I really think in the long run that a conservative strategy like the Permanent Portfolio will probably beat more aggressive stock strategies. There is more to investing than trying to get smoking hot returns every year. You need to actually have a plan you could live with when things aren’t going well. Unfortunately many investing portfolios that seem great today quickly lose their appeal after they dish out a heavy loss. I think there needs to be a balance between absolutely best theoretical returns and safety. I think the PP allocation is “good enough” to not need much tweaking.

Wish I’d found out about Browne many years earlier. His advice would have saved me a tremendous amount of money. Funny thing is I voted for him twice for President but had absolutely no idea about his finance background.

The fact that every manner of slicing and dicing of the PP shows that it performs as promised just makes Harry Browne’s intuition that much more impressive to me.

It is a real privilege to me to be able to share HB’s ideas with others, since so few people are familiar with his thinking and personality. I suspect craig feels the same way.

Using the default settings on the Portfolio page, if you set an additional variable as the maximum portfolio allocation and then run Excel Solver to maximize the Real Sortino Ratio (a measure of risk adjusted return) with only allowing any one asset to have 25% of your total allocation (don’t put all your eggs in one basket), this is the portfolio that you end up with:

3% US Small Cap Value
25% Emerging Markets
6% International Pacific
25% Long Term Government Bonds
24% 5 Year T-Bills
18% Gold

Wow! That seems an awful lot like the Permanent Portfolio, especially if you consider Harry Browne’s early advice of going for riskier stock investments (if I am remembering correctly). He was crazy like a fox.

You do your best with the tools you have. Any diversification is better than none at all.

Yep. I think what Browne and Coxon got really right was to look at the economic cycles as a driver of asset classes and not the correlations of asset classes alone.

Some have been critical that the economic factors that drive the returns may not always be correlated to the asset classes in the future. This is possible.

Yet in 2008, just like clockwork, when deflation was in the air the asset tuned to do best in deflation (LT Bonds) went into orbit just as economic theory would suggest.

So it seems the economic correlations have survived to fight another day.

Re: Munis

You are right. Those are exactly Browne’s thoughts on the subject as I understood them. You are taking on these risks for potentially little after-tax gains. Right now we’re seeing California on the verge of insolvency (again??). I doubt the Feds will let it happen, but it does show that credit risk at the muni level (even in a powerful economy like California’s) is very real.

The seemingly naive 1/N allocation is actually quite smart. Of course, it helps if the N are as different from each other as possible.

Regarding munis…Browne’s view was that the tax benefit is illusory. There is no real benefit after accounting for differences in yield, credit risk, call risk, illiquidity, etc.

Thanks for keeping the PP idea alive!

foglifter

I like the allocation and do it with my 401(k) thru the fund, but can’t get over the tax free muni mental hurdle with my taxable money. You do a great job defending this portfolio on Bogleheads!

Ray

Yet somehow you’ll have critics saying that Browne’s fairly conservative approach and advice is “riskier” than these other activities. It boggles the mind.

Re: bonds

You need to do what is comfortable with you. It’s obvious you understand the risks/reward involved so if you are happy with your decision I can’t fault you (although I can still rib you over it )