The Permanent Portfolio allocation sometimes gets criticized for not following standard investing dogma. One critic stated:

Why not wonder why none of the financial authors or academics endorse it?

Because they’re too busy defending their own pet portfolios and theories. I’ve seen plenty of bad advice from financial authors and academics. And the thing is, they will never admit they are wrong no matter how much money they lose for people who listen to them.

In fact, last year I disposed of a pile of investment books that were chock full of bad advice. They were going to the recycler because I felt it better they be turned into toilet paper than have them wreck the hard earned savings of someone who happened to read them. 

Fundmentally I’m an index fund investor. Harry Browne’s advice has many aspects to it that differ somewhat with what many people read from other index fund authors and academics:

  1. He advocates fixed allocation percentages with rebalancing bands instead of altering stock/bond mix as one ages. 
  2. He advocates using gold in the portfolio for inflation protection instead of Treasury Inflation Protected Securities (TIPS). 
  3. He advocates using Treasury Long Term bonds in the portfolio instead of short/intermediate bonds or the Total Bond Market index.
  4. He advocates only holding US Treasury bonds to avoid credit risk.
  5. He advocates holding a good amount of funds in cash to buffer during recessions. 

However there are similarities with what many index fund authors and academics state:

  1. He advises using only index funds for the stock allocation.
  2. He advises to never try to time the markets.
  3. He advises that the future is unpredictable and you should ignore market prognosticators.
  4. He advises to “stay the course” and stick to your rebalancing bands no matter what you think may happen in the markets.
  5. He advises to have an investment plan so you can deal with market uncertainty and not have your money run your life because you are worrying about it all the time. 

Overall I’ve never seen anything in Harry Browne’s advice that I would call “bad”. His advice may be conservative, but it’s not going to get someone into big trouble.

When I read posts on the Internet that criticize Harry Browne and the Permanent Portfolio I have to ask why? Because he was right? Because he advocated a portfolio allocation for many years that was basically unchanged? Because he allowed people to invest and earn acceptable returns with low risk? Because gold sometimes outperforms stocks in a diversified portfolio when academic theory says it shouldn’t? Because people who took credit risk on their bonds instead of owning Treasuries weren’t rewarded as they thought they should be? Because a portfolio that equally weights different assets can match the returns of a conventional stock-heavy allocation with significantly less risk and volatility? 

Their criticisms basically amount to: “I don’t care that the portfolio allocation works. All I know is that these academics and authors say it shouldn’t, therefore it’s bad.”

Sounds like sour grapes to me.

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