How would you invest a lump sum?

[Tocqueville]

Re: How would you invest a lump sum?

Great question and lots of good answers in this thread.

450k to foreign bonds, cd's, or savings accounts, highly recommending the australian and new zealand dollars, the euro, and the pound.

How does one go about opening foreign cd's and savings accounts? Is there a way to do it without travelling to the host country?

[bart]

Re: How would you invest a lump sum?

200,000 SLV (Silver ETF)

Why SLV instead of CEF or an allocated or unallocated pool account at one of the many places?

Of course it can be seasoned to taste ...

rude sound ;)

[Finster]

Re: How would you invest a lump sum?

Why SLV instead of CEF or an allocated or unallocated pool account at one of the many places?





rude sound ;)

Good question. I actually started out with CEF in the list, and it would make a fine inclusion in most portfolios. But for a lump-sum investment of the size we were looking at, the fact that it's a closed end fund with a daily volume around $3M prompted second thoughts. It might go just fine, but I personally wouldn't want to try shoveling four hundred Gs (remember, CEF is half gold half silver) into CEF shares in one trade. Or even in one day. It's already trading at a slight premium, and trying to buy that much in short order could pop the premium to a disadvantageous level.

As a closed-end, CEF doesn't issue new shares on demand. SLV, in contrast, is an open-end ETF. This means it's much more of a pass-through entity when it comes to buying and selling pressure. Large buying demand going into an open-end fund like SLV essentially flows through to the underlying asset - in this case, silver - and the silver market is plenty large to handle a 200K buy order without even feeling it.

A pool account would be a viable alternative. In this case, since much of the portfolio was already implementable in ETFs, and we already provided for holding gold and platinum in physical bullion, it just kind of tipped the balance in the ETF direction. But the important thing here anyway is the allocation, rather than the vehicle chosen to implement it. There are usually good arguments in favor of multiple such options, and in the end a lot of it boils down to whatever suits the individual investor best.

...

[jk]

Re: How would you invest a lump sum?

You ought to be able to get both significant income and keep up with inflation. In another thread, I posted a synthetic "TIPS" portfolio, but one oriented towards a smaller overall size and the convenience of all ETFs. For a fairly conservative, income-oriented, $4M portfolio, I'd allocate as follows. This is listed by ETF where applicable, along with with objective descriptions for substitution as desired.

400,000 Gold Bullion & Coins
200,000 Platinum Bullion & Coins
200,000 SLV (Silver ETF)
100,000 DBC (Diversified Collateralized Commodity Futures)
100,000 DJP (Diversified Collateralized Commodity Futures)
100,000 GSP (Diversified Collateralized Commodity Futures)
100,000 IGE (Natural Resources Stock Fund)
400,000 TLT (Long term UST)
800,000 SHY (Short term UST)
200,000 IEF (Intermediate term UST)
100,000 SPY (S&P 500)
100,000 VXF (Dow Jones Wilshire 4500 Completion Index (mid&small-cap US stocks))
300,000 DVY (Equity Income Fund)
300,000 IYR (Real Estate Equities Fund)
400,000 EFA (International Stock Fund)
150,000 EEM (Emerging Markets Stock Fund)
50,000 EWC (Canadian Stock Fund)

This would amount to quite a reduction in UST overall and short term UST in particular, but the other elements help the principal and income keep pace with inflation. Of course it can be seasoned to taste ...

i would add a caveat to your portfolio, finster. equities are currently paying very low dividends and are at high valuations. might it not be better to wait, or at least scale in over a protracted period?

[bart]

Re: How would you invest a lump sum?

Good question. I actually started out with CEF in the list, and it would make a fine inclusion in most portfolios. But for a lump-sum investment of the size we were looking at, the fact that it's a closed end fund with a daily volume around $3M prompted second thoughts. It might go just fine, but I personally wouldn't want to try shoveling four hundred Gs (remember, CEF is half gold half silver) into CEF shares in one trade. Or even in one day. It's already trading at a slight premium, and trying to buy that much in short order could pop the premium to a disadvantageous level.

As a closed-end, CEF doesn't issue new shares on demand. SLV, in contrast, is an open-end ETF. This means it's much more of a pass-through entity when it comes to buying and selling pressure. Large buying demand going into an open-end fund like SLV essentially flows through to the underlying asset - in this case, silver - and the silver market is plenty large to handle a 200K buy order without even feeling it.

A pool account would be a viable alternative. In this case, since much of the portfolio was already implementable in ETFs, and we already provided for holding gold and platinum in physical bullion, it just kind of tipped the balance in the ETF direction. But the important thing here anyway is the allocation, rather than the vehicle chosen to implement it. There are usually good arguments in favor of multiple such options, and in the end a lot of it boils down to whatever suits the individual investor best.

...

Fair enough and makes sense... it just seemed odd that you had physical metal for both gold & platinum but with a semi paper based ETF for silver.
As you said too, it was just a starting point.

I personally think an additional small allocation should be made for aluminum, so that he & I never have to worry about running out of tinfoil hats... ;)

[Finster]

Re: How would you invest a lump sum?

i would add a caveat to your portfolio, finster. equities are currently paying very low dividends and are at high valuations. might it not be better to wait, or at least scale in over a protracted period?

True, but on the other hand, almost everything else you can buy these days is trading at high valuations, too. Bonds are IMO even more richly valued than equities, and that is largely what's keeping equities going. Also worth noting is that we are talking about equities globally here. A portion of that is aimed at hedging the immense dollar exposure of the bond allocation.

Scaling in is probably a very good idea, but I was taking the "lump sum" stipulation literally. The "scaling in" approach begs the question of what are you going to do with the assets right now. You have to do something with them; there's not such thing as having them in nothing.

There are probably other prudent and perhaps more artful ways to approach it, but it wouldn't be the worst thing you could do to just go out and do it. The allocation is such that overall risk is pretty low. You've got 10% in long term treasuries that would be likely to appreciate if equities tanked. If both equities and bonds sold off, you have 20%-30% PMs and commodities. If all of those did, that'd mean your cash was doing great (deflation), and there you have some 20% in short term treasuries. And how long do you think deflation would last with that ace helicopter pilot at the helm of the FOMC?

[Finster]

Re: How would you invest a lump sum?

Fair enough and makes sense... it just seemed odd that you had physical metal for both gold & platinum but with a semi paper based ETF for silver.

Physical silver was an early possibility, too. But there again you have the size problem. You would be looking at some imposing bulk and weight. I'd passed over copper bullion for the same reason multiplied. Most well-heeled investors looking at meaningful physical positions are best off in the much more concentrated gold and platinum.

As you said too, it was just a starting point.

Absolutely. We can only make educated guesses about the future of the markets, but an investor's personal circumstances and goals are known very well - to himself. We can inform and opine, but in the end, that makes every investor the best qualified final judge of how he should invest.

I personally think an additional small allocation should be made for aluminum, so that he & I never have to worry about running out of tinfoil hats... ;)

Another reco that had crossed my mind. But then I remembered you had already cornered the aluminum and tin markets ... ;)

[bart]

Re: How would you invest a lump sum?

Physical silver was an early possibility, too. But there again you have the size problem. You would be looking at some imposing bulk and weight. I'd passed over copper bullion for the same reason multiplied. Most well-heeled investors looking at meaningful physical positions are best off in the much more concentrated gold and platinum.

And that's why I had added in the possibilities of allocated or unallocated physical storage by folk like Kitco or Monex, etc.

Some of them even offer physical storage in the more exotic and high risk & return metals like rhodium. One should have a little money allocated for "play" in my opinion too.

Another reco that had crossed my mind. But then I remembered you had already cornered the aluminum and tin markets ... ;)

aaaahhhh... the "fin" that refreshes... it's been too long and I was almost having withdrawal... ;)

[Finster]

Re: How would you invest a lump sum?

And that's why I had added in the possibilities of allocated or unallocated physical storage by folk like Kitco or Monex, etc.

Some of them even offer physical storage in the more exotic and high risk & return metals like rhodium. One should have a little money allocated for "play" in my opinion too.

I'll buy that. That is especially useful if you want to fine-tune individual allocations to gold, silver, platinum (as well as more exotic metals), and especially if you want to defer a decision on whether to take physical delivery or hold for future sale. You can buy the raw bullion (a decidedly metaphysical construct) now, have the dealer store it for you, and then later either sell the same or pay a relatively modest premium for whatever physical form you want delivered.

aaaahhhh... the "fin" that refreshes... it's been too long and I was almost having withdrawal... ;)

... whew ... me toooo ...