Wednesday, March 23, 2011

Aggressive Retirement Portfolio For the Next 3 Years

Yesterday I put up an article on a simple retirement portfolio for the next three years, and described the results of the picks I had made three years ago (with much less market knowledge than today).

This was an exercise to illustrate how well a simple portfolio of just ten equities could perform compared to a widely diversified portfolio constructed using standardized financial planning principles. The idea was to show how identifying a long term fundamental market trend and investing to capitalize on that trend would outperform a portfolio designed on fixed percentage allocations in various asset classes.

The major issue to be debated is how much extra risk is involved with this strategy. Certainly, if you misidentify the long term trend on which you base your portfolio choices, the risk would be greatly magnified. This article assumes that you correctly identify a market trend, in this case, the extreme underpricing of silver based on years of price suppression and exhaustion of above ground inventories, and closing of primary silver mines which were no longer economically viable. Also, the long term uptrend in food and oil prices driven by population growth and peak oil.

In the year 2000, a median priced home in the USA cost about $225K. Silver was about $5 an ounce. The average home would have cost you 45,000 ounces of silver.

Today, a median priced home in the USA costs about $175K, and silver is currently at $37.35 an ounce, so today the average home would only cost you 4,685 ounces of silver.

If you sold your home in 2000 and bought silver, today you could buy nine identical houses with the proceeds and still have $105,000 left over.

I will not be going into the supply and demand fundamentals of silver here. For those unfamiliar, here is an incredibly well written, well researched series of articles by Jeff Nielson to use as a starting point:

History of Silver, Part I: the Metal of the Moon – Jeff Nielson

History of Silver, Part II: the great "build" – Jeff Nielson

History of Silver, Part III: inventories gone! – Jeff Nielson

The Silver Price-spiral, Part I: today – Jeff Nielson

The Silver Price Spiral, Part II: paper "inventories" – Jeff Nielson

The Silver Price Spiral, Part III: tomorrow – Jeff Nielson

Fifty Years of Suppressing Silver – Jeff Nielson

Before posting the more aggressive model portfolio, I need to emphasize that I would NEVER recommend for ANYONE to put 100% of their investment capital into equities of ANY kind. Depending on your age and personal situation, I would recommend for EVERYONE to have at least 50% to 90% of your investment capital in physical silver and gold bullion kept IN YOUR OWN POSSESSION. This is because of the MANY layers of counterparty risk involved with ANY investment in equities. For the uninitiated, I will list a few of them here:

  1. Currency collapse
  2. Bank closures (euphemistically called "bank holidays")
  3. Insolvency of or mismanagement by your brokerage
  4. Changes in government taxation policy
  5. Government confiscation or forced annuitization of retirement accounts
  6. Dilution of common stock equity by secondary share offerings
  7. Mismanagement, embezzlement, fraud by company management (think Enron)
  8. Large scale internet outage (think you'll be able to get your broker on the phone?)
  9. Interest rates will likely double soon, causing ALL bonds to lose 50% of their principal
  10. Temporary or permanent closure of stock exchanges
Don't think your stock exchange can close up shop? The NYSE closed for one week after the 9-11 attacks, and lost 7% of its value on the next trading day. It also closed for 4 ½ months at the onset of World War I and the US was not yet even a combatant. The Egyptian stock exchange closed yesterday, and when it reopened today, it was closed again after just one minute of trading. No investment strategy is without its risks. I am just highlighting here the risks involved in holding equities, that most people never even consider.


    Aggressive Retirement Portfolio For the Next Three Years

Ticker            %Holding        Sector      Equity___________________

PSLV            20%            PM        Sprott Physical Silver Trust ET

SIVR            20%            PM        ETFS Physical Silver Shares   

PHYS            5%            PM        Sprott Physical Gold Trust ETV

GTU            5%            PM        Central Gold Trust

CEF            5%            PM        Central Fund of Canada Limited

SLW            10%            PM        Silver Wheaton Corp

EXK            5%            MINING    Endeavour Silver Corp

GPL            5%            MINING    Great Panther Silver Limited Or

GDXJ            5%            MINING Market Vectors Junior Gold Miners ETF

BPT            5%            OIL        BP Prudhoe Bay Royalty Trust

CAG            5%            FOOD        ConAgra Foods, Inc

KFT            5%            FOOD        Kraft Foods Inc

RGR            5%            WEAPONS MFG     Sturm, Ruger & Company


This new model portfolio was prepared quickly with very little analysis of the individual stocks. The purpose was not to be reckless, but to illustrate how quick and easy it is to improve on the returns of standard investment strategies. This time I expanded the portfolio from ten to thirteen different equities, and once again it includes no bonds. I wanted stocks in well established companies that were in industries with good prospects for the next few years, in either good or bad economic times. I also added a couple of junior precious metals miners to add some leverage to the precious metals play. I will be coming back 1, 2, and 3 years from now to gloat, or possibly, to eat crow. Time will tell. I wouldn't be surprised to see this portfolio double in the next one to two years.

Once again, the aggressive model portfolio is heavily concentrated in precious metals (80%) and heavily overweighted in silver, with 10% in food, 5% oil and 5% in a weapons manufacturer. All 13 equities in the model portfolio will be purchased at today's closing price. Clearly, I'm not looking for diversification here, I'm looking for profits, and to beat the major indexes and standard portfolio allocations, without taking any excessive risk. There are no inverse funds and no leveraged funds, or funds of any kind other than precious metals and miners. Out of the seven individual common stocks of corporations, four have respectable dividend yields, and the three that don't are two junior miners, and Silver Wheaton, a unique company with all the benefits of a silver miner and few of the risks. There are a lot of other investments with excellent prospects over the next few years, but these were eliminated to minimize portfolio risk. Such investments include a dollar depreciation play (UDN), a rare earths play (MCP) and an inverse bond play (TBT). I'm sure all will do quite well based on current trends. The only way I can see that this portfolio losing money over the next three years is if the primary trend in precious metals were to reverse, but it is clear (if you've done your homework) that we are still quite early in the precious metals bull.

Disclaimer: Do not use this model portfolio as investment advice. Your own portfolio should be customized for your individual situation. Always consult a financial professional, but avoid the 98% of financial professionals that don't think for themselves, and don't have a thorough knowledge of the fundamentals and long term trends in the precious metals markets.

Disclosure: I hold none of the equities listed in the above article, and have no intention of purchasing any in the near future. I am long physical precious metals.


  1. Is there any particular reason you chose BPT. I know that royalty trusts in the US are not allowed to acquire new properties to replenish their reserves. Could I replace BPT with an Master Limited Partnership? Also do you know what the situation is with Canadian Royalty Trusts and their tax situation.

  2. Number 8 is totally false. The doubling of interest rates will not cause ALL bonds to lose 50% of their principal as you claim. Only bonds with a very long duration could possibly lose 50% of their value. We have had several occasions were rates went up sharply (like the so-called Great Bond Massacre of 1994) and my bond funds only lost about 6 percent of principal but when including dividends the loss in that "terrible" year was less than 1 percent. So no, if interest rates were to double, I and most other bond investors would not lose anything close to 50%. What I stated here is a fact!

  3. It is obvious that the owner of this blog is not knowledgeable and chooses not to respond to questions and to acknowledge his errors. Any one who recommends having at least 50% to 90% in gold and silver is making a big bet based on a number of events that have very little chance of happening in the near future. These kinds of people I find all to often say idiotic things on their sites. They misrepresent facts and it shows their ignorance. I am not saying one should not have some gold and silver in a diversified portfolio but I recommend keeping it reasonable, say 5-10 percent.