investment stategy based on harry browne permanent portfolio

[Educated_Fool]

I'm a big fan of harry brown's work but I'm not a big fan of gouvernement bonds. So I played with https://www.portfoliovisualizer.com to come to my personal permanent portfolio.

20% gold (GLD) 4 the doom
40% small cap value (VBR) 4 the bloom
40% consumer staples (VDC) 4 the thing in between

A backtest Portfolio Asset Allocation (Dec 2004 - Nov 2016) show's 9.53% CAGR since 2006 with a Drawdown of 31% compaired to 7.71% and 50.84% Drawdown with the total stock market.

For a longer period, I have 2 do a backtest Portfolio Asset Class Allocation (1972 - 2016)
Lets say that the consumer staples etf is US Large Cap Growth, it shows a 2% premium and a good night sleep.

What's your opinion?

[AlmstRtrd]

You don't like government bonds because you are in Belgium, correct? I would suggest two tweaks right off the bat. Don't totally neglect the cash component (yes, I realize that yields are non-existant over there right now). Also, make some of those gold holdings physical gold in the event of a Euro meltdown.

[Educated_Fool]

You don't like government bonds because you are in Belgium, correct? I would suggest two tweaks right off the bat. Don't totally neglect the cash component (yes, I realize that yields are non-existant over there right now). Also, make some of those gold holdings physical gold in the event of a Euro meltdown.

No it's because the only way for intrest rates is up. A trusted financial advisor said that a 1% hike can translate in a 30% drop in long term gov bonds. Plus I also don't want to take the risk that the US gov goes bankrupt in the next 50 years with the debt at record highs.

You make a strong point on the cash and physical gold. Thx

[With This Herring]

Your stock market categories are just small caps and consumer staples?  That seems like a rather small section of the total market, which means you lose out if another sector does really well.

*snip*
For a longer period, I have 2 do a backtest Portfolio Asset Class Allocation (1972 - 2016)
Lets say that the consumer staples etf is US Large Cap Growth, it shows a 2% premium and a good night sleep.

What's your opinion?

I don't know that substituting US Large Cap Growth for Consumer Staples is a good switch for backtesting your allocation.  I think that the fact that you can only test your actual, limited portfolio back 12 years is not very good.  Also, as stated on the Portfolio Visualizer page, "Past performance is not a guarantee of future returns..."

[Radagast]

My opinion is that I am skeptical, and 80% of that looks nothing like the Permanent Portfolio in either name or concept. Also note that the Permanent Portfolio is kind of like three phase power with a neutral wire, and you just declared you don't need the third phase, or the neutral wire. Nice signature quote though. Questions:
1. Have you read "The Permanent Portfolio" by Craig Rowland? Or "Fail-Safe Investing" by Browne?
2. Have you read other books on investing?
2. Is it wise to have 100% of your investments in the US, even though you are Belgian?
3. Are there tax problems with using US-based funds instead of European funds?
4. Are you familiar with the concept of currency volatility, and are you OK your proposed investments as a result of that knowledge?
5. Do you know why the PP includes long term bonds?
6. Do you know why the PP includes total stock market index investments?

[Educated_Fool]

Your stock market categories are just small caps and consumer staples?  That seems like a rather small section of the total market, which means you lose out if another sector does really well.

I don't know that substituting US Large Cap Growth for Consumer Staples is a good switch for backtesting your allocation.  I think that the fact that you can only test your actual, limited portfolio back 12 years is not very good.  Also, as stated on the Portfolio Visualizer page, "Past performance is not a guarantee of future returns..."

I've combined the best performing sector and asset class of the last 40 years. Both shine at different stages of the market. True, it's not this portfolio backtested for that long or a big part of the total stock market. It's probably for the best that I'll do this gamble with only a small piece of the total portfolio. In my eyes, the strenght in mustachism is the never ending quest for optimalisation. It's hard to just follow Brown's or Bogle's advice.
Dear Mr Bogle, I would like to arrange an appointment to slap me in the face ;)

[The Happy Philosopher]

You don't like government bonds because you are in Belgium, correct? I would suggest two tweaks right off the bat. Don't totally neglect the cash component (yes, I realize that yields are non-existant over there right now). Also, make some of those gold holdings physical gold in the event of a Euro meltdown.

No it's because the only way for intrest rates is up. A trusted financial advisor said that a 1% hike can translate in a 30% drop in long term gov bonds. Plus I also don't want to take the risk that the US gov goes bankrupt in the next 50 years with the debt at record highs.

You make a strong point on the cash and physical gold. Thx

The US government is not going to go bankrupt. All US government debt is denominated in it's own currency. Also most of the "debt" people talk about is actually unfunded liabilities which is pretty easy to fix by simply passing a few laws.

[Educated_Fool]

My opinion is that I am skeptical, and 80% of that looks nothing like the Permanent Portfolio in either name or concept. Also note that the Permanent Portfolio is kind of like three phase power with a neutral wire, and you just declared you don't need the third phase, or the neutral wire. Nice signature quote though. Questions:

1. Have you read "The Permanent Portfolio" by Craig Rowland? Or "Fail-Safe Investing" by Browne?
Rowland

2. Have you read other books on investing?
To much

2. Is it wise to have 100% of your investments in the US, even though you are Belgian?
Hell no. I'll probably go 60% US 30% EU and 10% EM for the equity part and follow MSCI world for the US part.
I didn't wanted to make a long and maybe boring post about global diversification and rebalancing techniques. I wondered what if a US citizen went just these 3 funds.

3. Are there tax problems with using US-based funds instead of European funds?
For now, Belgium is an etf tax haven. I just have to go for etf's located in Ireland and pay a whopping 1,32% tax when I sell or buy.
IE00BSPLC413   SPDR® MSCI USA Small Cap Value Weighted  ETF USD  (EUR) | ZPRV
IE00BWBXM385   SPDR® S&P® U.S. Consumer Staples Select Sector  ETF (USD) | ZPDS

4. Are you familiar with the concept of currency volatility, and are you OK your proposed investments as a result of that knowledge?
I'm familiar and hope for the best with my future dollars, euros and gold.

5. Do you know why the PP includes long term bonds?
For safety and income. If your going for 25% tips and 25% long term bonds, your betting half of your money on the gouvernement. History shows that a gamble. Long term bonds did provide income from 1982 till now. Rising rates will change that.

6. Do you know why the PP includes total stock market index investments?
Brown or Doyle don't believe in a better performing asset class or sector. You also got believers;
http://paulmerriman.com/decade-returns/
http://investorfieldguide.com/2014618the-best-performing-sector-consumer-staples-part-1/

I'm gonne bet on multiple strategy's.

True ,the subject had to be inspired by and not based on.
Ps: Speaking of based on;
https://portfoliocharts.com/2015/09/22/catching-a-golden-butterfly/
Respect for this guy's work.

[Educated_Fool]

The US government is not going to go bankrupt. All US government debt is denominated in it's own currency. Also most of the "debt" people talk about is actually unfunded liabilities which is pretty easy to fix by simply passing a few laws.

The US government is pretty safe don't get me wrong but the next 50 years is hard to predict (if I make it). The facts are 104% debt to gdp plus fed balance sheet assets tot gdp 24%. If they keep spending more, a few new laws isn't gonne bring much change.
We are in new territory with a lot of the central banks building assets in this connected world. Your economy recovered from it. If the FED balance sheet recovers before the next bump in the road. It's a promissing move but I'm afraid some players are playing the game way to agressive like EU and definitely Japan.
Then you got the derivatives. The financial weapons of mass destruction according to Buffet.
My point I'm making is that the governement and the banks are connected. don't think portfolio without them is a bad move.

[mathjak107]

without long term bonds flying fighter cover i would not call an 80% stock portfolio "the permanent portfolio" there is nothing in it that can up lift a portfolio in recession or depression .

you just have an equity heavy portfolio with a gold position .  in fact look at yesterday when small cap value took a nasty hit . the russell 2k was down 1.50% at one point while TLT  was up 1% .