Australia is a leveraged time bomb waiting to blow

[oracle]

You can't separate fiat currencies from debt (public or private), they are one and the same in the current system.

I never said that..what I said is the problems of GFC can be mainly attributed to
human greed, regulators lack of proper oversight and governments out of control spending habits.

The above can and will in future put us back into trouble irrespective of whether we use fiat currencies or not.

Cheers,
Oracle.

 

[redwing]

Only because the recent fall in gold price is often thrown back in my face as if it somehow invalidates any discussion point I make

Allocation will ultimately depend on the goals of the investor, but I will point out the Permanent Portfolio has performed well over the long term and has a 25% allocation to Gold.

As for timing, I would say there is no time like the present to be adding to or taking an initial position in gold, we are 2.5 years into a correction, nearly 30% below the peak reached in 2011 (USD pricing). These sorts of opportunities don't come along regularly in a bull market (assuming that gold is still in one).

From that link I just had a quick look at PERM compared to the Vanguard US Index, chart only gave 2 years though

 

[hobo-jo]

The above can and will in future put us back into trouble irrespective of whether we use fiat currencies or not.

No doubt.

From that link I just had a quick look at PERM compared to the Vanguard US Index, chart only gave 2 years though

http://www.stableinvesting.com/p/long-term-performance.html

 

[oracle]

No doubt.


http://www.stableinvesting.com/p/long-term-performance.html

That's good diversification. But over the long term stocks are still the clear winner. The site only goes from 1975, but I have seen results going back to 1802 till 2006 comparing returns of Stocks, Bonds, Gold and Bills against inflation.

What they fail to mention is by re-balancing the portfolio you are triggering Capital gains tax which although will amount to different rates for different people but still it will be a hit to your investment dollars and you will have less to re-invest.

So you will not get the expected long term returns shown.

Yes, with stocks you still have to pay tax on dividend income but that would still be small compared to CGT hit you get by re-balancing.

In Australia you get benefits of franking credits while in US the dividend is usually around 2% which is quite low.

Cheers,
Oracle.

 

[handyandy]

Hobo

Just to remind you that gold had a previous run up in the early 80's up to $800+ AUD and then it crashed down and didn't reach that level again until 2006 or there about, a whole 18 years to recover.

Just to put money where my mouth is I sold out my gold position, a little late but still just about doubled my money. The pic was taken when I cashed it in.

Cheers

 

[redwing]

I like the Permanent Portfolio concept, in Australia the ASX 200 is heavily weighted towards Banks and Miners anyhow, the latter which must be causing a drag at the moment

Ref: re-balancing and CGT, just re-balance with new funds to the lagging sector/s, or annually +1 for the discount

 

[hobo-jo]

That's good diversification. But over the long term stocks are still the clear winner. The site only goes from 1975, but I have seen results going back to 1802 till 2006 comparing returns of Stocks, Bonds, Gold and Bills against inflation.

How many companies from 1802 are still around today? Sure, buy the index... but when did that option become available (couple of decades ago perhaps)?

Ref: re-balancing and CGT, just re-balance with new funds to the lagging sector/s, or annually +1 for the discount

Good thought (as was the oracle's pointing out the portfolio flaw).

I think there are also funds that track the PP performance also (but again only a recent invention).

 

[oracle]

Sure, buy the index... but when did that option become available (couple of decades ago perhaps)?

Since 1975.

But how the index is formed for eg. 30 companies forming the DOW Jones has always been available to the public. You only need to invest in companies that form part of the index and change when the companies are changed within the index. Bit more work but still possible.

Although, you don't have to do any of that anymore. Vanguard S&P ETF has expense ratio of 0.05%

Cheers,
Oracle.

 

[hobo-jo]

But how the index is formed for eg. 30 companies forming the DOW Jones has always been available to the public. You only need to invest in companies that form part of the index and change when the companies are changed within the index. Bit more work but still possible.

Although, you don't have to do any of that anymore. Vanguard S&P ETF has expense ratio of 0.05%

So pre 1975 anyone trying to track a stock index would have run into the same problems you pointed out for the PP (e.g. potential tax events).

Looks like there have been PP funds around for almost as long (this ones inception in 1982):

http://www.permanentportfoliofunds.com/pdfs/perm/PRPFX.pdf

Interesting charts in that link too, outperforming stocks over the last decade, but of course over time this could swing either way.

Let's face it though, none of us have a 200 year investment time frame and things have changed a lot since 1800

 

[oracle]

So pre 1975 anyone trying to track a stock index would have run into the same problems you pointed out for the PP (e.g. potential tax events).

I don't expect companies within the DOW index changed that often. But I could be wrong. Else how could the index funds match the returns of the index so closely with only a 0.05-0.07% difference?

Looks like there have been PP funds around for almost as long (this ones inception in 1982):

http://www.permanentportfoliofunds.com/pdfs/perm/PRPFX.pdf


Interesting charts in that link too, outperforming stocks over the last decade, but of course over time this could swing either way.

True..but since inception 1982 the returns on PP is 6.76% while S&P is 11.12%

$10,000 invested in 1982 in PP would be worth $71,163.44 and the same amount invested in S&P500 would be worth $236,465.06

Cheers,
Oracle.

 

[hobo-jo]

Right, so change the time frame a decade or two here or there and you can get very different outcomes.

It's worth noting the goal of the PP is not necessarily the best return, but rather a diversified portfolio that is stable (minimised draw downs) and "safe".

According to the author this type of portfolio has the goal of assuring "that you are financially safe, no matter what the future brings"[1] including economic prosperity, inflation, recession or deflation.[2] According to the book this is because some portion of the portfolio will perform favorably during each of those economic cycles.

http://en.wikipedia.org/wiki/Fail-Safe_Investing

An ideal scenario is one where you bought Gold in 1970, traded it for stocks in 1980, traded it back into Gold in 2000 and then... what does the future hold?

 

[oracle]

Right, so change the time frame a decade or two here or there and you can get very different outcomes.

Goal should be to maximise your compounded returns over the long term without taking on a lot of risk. Stocks have provided just that with history (over 200 years) on it's side. Yes, you get volatility with stocks and one needs to get used to it. It's in the very nature of stocks to be volatile but that does not equate to higher risk as some would make you believe.

Long term to me is entire working life and retirement years so give or take 50 to 60 years. Do the maths and will be amazed to see what kind of wealth you can accumulate over that period by just sticking with the tried and tested of getting maximum dollars compounding for you.

What's the point in beating for a decade only to underperform the following decade and come out worse off than just sticking to one asset class? It's not like you don't need to worry about either growing or maintaining your assets after 20 years.

It's worth noting the goal of the PP is not necessarily the best return, but rather a diversified portfolio that is stable and "safe".
http://en.wikipedia.org/wiki/Fail-Safe_Investing

US Treasuries gives you the most stable and safe investments you can ever hope for if that is what you aim for. But is it really safe? Might want to go and check the price investors paid for stability and safeness when comparing it's returns against stocks and inflation.

An ideal scenario is one where you bought Gold in 1970, traded it for stocks in 1980, traded it back into Gold in 2000 and then... what does the future hold?

I don't believe in jumping between different assets trying to time the market. A lot of very intelligent people have tried doing it but have failed to do so successfully over long periods.

Cheers,
Oracle.

 

[hobo-jo]

Well you're entitled to your opinion. I don't agree with some of the above, but pointless arguing.

 

[oracle]

but pointless arguing.

Agree...Wish you good luck with your investing

Cheers,
Oracle.

 

[willair]

Well you're entitled to your opinion. I don't agree with some of the above, but pointless arguing.

Hobo-jo,so which way do you think the price of Gold will go,,i'm still trying to understand the mechanics of the way it works but any in business I know mainly building are starting to prepare for a slow down until the date for the next election is called maybe a small window..

 

[redwing]

Just had a quick look at Morningstar where the listed PP fund info goes back to 1982

Playing around with the slide on the base shows some great recent performance, but taking it back to '82 shows the attached

 

[oracle]

Just had a quick look at Morningstar where the listed PP fund info goes back to 1982

Playing around with the slide on the base shows some great recent performance, but taking it back to '82 shows the attached

Redwing..for the S&P500 does the returns include dividends re-invested?

Cheers,
Oracle.

 

[redwing]

Redwing..for the S&P500 does the returns include dividends re-invested?

Cheers,
Oracle.

Not sure, most likely just the index

Is there a US Accumulation index, Vanguard,iShares or Russel Index that would better reflect the comparison?

 

[hobo-jo]

Hobo-jo,so which way do you think the price of Gold will go,,i'm still trying to understand the mechanics of the way it works but any in business I know mainly building are starting to prepare for a slow down until the date for the next election is called maybe a small window..

Willair, Gold is experiencing a correction that some expect marks the end of the bull market, I don't think that is the case. While nothing is guaranteed, I think Gold outperforming stocks has some way to go...

See this chart: http://bullmarketthinking.com/wp-content/uploads/2013/03/ratio-flat-chart2.jpg
via: http://bullmarketthinking.com/200-years-of-the-dowgold-ratio-suggest-staggering-moves-dead-ahead/

Not that a 100-200 year repeating trend is guaranteed to reoccur, but IMO the potential is there given the macro environment.

 

[Crabnet]

Hobo-jo,so which way do you think the price of Gold will go,,i'm still trying to understand the mechanics of the way it works but any in business I know mainly building are starting to prepare for a slow down until the date for the next election is called maybe a small window..

Looking at physical gold.
It becomes attractive in times of fear and uncertainty because, unlike money, it's not an IOU.
An example would be the oil shocks of history.
e.g. Trouble in Iran leads to higher oil prices and gold prices. So was it the inflation associated with higher energy prices or the world's political instability that caused gold to rise?

We had a recent gold run when the developed world's finance system went into crisis with fear of markets and economies crashing as banks were afraid to lend to each other.
Imho that fear is dissipating now with, instead, the fear of inflation around the corner.
Perhaps the shale gas bonanza in the USA in concert with high unemployment will keep a lid on inflation.
But then again, who knows, there could be another flare up of hostilities in the Middle east involving Iran and Israel. That might put a rocket under the gold price.