Author Topic: Permanent Portfolio 2.0  (Read 1864 times)

Tonyahu

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Permanent Portfolio 2.0
« on: December 26, 2017, 10:02:06 PM »
Hey all, I know many in here are standard ~60/40 or even 100% equities guys but I wanted to see if anyone holds a Permanent Portfolio style position.

In addition, now that it has been nearly 20 years since the inception, I am wondering people's takes on a 2.0 version.

I am feeling particularly bullish on

- 33% Equities
- 33% Real Estate
- 12% Precious Metals
- 12% Cash (I am only 26, want to have flexibility at least in the mid term)
- 12% Crypto Currencies (this would be scaled down or up over time depending how market irons out over next 3-5 years)

The goal would be to live off the cash flow from Equities, Real Estate and Cryptos while having the Cash for building companies and or alternative investments.

This is my first stab at it but wanted to get some take from the more traditional guys, who may have held or still dlnhold the Perm Portfolio.

Thanks!

maizeman

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Re: Permanent Portfolio 2.0
« Reply #1 on: December 26, 2017, 11:01:31 PM »
Relative to a conventional PP you'd be underweight cash and precious metals, and have none of the long term government bonds, a bit of extra equity, and a giant chunk of real estate which isn't part of the original PP allocation (it also sums to 102% but I'm assuming that's rounding issues).

As a purely logistical level, are you planning to fill the real estate chunk with REITs or with individual properties you purchase yourself? The first is a lot more convenient, but introduces significant interest rate risk, the latter may have higher returns, and often you can lock in interest rates for 30 years, but may also require a lot more time commitment and hands on work than the other components of your proposed portfolio.

Given what is over/under-weighted, this looks like a portfolio geared pretty specifically at strongly hedging against inflation (precious metals, real estate, and potentially cryptocurrencies), potentially at the expense of reduced hedging against recessions and depressions as well as the original permanent portfolio did (cash and long term bonds*). Do you find that you're much more worried about the risks of inflation than the risks of a recession/depression?

*Note that plenty of people think that cash and bonds (particularly at the levels suggested in the permanent portfolio) are an unnecessarily conservative hedge against recession, and can increase your long term risk of running out of money because your portfolio doesn't grown fast enough, but that is a separate debate.

Radagast

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Re: Permanent Portfolio 2.0
« Reply #2 on: December 26, 2017, 11:26:12 PM »
OK, I guess I may have planted a seed for this so I should respond. BTW that adds to 102%.

This is an esoteric proposal. I doubt anybody here uses the PP, but I have read a few pages of the PP forum and they would say this is definitely not it. I am happy to talk theory, but if you want to actually implement this it is all on you.

This is an approximation of the "Talmud Portfolio" which is equal parts business, land, and I think the term was "silver" but we might call it cash/bonds. I think it is a fine concept, but I am not sure cryptos and PM really meet the requirement for a medium of exchange. Debatable, but right now I favor "generally not."

Beware of costs, especially including taxes and time. Once you get started you'll probably change your mind after you gain experience with the different parts.

I assume real estate is held directly. If so, be sure you have what it takes to select and manage properties. If not, REIT's are just another marketable security, little different from stocks, and you should probably have less REIT and more general equity.

I think long term treasury bonds are an important non-correlating part of the PP, and you should add a share of those. Beneficially lowering internetcoin below 10% IMO.

Be sure you have a solid investment policy and rebalancing plan in advance.

Note: Cryptos don't cash flow.

Mr. Green

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Re: Permanent Portfolio 2.0
« Reply #3 on: December 27, 2017, 06:02:04 AM »
If you're the kind of person who looks for deals ( real estate or other physical items) I'm a huge advocate for a healthy cash reserve, unless you're willing to pull cash out of equities at any time. I've done several RE deals that make stock market returns look paltry, but they're never expected so I wouldn't have been able to execute without some cash.

Tyler

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Re: Permanent Portfolio 2.0
« Reply #4 on: December 27, 2017, 02:23:06 PM »
I'm a fan of the Permanent Portfolio and it is a big part of how I invest.  Personally, I agree with Radagast that your proposal looks a lot more like a modern version of the Talmud Portfolio rather than the PP.  That's not to say it isn't a fine portfolio idea in its own right, but attaching the Permanent Portfolio label will likely confuse people more than it helps. 
« Last Edit: December 27, 2017, 02:55:58 PM by Tyler »

MoneyRx

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Re: Permanent Portfolio 2.0
« Reply #5 on: December 27, 2017, 02:44:04 PM »
Use the KISS principle (Keep It Simple Stupid). Why try and keep a balanced portfolio that includes 5 asset classes including crypto currency and precious metals? At such a young age just go 100% stocks and be done with it.

Keep some cash out if you have a burning desire to look for other opportunities, but I don't see any reason to go with the percentages and asset classes you are talking about and also have not seen that advocated by leaders in the FI space.