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You're probably right on sticking with the once a year rebalance plan and, my guess, it'll probably work out well at the end of 2020.

When I was comparing for rebalance points I just charted VCNS and MNT, to keep it simple. Currently there is a 33% difference in price YTD. There could be many percentage or math based rules one could come up with to remove the psychological impact, maybe even a simple rule like ...
  • you get one "extra" relabance per year is the difference is greater than "x".
  • do it quarterly (kind of a DCA approach) if the difference is remains above "x".
I'm not sure what the backtesting results would be from this even though is "looks good" on the surface.
 

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Discussion Starter #302 (Edited)
I had another thought on this. Rebalancing is mostly about controlling risk, not increasing return. It makes sense to rebalance more frequently if you're concerned about risk, but since the Permanent Portfolio is already low risk by design, maybe there's less need to rebalance.

In case anyone is curious about a real-life result, here are screen shots [with $ removed] from my RRSP, which has held my modified PP since last summer. I use a single 50% bond allocation to simplify short term & long term bonds, with DRIP on everything.

It's up 14% from a year ago, and hitting new all time highs. My RRSP holds MNT, but CGL.C should work just as well.

20175



20176

The target weights are: 15% XIU, 15% ZSP, 20% MNT, 50% XBB
 

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I have a question about the bond part of PP. Is it still wise to hold bonds given the treasury rate is so low? In a recent discussion, I got the following argument from a popular stock YouTuber.

"Any NAV appreciation on TLT will come from lower treasury rates. The bondholders with TLT benefited from the hedge in Feb-March, but now that we are at much lower rates there is less possibility for NAV appreciation going forward (unless rates go negative), and you have the possibility of a decreasing NAV in TLT if rates rise. You can certainly own them, I just don't personally think the risk/reward (even as a hedge) is very favorable here. "

My response to him was "The future is unpredictable. I would not be surprised if one day the Fed decided to cut the interest rate to negative." But I'd love to hear your thoughts.
 

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Discussion Starter #304
At any point in time, you'll always find someone making an argument for why one particular asset is a good buy, or not. The idea behind Browne's PP is that we have no idea what the future will bring, and trying to anticipate market direction is futile. We can't predict price direction or inflation. It's the same idea as couch potato investing and passive asset allocation in general: one does not adjust the formula (like 60/40) based on where we think bonds may be headed.

Is it wise to hold bonds? Once you decide on an asset allocation, it's wise to stick with whatever the weights are.

The return in bond funds does not come purely from interest rates dropping. It also comes from sources such as a yield curve steepness, and from reinvesting maturing bonds. In fact, if interest rates were to gradually rise over the years, bond funds will perform well. So it's incorrect, and overly simplistic, to say that bond funds need yields to drop, to produce a return. That's not how bond funds work.

Japan had treasury bond rates near 0% for many years, even lower than we have now. Bond funds in Japan have actually done quite well over the decades.

But I don't advocate investing in long term bonds. As you can see in my portfolio, I use XBB because ~ 10 years is a more reasonable maturity. TLT are US long term bonds and are much more volatile (and risky).
 

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At any point in time, you'll always find someone making an argument for why one particular asset is a good buy, or not. The idea behind Browne's PP is that we have no idea what the future will bring, and trying to anticipate market direction is futile. We can't predict price direction or inflation. It's the same idea as couch potato investing and passive asset allocation in general: one does not adjust the formula (like 60/40) based on where we think bonds may be headed.

Is it wise to hold bonds? Once you decide on an asset allocation, it's wise to stick with whatever the weights are.

The return in bond funds does not come purely from interest rates dropping. It also comes from sources such as a yield curve steepness, and from reinvesting maturing bonds. In fact, if interest rates were to gradually rise over the years, bond funds will perform well. So it's incorrect, and overly simplistic, to say that bond funds need yields to drop, to produce a return. That's not how bond funds work.

Japan had treasury bond rates near 0% for many years, even lower than we have now. Bond funds in Japan have actually done quite well over the decades.

But I don't advocate investing in long term bonds. As you can see in my portfolio, I use XBB because ~ 10 years is a more reasonable maturity. TLT are US long term bonds and are much more volatile (and risky).
Hi James - Thanks for sharing your thoughts. Really learned a lot from your writings so far.
 

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Discussion Starter #306
Hi James - Thanks for sharing your thoughts. Really learned a lot from your writings so far.
Glad I could help. Here's an article that may interest you. It talks about a little-known fact, which is that bond investments in Japan performed quite well even with their rates chronically near zero. Note the chart of their Total Return invested and rolled in 9-year JGBs (about the same avg maturity as XBB)

How Bond Bears (Especially In Japan) Lost So Much Money Since 2000

I don't mean to give the wrong idea here: our domestic bonds could potentially be very bad investments right now. But they can also do well, as they did in Japan.
 

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Discussion Starter #307
For more on Japan, here's a real Japanese bond fund which also shows performance. Just about the whole time this has existed, the Bank of Japan rate was around 0%. The return in this bond fund was about 1.8% CAGR with quite good returns each year. Japanese inflation has hovered around zero.

So what does that mean? Japanese bond funds gave close to 2% real return. That's pretty darn good.
 

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Discussion Starter #309
I should have posted this into the current thread
Deflation - revamping my portfolio....

Here is inflation adjusted performance of the Permanent Portfolio vs stocks and bonds, for 1972-1982. This was a period of high inflation and poor economic growth.

Bonds did poorly in this decade, at -4.70% CAGR real return. However, keep in mind that bonds did great after 1982.

20185
 

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J4B - It would be good if that chart would show Gold, Interest Rates and Inflation....... The real depth behind it would become more visible....
 

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I have a practical question. How do you buy your PP through ETF trades?

Let's say if someone has $100K to invest and wants to use 3 ETFs (ZFL 25%, CGL.C 25%, XIU 25%) + Cash 25% to form his PP. Harry Browne once mentioned that only the portfolio as a whole can really protect your money. However, the price of XIU, ZFL, and CGL.C could be very volatile on a specific trading day. Unless you buy at a (close to) market price, you could easily miss some orders and your portfolio is then unbalanced as 25% for each part. Sometimes, I try to split the money into 3-4 orders at different prices.

Maybe it seems a kind of perfectionism. Always glad to hear your advice. Have a good day!
 

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Discussion Starter #312 (Edited)
It's true that one must look at the portfolio as a whole, and think you're fine as long as you trades fill within the span of an hour. I always place limit orders, and start with the least liquid one in a group (whichever has the widest bid/ask spread, likely CGL.C) since this will be the most difficult one to fill.

What I'd do (edited, revised)

1. place one limit buy order on each ETF
2. wait 15 mins (or longer I suppose) but consider this a hard deadline
3. if something hasn't filled, modify the order and meet the asking price

In step 1, choosing a good limit price, with a high probability of being filled, is a bit of an art. For CGL.C and MNT, I would probably place my bid at the mid point between the bid & ask (half way). XIU is liquid and very active, so I might bid one or two cents below the current asking price. Bond ETFs have low volume and don't move much. I wouldn't get more ambitious than one cent below the asking price on a normal day.

After the 15 minutes are up, I would revisit any unfilled orders and change them so they are guaranteed to fill. At that point I would do a limit buy at the asking price or perhaps one or two cents above the asking price. There is no risk of overpaying when you do this, since you'll still get the lowest ask for the number of shares you want. Note that if you're buying a lot of shares, it may take more than the current asking price to fill all shares.

That's effectively a market order, but it's always safer to place limit orders.

In step 3, I think it's important to give up on trying to get bargains, and just buy. This prevents you from falling into the trap of "chasing the market" as prices move against you. My view is that you already took a stab at getting a bargain (step 1) and now it's time to complete the trade.


Aside 1: here's that portfolio in the Visualizer using ZFS for the cash component. That picture is nice because it starts in a bad year (where gold & long bonds fell hard) so you're getting a pessimistic view.

Aside 2: I'll backtrack on something I said earlier, and I think it's fine to have foreign diversification in the stocks. If you look at my own RRSP portfolio in #302 you'll see that I mix XIU & ZSP
 

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Discussion Starter #313
@librahall at the risk of complicating things, I'll mention that the PP is basically at an all time high value, again. You would be buying it pretty high. The same could be said on just about any day in 2019 or 2020, except for March.

This is one of those frustrations that can never be solved. There is no way to time a lower entry. Instead, I find it helpful to look at the historical record. Then, I remind myself: the PP routinely falls 5%. Even a 15% drawdown would be normal, and OK.

I most recently added to my RRSP on February 19. Practically the high. Then, I saw my portfolio immediately drop 11%. It's been a wild ride... but still milder than other portfolios.
 

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It's true that one must look at the portfolio as a whole, and think you're fine as long as you trades fill within the span of an hour. I always place limit orders, and start with the least liquid one in a group (whichever has the widest bid/ask spread, likely CGL.C) since this will be the most difficult one to fill.

What I'd do (edited, revised)

1. place one limit buy order on each ETF
2. wait 15 mins (or longer I suppose) but consider this a hard deadline
3. if something hasn't filled, modify the order and meet the asking price

In step 1, choosing a good limit price, with a high probability of being filled, is a bit of an art. For CGL.C and MNT, I would probably place my bid at the mid point between the bid & ask (half way). XIU is liquid and very active, so I might bid one or two cents below the current asking price. Bond ETFs have low volume and don't move much. I wouldn't get more ambitious than one cent below the asking price on a normal day.

After the 15 minutes are up, I would revisit any unfilled orders and change them so they are guaranteed to fill. At that point I would do a limit buy at the asking price or perhaps one or two cents above the asking price. There is no risk of overpaying when you do this, since you'll still get the lowest ask for the number of shares you want. Note that if you're buying a lot of shares, it may take more than the current asking price to fill all shares.

That's effectively a market order, but it's always safer to place limit orders.

In step 3, I think it's important to give up on trying to get bargains, and just buy. This prevents you from falling into the trap of "chasing the market" as prices move against you. My view is that you already took a stab at getting a bargain (step 1) and now it's time to complete the trade.


Aside 1: here's that portfolio in the Visualizer using ZFS for the cash component. That picture is nice because it starts in a bad year (where gold & long bonds fell hard) so you're getting a pessimistic view.

Aside 2: I'll backtrack on something I said earlier, and I think it's fine to have foreign diversification in the stocks. If you look at my own RRSP portfolio in #302 you'll see that I mix XIU & ZSP
Thanks for the step-by-step description. The idea of "start with the least liquid one" is very inspiring. The only thing I may want to add is to avoid placing orders in the first and last half hour of each trading day when the price could be very volatile.

Aside 2: I'll backtrack on something I said earlier, and I think it's fine to have foreign diversification in the stocks. If you look at my own RRSP portfolio in #302 you'll see that I mix XIU & ZSP
Thanks for the reminder. Yes, actually I am using a mix of XIU & ZSP for my stock part. Just wanted to simplify the question.
 

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Discussion Starter #315
Thanks for the step-by-step description. The idea of "start with the least liquid one" is very inspiring. The only thing I may want to add is to avoid placing orders in the first and last half hour of each trading day when the price could be very volatile.
I agree with you about avoiding the first and last half hour of the day. Actually, I avoid the entire first hour.
 

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@librahall at the risk of complicating things, I'll mention that the PP is basically at an all time high value, again. You would be buying it pretty high. The same could be said on just about any day in 2019 or 2020, except for March.

This is one of those frustrations that can never be solved. There is no way to time a lower entry. Instead, I find it helpful to look at the historical record. Then, I remind myself: the PP routinely falls 5%. Even a 15% drawdown would be normal, and OK.

I most recently added to my RRSP on February 19. Practically the high. Then, I saw my portfolio immediately drop 11%. It's been a wild ride... but still milder than other portfolios.
Good point mentioned. I am also concerned about this all time high valuation of PP. That's why I decided to slowly buy into PP since this March. More dollar-cost-average than a lump sum. However, I never expected the market can bounce back so quickly. I still have 60% sitting in cash now. But I don't want to spend too much time watching the market every day, I may just add half of them into PP next week. I have studied and backtested PP for quite a while. I would just let PP take care of itself and look at the long term.
 

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Discussion Starter #317 (Edited)
I still have 60% sitting in cash now. But I don't want to spend too much time watching the market every day, I may just add half of them into PP next week. I have studied and backtested PP for quite a while. I would just let PP take care of itself and look at the long term.
One approach may be to schedule some arbitrary dates, and just go with it. I did this last year when I had some excess cash; I invested half immediately. Then I locked the other half into a short term GIC, with a promise to myself to invest the rest at maturity.

There's always the risk of buying a portfolio at a local maximum. But the theory is that the PP is somewhat resistant to this. Historically, it recovered quickly and gave pretty consistent returns when varying the start date.

I looked at my portfolio data for my modified-PP. In the last few years, there were a couple times that the portfolio took 7 months to recover back to a previous peak.
 
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