I must admit that reader feedback is an important component in supporting my efforts of generating blog posts on a daily basis.
Sometimes, comments can be pretty funny, yet have serious undertones. This was the case when reader Robert questioned the U.S. dollar as a reserve currency, and he had this to add:
I’m not buying gold, can’t afford it. The bargains at Wally World will no longer be cheap for those of us on Social Security. What can a poor slob do?
Even with a limited portfolio, you can participate by having exposure to gold, silver and currencies, among other investments, by selecting one no-load fund that covers most of these areas.
While many investors try to diversify into gold and a variety of currencies in the hope of catching some of the gains as the dollar loses its value, some of these sector ETFs are highly volatile and can subject you to roller coaster rides.
I have discussed this area a year or so ago, but with many new readers, it’s worth repeating. Take a look at PRPFX, with the somewhat misleading name “Permanent Portfolio.” In the world of trend tracking, there is nothing permanent, no matter how solid an ETF/mutual fund appears.
Case in point is PRPFX, which shows a steady upward climb until last year’s crash. Take a look at this 5-year chart:
It’s obvious that buying and holding would have wiped out several years of gains, while trend tracking would have preserved your capital. What does PRPFX consist of?
Here’s the definition as found on Yahoo Finance:
The investment seeks to preserve and increase the purchasing power value of its shares over the long term. The fund invests a fixed target percentage of net assets in the following investment categories: gold, silver, Swiss franc assets such as Swiss franc denominated deposits and bonds of the federal government of Switzerland, stocks of U.S. and foreign real estate and natural resource companies, aggressive growth stocks and dollar assets such as U.S. Treasury securities and short-term corporate bonds.
There you have it. It would appear to be a fund to own in uncertain times. It is diversified, and all you have to do is follow its trend and apply my recommended sell stop discipline.
Again, as much promise as this fund has, emotionally, as trend trackers we do not fall in love with it nor do we get married to it. We merely date it until it no longer serves our purpose, and then we move on. It may seem cold and harsh, but so is the world of investing. If you don’t look out for yourself, nobody else will.
Disclosure: We currently have holdings in the fund discussed above.
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Comments 5
Ulli,
As of friday the current prices for the Wilshire 5000, S&P; 500 and the Russell 2000 are all between 19% and 26% above their 39 week moving averages.
I'm curious as to why your Domestic TTI is only 8.41% above it's 39 week moving average.
Shouls we concerned about this deviation?
Paul
Paul,
The TTI has nothing to do with the other indexes you mentioned. Because of its composition, it will move slower or faster than the overall market. It's strictly a directional indicator and nothing else.
Ulli…
PRPFX is a great sleep at night fund. Currently it constitutes the core of my IRA. But it has its draw backs. When times are good this fund has been a sleeper. If charts were an EKG and you looked at this fund in the 1990's during the red hot bull market you would have pronounced this fund dead. FLAAAAATTTTT LINE
But it has some powerful redeeming factors to it. The first is that it observes Warren Buffet's first commandment of investing, "don't loose money." In its 28 years if existence it has had exactly four down years. 2008 being # four. That's a pretty good win loose ratio. Even when the fund wasn't doing much, it generally wasn't loosing money. You don't put money in PRPFX to get rich. This is where you put the money you have a low risk tolerance for but want get a little something back on.
The second big plus for PRPFX is that during period's of economic volatility or uncertainty this fund has done quite well. Over the last nine years this fund has outperformed both the S&P; 500 and the US Total Bond Index. It has outperformed all other funds in its class (conservative allocation) and also most so called moderate allocation funds.
Until things clam down and we return to a period of real (as opposed to phony) prosperity which I don't see happening anytime soon, I think this is a good core fund to anchor a portfolio.
That said I have not always been this enthusiastic about it. The fund's expense ratios were unacceptably high for a long time and have only recently dropped into a range I am prepared to support. (I refuse to buy mutual funds with expenses greater than 1%. There are very very few that are worth it and for those that are, one can generally find cheaper alternatives.) You can build your own Permanent Portfolio with funds that are generally less expensive, although this is more labor intensive as you have to do all of the frequent rebalancing yourself.
Disclosure: Long PRPFX
I have owned PRPFX on and off for the past few years. While it has it's advantages, already mentioned, if you look at a longer term chart than yours (which dates back to '05) it is dead money.
There are plenty of conservative and moderate allocation funds that have had only four down years. I think JABAX has a similar record. But JABAX usually has about 60% of it's money in large, healthy multinationals.
PRPFX has such limited holdings- gold, Swiss bonds, a few oil mining stocks, that not only will you miss any broad market rallies, but it will decline as sure as anything else when gold and oil related companies decline.
I must say that you jogged my memory with the mention of PRPFX. I went to MSN Money, which use Morningstar data. They show PRPFX as having only one down year since 1998 (starting on 1-1-99).
I also looked at the top 25 holdings. I haven't seen them in several months. I believe Mr. Cuggino usually has the small amount of the fund allocated to stocks in growth stocks, especially oil drillers. These drillers seem to have been replaced by REITS. The fund did have a big downturn a few months ago, and has made a sharp "V" recovery. I hesitate getting in here because if gold prices do collapse, the fund will suffer.