A.I.M. Users Bulletin Board

[ls7550]

Hi K

The PP has a total world equity fund for the share part

Just to say that the official PP holds domestic stocks. The intent is that the correlations/interactions between its assets, the cogs/wheels, are mangled if you throw in different alternatives. When for instance the US$ might be relatively rising so also might domestic US stocks be rising, whilst gold priced in US$ might be falling. And vice-versa. Replace domestic stocks with foreign stocks and the cogs/wheels are different. The four stroke engine might have two cylinders firing/exhausting at the same time - a stuttering lower efficiency engine.

Individually the volatile asset holdings might be down -25% one period, up +33% the next, that compounds to 0% (arithmetic average of +4%), but when multiple similar volatile assets are also held that move counter cycle to each other, then rebalancing between those tends to capture more of the arithmetic average instead of the singular compound average.

You've corrected for that by opting for a world bond fund, making that choice of PP a form of global PP. Gold after all is also a global currency and a commodity. Domestic cash in that situation is fine, as cash is fungible.

Regards.

Clive.

PS with many Central Banks starting to slow up on printing money to buy bonds, longer dated bonds look set to see demand weaken/prices lowering/interest rates rising. Personally my insurance is more along the lines of a third each in domestic small cap more equal weighted stocks (index), US large cap weighted (S&P500) and gold. For me, Pound, Dollar and global currency (gold) diversification. I feel much less inclined to lend at the present time (buy Treasuries) to someone who can revise interest rates, print more money, change the taxation or rules ...etc. in their favour.

Years ago, pre 1970's and gold/money were exchangeable at a fixed rate, it made more sense to hold money deposited earning interest (Treasuries) as that was like the the state paying you for it to securely store your gold. Nowadays the state in effect wants you to pay it for it to store your cash securely (negative real yields), in which case many consider it better to hold gold. When real yields turn more positive again then that is more the time to consider 'lending'. If anything when real yields are negative you want to be in debt. I like to use 2x leveraged funds for that, for instance opting to hold half in a 2x stock position, than I would hold in 1x stock. The 2x fund in effect borrows the same amount as invested into the fund to double up on stock exposure i.e. integrally contains exposure to debt.

We're into a currencies war type era, where many print/spend money to try and deflate their currency relative to others, but where others counter such attacks by printing/spending more of their own. That can lead to situations such as export controls, restrictions on currency movements etc. ... deglobalisation and focus directed more towards "Buy American/Buy British ..." etc ... whatever the domestic. Maybe even with limits on how much spending money you can take out with you on holidays abroad. One or more currencies may even see very high inflation. As ever diversifying reduces concentration risk (which is a major risk factor) across such battlefields ... see losses in one battle, wins in others, not having gone all in into a single battlefield alone.