Portfolio Ideas
November 28th, 2007WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Several readers are panicking and emailing me messages that go something like: “How can I protect my assets? I’ll pay you to devise a plan for me.”
Guys, I’m not a financial adviser. Financial advisory services are government regulated, like real estate sales and health care. It’s not that I wouldn’t like to accept your offers, or that I doubt my skills in this area, but it’s just not allowed.
I have been posting the best information I have on Cryptogon for you to consider on your own. The information is freely available to anyone. You are responsible for any decision to buy, sell or hold any financial instrument.
While I can’t give financial advice for a fee, I don’t see any problem with writing about what I am doing with our money. Maybe you will find the information useful, maybe not. None of this will come as a surprise to regular Cryptogon readers.
I encourage you to seek the help of a licensed professional. If what I have written below resonates with you, show it to your adviser. Personally, I would hope that he or she would think that this is nuts. If a licensed financial adviser thinks that this is a good plan, I should probably go back to the drawing board.
Although I don’t have as much to try to hold on to as some of you, we’re all being forced to eat soup with a knife. It’s not easy, and it’s definitely not pretty.
Let’s state some assumptions about what follows:
1) These portfolio ideas assume that you already have your shelter, water, food and security/community issues sorted out. If you haven’t made arrangements along those lines, please stop reading and work on those issues first. Regardless of the number of digits associates with your bank balance, if you don’t have those essentials squared away, you haven’t got much, in my opinion.
2) This post will discuss some confetti paper based investments. There are a few Cryptogon readers who are all in on gold. Practically no diversification. Physical gold only. Those bets have paid off stunningly well, recently. Personally, though, I never go all in on any one investment, asset class, currency, or anything. Diversification is good, especially when gross manipulation is evident in a market, as is the case with gold.
3) I don’t want to touch off another debate about personal physical possession of gold vs. professional services and vaulting. Enough already. For purposes of this post, I’m assuming that you are content to let professionals manage security for the bulk of your precious metal holdings. Hint: Most people who think that they are in a position to safeguard tens or hundreds of thousands of dollars worth of physical gold are flat out shitting themselves. Regardless of what the hard core personal-physical-possession crowd thinks about these issues, there are a lot of concerned people who don’t quite share that bunker mentality, rightly, or wrongly. So, this is not a post about stockpiling food, ammunition and booze, etc. (even though those are good ideas). Survival Blog is the best site, by far, for deep preparation information.
4) On time horizons: I’m assuming serious risks to global financial markets, near term, but an overall slow, grinding collapse/crisis of opportunity, which we are already in. This assumption has heavily influenced my choices. Event risk precludes the traditional “buy-and-hold major stock index” type strategies for me. If you are more optimistic, you’ll want to hold more individual stocks and stock index vehicles. Personally, though, I view portfolios that are heavily weighted in stocks and bonds as wreckless, risk of ruin gambles. If you are more pessimistic than me—and many of you are—you’ll want to hold even less of your portfolio in ETFs and more in cash, precious metals, guns, ammo, long term food storage, etc.
5) These ideas do not assume a portfolio size. You can implement the following strategy with a thousand dollars, or a million dollars. TradeKing is excellent. I execute all of my stock, ETF and option trades through TradeKing. I liked their service so much, I became an affiliate.
So, knowing that most of our wealth has been spent on our small farm and eliminating all of our debt, here’s how we’re holding on to what’s left over:
Cash: 65%
There’s a lot of shrill doom talk about fiat currencies collapsing (I’ve personally referred to them as ponzi scheme currencies on Cryptogon many times). The reality is that some number of currencies will collapse, while some number of them will increase in value (relative to their peers). Which ones will collapse, and which ones will increase in value? I don’t know. So, I go with a basket of them.
New Zealand Dollar: Happens to be our home currency, and a high yielding one as well.
Swiss Franc: Standard bunker currency. (But no longer backed by gold, as some people mistakenly believe.)
Canadian Dollar: In a word: Commodities. (Also consider Aussie Dollar and South African Rand. Check out Everbank’s Multi-Currency CD for currencies that are strongly tied to the prices of commodities.)
Euro: This is the global reserve currency, and everyone knows it—well, except for some Americans. See Making Sense Of The Euro/Swiss Franc Relationship for more on staying flat with EUR/USD/CHF.
U.S. Dollar: I hold VERY little USD, but I get USD exposure via the ETFs mentioned below. Since I’m a big advocate of diversification, I should probably add more USD, but I just can’t seem to convince myself to do that right now. YOU NEVER KNOW. The dollar could rally sharply; somehow, I don’t know how. But you never know.
A quick word on the Icelandic Krona: This one provides the highest yield on cash, by far (about 12%). I don’t hold any, but if you’re looking for more risk/more reward, the Icelandic Krona might be worth checking out.
Here are a couple of ways to diversify into foreign currencies:
Rydex Currency Shares ETF Products NOTE: For amounts greater than USD$10,000 on some currencies, consider using a Forex account to drastically reduce your costs. Make sure you read about your FX dealer’s “positive roll” policy, as this is how you will earn your interest. For our purposes, you would NOT be using leverage on these trades. (You could, of course, if you wanted to.) Many FX dealers will allow you to adjust your leverage to 1:1. You will have to use either mini lot (10,000 units) or standard lot (100,000 units) sizes. Obviously, I don’t have anything like these amounts of money to move into single currency pairs, so I use the ETFs instead. Here is a general criticism of the foreign currency ETFs re: the fees associated with them. The more money you need to diversify, the more important this issue will be to you.]
Everbank World Currency CDs Foreign currency CDs with accounts that are FDIC insured up to $100,000. Of course, you could make an investment decision that loses money, but at least FDIC applies to the account itself.
The Merk Hard Currency Fund: An outstanding option for diversification away from the dollar. The fund holds a basket of currencies, sovereign debt and gold. See: Fund Facts. Expenses: 1.3%. (Thanks to Eileen for the tip on Merk Hard Currency Fund.)
Gold: 20%
We hold our gold with BullionVault. I was so pleased with BullionVault that I became an affiliate. Totally satisfied. End of story.
Gold ownership and professional vaulting, however, isn’t for everyone (although it should be, in my opinion). While BullionVault offers an inexpensive method of owning and vaulting your gold, it isn’t a good option for people who are simply looking for exposure to the price fluctuations of precious metals. While I personally wouldn’t use investments that track the prices of precious metals, if you’re looking for an easy to trade, non leveraged vehicle (as opposed to gold futures contracts, which are for seasoned pros only), streetTRACKS Gold Shares ETF (GLD) is a good way to go. If you want exposure to gold and silver together, consider Central Fund of Canada. (Thanks to Eileen for the tip on Central Fund of Canada.)
I view the gold component of the portfolio as a strategic hedge to my fiat, ponzi scheme, confetti currency bets. For that reason, I believe that ownership of the actual metal is important. My gold is stored in a Viamat vault in Zurrich, Switzerland (the service provided through BullionVault). I sleep very well at night knowing that. But, if you simply want exposure to the price fluctuations, without the added level of security that comes with ownership, the ETFs are a much more cost efficient way of going.
Please understand the difference between metal that you own in a Swiss vault, and a bet on a piece of paper that tracks the price of the metal. As long as you’re clear on that difference, you’ll be able to decide for yourself how to proceed.
Narrowly Targeted ETFs: 15%
Food, water and energy… The focus of hundreds of stories on Cryptogon, served as my guidance here. I use the ETFs to spread risk far and wide.
Food:
PowerShares DB Agriculture Fund (DBA) NOTE: I am slightly overweight this one. If you look at the ongoing crises involved with food production, you see not just a perfect storm, but multiple perfect storms.
Water:
PowerShares Water Resources Portfolio (PHO)
Claymore S&P Global Water ETF (CGW)
Energy:
Energy Select Sector SPDR Fund (XLE) NOTE: Clip a clothespin on your nose for this one. I also have an individual pick on one of the major oil companies for long term hold. It will be the angriest stock recommendation you’ve probably ever read. I’ll post that soon.
First Trust NASDAQ Clean Edge U.S. Liquid Series Index Fund (QCLN)
PowerShares Global Clean Energy Portfolio (PBD)
These funds cover A LOT of the collapsitalism spectrum. Assuming we don’t go to an overall Mad Max system, these areas will probably do very well in a slow crash. I have made a point of mixing exposure between U.S. and non-U.S. companies. If you have been reading Cryptogon for any length of time, the logic behind my choices will be very clear.
One Final Category: Stock Options Lotto for Specific Tactical Situations
Segments of the economy could be about to experience extreme trauma. It might be worth risking very small amounts of capital on very high risk/high reward bets. While these plays are very risky on the one hand, on the other hand, the potential profits are large, and the amount of money at risk is limited to the cost of the premium paid for the option. Whenever I play options, I assume a 90% chance of losing my premium. But, there are rare times when the potential for disorderly moves increases dramatically. I feel as though the financial sector is in one of those periods right now. If I’m wrong, oh well, I’m out a few bucks. (No really, it’s just a few bucks.) Deep out of the money strikes are cheap for a reason. There’s very little chance of them being in the money by expiration. But that’s why I call it the Stock Options Lotto. If I’m right, it’ll be more juice to squirt into the main portfolio, barn, solar hot water system, etc. etc.
Conclusion
To sum it all up:
Many eggs. Many baskets. Many countries. Many currencies. Many sectors. Many types of assets. Put your money where your knowledge is, but realize that precision is practically impossible. For the most part, resist investing in individual stocks. Using the stock and commodity ETFs is like horse shoes and hand grenades. Close should be good enough.
This is an excellent piece of work Kevin. Thank you.
“We’re all being forced to eat soup with a knife.” I don’t know if this was meant to be funny, but it made me laugh. The last few months I feel like I’ve been living on the edge of that proverbial knife! Negotiating with family has never been my forte. I’ve made lots of mistakes. I can NEVER claim to be a diplomat.
I like how things are weighted here towards cash in various currencies, funds and gold. Few ownership issues involved. Easy in, easy out. Wham Bam Thank you Ma’am. Liquidity in a time of inflation I think is a very smart strategy. There is also the Merk Hard Currency Fund. http://www.merkfund.com/
Yes, Kevin, I don’t think you will find a financial advisor who wouldn’t steer a person towards stocks and bonds. In my situation, where we need to protect principal and earn yield at the same time, I accept that we’ve got to have some. So I am holding the nose and the family is taking the plunge with me. Investing in stocks that are not dependent on the U.S. consumer. Stocks in real things. This is risky because, as a Wall Street banker tells me, when the U.S. sneezes, the rest of the world catches a cold.
Unresolved is the domestic portfolio- will look at your suggestions above.
Thank you for all Kevin.
Forgot this: FDIC.
Anything with the word Federal, especially associated with the U.S. government is a for all intents and purposes, a bankrupt institution. Betting on deposits being covered by the FDIC, to me, is just another gamble. Hence diversity. Love that word.
Re: Ponzi money
This attempts to explain “Can We Have Inflation And Deflation All At The Same Timeâ€
http://www.safehaven.com/showarticle.cfm?id=8507&pv=1
It suggests US Treasuries might end up trading at a premium. Any more thoughts on confetti investments Kevin?
IF I had any money to invest, it would be in necessities: Food, Clothing, Shelter, and not in “Toys” or frivolous items.
Right at the moment I need to decide on whether to buy several cases of corned beef hash, or else roast beef hash, or some combination thereof.
Am already well stocked in manual can openers.
(Got this off the top of the page at “Conspiracy Planet”):
“Survival, Storage, Emergency, Camping & Everyday Foods” http://www.dehydrated-food.net/CP.html
Here’s another currency ETF worth looking at: PowerShares DB G10 Currency Harvest Fund
http://dbfunds.db.com/dbv/index.aspx
It has twice the expense ratio as the Rydex funds @ .80%. It doesn’t cover Euros right now.