It’s time to see how various sectors of the “Prepper Investment Model Portfolio” did in its first quarter (August-Sept-Oct of 2015). I suggested this index of 11 sectors that are often of importance to survivalist types, in an article written at the end of July 2015. Each sector was defined by some publicly available benchmark price, and then weightings adjusted so that the total portfolio added up to $1000. The definitions of the sectors are repeated below in .
The first usefulness of such an index is that over time, it allows preppers who are stewards investing for their retirement (should a disaster not occur before that time), to see which sectors are truly making, or losing money.
Some of the alternatives are more easily traded (e.g, “liquid” such as a mutual fund), while others are less liquid (e.g., a house, or rental property), or have hindrances to trading significant amounts of value (e.g., Firearms, where significant trading would require obtaining an FFL). Some can easily be held in a tax-sheltered retirement account, and others are more easily held outright as a possession (e.g., a house). A second use would be simply to help figure out when to buy more of important assets for your own use, such as firearms or housing, although there are many other considerations on those decisions.
Here are the results after the first 3 months, using data as of 10/30/2015. Presented are the original (even-weighted) value of each sector’s investment (forced to be the same), the resulting holding those areas after 3 months, and the absolute percentage change (gain or loss) in those 3 months:
GAIN OR LOSS IN FIRST THREE MONTHS:
|SECTOR||ORIGINAL INVESTMENT||CURRENT VALUE||PERCENT CHANGE|
|Domestic Large Cap||$90.91||$89.43||-1.6%|
|Domestic Small Cap||$90.91||$85.32||-6.1%|
|Precious Metals Mining||$90.91||$99.05||+9.0%|
If one started with equal amounts of money in each of the eleven categories, the total return for the first quarter of this index was a loss of 2.5%. These percentage changes and total return are NOT annualized; they are simply the gain or loss for this first 3 months of this portfolio, expressed as a percentage, to one decimal place.
Different sectors performed very differently, as expected. (This is one way the investor makes gains, by taking profits from gaining areas and re-investing in now-cheaper losing areas, known as “re-balancing.”) Overall, stocks, both foreign and domestic, were losing sectors, with large caps outperforming small and foreign, while precious metals, both themselves and the miners who obtain them, were big winners this quarter. (Miners are more leveraged than the metals, because as the prices of their products rise, their profits increase even more.) Housing had a 6.1% loss, while rental housing had a smaller loss (because it has an income stream as well as property value). The real estate investment trust (REIT) index, which tends to follow commercial real estate values, rose slightly. Firearms: A significantly cheaper AR-10 price was found (a DPMS AR-10 .308, 16″ for only $734.00 cash price: in my mind, that is a steal!), and bulk 223 ammunition became somewhat cheaper. Money market funds made a negligible gain as expected with near-zero interest rates. The overall model portfolio’s weighted value declined from $1000 to become $977.11, reflecting the overall LOSS of 2.3% in 3 months.
This report is about the index’s performance, not about investing per se, but it is important to point out that, it is up to speculation to predict what will happen in the future. To avoid such guesswork, many investment advisors recommend using a mechanistic approach where one simply acquires more of things that are cheaper and sells, or buys less of things that are more pricey. Such an approach has advantages and disadvantages — it eliminates emotion, but it also discards the wise perception potentially gained over time of why a sector went up or down. Perceptions can be faulty of course. (I personally somewhat follow the mechanistic principles taught by a Christian-based investment newsletter group. )
Rebalancing: Investors in a portfolio similar to, or including portions of this one may choose to rebalance as often, or as rarely, as they wish. There is no guaranteed best frequency of rebalancing. Common recommendations include once a year. Thus an actual investor might choose to do nothing, while another, more active investor might sell a portion of their holdings in sectors that did better than the overall loss of 2.3%, in order to purchase in sectors that did worse, and return the portfolio to equal-value-weighted balance.. If there are costs incurred by trading, this might change the picture, of course.
BUSY WORK: KEEPING THE INDEX ITSELF UP-TO-DATE
The job of the index maker is different from that of the investor. A true index usually is reweighted daily by whatever weighting scheme (e.g, market capitalization, market price, etc) chosen at its outset. This virtual portfolio was defined as equal value in each sector — but I simply cannot revalue it every day, so quarterly will have to do. If we revalue it so that each sector returns to $977.11/11 = $88.83, here are how the weightings change.  (This information is not that important for you, the investor, but it is important to anyone who wants to check or recompute the index value.)
|Sector Number||Sector Name||Original Weighting of Benchmark Data||New Weighting of Benchmark Data|
|1||Domestic Large Cap||0.4656||0.4625|
|2||Domestic Small Cap||1.5601||1.6242|
|4||Precious Metal Miners||6.8404||6.1347|
 Sector definitions:
Domestic large cap stocks, VFIAX, Yesterday’s value can be found at: https://personal.vanguard.com/us/funds/snapshot?FundId=0540&FundIntExt=INT
Domestic small cap stocks, VSMAX. Yesterday’s value can be found at: https://personal.vanguard.com/us/funds/snapshot?FundId=0548&FundIntExt=INT
Foreign stocks, VFWAX. Yesterday’s value can be found at:
Precious metals mining, FSAGX. Yesterday’s value can be found at:
Rental Housing, defined as ½ of the median sales price of existing homes + the accrued rental income calculated by (Consumer price index: Rent of primary residence ) * number of months since last rebalancing). Current median sales price can be found at: https://research.stlouisfed.org/fred2/series/HOSMEDUSM052N and c urrent rent can be found at: https://research.stlouisfed.org/fred2/series/CUUR0000SEHA
REIT (Real Estate Investment Trust), VGSIX, Yesterday’s value can be found at:
Precious metals, Gold spot price + 15 x silver spot price; Spot prices at closing time: http://www.cmi-gold-silver.com/gold-silver-daily-spot-prices/
House, Median sales price of existing homes, St. Louis FED, https://research.stlouisfed.org/fred2/series/HOSMEDUSM052N
Firearms, Entry level AR-10 rifle on Bud’s Gun Shop, cash price, www.budsgunshop.com
Ammunition, Lowest-priced 1000 rounds of brass-cased bulk AR15 ammo from Lucky Gunner; www.luckygunner.com
Money Market Fund, Vanguard VMMXX, initial investment $90.91 + return calculated as 1 year interest minus expense ratio; https://personal.vanguard.com/us/funds/snapshot?FundId=0030&FundIntExt=INT
 Sound Mind Investing, sminow.com I have no financial relationship with this group other than purchasing their newsletter.
 The original weighting published (in Table Two of the previous article) for the Rental Housing sector, 0.00077, was incorrect; the correct value to achieve $90.91 in that sector was slightly larger, at 0.0008031. I have corrected that error in the computations used to present the 1st quarterly returns in this article.
Note: The information here is just that… information and since every situation and outcome is different the above information should not be taken as financial advice, without first consulting a qualified financial adviser. See our full disclaimer here.