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Discussion Starter #361 (Edited)
Gold looks like a bubble and you can't be calm looking at its hockey stick rise.
The charts don't show anything unusual happening in gold that isn't also happening in stocks. Here is a 5 year chart of gold and the S&P 500. You can see that they have the same return (and yes this is total return including dividends).

If we're looking for differences between stocks and gold, the only big difference I see is that they rise and fall at different times, except for the last few months when they have rallied together. The different behaviours of the two are excellent for the PP because it results in lower volatility and a smoother ride.

But I find it funny that people think gold is rising like a crazy bubble, while having no problem with stocks rising to the same degree. And if you do think both are a bubble... then you'll want to hold plenty of bonds. Which is exactly what the PP does, by the way.

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This website about "lazy portfolios" provides lots of information about different types of strategies and the PP is at the top of the best medium-risk portfolios. (For portfolios with a very long history for analysis >30 years)

The data is based on US ETF, but still. The CAGR from 1978 up to today is about +8.54%. Seems pretty good to me for a fixed strategy over more than 40 years with medium risk (worst drawdown of only -12.62%).


Less exposure to bonds (and removing gold) will get us to a high-risk portfolio like the "Simply Path to Wealth" with a CAGR of +9.51% from 1987 and a worst drawdown of... -38.54%.


Even less exposure to bonds will get us to a very-high-risk portfolio like what the website calls the "Warren Buffet" portfolio with a CAGR of +10.73% from 1977 and a worst drawdown of... -45.53%

 

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Discussion Starter #363
The PP is simply the best (or nearly the best) tradeoff between risk and reward. It provides a solid and consistent return, and a smooth ride with minimal crashes. Preservation and growth of capital with minimal stress. Preservation of retirement money. Minimal drama during crashes such as 2008 and COVID -- proved yet again, just recently.

Of course higher returns are possible. Heck, you can go leveraged long equities to get as much performance as possible. Some people do! Just be aware that you're going to have a rough time if stocks decide to go down for 10 or 20 years.
 

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The charts don't show anything unusual happening in gold that isn't also happening in stocks. Here is a 5 year chart of gold and the S&P 500. You can see that they have the same return (and yes this is total return including dividends).

If we're looking for differences between stocks and gold, the only big difference I see is that they rise and fall at different times, except for the last few months when they have rallied together. The different behaviours of the two are excellent for the PP because it results in lower volatility and a smoother ride.

But I find it funny that people think gold is rising like a crazy bubble, while having no problem with stocks rising to the same degree. And if you do think both are a bubble... then you'll want to hold plenty of bonds. Which is exactly what the PP does, by the way.

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5 years is too ST a look. Gold has had a higher standard deviation than the US mkt. It doesn't rise steadily over time either necessarily either.

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And again it rises when bond yields fall and we have record low yields. So when yields rise again both of these assets will get hammered. Your PP is really very risky now.
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Yes, we may keep talking about what happened to the stock market during the dot-com bubble when NASDAQ crashed and took 14 years to recover from its peak, but in 1980 gold price crashed and took 26 years to recover from its peak.

In fact, we could just replace gold with either more bonds or more stock market and we'd get historically a better outcome.

I did an analysis with data from Portfolio Visualizer using asset class allocation instead of what's found on Lazy Portfolios ETF website which is based on a selection of ETFs.

Replace gold with bonds and get about the same performance with even less drawdown.
Replace gold with bonds and higher stock market allocation and get a better performance with a comparable drawdown.

Note how the 40/60 stocks/bonds allocation outperforms the PP in the rolling return stats.
Note how an allocation without gold outperforms in the rolling returns stats.

In the end, it simply sums up to the basics of a "lazy portfolio", you just have to do an allocation between stocks and bonds that fits your risk tolerance, as what one can see on Couch Potato Portfolio models. https://cdn.canadiancouchpotato.com...01/CCP-Model-Portfolios-iShares-ETFs-2019.pdf

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Yes, we may keep talking about what happened to the stock market during the dot-com bubble when NASDAQ crashed and took 14 years to recover from its peak, but in 1980 gold price crashed and took 26 years to recover from its peak.

In fact, we could just replace gold with either more bonds or more stock market and we'd get historically a better outcome.

I did an analysis with data from Portfolio Visualizer using asset class allocation instead of what's found on Lazy Portfolios ETF website which is based on a selection of ETFs.

Replace gold with bonds and get about the same performance with even less drawdown.
Replace gold with bonds and higher stock market allocation and get a better performance with a comparable drawdown.

Note how the 40/60 stocks/bonds allocation outperforms the PP in the rolling return stats.
Note how an allocation without gold outperforms in the rolling returns stats.

In the end, it simply sums up to the basics of a "lazy portfolio", you just have to do an allocation between stocks and bonds that fits your risk tolerance, as what one can see on Couch Potato Portfolio models. https://cdn.canadiancouchpotato.com...01/CCP-Model-Portfolios-iShares-ETFs-2019.pdf

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Interesting. I am a bit doubt about the accuracy of these charts. Could you please share the Portfolio Visualizer Link with your configurations as James4beach did in his previous post?

When an economy is locked in a cycle of rising prices and falling currency value(most likely we are facing now), gold is the only asset that can be relied upon to perform well. Gold performs this function most effectively when an economy is experiencing high inflation (more than 5 percent a year) and/or expectations of higher inflation in the future. In these cases, gold can experience explosive increases in value.

I don't see how the only stock/bonds combination could possibly yield higher return with lower volatility than PP in long term.

Below is a comparison between PP and your Portfolio 2(US Total Stock 25%, LT 25%, IT 25%, ST 25%) by using MY PORTFOLIO. You can simply duplicate the results by changing the different asset percentage on the top.

PP Performance
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Portfolio 2 Performance

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Interesting. I am a bit doubt about the accuracy of these charts. Could you please share the Portfolio Visualizer Link with your configurations as James4beach did in his previous post?
Here's the configuration. It assumes reinvestment of dividends and distributions and rebalancing annually. I think the tool you used does not consider the total return of reinvestment. For example, in Portfolio Visualizer, "Long Term Treasury" from 2003 to 2020 is at 7% CAGR, which fits with iShares TLT which is 7% since inception in 2003 while Portfolio Charts shows 3.73% CAGR for a 100% LT portfolio invested in 2003. I may be wrong, I don't know that tool, but that 3.73% fits perfectly the ETF price increase only.

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Portfolio 1
  • 25% US Stock Market
  • 25% Short Term Treasury
  • 25% Long Term Treasury
  • 25% Gold
Portfolio 2
  • 25% US Stock Market
  • 25% Short Term Treasury
  • 25% Intermediate Term Treasury
  • 25% Long Term Treasury
Portfolio 3
  • 40% US Stock Market
  • 20% Short Term Treasury
  • 20% Intermediate Term Treasury
  • 20% Long Term Treasury
Here's the link.

 

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Discussion Starter #368
Anyone who dislikes the PP due to its high fixed income weight will probably have an even bigger problem with the 75% bond allocation in the above.

But I have posted before that something like 30% equity 70% fixed income is a reasonable allocation as well. In fact I have looked at iShares AOK (which is 30/70) as a potential alternative to the PP and have suggested it to friends, because it's a simple all-in-one holding.

I still think the PP is better due to more diversification between multiple asset classes. But if I could not bring myself to hold gold, my next choice would be an allocation like AOK.

(I still think it's hard to hate something that's in a 20 year bull market)
 

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(I still think it's hard to hate something that's in a 20 year bull market)
I'm not sure about your 20-year bull market. Well, the PP is, but not gold.

As for me, I'm not hating anything, I'm comparing and talking about my observations. I think PP did awesomely well. I'm challenging the performance of gold from a risk-return perspective in that portfolio.

I recall you hate NASDAQ (or tech) for its -81% drop from its peak in 2000 which took 14-15 years to recover. Though, people could make money with NASDAQ from 2003 to 2008 and then from 2009 to 2014+.

But in 1980, gold went into a -62% drawdown which took 26-27 years to recover. During that period, people could not even make money with gold from 1981 to 2004, it was barely moving up.
And then in 2011 gold went again into a -43% drawdown which took 9 years to recover. During that period, people could not even make money with gold from 2011 to 2019, it was barely moving up. The recent 1-year bull run on gold saved it from its 9-year drawdown.

Maybe you are hating NASDAQ (or tech) because you've seen the dot-com crash, but I'm pretty sure you'd be hating gold if you had lived its 1980 crash and drawdown after its huge 4-year bull run and you would not be into a portfolio which includes gold, even if in this present day the PP did well in the last 40 years.

This is just a data comparison, I'm not saying that gold is bad.
 

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I choose PP because of its good overall performance, low volatility and simplicity. This strategy is based on my personal financial situation. Other people may differ. I don't mind one of its asset performs poorly during a certain time of period. I think this is by design if you read Harry Brown's book. I also don't think I have the capability to predict which asset performs better at a time.
 

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Discussion Starter #371
I don't mind one of its asset performs poorly during a certain time of period. I think this is by design if you read Harry Brown's book. I also don't think I have the capability to predict which asset performs better at a time.
Thanks for bringing that up. This is an important philosophy which underpins the PP. We don't know what economic environment we are heading into. We have no idea if the next few years will bring inflation, deflation, depression, boom times... who knows (and this is always the case, COVID or not).

As PP investors, we say: "I don't know which asset will do best... so I'll diversify into several promising assets"

And we do this knowing that something will outperform. Something else in the portfolio will do terribly. Maybe gold will fall for the next decade. It doesn't matter... this is part of the strategy. We know (and expect) that some asset is going to perform poorly.
 

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I must admit that I find gold pretty fascinating.

We are talking about asset classes. From what I've read, there are many categorisations about asset classes, but here's what I find :

  • Stocks / Equities
  • Fixed income / Bonds
  • Cash
  • Foreign currencies & cryptocurrencies
  • Real estate
  • Commodities
Sometimes, we split precious metals out of commodities. And then we split gold out of precious metals. Therefore, gold seems to be an asset class by itself. I know that gold has many uses, it's tangible and it has a long history of fascination for human beings. But to me, it's as if in 50 years from now we'd be talking about AAPL as an asset class by itself and people would make portfolios being 25% stocks, 25% LT bonds, 25% ST bonds and 25% AAPL... How investing in gold is diversification? The stocks part is an aggregation of stocks, the bonds part is an aggregation of bonds, but the gold part is... gold, not an aggregation of precious metals, nor commodities. Just - gold. Gold is on its own.

In the PP, replace gold by precious metals and you'll get a worse performance. Replace it by commodities and it's even worse.
 

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But to me, it's as if in 50 years from now we'd be talking about AAPL as an asset class by itself and people would make portfolios being 25% stocks, 25% LT bonds, 25% ST bonds and 25% AAPL...
(I gave this example referring to BRK portfolio which has 44% AAPL and is the only stock in the IT sector)
 

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Discussion Starter #374
It's true @MrBlackhill that there are some arbitrary choices made about what is an asset class. Foreign currencies, definitely (and gold is a currency so I really consider gold as an FX holding). Real estate, definitely -- except it's illiquid and comes in huge units, so most of us (except the extremely wealthy) have to rule it out.

Apple is not an asset class. It's stock in a public corporation. But yeah, some of these choices are arbitrary. To succeed in investing, you're going to have to make some choices and then stick with it for many decades. Investing requires persistence and consistency. Therefore it would be wise to choose "asset classes" that will continue to exist for a long time and still be viable investments, which is why a lot of people (including me) would disqualify crypto currencies.

There are many arbitrary decisions to be made when investing. One portfolio mix and weighting is not inherently better than another. But the choices, even though they are arbitrary, provide an important framework and guideline for the long term investing activity. They should be based on solid fundamental ideas, but beyond that, the details don't really matter too much... as long as you have a plan you can stick with no matter what.

I find that the PP is a good plan, based on solid fundamental ideas and a solid philosophy. I find this easy to stick with.
 

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Apple is not an asset class. It's stock in a public corporation. But yeah, some of these choices are arbitrary.
It was an example to highlight the fact that gold is not an asset class either. It's a specific choice out of an asset class, whatever you call it - precious metals, commodities, currencies, etc.

25% stocks is an aggregate of hundreds of stocks
25% LT bonds is an aggregate of hundreds of LT bonds
25% ST bonds is an aggregate of hundreds of ST bonds
25% gold is... 1 specific precious metal or 1 specific commodity or 1 specific currency

Which is why gold is fascinating. As fascinating as BRK holding only 1 specific IT stock, AAPL at 44% of the portfolio value.
 

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In the PP, replace gold by precious metals and you'll get a worse performance. Replace it by commodities and it's even worse.
I think you make a good point here. If I recall correctly, the original HBPP had silver and Swiss Franks as part of the inflation hedge. When those two didn't perform well, they were dropped, leaving gold. I don't know if it should be considered "evolution" of the portfolio or a type of curve-fitting/optimization.
 

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Discussion Starter #377
I think you make a good point here. If I recall correctly, the original HBPP had silver and Swiss Franks as part of the inflation hedge. When those two didn't perform well, they were dropped, leaving gold. I don't know if it should be considered "evolution" of the portfolio or a type of curve-fitting/optimization.
As I understand it, the CHF was his choice for the mutual fund version (maybe because CHF were backed by gold until the 90s, and these FX positions were more practical to manage back then).

Introducing the Permanent Portfolio | MoneySense

According to resources I found, including this one at Moneysense, his 1980 book said gold. So I believe that the forward performance of the stated allocation mix has been quite solid.

Are you saying he originally had a different allocation before 1980? It's possible, but it seems that the current allocation has been in place for 40 years.
 

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As I understand it, the CHF was his choice for the mutual fund version (maybe because CHF were backed by gold until the 90s, and these FX positions were more practical to manage back then).

Introducing the Permanent Portfolio | MoneySense

According to resources I found, including this one at Moneysense, his 1980 book said gold. So I believe that the forward performance of the stated allocation mix has been quite solid.

Are you saying he originally had a different allocation before 1980? It's possible, but it seems that the current allocation has been in place for 40 years.
I don't know the exact timeline, but Craig Rowland alludes to silver, CHF and natural resources originally being advocated, but then dropped:

Browne's new strategy would be called the Permanent Portfolio. The original strategy held the following: Stocks Bonds Cash Gold Silver Swiss francs Natural resources.

Rowland, Craig. The Permanent Portfolio (p. 4). Wiley. Kindle Edition.
Over time, Browne simplified the Permanent Portfolio to make it easier to implement and more balanced. This effort culminated in Harry Browne's 1987 book Why the Best Laid Investment Plans Usually Go Wrong. This book, which is probably one of the best ever written on the flaws in many popular investment strategies, reduced the portfolio down to the core components that are still in use today.

Rowland, Craig. The Permanent Portfolio (p. 4). Wiley. Kindle Edition.
I'm not sure that commodities are considered in back-tests done in recent times, but it could affect the results since investors would have invested in other commodities if they followed his advice before the change.
 

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Discussion Starter #379 (Edited)
I'm not sure that commodities are considered in back-tests done in recent times, but it could affect the results since investors would have invested in other commodities if they followed his advice before the change.
Doing some more digging into this, it appears that 1998 was the start of the modern version (the equal weight asset classes) which gives this a 22 year track record. Browne published the allocations in Fail-Safe Investing, likely written 1998 and published 1999.

That's still a far better track record than the 'couch potato' since this certainly has been backtested and the allocations are based on hindsight. The PWL couch potato only goes back to 2010. And in fact the start date is really more like 2011 because the original couch potato suggests XSP which is currency hedged. Later PWL revised the couch potato (more hindsight adjustments) to non currency hedged, so you can see how they are optimizing performance (in hindsight).

Portfolio performance should only be taken seriously going forward from the date of creation. That's the only way we know whether it succeeds in unknown/surprise market environments.

What this means is that Browne's PP has 22 years of real track record, whereas Canadian Couch Potato has 9 years track record, at present allocations. Call me crazy but I have more faith in PP, as it's clearly less of a back tested / optimization game. In addition to that, PP is old enough that it preceded both the 2000 and 2008 bear markets, and sailed through both.
 

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How do you handle the cash portion of the Permanent Portfolio? Is there a way to earn a little interest without taking on risk and be able to cash out at any time? I keep some of my cash in a GIC, but transferring from the bank's GIC to an online broker often takes days, and there is a risk of missing out on buying shares.
 
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