Capital Preservation

[chenda]

PP is a plan to hedge federal reserve policies that was illegal for most of the history of federal reserve

Why not keep the gold abroad? Or was that also illegal?

I'm sure Harry Browne considered all this.

[prudentelo]

ABroad where? Nazi Germany? Soviet Union? 1940 France? Bank of England under Luftwaffe bombs? Brazil perhaps. Imperial Japan? How does "nobody" in 1935 arrange this? Rebalance? For ~zero fee?


I'm not attacking PP. It has good logic under it, and no guarantee confiscation of the future will be confiscation of the past. But just to reinforce my initial point: you are more likely to lose your money to "extraordinary one time loss" than sequence of return risk by holding board market stock/bond and rebalancing below 3.x % of WR. 2%? 1%? Fuggedaboutit

[chenda]

ABroad where? Nazi Germany? Soviet Union? 1940 France? Bank of England under Luftwaffe bombs? Brazil perhaps. Imperial Japan? How does "nobody" in 1935 arrange this? Rebalance? For ~zero fee?

Canada and Switzerland would have good options with hindsight. Bank of England gold was moved to Liverpool at the start of ww2 with a plan to ship it all to Canada in the event of German invasion. Rebalancing can easily be done with holding an ETF for a small portion.

[Jean]

what is pp? how can the government enforce the illegality of gold?

[rube]

PP = permanent portfolio
https://portfoliocharts.com/portfolio/p ... portfolio/

[chenda]

what is pp? how can the government enforce the illegality of gold?

Gold holdings have been lawfully nationalised or subject to capital controls throughout history (as late as the 1970s iirc) Exemptions are usually made for jewellery or antiques. The US nationalised gold in the 1930s, often called 'confiscation' although it was not without compensation as noted upthread. Safety deposit boxes were sometimes broken into where people were suspected of gold hoarding.

[Mister Imperceptible]

There are over 400 million privately owned firearms in the United States and one of the reasons for this is to prevent a forcible tooth extraction program by the government.

If you owned gold when FDR banned it, no one would have taken it from you, unless it was in a safe deposit box. They won’t be able to send to police door to door.

If you buy inflation protected bonds from a government that has a debt to GDP ratio over 100%, you may as well buy fire insurance from the arsonist.

Central bank currencies* will soon become a thing and the government will do more to gate and tax capital.

If the Federal Reserve and the US government make it illegal to defend yourself from them (it already is and increasingly will be), then eventually, you will have to do illegal things in order to defend yourself from them.

Edit: Central bank digital currencies (CBDC)

[chenda]

If you owned gold when FDR banned it, no one would have taken it from you, unless it was in a safe deposit box. They won’t be able to send to police door to door.

A number of individuals were prosecuted and had their gold taken from them. They were fined and sometimes gaoled. Safe deposit boxes were only opened in rare cases. I can't imagine more than a few private individuals had enough gold worth persuing for though. Medical uses of gold were of course exempt.

[Jin+Guice]

Thanks for the replies everyone.

Some personal notes:

I'm not interested in owning and operating a business. It would have to be something I want to spend 60+ hours a week on or someone I trust would have to convince me that it was a good opportunity, and a % of my portfolio I don't mind gambling with. I also already co-own and operate a recording studio that's partnered with an art museum and costs me $0 (but time). This has a small chance of paying out later and I enjoy the work and the people I work with on the project.

I am pursuing a semi-ERE strategy, so I don't plan on retiring. Right now I hope never retire, but I also don't think I can predict how 65 yr old me will feel (I'm currently 35). I currently work ~2 days a week and don't plan on working more than 3 days a week at any point in the future (though this could change, would need to become interested in something or do it for a short time to gain experience in a new field).

I have extremely low expenses. Somewhere between 1-2 JAFI and a lot of that is optional (can get below 1 JAFI by giving up things that I would miss, but are totally optional).

I purse other forms of capital outside of financial capital, primarily owning assets that save me money, building social capital through social relationships, building skills to save money or be able to earn money in multiple ways and working on emotional stuff to be ok with risk and loss.

I don't believe in planning for government confiscation or collapse scenarios. For me. Right now. I don't think these things are impossible or unlikely. I just don't have enough information to be able to predict what direction these things will come from and how to protect against them. I am interested in learning the indicators for coming financial disaster and how to maneuver around them, although like learning to buy individual stocks, my interest may undershoot the amount of work necessary to become competent at this.





So why do I care about investing at all? It's bc I agree that we are all actively investing at all times, mainly due to inflation and shifting economic conditions. I also have a lot of money saved (not enough to pull the plug at 4% SWR though) and this money effects decisions I make. It's for the "Fuck you" money aspect, or feeling comfortable with not working for multiple years if I want or not saving for multiple years if I find an interesting but low paid job. Also for buying large, but discretionary purchases. Basically, I have a pile of money and I want to know how I can use it. Right now the most useful thing to me is preserving or growing it, and I know I don't have the time or interest to learn how to invest actively right now.

[chenda]

I could have written everything you wrote myself, except my spending leans towards 2 JAFI. I don't know if you are mortgage free but if so then I think just keeping the rest in cash is a perfectly good strategy, as long as you are paying in to a pension scheme/social security or similar. Inflation linked payrises and higher IR should help offset any saving erosions.

[prudentelo]

Canada and Switzerland would have good options with hindsight. Bank of England gold was moved to Liverpool at the start of ww2 with a plan to ship it all to Canada in the event of German invasion. Rebalancing can easily be done with holding an ETF for a small portion.

ETF in 1935?

Or saying it's easier today? If you want to hold an illegal ETF not gonna be easy. Try buying a Russian ETF on a Russian brokerage. That is the level of independent countries were in 30s.

Today Switzerland will send your tax info to the IRS

---

sorry, it's spinning off topic.

The point I intend to make the OP is that these issues, though esoteric, matter more than sequence of returns destroying portfolio of a guy with decades left to work, income covering all expenses, low expenses, and totally conventional/low effort investment plan. That does not mean they matter lots. It means sequence of return risk maybe does not matter lots. Betting for "safety"is likely to destroy returns and not increase/maybe decrease "safety". Also taking major capital expansion possibility off the table, which for 35yo is otherwise not just possibly but VERY likely however overpriced markets may be for first 5-10 years with conventional stock/bond plan

[Jin+Guice]

I don't know if you are mortgage free.

Yes, working on buying a tiny house and maybe eventually some land, both in ca$h.

[chenda]

Yes, working on buying a tiny house and maybe eventually some land, both in ca$h.

Awesome! Best type of investment imo.

Or saying it's easier today?

Yes.

[candide]

I completely agree with prudentelo about confiscation being a much bigger risk than sequence problems. But we don't know beforehand (at least as of right now) what is going to get taken, and so I'm not sure stock/bonds is safer than PP going forward - I think the paper assets are the more likely to be taken, nationalized, or defaulted on in future. One political group could nationalize Exxon. Another could bust up Big Tech and backdoor nationalize the data-mining and propaganda functions.

For another example, which is more likely to be confiscated at this point -- gold or bitcoin? To me, it's bitcoin, under the guise of protecting retail investors (something can be a guise, power-grab, and reflect a real concern all at the same time).

I know, I know, this makes me a dolt for not understanding the whole point of crypto, blah blah. Yes, there is a group of people with great sys admin skills, using VPNs, Tor, and such who can trade crypto without gov detection -- I guess. But if that was the only group of people using crypto, the market cap of any coin would have never reached a size to make financial news.

Once you try to turn your crypto into dollars or good and services from established businesses, that can, and I imagine will, be held up at the pass. Can you find a grocery story both willing to take crypto and willing to violate a government mandate to share your information?

[Mister Imperceptible]

From all OP has stated, cash in the bank and some on hand is the best option, with maxing out I-bonds as the laziest small optimization measure (mentioned multiple times upthread). Gold coins are surprisingly liquid but may be too much adventure for OP. Knowing OP, I would acquire any difficult to find musical equipment, or cultural art per @c_L.

[M]

If you have 10k - I-bonds. If you don't trust the government to pay you back you probably should be buying guns and freeze dried food/garden/land/learning how to can and not investing in any financial instruments imo.

If you have 10-100k - Realty Income (O). You get paid monthly, low debt to equity, good payout ratio, and their main property type is grocery stores. If the grocery stores go away we have bigger problems in this country...or everything is now being delivered. Assuming the properties continue to exist and the population remains that same I wouldn't worry much about this company. It is possible to overpay for the shares though, imo.

>100k Farmland. Somewhere that won't be too affected by climate change. Buy it yourself and live on it/rent it out to a farmer. They aren't making anymore land, the population keeps increasing, and the farmland we do have keeps getting converted to housing. Hopefully the government would not confiscate land en masse...

[Jin+Guice]

@Everyone:

I'm not hearing a strong argument against Golden Butterfly, which is what I was thinking originally. Does anyone think this is a bad idea in my position? What would you do differently?

Should I do the LT bonds portion in I-bonds instead of the Vanguard fund*? Is it possible to buy I-bonds with funds already in a solo 401k, which I currently have with Vanguard?

*I realize that each of you only give your opinion and I take responsibility for my own investment decisions.


@MI: This is sort of my strategy, it's just that I have way more money than I realistically need to just keep it on hand and it just keeps going up.

I've thought about buying and selling musical equipment, but this requires storing physical inventory, monitoring online shops and guessing correctly which items will become more valuable. I do have pretty good knowledge of this market and researching it more would be somewhat fun for me, but storing inventory and monitoring the store would be a pain. If I coupled this with becoming very good at fixing equipment and figured out which equipment is easiest/ fastest to fix (best ROI on work put in), it could be a real money maker. I might be interested in this, but it's too much of a time investment right now. My roommate sells records/ books/ t-shirts that he thrifts, it's mostly just a way for him to indulge his weird cultural hoarding, but he does make decent money on a sale from time to time.



Confiscation vs. sequence of returns risk: Aren't I mitigating sequence of returns risk to a certain extent by continuing to work? For those of you who are worried about confiscation, what would you do in my position on July 27th, 2022 to mitigate this risk?

... in which case forget about the 4%-rule or the 3%-rule .. or any other %-rule. This requires having enough preserved [measured in years] to cover your remaining lifespan.

When I think capital preservation I think 0% return and 0% loss... but according to portfolio charts the historic real return of the permanent portfolio is 4.9%, the real return of golden butterfly is 6.3% and the real return of a 60/40 stock/bond portfolio is 6.1%. I realize these only go back to the 70s and that the past is not the future. Are you willing to share your opinion on what you think of GB vs 60/40 in terms of what you said above (i.e. do you think that a stock/ bond index portfolio is more likely to return 3% than GB or PP)?

[Slevin]

I run the golden butterfly. So far it's performed well for me, but my timescale is short (~3 years). I run GLDM for gold, as buying and selling literal gold was eating a huge margin (much more than the ETF cost) back when i did that in person (FY 2016).

@Tyler9000 's gamification of all the data really made me really want to just try 50/30/20 SCV, LT bonds, and Gold, as the returns were absurd and the ulcer index extremely low, but I couldn't justify doing it by literally anything but historical data, so I'm guessing this is just an overfitting aberration of the historical data.

[theanimal]

Another golden butterfly user here. I also use gold ETFs but am planning on switching to some type of physical/ETF blend. I use SGOL for the gold portion. I use to do more active investing, but found my temperament at the time didn't suit me well for it. I am very comfortable with the golden butterfly and have so far suffered no stress for it.

[candide]

Confiscation vs. sequence of returns risk: Aren't I mitigating sequence of returns risk to a certain extent by continuing to work?

I'd say that is correct. From what I gathered you only plan on fully retiring only in case of infirmity. In that case your stash is a kind of floating insurance. However, this would seem to imply that you do not know when you'll be drawing from your stash. This argues for large cash positions and/or long volatility (see the Dragon Portfolio). It was switching over 20% of my paper portfolio to long vol and having that tucked into my Roth IRA that I finally felt peace with my equity exposure.

For those of you who are worried about confiscation, what would you do in my position on July 27th, 2022 to mitigate this risk?

In short, broadly diversify as much as possible, including branching out into physical goods. There is so much plunder to be had in digital wealth, and it is all so conveniently laid out for the taking, that it will be a while before they get to physically held stuff, especially for those who stay under the radar. Another strategy is to be so wealthy that you can get away with anything. . . This would be flying over the radar, I suppose.

Physical cash -- actual dollar bills ya'll -- is among the easiest physical stores of wealth to get your hands on (for now). And yes, you would be forfeiting the difference between what you would get from cash equivalents and the full rate of inflation, but you gain a measure of protection against bail-ins and some bonus protection against cyber attack. For the really paranoid, the "real" cash can be seen as a buffer during the first part of a crisis before you have go to real goods.

Other than that, "lifetime supplies" are best -- that way you never get hit by a higher price by restocking later. Stuff I bet an average, stationary ERE practitioner could store a life-time supply for: razors, metal fasteners (screws, nails), saws, drill bits, chisels, sharpening stones, hard liquor.

Also, time for the obligatory nod toward precious metals. I'm more of a silver bug. But it's like this: physical gold is for those who think they can make it over a border with small personal possessions not taken (nowadays, you probably should have landing spot and bank account/physical notes already set up), silver is for those who are going to stay and aren't sure other people will able to make change.