would give poor real returns from fixed income. This could happen due to the aggressive money-printing that's going on now.

But that's why the PP holds stocks & gold. Those are assets which would perform well during devaluation/high inflation.

The point of the PP is to hold various assets which respond to different economic scenarios. Gold is for the high inflation and devaluation, or currency destruction scenario. Stocks are for the mild inflation/growth scenario. Bonds are for the deflation or stagnant economic scenario.
I would tend to agree that the PP is set up to deal with inversely correlated assets. I haven't done much research but was curious as to how the PP would perform during a period of stagflation. We often discuss inflation and to a lesser extent deflation. Stagflation and its effect on portfolio seems to be a rare occurrence but could be considered a possible outcome of Covid-19.
 

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I would tend to agree that the PP is set up to deal with inversely correlated assets. I haven't done much research but was curious as to how the PP would perform during a period of stagflation. We often discuss inflation and to a lesser extent deflation. Stagflation and its effect on portfolio seems to be a rare occurrence but could be considered a possible outcome of Covid-19.
Good question. Do you think a period like the 1970s is a good example of that? That period had poor stock returns and high inflation.
 

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The ‘70s were definitely stagflation....
I used the Portfolio Visualizer to show portfolio results for the Permanent Portfolio 1972 - 1982. Here's a link so you can see it yourself.

The result is pretty interesting; pasted below. This is an inflation adjusted chart so you're seeing real dollars. The Permanent Portfolio did the best at preserving capital, with a steady result through stagflation. Also gave +2.97% real return, after inflation.

Stocks were the next best result, though negative at -1.27% real return. Also note that came along with some really high volatility (crash) along the way.

Bonds, as expected, gave the worst overall result at -4.70% real return. This is what people warn about when they say that bonds are dangerous in a high inflation environment.

20184
 

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Discussion Starter #12
The bonds in that graph can be misleading, as we dont know the duration or make-up...... I would bet that there is inflation and interest rates are rising.....

In that time if you were to lower your overall duration you could limit your losses based on interest rates. Only thing is that you never know when things will change....
 

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OP,

I think the PP is a portfolio for all seasons, by design. If you are comfortable with it, why not stick to a pure and clean version with index funds? It is doubtful that any tinkering would add substantial value.
 
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