Picking this year for the first all summer vacation of my life was not based on knowing how very tumultuous geo-political, economic, and market events would prove to be. I tend to think that bankers, politicians, and economic titans all go to the beach or mountains in summer.
In addition to time for fun with family and for exercise and reading, free time inevitably results in thinking about many things one has perhaps avoided resolving. One big delayed decision for me was developing a plan for a future either without me or with an impaired me. If it were a successful plan it would be one I could put into place easily and also hopefully enjoy it in good health.
For the past four years my "plan" was to avoid big investment losses, nominal or real, and generate enough income to avoid eating into capital. This is especially important if one has US deferred-taxable retirement plans such as IRAs, 401Ks, or annuities with mandated annual withdrawals (RMDs) which the government can fairly and legally tax. So I have reached for income as interest rates fell on traditional fixed income assets. This has been rewarding but requires investing a meaningful amount into volatile closed-end funds (CEFs), deferred taxable trusts (REITs, oil & gas), and leveraged hedge fund-like assets. The problem with these vehicles is that they trade in the market as if they were just volatile lower grade equities, which essentially they are. I increased my yield, but volatility was another and less pleasant outcome. I did attempt to trade them in a band from over-sold to over-bought, and that helped and did not increase capital gains taxes in the IRAs. Trading, however, takes constant attention, and a portfolio of 10-20 such vehicles (for diversification) takes a lot of effort. Therefore I began cashing in these assets earlier this year when they would run up in price. Now I have only four left, Hugoton Royalty Trust (HGT), Aberdeen Asia-Pacific Income Fund (FAX), Central Fund of Canada (CEF), and ASA Ltd (ASA, the gold stock closed-end fund).
I also began selling off the scatter of mutual funds in inflation stocks (Vanguard Energy and Vanguard Precious Metals) and stock sectors (Wasatch Emerging Markets Small Caps WAEMX, FAIRX, MACSX, etc). Then I resumed my search for five mutual funds to add to my stored gold for a simpler potential buy and hold portfolio. We have discussed buy and hold portfolios here many times over the years. Quite a few readers have them and have shared them with us.
First I explored a number of independent money managers, but could not identify any who did what I needed or, if they did, would accept accounts under $5 million or much more. I ploughed through the enormous fund data base of Investors FastTrack again, looking for good records in all the different markets since 1987 through recent market low on August 5. It's only fair to look at records to a low rather to a high. The entire portfolio, including all cash, gold and all else will be positioned with 1/6th of total investment dollar value in each entity. I wanted three income funds, almost all of which to be held in the deferred taxable trusts, and two gains-orientated funds, plus the gold, to be held in taxable accounts. Three income vehicles and three gains vehicles, not for a 40 year old but a 70 year old's family living off it. (There is also a fixed cash annuity separate from this portfolio.)
The income funds are Vanguard Ginnie Mae (VFIIX/VFIJX), Pimco Bond (PTTAX/PTTRX), and Loomis Sayles Bond (LSBRX/LSBDX). I have had some money in or had been in these funds already, and all are very familiar to us. VFIJX is now fairly short duration (3.6 years) in US Government mortgage bonds. It has been described as a "money market fund on steroids", and I am thinking of it as my money market fund paying about 3.3% instead of 0.03%. PTTRX also has a 3.6 year duration and pays about 3.2%, but PTTRX has always been geared to gains as well as income (total return). PTTRX is primarily a synthetic bond fund based on the enormous eurobond market. LSBDX's duration is about 5.6 years and pays about 5.4%. LSBDX is a go-anywhere bond fund which has lowered its duration and increased the value ratings of its corporate bonds and gone pretty heavily into sovereign bonds of Canada, Norway, Australia and other such countries. All three of these funds are very actively and well-managed which will be very important in a bond bear market.
VFIJX could be switched to the even shorter duration Vanguard Short Term Federal Fund (VSGDX), and PTTRX "could" be switched partly into Unconstrained Bond Fund (PFIUX) or Short Term (PTSHX) early in a bear market. However, my guess and hope is that these three funds will manage well their own duration curves as they have nearly always done. (CEF on the FastTrack chart is a proxy for my gold bullion since none of the gold bullion ETFs or CEFs existed in the 1990's.)
For the other half of the portfolio, 1/6th stays in stored gold, and 1/6th goes gradually into each of Permanent Portfolio Fund (PRPFX) and FPA Crescent Fund (FPACX). Why hold PRPFX when I'm already making the whole portfolio more or less like PRPFX? Partly because PRPFX is a guide or average of what I want to achieve, but I am wanting over-weighting the bond/income and the gold sectors because of retirement needs to produce modest but secure income and have inflation protection. For a vivid example of the latter, gold has truly pulled its own weight as well as the whole portfolio's this year. As of Friday, August 19, my total portfolio is up 4.63% year to date or 6.87% annualized. Not brilliant, but better than most indexes or cash.
FPACX isn't really a balanced fund. It's a growth fund that holds a widely variable amount of cash and near cash to keep volatility under control and produce excellent long term results. Recently they had about 40% in in TBills Both PRPFX and FPACX will tend to go down in stock bear market moves, so the plan is to add gradually to an initial portion of each on significant declines. Or I may simply average into them monthly. Note that the 1993 chart starting date is because it was FPACX's birthdate. The others go back much farther in time except only 1991 for LSBDX.
There is no specifically ex-US fund, but all of the funds carry foreign stocks or bonds in their portfolios and gold, of course, is international. The fund managers are my management team and they charge very little, well under 1% annually including modest storage costs for gold.
I'm looking forward more to leisure and less attention to news and markets. Consider this as my financial "diary" and NOT as a suggestion that anyone mimic it. I'd be happy to hear any comments, pro or con.
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