# Harry browne permanent portfolio for Canadians?



## metta2006 (May 1, 2011)

What's your opinion on Harry browne's permanent porfolio (pp) for Canadians? 

http://canadiancouchpotato.com/2011/08/29/introducing-the-permanent-portfolio/

I really like the idea but I don't know how to modify it to fit into Canadian investors. 
I don't think the Canadian pp is not as simple as US pp. For example, today, the XIC is down about 3% while ZFL went up only 1% and gold down 3% or so. Canadian stocks are often correlated with gold (although it didn't happen this summer). And ZFL does not protect the stock and gold loss as well as US long treasuries do. 

Right now, I have 10% in stocks and 10% in gold and 80% in cash. I started buying the stocks before summer so I'm in the red. I bought gold mostly a year ago. After the crash this summer, I found pp and want to apply it. Then I will have to add bonds to my portfolio. Does it make sense to buy long term bonds now? I asked the same question last month but the answer in hindsight is yes. Then I end up keeping buying assets that are high. I don't see it helping me very much in the long term. There isn't much discussion on Canadian pp. I would like to hear your opinions. Thank you.


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## Cal (Jun 17, 2009)

There is an example in the article for a Canadian pp.

If you like it use it.

As it is a pp, I wouldn't fret over a 1 day fluctuation or a 3 month loss that you may be carrying from some recent equities purchases. It is a pp after all.


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## doctrine (Sep 30, 2011)

I really like the pp. I am considering moving my RRSP over to a format like that gradually and maybe my TFSA as well. The point isn't to fret about if a component is overvalued or not. All four components are so uncorrelated that one or more are bound to be up if anyone of the others are down.

Today, for example, your long bonds would be up, cash would be steady and stocks and gold are down. A daily re-balance (if you were doing it daily which you probably wouldnt) would sell bonds and some cash to buy stocks and gold. Seems to be entirely reasonable.


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## Argonaut (Dec 7, 2010)

I've been talking about and advocating the permanent portfolio for over a decade, and I'm only 25.

Like everything else it can be modified. I don't like stock indexes and I don't like bonds right now, so I replace the 25% stocks and bonds with 50% dividend paying stocks.


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## metta2006 (May 1, 2011)

Argonaut, can you tell me what is your asset allocation? So your portfolio is a modified pp? I'm nervous about buying bonds and stocks now as well. 

I'm 37 and have two little kids 1 and 5. And I am still renting in Vancouver. So in several years, I might need at least part of my money for down payment if housing becomes affordable. Harry browne said we should put money we can't afford to loose into a pp. That's why I am thinking of doing pp. 

Would you use PP for RESP? Way too conservative? What about gold portion for RESP? For my older one, I need the money in 13 years or so. I use TD e series index funds for RESP. ITs bonds index is composed of mostly short to medium term bonds and it does not do a good job of reducing stock market volatility unlike LTT.

One more question! In Canada, is gold less uncorrelated with stocks in general Recently stocks and gold have been diving together. Thanks!


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## Argonaut (Dec 7, 2010)

My asset allocation is 50% hand picked dividend stocks, 25% gold, and 25% cash. Cash is half USD (did well by that) and earning pitiful interest, but it's nice for safety and flexibility.

I don't have kids and have no plans to buy a house myself so I wouldn't know what to tell you for certain there. In my case I would think that I would want to pay those sorts of things out of income rather than drawing down on my own portfolio. In any case, an RESP is a good idea but maybe not so with gold. I'd like to put dividend paying stocks, cash, and fixed income ladders in there.

Gold is less volatile in terms of Canadian dollars than US dollars. That is to say, our currency mirrors it somewhat. Over the long term, gold has low correlation with stocks. You'll note the opposing bull and bear markets ever since the gold standard was lifted. But yes, over the last month gold has dived with stocks in a dash for cash.

Having said all of that, the beauty of the permanent portfolio is that you'll never be caught with your pants down. Capital has to go somewhere. When one or two of the four major asset classes sell-off, the others will benefit.


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## fatcat (Nov 11, 2009)

argo, you are leaving out entirely a quarter of the equation ... you have zero bonds which are there to hold up the recession end of the equation ... what gives ?

metta check out the fund PRPFX for their variation on the pp theme : http://www.permanentportfoliofunds.com/pdfs/perm/PRPFX.pdf this is a 5-star morningstar fund with a great track record


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## SilentWonder (Oct 6, 2011)

fatcat said:


> argo, you are leaving out entirely a quarter of the equation ... you have zero bonds which are there to hold up the recession end of the equation ... what gives ?


It's typical of people who talk about the permanent portfolio. It's like recipes on the internet, everyone has their own silly variation based on nothing. I love it when I find a recipe on the internet and read the reviews. They always look something like this:

"This macaroni recipe is great! Thanks so much! I didn't have cheese, so I substituted cheese powder. And instead of cream, we used skim milk. We also don't like regular noodles, so we went with gluten-free, wheat-free, soy noodles. Great recipe!"

You get the point. It's the same thing with the PP. Everyone thinks they can take a little bit of this out, and add a little bit of this, like they are smarter than Harry Browne. The bottom line is, ANYTHING other than 25/25/25/25 is NOT the permanent portfolio. Even PRPFX breaks the rules.


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## Argonaut (Dec 7, 2010)

fatcat said:


> argo, you are leaving out entirely a quarter of the equation ... you have zero bonds which are there to hold up the recession end of the equation ... what gives ?


10 year bond is paying 2.6% interest. This is beyond horrible and below inflation. I would happily invest in bonds if the 10 year yield was 7.2%, or if high-grade corporate bonds paid that much. Although my portfolio is modified to match market conditions and my own situation, it is still more like a permanent portfolio than the vast majority of investors out there. All in all, there is no cookie cutter way to successful investing, but a blend of the finest research ingredients out there never hurt anyone.


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## leoc2 (Dec 28, 2010)

metta ... how about
25% stock = 15% XEI and 10% VIG (less volatile dividend payers)
25% Cash = Ally HISA
25% Bonds = XBB (or XSB for a wait see on interest rates)
25% GOLD = 10% CGL and 15% XRB real return bonds (gold a bit toppy here and XRB gives you inflation protection).


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## andrewf (Mar 1, 2010)

No reason to own long bonds here when you can get the same rate in a 5 year GIC or close to it in a HISA.


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## Sampson (Apr 3, 2009)

The reason to hold bonds despite the low yields is diversification and low correlation with out asset classes.


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## andrewf (Mar 1, 2010)

I think that at this juncture, holding the bond component as cash would be just fine. 

If you look at the literature, the yield on 10 year bonds is an excellent predictor of the 10 year return on those bonds. Essentially 'what you see is what you get'. Thus, given the dirth of premium over shorter-term GICs or HISA, I don't think it makes much sense to own long bonds.


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## fatcat (Nov 11, 2009)

> The reason to hold bonds despite the low yields is diversification and low correlation with out asset classes.


precisely .... and argo, i respect your investment choices, you know exactly how to build your portfolio ... 

but, with respect, to completely leave out the bond portion of the portfolio doesn't even make it a "modified permanent portfolio" (like prpfx) ... i now have no gold portion so that means that i am not following the pp either, you have to have all 4 corners in place, without those it will not work ... and isn't the "pp"

for myself, i would say that the pp has influenced my thinking a _lot_ ... perhaps that is the same for you


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## nuke2uk (Nov 1, 2011)

*Actually, bond prices go up as their yields go down*



andrewf said:


> No reason to own long bonds here when you can get the same rate in a 5 year GIC or close to it in a HISA.


Actually, bond prices go up as their yields go down. You don't hold LT bonds in the HBPP for interest payouts, you hold them for capital gains and diversification across the portfolio's three other asset classes. 

As for LT bonds' performance vs. a GIC or HISA, check out the YTD graph on a 30-year US treasuries ETF (TLT): http://www.google.com/finance?q=tlt
Or alternatively, see the Canadian rough equivalent of TLT (XLB): http://www.google.com/finance?q=TSE:XLB

LT bonds may not be for everyone, but do not rule out their investment potential, especially within the simple and efficient confines of the HBPP.


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## nuke2uk (Nov 1, 2011)

*HBPP gained +11.35% in 2011*

Up +11.35% in 2011, a good post is linked below on the performance of the permanent portfolio, and its underlying assets:

http://crawlingroad.com/blog/2012/01/01/permanent-portfolio-2011-results/

What will 2012 bring? Who knows. Investors' cash has to go somewhere though, and the HBPP has all the bases covered. Looking forward to another successful year!


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## andrewf (Mar 1, 2010)

nuke2uk said:


> Actually, bond prices go up as their yields go down. You don't hold LT bonds in the HBPP for interest payouts, you hold them for capital gains and diversification across the portfolio's three other asset classes.
> 
> As for LT bonds' performance vs. a GIC or HISA, check out the YTD graph on a 30-year US treasuries ETF (TLT): http://www.google.com/finance?q=tlt
> Or alternatively, see the Canadian rough equivalent of TLT (XLB): http://www.google.com/finance?q=TSE:XLB
> ...


I'll bet dollars to donuts that two sequential 5 year GICs will outperform 30 year bonds over the next 10 years. The US has to become Japan for it to be otherwise, with long term yields under 2%--ie, strongly negative real yields. Maybe that will happen, but if it does, watch out on your stock allocation.


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## nuke2uk (Nov 1, 2011)

andrewf said:


> No reason to own long bonds here when you can get the same rate in a 5 year GIC or close to it in a HISA.


Also LT bonds are liquid. GICs are solid rock by comparison.


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