Prepper Investment Model Portfolio: First 3 Months’ Outcome

By PrepperDoc

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 [1].

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%
Foreign Stocks $90.91 $84.98 -6.5%
Precious Metals Mining $90.91 $99.05 +9.0%
Rental Housing $90.91 $89.79 -1.2%
REIT $90.91 $92.27 +1.5%
Precious Metals $90.91 $94.89 +4.4%
House $90.91 $85.33 -6.1%
Firearms $90.91 $77.23 -15.0%
Ammunition $90.91 $87.33 -3.3%
Money Market $90.91 $90.93 0.0%

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. [2])

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. [3]    (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
3 Foreign stocks 3.0102 3.1467
4 Precious Metal Miners 6.8404 6.1347
5 Rental Housing 0.0008031 0.000794
6 REIT 3.4765 3.3470
7 Precious Metals 0.0689036 0.0645
8 Housing 0.0003846 0.0004
9 Firearms 0.1052199 0.1210
10 Ammunition 0.2754848 0.2786
11 Money Market 1.0000000 0.9769

REFERENCES:

[1]  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:

https://personal.vanguard.com/us/funds/snapshot?FundId=0570&FundIntExt=INT

Precious metals mining, FSAGX.  Yesterday’s value can be found at:

https://quotes.fidelity.com/ftgw/fbc/ofquotes/mmnet/Charts?SID_VALUE_ID=FSAGX&navBar=true

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 [5]) * 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:

https://personal.vanguard.com/us/funds/snapshot?FundId=0123&FundIntExt=INT

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

[2]  Sound Mind Investing, sminow.com   I have no financial relationship with this group other than purchasing their newsletter.

[3] 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.

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Comments

  1. This is a good start. However, it should be noted that in the investment world, one qtr is a very short time period. Even one year is considered short term. So the future percentages of return will be more meaningful. It will be good to look back on this index after 3-5 years of tracking.

  2. Well, again PD makes me feel small. 🙂

    I’m just continuing to look at things I need to have one hand (food, ammo, weapons, clothing, medical supplies, etc.) and how much my “holdings” in these areas have increased, where my deficits are. I am close to several of my goals, which will allow me to focus on the “bigger picture” for us which is changing our location to one more suited to long term stability.

    Even if I don’t live to see the events I’m planning for transpire, I want to reduce my dependence on “the system” to supply what my family and I need. But that’s just my plan.

    • PrepperDoc says:

      No way! The intent is not to make you feel bad or small!

      If your current investments are in tangible personally owned items, that is equivalent
      In many ways to a taxable investment account. This sort of information can help guide what is cheaper to buy right now.

      In the book “the Millionaire next-door” Stanley pointed out that the vast number of wealthy individuals were proprietors who had built their own business. There are more ways to invest Than mutual funds, you just need to be brutally honest with yourself at how well you’re doing overall. And make changes if necessary and possible of course. A man with a plan that will feed him when he’s unable to work is a very wise man.

      • PrepperDoc:

        Not really taken as belittling or anything offensive. Hense the “happy face”.

        It shows me:

        1. Others are thinking along the same lines that I am.

        2. Some are expanding upon that thinking (IMO = a good thing).

  3. Prepper Doc
    Love you statistical analysis but this field of expertise is my dh’s. He is the stock market guy, he just asks me can he invest and I say what ever makes you happy.

  4. Very interesting from a conceptual standpoint, but it rests upon an assumption that may not be true; all “investments” are equated to a U.S. dollar value. But the overall concern in the prepper community is that the dollar continues to decline in real value. If most folks’ preparations (e.g., beans, bullets and band-aids) become needed, it will probably mean the dollar has no value at all. In that scenario, a box of 50 .22 cartridges would be worth much more than $100 cash (or an equivalent weight of toilet paper). My approach is to buy what I need and think I will use, regardless of what the future brings.

    • I understand your point exactly. I’ve spent quite a lot of time often wondering exactly how best to “divide my portion to seven or eight”. It is a worthwhile introspection.

      Let me just point out a couple of issues:
      If the dollar depreciates due to inflation, the index will automatically show that the tangible goods have shot up in value (using the dollar yardstick). But not all crashes are inflationary. Right now the dollar has pulled way a head of many other currencies–and we still have a lot of people unable to get desired work. That may contribute to the relative cheapness of firearms & ammunition right now. (and precious metals in my mind are not that high either!). Using the comparison between those (firearm) assets and others, leads me to steer towards purchasing them NOW and I’ve done exactly that in the past month.

      There will always be crashes, I’ve lived thru several already in my lifespan, hope that none of them are the big-one that I’m stocked up for also. I have to plan for all possible scenarios.

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