Let me first say that I’m not an investor. I own no stocks, no shares in mutual or index funds. Nothing. All I have is some money in two pension funds, which will probably be returned to me before I am vested. So why has the Permanent Portfolio caught this non-investor’s eye?
The main reason I don’t invest is that I want to pay off debt first. Rather than chase something that might earn me 5% interest, I’ll take the sure bet by paying off the student loans at 5% interest. This is a can’t lose investment in yourself, but that’s another story.
The other main reason I don’t invest is that I don’t know anything about it. Even worse, I don’t believe I could ever truly know enough to be confident. I am a pretty obsessive person when it comes to data and tracking, and I’d probably lose my mind the second I bought some stock.
Plus, all the monkey business I see in the markets, from robot trading to position manipulation and margin calls, it's enough to make me feel like the deck is stacked.
It’s no secret that I favor simplicity over most things. That’s because my time is my most valuable asset. If it’s going to take me hours of research and worrying each month to make a couple hundred bucks, I’d rather do something easier. The Permanent Portfolio, which according to one of its founders Harry Browne focuses on “safety, stability, and simplicity,” does seem to offer hope to people like me.
What is the Permanent Portfolio?
First, this article is not about the mutual fund of the same name that is based on the diversification and asset allocation ratio of Browne’s idea.
According to J.D. Roth at Get Rich Slowly, who has researched this, the Permanent Portfolio is taking your investment money and dividing it four ways:
- 25% in U.S. stocks, to provide a strong return during times of prosperity […]
- 25% in long-term U.S. Treasury bonds, which do well during prosperity and during deflation (but which do poorly during other economic cycles). […]
- 25% in cash in order to hedge against periods of “tight money” or recession. […]
- 25% in precious metals (gold, specifically) in order to provide protection during periods of inflation. Browne recommends gold bullion coins. […]
To add, Crawling Road says:
- The portfolio should provide wide and true diversification.
- The portfolio should be simple and not require a lot of maintenance or monitoring.
- The portfolio should allow you to grow and protect your money no matter what happens.
In a nutshell, the Permanent Portfolio fully embraces the investing doctrine of diversification.
Is the Permanent Portfolio Safe and Stable?
When investing, I think people are more sensitive to losing money than making it. I recently read an anecdote from a study that said it is more painful to lose $100 than it is joyous to make $100.
The main purpose behind the Permanent Portfolio is that you “set it and forget it” as Ron Popeil would say. So it must be safe if it runs on autopilot, right? I’m not going to pretend like I can answer that for you, though there are legions of loyal followers of the plan that can do that for me.
The idea is that if one of your asset classes is having a rough spell, one or more of the others will be doing well enough to cancel it out and keep you on track. The Permanent Portfolio, as J.D. Roth says, is about defensive investing. If you use it, you shouldn’t be daytrading or trying to chase the latest hot stock from Mad Money.
This strategy would work best for people who have a lower risk tolerance, and aren’t investing for quick gains. A Permanent Portfolio acolyte is more interested in weathering storms, guarding what they have, and being satisfied with measured and stable gains.
It’s hard to say if the results are stable, but the mutual fund by the same name had some solid gains during the recession when others were foundering. Since this article talks about DIY investing, it is hard to know how it truly performs. We have to take the word of the practitioners.
Also, its stability is what pushed many investors away in the 1990s, and into the arms of the dotcom bubble. Those who stuck with Browne's idea came out alright.
Is the Permanent Portfolio Simple?
On its face it seems so easy that a beginning investor could jump right in. Putting 25% in cash and gold bullion coins is very easy to do. I would recommend just keeping them both in your home until they get to be so much that a bank is needed. The stock allocation can be accomplished with an index fund that follows the S&P 500. The Treasury Bonds are also easy enough to buy.
So there you go. No research needed once you determine the best fund and where you are going to get your gold bullion from (I personally prefer silver because it’s cheaper and can be a divisible form of currency if the economy were to collapse).
Browne advocates rebalancing your portfolio once per year. That’s a maintenance plan even I can adhere to!
Is the Permanent Portfolio Right for Me?
Only you can answer this question for yourself. I plan to order Browne’s short book Fail Safe Investing to give this a deeper look, but on its face, the Permanent Portfolio is very appealing.
It looks easy to understand, easy to implement, and is designed to keep you from meddling with your investments.
Most of the people who lose money do so because they allow emotion to cloud their investing. I feel I would do the same. At least with this strategy I can manipulate myself into engaging in safe and rational investing that makes sense.
Have any of you looked into the Permanent Portfolio for your own investing? What are your thoughts?