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Permanent Portfolio Reviews - Year 1

A helpful place to also put any annual reports etc, of your own portfolios
OLTB
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Permanent Portfolio Reviews - Year 1

#230140

Postby OLTB » June 17th, 2019, 12:46 pm

Afternoon all

About a year ago (give or take a day) I started two 'dummy' portfolios just to monitor the performance and see what the results would be should my inclination/ability to run my current portfolios change. There was an assumed investment sum of £200,000 into each portfolio.

The two portfolios are slightly different, but follow a choose, forget, rebalance (or withdraw for spending) approach once a year on the anniversary. The first is a stock/gold barbell approach - 50% into VWRL (Vanguard All-World) and 50% into SGLN (iShares Physical Gold).

The second follows Harry Browne's 'Permanent Portfolio' with 25% in ISF (iShares Core FTSE100), 25% in IGLS(iShares Gilts UK 0-5), 25% in IGLT(iShares UK Gilt) and 25% in SGLN (iShares Physical Gold).

After one year, the results are:

World stocks and Gold: £211,952 - VWRL £103,611 and Gold £108,341
Harry Browne's Permanent Portfolio: £205,150 - ISF £48,368; IGLS £49,369; IGLT £51,998; Gold £55,415.

So, on this occasion, over one year, World stocks and Gold have delivered a return of 5.98% and the Permanent Portfolio 2.58%.

I'll keep monitoring the results as I think it's an interesting thing to do once a year, and hopefully other people may find the results interesting as well.

Cheers, OLTB.

argoal
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Re: Permanent Portfolio Reviews - Year 1

#230149

Postby argoal » June 17th, 2019, 1:10 pm

I have to admit that I don’t member the original post.

Having said it is an experiment that I’d be interested in following.

Are you planning to rebalance the portfolios back to the original weightings (either annually or when they get out of balance by a particular amount) or will you let each portfolio grow organically?

I think Harry Browne was a rebalancer.

tikunetih
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Re: Permanent Portfolio Reviews - Year 1

#230150

Postby tikunetih » June 17th, 2019, 1:13 pm

OLTB wrote:The first is a stock/gold barbell approach - 50% into VWRL (Vanguard All-World) and 50% into SGLN (iShares Physical Gold).

The second follows Harry Browne's 'Permanent Portfolio' with 25% in ISF (iShares Core FTSE100), 25% in IGLS(iShares Gilts UK 0-5), 25% in IGLT(iShares UK Gilt) and 25% in SGLN (iShares Physical Gold).



In the second one, why did you buy FTSE100 and not All World?

OLTB
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Re: Permanent Portfolio Reviews - Year 1

#230157

Postby OLTB » June 17th, 2019, 1:41 pm

argoal wrote:I have to admit that I don’t member the original post.

Having said it is an experiment that I’d be interested in following.

Are you planning to rebalance the portfolios back to the original weightings (either annually or when they get out of balance by a particular amount) or will you let each portfolio grow organically?

I think Harry Browne was a rebalancer.


Thanks argoal

This is my first post on this review so you haven't missed anything! I will be rebalancing annually as that is what is suggested by Harry Browne and won't be assuming I'm taking any income.

Cheers, OLTB.

OLTB
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Re: Permanent Portfolio Reviews - Year 1

#230158

Postby OLTB » June 17th, 2019, 1:45 pm

tikunetih wrote:

In the second one, why did you buy FTSE100 and not All World?


Thanks tikunetih - only because that is what is suggested by Harry Browne. The investment should be 25% in domestic stock market, 25% long term Gilts, 25% treasury bills or cash (I took that to be 0-5 year gilt) and 25% gold.

I suppose that for domestic stock market I could elect it to be a FTSE350 rather than FTSE100 - does anyone know of a FTSE350 etf?

Cheers, OLTB.

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Re: Permanent Portfolio Reviews - Year 1

#230171

Postby tikunetih » June 17th, 2019, 2:47 pm

OLTB wrote:only because that is what is suggested by Harry Browne. The investment should be 25% in domestic stock market, 25% long term Gilts, 25% treasury bills or cash (I took that to be 0-5 year gilt) and 25% gold.


OK.

I think if I was cautious enough to be doing this with actual money, and wasn't in the US, I'd probably want to reduce some of the specific country risk by making the equities global and perhaps the bonds and bills non-UK-only also. More complicated but perhaps more robust to different outturns.

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Re: Permanent Portfolio Reviews - Year 1

#230193

Postby JoyofBrex8889 » June 17th, 2019, 4:31 pm

Gold is having a nice run up this year. My New Years resolution was to increase my exposure to gold, and so far it has been a good call, up 6% when denominated in GBP. I really like the safety and the uncorellated asset gold offers as a bar-bell, but I just cant bring myself to go as crazy high as 50% gold, I like my equities too much. Just having 5% is psychologically helpful: I know I will not suffer a total loss of portfolio value, ever.

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Re: Permanent Portfolio Reviews - Year 1

#230241

Postby Spet0789 » June 17th, 2019, 7:34 pm

There’s very little point holding longer duration fixed income with yields here.

A lot of the historical return analysis for portfolios including bonds is just irrelevant now. By all means hold gold, cash, inflation linked bonds or short duration bonds as a cash alternative to de-risk a multi-asset portfolio. But longer term fixed rate bonds are a waste of time in my opinion.

OLTB
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Re: Permanent Portfolio Reviews - Year 1

#230362

Postby OLTB » June 18th, 2019, 9:29 am

Spet0789 wrote:There’s very little point holding longer duration fixed income with yields here.

A lot of the historical return analysis for portfolios including bonds is just irrelevant now. By all means hold gold, cash, inflation linked bonds or short duration bonds as a cash alternative to de-risk a multi-asset portfolio. But longer term fixed rate bonds are a waste of time in my opinion.


Thanks Spet0789

I agree with your comment, and it isn't probably something I would do in the real world - I just want to see how the 'system' works, or perhaps if it works, just to see which approach is most appropriate. I think I will change the equity element to VWRL as suggested by tikunetih as that option might not have been available to Harry Browne in the late 90's.

Cheers, OLTB.

OLTB
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Re: Permanent Portfolio Reviews - Year 1

#230387

Postby OLTB » June 18th, 2019, 10:57 am

Morning all - I've just updated the portfolios by rebalancing them as far as possible. There is a small amount of change because of rounding that would be held as cash on a 'proper' platform - both are up a bit value wise on the figures stated yesterday so I've used these higher figures instead. I've assumed an £11.95 trading fee (as I use HL), but HL's ongoing admin charges won't be taken into account. I've also used VWRL instead of ISF for the Permanent Portfolio:



I'll report back next year to see how Year 2 has gone!

Cheers, OLTB.

OLTB
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Re: Permanent Portfolio Reviews - Year 1

#293396

Postby OLTB » March 23rd, 2020, 11:22 am

Morning all

I just thought I'd see how the Permanent Portfolio was coping during this wild time and here are the results - I'm not due to report on the full year's performance as this will be in June, it's just for interest really. Note that this is a 'dummy' portfolio of an initial £200,000, rebalanced annually to see how Harry Browne's portfolio acts in real life:



So, the portfolio is still positive, with a drop (unsurprisingly) in VWRL. We'll see what the situation is in June.

Cheers, OLTB.

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Re: Permanent Portfolio Reviews - Year 1

#293433

Postby 1nvest » March 23rd, 2020, 1:02 pm

A short term gilt, long dated gilt (20+ year) barbell can be replaced by a 10 year bullet (so a Permanent Portfolio of 25% stock, 25% gold, 50% 10 year Gilt bullet/fund).

Since the 1970's we've seen broad progressive declining interest rates following the very high inflation of the 1970's. Lowering yields/rates pushes prices higher so the short and long dated gilts held by the Permanent Portfolio would naturally tend to have done well. From present low inflation/interest rates the prospect for bonds is lower than since the 1970's. Forward time IMO a 60/40 will serve better, 20% in each of FT100, FT250 and S&P500 (stock), 20% in a short dated gilt (or a 3 or 5 year cash bond ladder), 20% gold. Gold is a form of undated zero coupon inflation bond, so barbell that with short dated gilt/cash is again a form of bond bullet.

More volatile than the Permanent Portfolio, but more aggressive also (higher expected reward). Drawing 2% SWR from that will likely also see 2%+ additional real (after inflation) gains on top of that, so a discretionary additional 2%+/year income on top of the 2% SWR).


To this April fiscal year end, its looking like that might be down -5%, presently of the order a -26% FT250 total return decline, -24% for FT100, -2% for S&P500 (declines in £ (so gain in holding US$) has largely offset the US$ decline in US share prices), gold is up around +26% since April 2019.

Rebalancing at or around the end of fiscal year has the added benefit that you can rebalance in either the old or new fiscal year, or a combination of both according to whatever might be the more tax efficient.

SWR, safe withdrawal rate, means identifying the initial value i.e. 2% of the total portfolio value, and drawing that as the income amount in the first year, and then uplifting that value by inflation each year - so a consistent inflation adjusted income each year. The more awkward part is discretionary top slicing additional income out of the portfolio on top of that. A good practice is to simply level down the portfolio value to inflation pacing after the SWR had been drawn and keep those surpluses in a separate ideally inflation pacing cash deposit account and draw upon that for the additional discretionary income (if that pot is empty, tough, if it looks like there's too much in that pot already, don't bother add to it). Initially that pot could be pre-loaded, perhaps with 10%.

I have looked at a UK Permanent Portfolio for all 50 years since 1896 and it did have instances of failing to provide a 2% SWR - progressively drew down to all spent. For the above there was a 100% success rate (calendar year granularity), where in the worst case it had two thirds of the inflation adjusted start date amount still available at the end of 50 years (worst possible historic start date/period/end date). In the average case the portfolio value grew at 3.6% annualised real (after inflation) in addition to the 2% SWR having been drawn (so of the order 5.6% annualised real). Those figures used silver when on the gold standard (when money was directly exchangeable for gold, it was pointless holding gold when you could hold money and deposit that in a cash deposit for some interest on top).

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Re: Permanent Portfolio Reviews - Year 1

#293462

Postby 1nvest » March 23rd, 2020, 2:39 pm

The spreadsheet I used to pull in data to create the lemonfool table pulled in the wrong column for FT100 in my previous post ... should read ..

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Re: Permanent Portfolio Reviews - Year 1

#293919

Postby Pourri » March 25th, 2020, 8:32 am

Interesting. Ta.

I started moving towards a permanent portfolio structure 2 years ago. I got gold and cash but have barely started on bonds, so missed some recent gains. I am only down overall about 7% portfolio value from its peak. That's way less than I would have been hit had I stayed 100% shares as I had been for many years.

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Re: Permanent Portfolio Reviews - Year 1

#294278

Postby 1nvest » March 25th, 2020, 10:31 pm

Pourri wrote:I started moving towards a permanent portfolio structure 2 years ago. I got gold and cash but have barely started on bonds, so missed some recent gains. I am only down overall about 7% portfolio value from its peak. That's way less than I would have been hit had I stayed 100% shares as I had been for many years.

Live portfolio of 2x FT250 leveraged (2MCL), Berkshire Hathaway, Gold, third each, yearly rebalanced at fiscal years, and a pre-look ahead of rebalancing in a couple of weeks time is showing a -2.5% year-on-year loss at present. £ declines relative to US$ more or less negated BRK share price decline. Gold up +37%, 2MCL down -47%, so rebalancing will predominately be to reduce gold/add to 2MCL.

2MCL is a 2x FT250 total return swap, so no dividends, no dividends from BRK either, nor gold. i.e. is a intentional no dividend asset allocation. 2MCL has a 0.6% expense ratio, so when a third of total portfolio = 0.2% proportioned.

Concept is that 50/50 stock/gold barbell is a form of unhedged global bond bullet, so 100% long stock, 33% gold = 66 stock/66 bond type blend, and where 2MCL borrows 33 in order to provide 2x exposure, so a 66/33 stock/bond overall type reward expectancy. 100% stock is a form of 1.5x leverage, i.e. Corporate Bonds (debt) is around 50% of stock book value, so 66/33 stock/bond is akin to de-leveraged stock exposure. Currency diversified across £, $ and global currency (gold).

If prices remain as-is for the next couple of weeks the 6 year annualised will have dropped from a 9.7% five year annualised last year, to a 7.6% annualised over six years.

Figures like the 4% withdrawal rule (Trinity study) are based on gross returns, factor in historic taxation and that near halves. I consider no dividends as being a form of de-risking of tax risks - and where that risk more often shows at the worst possible times. During the 1970's high inflation/interest rates period for instance is when taxes were relatively high. Non coincidental - as the events driving the high inflation/interest rates are also likely to have the state looking to increase its tax take. Unearned income for instance during the 1960's was punitively taxed even for basic rate taxpayers.

Hoping that ii have fixed their "sophisticated investor" test you have (had ?) to take before trading 2MCL, as its annoying to have to take that test even if selling 2MCL shares that you already hold. Expecting however that as I'll be adding to 2MCL this year I'm expecting to yet again having to repeat the test.

Here's a example of a US type comparable run https://tinyurl.com/slzrcyj


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