Permanent Portfolio – Back to Basics
Investing should be dead simple. Dead simple investing means sticking to the basics. This post I’m going back to the basics to help new followers of the Permanent Portfolio get a solid understanding of how the strategy works.
First, I recommend you listen to all of Harry Browne’s investment radio shows. Yes, there are a few dozen of them and it may take some time. But, if you are deciding on this investment strategy for your life savings isn’t it worth it to know all you can about it? I would hope so. I’d also hope you’d think the same thing for any strategy you choose to follow. These shows answer perhaps 99% of any basic question you may have and many you probably never even considered. The shows are an easy to understand course on investing and economics all in one package and you will learn a great deal by listening to them — promise:
Along with the shows above, I also recommend you download the e-book version of Harry Browne’s last investing book Fail-Safe Investing. The e-book is about $10 and is a concise work of Browne’s 40+ years of investment experience and advice. This book is a short read and very easy to understand. It encapsulates Harry Browne’s very simple asset allocation strategy which actually is derived from a very sophisticated understanding of economics. His approach offers a level of diversification and safety not seen in any asset allocation approach I’ve ever run across (and I’ve seen a bunch of them):
If you want a physical book, then you can pick one up below. It is the same as the e-book mostly. However, the e-book is more up to date. In the e-book he recommends using an index fund for your stock exposure and avoiding all active funds as may have been mentioned in the hard copy version which was published in 1998 along with his earlier books:
Fail-Safe Investing Hardcopy Book
Next up you have Browne’s 16 Golden Rules of Financial Safety. If you follow these rules religiously, along with the Permanent Portfolio allocation, you will have a tough time losing your life savings:
16 Golden Rules of Financial Safety
Still want more? You may want to read these articles that I wrote which talk about some more core concepts.
The Permanent Portfolio Allocation
Permanent Portfolio Historical Returns
Between Browne’s radio shows, books and the extra information I wrote you’ll have a thorough understanding of this approach to investing so you can make an educated decision if it is right for you.
If that’s still not enough then you can read articles with the “permanent portfolio” tag on this site:
Permanent Portfolio Tagged Articles
Between the radio shows, Browne’s books and the FAQs you will know just about all there is to be known about implementing the Permanent Portfolio strategy. These basics will provide a solid foundation to grow and protect your money.
about 1 month ago
I just wanted to thank you again for creating this blog and keeping it around. I check back now and then to see if there is a new post, but it is mostly nice to see the consistent message. This site is a remarkable asset.
about 1 month ago
Thanks for the nice words, Ryan.
about 1 month ago
Enjoy the discussion and am interested in implementing an investment plan based on these ideas, but can’t get past plunking a bunch of money into stocks and gold as these levels.
If deflation is coming (not saying it is, but wouldn’t be surprised), not sure the the LT Bonds would be able to compensate for the losses in stocks and gold that would be seen.
Looking at the historical results, I don’t think that is a scenario that the portfolio has faced up to now.
I know you have heard this all before…
Keep up the good work.
about 1 month ago
J,
You may like this recent post that discusses what you are asking:
http://crawlingroad.com/blog/2010/01/12/what-asset-will-do-best/
Last year I was reading advice telling people to avoid stocks because they were over priced and the Dow would drop to something like 4000. Stocks instead posted almost 30% gains. In 2008 I was reading advice saying inflation was coming when gas was around $4 a gallon and avoid Long Term bonds. Long Term bonds posted 30% gains. In 2007 I was reading advice telling people to diversify into real estate and stocks because bonds were a drag on portfolio performance. In that year the real estate market started to crash.
I could go on, but I think I’ve made the point. The markets are not predictable. I don’t care how many PhDs a person has, how many books they’ve written, how many magazine columns they’ve penned or how many interviews they’ve given on CNBC. Nobody can predict the future.
It’s possible that stocks and gold could fall in price. But it’s also possible that they won’t. It may seem counterintuitive, but if you own all the assets all the time you are actually safer vs. concentrating your bets. On a concentrated bet if you are wrong you can lose a tremendous amount of money. By distributing your investments however you mitigate the damages and are far less likely to encounter a “black swan” type event that does serious damage to your net worth.
There are no guarantees in life, but diversifying your savings is usually the best course of action.
about 1 month ago
Thanks for the informative site. What do you think about using some basket of commodities instead of or in addition to some gold as a way of providing more diversification for this portion of the portfolio?
about 1 month ago
Gold works the best. It’s a commodity and it’s also a monetary metal so you get two types of protection against inflation. Browne talked about this same question in one of his shows, I think October, 24, 2004. Commodities can have bull and bear markets that have nothing to do with threats of inflation. 2008 for instance saw commodities fall through the floor. But gold was up about 5% because when banks were teetering on collapse, and trillions of dollars in money being used for bail outs, people would rather own gold if they think inflation is going to be bad.
Also, I just don’t think you can diversify better than gold for a hard asset. When currencies are having problems, people think gold and not a basket of commodities. Finally, most commodity exposure is with opaque commodity futures funds and these can have many risks hidden inside of them. Gold is really simple to understand. You can own it physically or use a fund to get exposure if you need to. But it’s simple to understand and store vs. barrels of oil, wheat, etc.