You may say, there'll always be an excuse to delay getting into the market, but my rule of thumb is: your profit is made when you buy (cheap). If you find something cheap, let me know.
akratic's ERE journal
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Concojones
- Posts: 117
- Joined: Fri Jul 23, 2010 6:57 am
Great progress, akratic! If you're going to invest in 2011, I wonder what you're going to invest in. Nothing goes up in a straight line, but all asset classes have done exactly that, lately, and they seem rather expensive now, compared to the state of the economy. I've been thinking of eliminating some of my investments, but haven't pulled the trigger yet.
You may say, there'll always be an excuse to delay getting into the market, but my rule of thumb is: your profit is made when you buy (cheap). If you find something cheap, let me know.
You may say, there'll always be an excuse to delay getting into the market, but my rule of thumb is: your profit is made when you buy (cheap). If you find something cheap, let me know.
I like the philosophy behind the Permanent Portfolio:
1) assume the four known economic climates (prosperity, inflation, deflation, recession) are equally likely in the future
2) choose investment products for each economic climate
prosperity => total stock market
inflation => gold (personally I think bitcoins are neat too... or maybe even food/oil/medical/etc)
deflation => 30Y US Treasury Bonds
recession => cash (for lack of a better option)
In addition, I will be speculatively putting a portion in a REIT Index, because I rent and want some real estate exposure. And I will be putting some in hand picked dividend stocks, to try that out.
More specifically:
20% VTSAX vanguard total stock market index
20% GLD/IAU gold etfs for now, physical coins later
20% 30Y Treasury Notes, purchased directly on treasurydirect.gov
20% Cash (10% in rewards checking, 5% in i-bonds, the rest across checking accounts for convenience)
20% Speculation ("Variable Portfolio")
- 10% VNQ Vanguard REIT
- 10x 1% dividend stocks (I haven't finished choosing these)
In other words, for the most part I'm giving up speculating on whether an asset class is undervalued or overvalued, and just going to accept the return of the PP. I feel that the PP will do reasonably well across a wide range of possible futures. If it doesn't I'll just earn more money or decrease my expenses.
Also, the Permanent Portfolio backtests absurdly well, and I'm just looking for 4% to 3% after inflation.
The hard part for me right now is #1 getting all the money in the right accounts in the right proportions, and #2 actually pulling the trigger... I think once I pull this trigger, it will be pulled for good, aside from possibly changing up or eliminating the 20% speculation bucket.
PS: since the start of the year, gold is down 3.35%, 30Y is down 4.76%, and stocks are up 6.50%.
1) assume the four known economic climates (prosperity, inflation, deflation, recession) are equally likely in the future
2) choose investment products for each economic climate
prosperity => total stock market
inflation => gold (personally I think bitcoins are neat too... or maybe even food/oil/medical/etc)
deflation => 30Y US Treasury Bonds
recession => cash (for lack of a better option)
In addition, I will be speculatively putting a portion in a REIT Index, because I rent and want some real estate exposure. And I will be putting some in hand picked dividend stocks, to try that out.
More specifically:
20% VTSAX vanguard total stock market index
20% GLD/IAU gold etfs for now, physical coins later
20% 30Y Treasury Notes, purchased directly on treasurydirect.gov
20% Cash (10% in rewards checking, 5% in i-bonds, the rest across checking accounts for convenience)
20% Speculation ("Variable Portfolio")
- 10% VNQ Vanguard REIT
- 10x 1% dividend stocks (I haven't finished choosing these)
In other words, for the most part I'm giving up speculating on whether an asset class is undervalued or overvalued, and just going to accept the return of the PP. I feel that the PP will do reasonably well across a wide range of possible futures. If it doesn't I'll just earn more money or decrease my expenses.
Also, the Permanent Portfolio backtests absurdly well, and I'm just looking for 4% to 3% after inflation.
The hard part for me right now is #1 getting all the money in the right accounts in the right proportions, and #2 actually pulling the trigger... I think once I pull this trigger, it will be pulled for good, aside from possibly changing up or eliminating the 20% speculation bucket.
PS: since the start of the year, gold is down 3.35%, 30Y is down 4.76%, and stocks are up 6.50%.
Isn't there a parallel strategy for entering into the Permanent Portfolio over time (parallel to the redistribution every year system)? It might not be a good idea to buy a lot of gold when gold is high. Instead of going for the correct ratio initially, wouldn't it be better to look at which phase of the economic cycle you are in and buy into those assets that are a good deal now? And over the next few years keep buying in to the sector that has the best price at that time?
Akratic, glad to hear that things are going so well for you! Particularly on the girl and new home - hopefully this home will last a bit better. If you're still interested in boats in Chicago at all, the Chicago Maritime Festival is Sat the 26th at the history museum. What neighborhood did you end up in?
@sky, I don't know whether gold is high or not, because I can't predict whether the future will include lots of inflation or not. Part of accepting the PP for me is accepting that I can't or don't want to try to time the markets. The PP assets are legitimately uncorrelated / negatively correlated with each other, and leave me in a hedged position that still gives 3-5% real return over inflation. That's all I want.
I believe that you could do better (or worse...) by market timing. I don't see much utility in doing better than 3-5% though.
@Seabourne, good to hear from you! I ended up in Wicker Park, after having lived in the following neighborhoods in the past year: Gold Coast, Lincoln Park, Bridgeport (south side), and Lakeview.
I checked out the Chicago Maritime Festival website, and I'm not sure I can really justify the $20 tickets. It would have been cool if they had a presentation on living aboard a sailboat.
I believe that you could do better (or worse...) by market timing. I don't see much utility in doing better than 3-5% though.
@Seabourne, good to hear from you! I ended up in Wicker Park, after having lived in the following neighborhoods in the past year: Gold Coast, Lincoln Park, Bridgeport (south side), and Lakeview.
I checked out the Chicago Maritime Festival website, and I'm not sure I can really justify the $20 tickets. It would have been cool if they had a presentation on living aboard a sailboat.
February 2011
A step in the wrong direction this month.
A decent amount of my expenses this months were investments for the future: stockpiled food and outfitted my 1BR for the long haul. I expect next month to be very good, but we'll see.
I didn't read any books at all. I've been extremely busy at work, although I've been enjoying it.
And I still haven't hit go on my investments! Ugh!
A step in the wrong direction this month.
A decent amount of my expenses this months were investments for the future: stockpiled food and outfitted my 1BR for the long haul. I expect next month to be very good, but we'll see.
I didn't read any books at all. I've been extremely busy at work, although I've been enjoying it.
And I still haven't hit go on my investments! Ugh!
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jasoninmississippi
- Posts: 101
- Joined: Mon Sep 20, 2010 3:17 am
@djc, thanks for the nice comment.
@jason, in the short term (~6 months) I'm going to buy the IAU ETF. I considered GLD too, but IAU has lower fees.
In the long term (after ~6 months), I'm going to sell IAU and take physical possession. I think physical possession is better, but I can't deal with it right now.
@jason, in the short term (~6 months) I'm going to buy the IAU ETF. I considered GLD too, but IAU has lower fees.
In the long term (after ~6 months), I'm going to sell IAU and take physical possession. I think physical possession is better, but I can't deal with it right now.
I've thought about owning gold too but I don't know all that much about the process. Isn't the difference between the spot price, purchase price and selling price quite a bit? I think you have to buy it at a premium and sell it at a discount. If that's the case then owning the ETF would be a lot easier.
Either way, keep up the good work! Your journal is an inspiration.
Either way, keep up the good work! Your journal is an inspiration.
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Robert Muir
- Posts: 280
- Joined: Thu Jul 22, 2010 10:15 pm
Yes, if you're buying gold for investment purposes (i.e. for PP), then the ETF is the way to go. If it's for when TSHTF then you'll want physical possession.
The problem with acquiring physical gold is the very high differential between the purchase price and selling price. But if the purpose is TSHTF, then that doesn't matter.
The problem with acquiring physical gold is the very high differential between the purchase price and selling price. But if the purpose is TSHTF, then that doesn't matter.
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jasoninmississippi
- Posts: 101
- Joined: Mon Sep 20, 2010 3:17 am
Well...physical bullion has a relatively large bid/ask spread but you only pay that once when you buy and once when you sell. An ETF has a much smaller expense ratio that's paid every year. So ETFs are cheaper for shorter holding periods and bullion is cheaper for longer periods.
Right now IAU has an ER of .25% and ajpm.com has a spread of about 5%. With those figures, bullion gets cheaper when held 20+ years.
IMO the optimal strategy w.r.t. expenses is to hold about 1/2 bullion as a "core holding" you expect to never sell, and the remainder in an ETF for rebalancing purposes. That way you have a token TSHTF hedge too. However FWIW I haven't bothered with bullion so far.
Right now IAU has an ER of .25% and ajpm.com has a spread of about 5%. With those figures, bullion gets cheaper when held 20+ years.
IMO the optimal strategy w.r.t. expenses is to hold about 1/2 bullion as a "core holding" you expect to never sell, and the remainder in an ETF for rebalancing purposes. That way you have a token TSHTF hedge too. However FWIW I haven't bothered with bullion so far.
March 2011
April 2011
Oops, things got really busy there for a bit, and I missed last month's journal post, so this will have to be a double.
I've finally started to hit my stride here in Chicago.
My girlfriend did indeed move here, and it's great to be living with her. We've lived together for two months now, although she's gone for the month of May, biking from Vancouver to San Francisco. I'm jealous! But I know I will have my own opportunities for adventure in the future.
Work has been pretty good actually. It's challenging and full of interesting problems! But one of my coworkers is a terrible person, and sometimes I'm forced to work on projects I don't believe in. But even still, the work has been so engaging recently that I haven't even been killing time browsing the ERE forums. It's possible I'll hit my FI numbers before even getting sick of this job.
The most important thing to develop recently though is that my social life in Chicago is finally in really good shape. My set of friends here has reached critical mass, such that it's possible to get friends over for cards, board games, movies, or pickup sports a few times every week. After I left MIT I was worried that I'd never again be able to find such a concentration of smart, motivated, interesting people without the university doing the filtering for me... but somehow I pulled it off here in Chicago, and I'm very grateful.
In terms of ERE goals and revelations, not much has changed. At this point I think I've made all the high impact expense saving reductions. Now it's mostly just a waiting game as my net worth continues to climb. My splurges these days are all things I really enjoy: $1 movies from red box, occasional $5 burritos, or $10 on chips and killer salsa for everyone coming over for game night.
Would you believe that I still haven't actually invested my savings?
Also I'm getting fat. That needs to change. I've joined a frisbee team, but diet changes are going to be necessary, too.
PS: Did you know that popcorn on the stove is way cheaper, and tastes *way* better than microwave popcorn? You just need to do it right: olive oil + sea salt + garlic salt + cayenne pepper. Feeds 6+ for ~$1. spices/salts from Aldi, popcorn and oil from Costco.
April 2011
Oops, things got really busy there for a bit, and I missed last month's journal post, so this will have to be a double.
I've finally started to hit my stride here in Chicago.
My girlfriend did indeed move here, and it's great to be living with her. We've lived together for two months now, although she's gone for the month of May, biking from Vancouver to San Francisco. I'm jealous! But I know I will have my own opportunities for adventure in the future.
Work has been pretty good actually. It's challenging and full of interesting problems! But one of my coworkers is a terrible person, and sometimes I'm forced to work on projects I don't believe in. But even still, the work has been so engaging recently that I haven't even been killing time browsing the ERE forums. It's possible I'll hit my FI numbers before even getting sick of this job.
The most important thing to develop recently though is that my social life in Chicago is finally in really good shape. My set of friends here has reached critical mass, such that it's possible to get friends over for cards, board games, movies, or pickup sports a few times every week. After I left MIT I was worried that I'd never again be able to find such a concentration of smart, motivated, interesting people without the university doing the filtering for me... but somehow I pulled it off here in Chicago, and I'm very grateful.
In terms of ERE goals and revelations, not much has changed. At this point I think I've made all the high impact expense saving reductions. Now it's mostly just a waiting game as my net worth continues to climb. My splurges these days are all things I really enjoy: $1 movies from red box, occasional $5 burritos, or $10 on chips and killer salsa for everyone coming over for game night.
Would you believe that I still haven't actually invested my savings?
Also I'm getting fat. That needs to change. I've joined a frisbee team, but diet changes are going to be necessary, too.
PS: Did you know that popcorn on the stove is way cheaper, and tastes *way* better than microwave popcorn? You just need to do it right: olive oil + sea salt + garlic salt + cayenne pepper. Feeds 6+ for ~$1. spices/salts from Aldi, popcorn and oil from Costco.
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Robert Muir
- Posts: 280
- Joined: Thu Jul 22, 2010 10:15 pm
Looks like you're on track akratic. Good job!
I agree, popcorn on the stove is the best! Personally, I use coconut oil. The aroma and flavor is to die for! I buy it from a local health food store in largish plastic containers and transfer about a pint at a time to a glass jar for easy microwaving. Coconut oil is solid at normal room temperature, but a quick microwave gets it liquified for measuring.
My recipe is old fashioned. 2-tbsp oil, 1/2-cup kernels. Heat oil on medium in thick bottomed 3-qt pan until two kernels pop, then pour rest of corn in pan. Continue heating until popping slows to almost nothing (no need to shake if bottom of pan is thick enough). Salt & butter to taste.
I agree, popcorn on the stove is the best! Personally, I use coconut oil. The aroma and flavor is to die for! I buy it from a local health food store in largish plastic containers and transfer about a pint at a time to a glass jar for easy microwaving. Coconut oil is solid at normal room temperature, but a quick microwave gets it liquified for measuring.
My recipe is old fashioned. 2-tbsp oil, 1/2-cup kernels. Heat oil on medium in thick bottomed 3-qt pan until two kernels pop, then pour rest of corn in pan. Continue heating until popping slows to almost nothing (no need to shake if bottom of pan is thick enough). Salt & butter to taste.
First of the year I created a PP subportfolio, using IAU as a proxy for gold. It is up only 4.12% for the year, mostly because of the stock allocation (VTI).
I also created a modified Dogs of the Dow subportfolio, with a double ration of T instead of VZ, a double ration of MRK instead of PFE, and PG as a proxy for DD (just because I had the one and didn't want to buy the other). This quasi-DoD portfolio is up 7.5% for the year. The actual DoD is up 8.2%
So don't feel too bad about not pulling the PP trigger. It looks like the commodity bubble is deflating and gold might be a better buy in 2012. [I know, I know. The whole point of PP is that you can't time the market. But gold at $1500/oz. just seems a bit pricey to me.]
I also created a modified Dogs of the Dow subportfolio, with a double ration of T instead of VZ, a double ration of MRK instead of PFE, and PG as a proxy for DD (just because I had the one and didn't want to buy the other). This quasi-DoD portfolio is up 7.5% for the year. The actual DoD is up 8.2%
So don't feel too bad about not pulling the PP trigger. It looks like the commodity bubble is deflating and gold might be a better buy in 2012. [I know, I know. The whole point of PP is that you can't time the market. But gold at $1500/oz. just seems a bit pricey to me.]