US Credit Downgrade

Well most people at this point know the US credit rating was downgraded by S&P from AAA to AA+. The market result was a huge selloff in Treasuries today and the price crashed.

Just kidding! They are up like crazy. Strange world, eh? 

I implore investors to stay out of the market timing, future predicting, and guru advice listening business. Nobody can predict the future and I don’t care how many degrees they have, what books they’ve written or what predictions they got right (luckily) in the past. It just can’t be done.

Ok, enough lecture. What does this mean for the Permanent Portfolio? Not much. The portfolio holds an allocation to gold for these situations and the gold is doing very well (even better than LT treasuries). US Govt. debt, even with the downgrade, is still a better bet than most other places (the Euro for instance is in much more jeopardy now than the Dollar). Not only this, but if the Dollar does the Swan Dive, the gold will go through the roof. And if it doesn’t Swan Dive? Well you’re still collecting nice interest payments to boost your returns. Also, there is always the chance that the US Govt. will be forced to cut down on spending and the credit rating could go back up (my hope). So, there is no need to get fatalistic about it yet.

So again I advise just sticking to the plan, rebalance if needed, and ignore the news. You can’t do anything about these things you’re hearing. Not just this, but you can’t react faster than the markets to do anything about them anyway (even assuming you can guess what the markets will actually do with that information). The only protection you have is a strongly diversified investment strategy, which the Permanent Portfolio provides.

I’m sleeping soundly.

Craig Rowland

I own the place.

7 Responses

  1. Vijay says:

    Great advice, Craig.

  2. How often do you reallocate? If annually, would you consider reallocating early during conditions like this where stocks have taken a dive while gold has been flying through the roof?

  3. craigr says:

    I’m a taxable investor largely so everything I do has costs above a simple rebalance. Usually I wait until my bands are +30-35% on the high side before I will sell them down. Sometimes I will wait until the end of hear to bring gains into a more favorable situation. It depends.

    Usually I recommend you stick to a rebalancing band and not get greedy/scared an rebalance too soon or too often.

  4. Thanks. I’m still in the process of slowly shifting money into my desired portfolio mix (very similar to PP). I had planned on a 10% band, checked monthly. Sounds like that might be too tight.

  5. craigr says:

    I think that is probably too tight. This isn’t a science, but if you are jittery you can set the bands at 20% on the low side and 30% on the high side. That’s as tight as I’d take it myself. But the 15% and 35% bands work OK as well.

  6. Tom says:

    I’d say if you’re jittery, invest monthly and buy the loser. That way it’s smaller amounts of money you’re losing and in most cases you can even avoid hitting your bands to rebalance and avoid tax consequences for doing so.

  7. Brian says:

    Love the calm and collected approach Craig! Such much worrying removed.