Permanent Portfolio UK / International version

[bristoldude]

So I've been reading around a lot as it's time for me to start investing, up until now all of my networth has been held in the highest interest uk bank accounts.

I am of the opinion that I don't have the time / interest currently to pick stocks (this may change in the future) so I am looking for a passive system.

I'm quite taken with the permanent portfolio or the golden butterfly, but note they are both based on the US markets.

Would it be a good idea for a UK investor to switch the suggested funds to UK or even international funds?
International is appealing to me more post Brexit. I'm also unsure that the UK will be the country I live in for most of the rest of my life.

[BRUTE]

since the UK is a smaller economy than the US, brute would not focus on domestic securities too much. it's likely possible to buy US securities from the UK?

[Tyler9000]

In their book about the Permanent Portfolio, Rowland and Lawson recommend ISF, IGLT, IGLS, and SGLD (or PHGP) for UK PP investors. They do specifically mention diversifying to EU stocks as an option (not a requirement), and I imagine that might also be appealing post-Brexit.

BTW, if you're looking to diversify internationally the most important asset to focus on is stocks. Bonds, gold, and cash are generally best held in your own local currency.

[heyhey]

Yes sure, you can buy passive funds tracking the US market, global markets, Asian markets, whatever. No need to hold British stocks.

I am absolutely no way an expert, having bought my first passive fund ISA instalment in June. There must be people here who know so much more. But how I did it was: people here seemed to like Vanguard, but as an individual in the UK you cannot invest direct with Vanguard unless you are putting in at least £100K. For lesser amounts you have to use a "platform" which is like a broker. So I looked at the national newspapers' reviews of platforms and picked one with low fees and a good review that was on Vanguard's list (click on the arrow by "investing with us through a platform") and went for that.

I have now put in two instalments into an ISA, both with the same platform (you can only have one ISA platform in any tax year) but into different funds. I didn't want British or European funds as I started right around the referendum time. So one is US and one is global. In the end I didn't pick Vanguard for the US one, but the other one is.

I don't know if that makes any sense. I'm sure others can help more!

[chenda]

If you're resident in the UK you should invest in UK based securities, so it tracks movements in the British economy. Investing overseas means it's no longer a permanent portfolio but a speculative portfolio, and the strategy won't work as designed. And you exposure yourself to other risks such as exchange rates.

Speaking of the PP, I see the crawling road blog has now closed. Anyone know why ?

[Tyler9000]

Speaking of the PP, I see the crawling road blog has now closed. Anyone know why ?

Craig mentioned in the forum that he's said all he had to say about the PP after writing the book and decided to move on to a new chapter in life. He's still a big PP advocate, but no longer feels driven to write about it.

[bristoldude]

If you're resident in the UK you should invest in UK based securities, so it tracks movements in the British economy. Investing overseas means it's no longer a permanent portfolio but a speculative portfolio, and the strategy won't work as designed. And you exposure yourself to other risks such as exchange rates.

I'm currently resident in the UK but I see that changing in the medium term. SO is a US citizen and also would have been expecting to relocate to Europe when FIRE but I guess that depends on the fallout of brexit.
Wouldn't a UK based portfolio also be speculative?
If the stocks and bond sections were international I would think the strategy would work but on the world economy rather than the UK economy?

[chenda]

If you're resident in the UK you should invest in UK based securities, so it tracks movements in the British economy. Investing overseas means it's no longer a permanent portfolio but a speculative portfolio, and the strategy won't work as designed. And you exposure yourself to other risks such as exchange rates.

I'm currently resident in the UK but I see that changing in the medium term. SO is a US citizen and also would have been expecting to relocate to Europe when FIRE but I guess that depends on the fallout of brexit.
Wouldn't a UK based portfolio also be speculative?
If the stocks and bond sections were international I would think the strategy would work but on the world economy rather than the UK economy?

The idea behind the PP is tracks the movements of an economy (usually where you are resident and consuming in) ensuring at least one asset is growing regardless of the economic conditions. An entirely US based or entirely UK based PP will likely do fine in themselves, the problem is when you hold different assets in different economies, where different economic conditions may lead to all assets underperforming. So its speculative in the sense that your relying on both economies mirroring one another, and speculative in terms of exchange rates, which is another unnecessary risk.

[bristoldude]

Thanks @chenda I'll have to have a rethink.

[stayhigh]

How about swapping long term gov bonds for corporate bonds?

[vexed87]

If you're resident in the UK you should invest in UK based securities, so it tracks movements in the British economy. Investing overseas means it's no longer a permanent portfolio but a speculative portfolio, and the strategy won't work as designed. And you exposure yourself to other risks such as exchange rates.

+1

I have a stocks and shares ISA with ISFL, IGLS and IGLT, I also have physical bullion in a safety deposit box.

@stayhigh, you need to read the book. It explains extensively why you should stick with government bonds over corporate issued bonds. The main draw, among others is that a government with its own central bank is highly unlikely (when compared to a corp) to default on a bond as it can just print money to continue payments, unlike a corporation which can become insolvent and has a different set of rules to play by!

[stayhigh]

@stayhigh, you need to read the book. It explains extensively why you should stick with government bonds over corporate issued bonds. The main draw, among others is that a government with its own central bank is highly unlikely (when compared to a corp) to default on a bond as it can just print money to continue payments, unlike a corporation which can become insolvent and has a different set of rules to play by!

That's true, but governments don't own central banks and considering:
- number of "defaults" in the past https://en.wikipedia.org/wiki/List_of_s ... ebt_crises
- zero or negative interest rates
- printing more money to sort out problems isn't the best long term solution

Corporate bonds funds are well diversified. Thousands of companies across the globe paying reasonable yield. This is the reason why I wonder.

[vexed87]

You have to look at the likelihood of of default though, and if I recall, you are British right? When was the last time there was a default in the UK? I wouldn't count the war bonds crisis as a default either, more a renegotiation of the yield on those bonds.

I think we can count on the government to do whatever it takes to preserve the current monetary system, in the event that all fails, you're gold allocation will be doing very well, if we get to a stage where governments are defaulting, I don't think the wider economy would be doing particularly well either, so there go your corporate bonds

The zero/negative rates scenario don't worry me, we will only have those until inflation really starts to kick off and interest rates will go back up in an attempt to subdue inflation. It's a temporary, albeit drawn out situation.

[stayhigh]

I just look at 50+ years perspective. I'm not worried about gold, one of few assets you can really own. I'm also not worried about stocks, maybe except some current valuations. Cash is cheap. I'm just not so happy about expensive gov bonds, and I don't like buying expensive stuff, so I try to build my portfolio by timing market a bit by buying cheap assets first. I believe this will help in long term returns. Bonds are currently last on my list, hence the question above.

And I'm not British or American and I'm not willing to retire in UK/US, so I'm interested in international version of PP/GB style portfolio.

[vexed87]

I'm not sure PP/GB is for you if you want to time the market!

The thing with the PP is that there will always be at least one asset class that is out of favour at any time, and it just so happens bonds are not yeilding great right now. To follow the PP, you have to take the rough with the smooth. Anything else just isn't PP.

We are in a position now where stocks are overvalued, but could continue rising. If the market crashes, bonds will raise in value rapidly, and if you are timing the market right now and out of bonds. By not holding the prescribed allocations, you break the warranty!

That said, the book acknowledges that the world isn't perfect, and if you live in a region where you cannot get hold of long government bonds, or corporate bonds are simply more reliable, it may be that that is the better option for you, locally.

[bristoldude]

@vexed87
Do you have any portion of your portfolio not in this UK permanent portfolio?
Are you at all worried about having no exposure to international markets?
Or are we assuming that full collapse of the UK economy will:
1: make the gold section go up loads
2: probably mean the rest of the world economy is broken also and gardening and clean water will be more useful than any financial asssets

[stayhigh]

I'm not sure PP/GB is for you if you want to time the market!

I only want to try time it once, during accumulation phase. When my net worth will be good enough to retire, I will stick to the allocations. At the moment gold and cash are cheap, stock and bonds are expensive. Even if I fail, in worst case scenario I will end up with not timed PP/GB portfolio.

[vexed87]

@bristoldude, no, I went for the full 25% in FTSE 100, I don't have any major concerns for the UK economy over the EU/US. FTSE 100 corporations are exporting enough to the EU economy to not get too concerned about exposing myself to other international share funds.

@stayhigh, fair enough, strictly speaking I have done the same as I went and bought several bullion many months ago when it was <£700/troy oz, well before I bought anything else, and it paid off handsomely too when Brexit shock hit. Once that happened I sold a few coins and used cash to equalise my portfolio. I wouldn't have been prepared to take that risk with 33x annual expenses, but with a bit of fun money, meh!

[stayhigh]

Fail safe investing, Harry Browne

19. If you object to investing in government securities, use long-term corporate bonds with AAA credit ratings that have no call provisions. (A call provision allows the company to pay off the bond early, which reduces the potential for price rises that you want in a long-term bond.) The drawback of investing in corporate bonds is that you must monitor them to be certain a blue-chip company hasn’t turned into a problem. If you use corporate bonds, for safety be sure to buy the bonds of at least five different companies.

[matt0533]

In their book about the Permanent Portfolio, Rowland and Lawson recommend ISF, IGLT, IGLS, and SGLD (or PHGP) for UK PP investors. They do specifically mention diversifying to EU stocks as an option (not a requirement), and I imagine that might also be appealing post-Brexit.

BTW, if you're looking to diversify internationally the most important asset to focus on is stocks. Bonds, gold, and cash are generally best held in your own local currency.

Sorry to redig this old thread up but I thought starting a new thread would be a shame given all the information already provided in this one.

I'm from the UK and also currently considering the Permanent Portfolio or at the very least some gold in my portfolio. I note that the gold fund suggested by Rowland and Lawson for gold is in USD. I have found a fund, GBSP, which is hedged to the pound but at fees of 0.15% higher. What is your take on the trade off here between higher fees and the fact that the fund is hedged to GBP?

As an aside thank you for all your work on the portfoliocharts website. It has helped educate me that the MMM way of stick it all in cheap index funds is not the only way.