A reader writes:

Thank you for your very useful and informative website.  I have read the Harry Browne book and we already own the PRPFX mutual fund.  I am now interested in replicating this strategy on my own with other money in order to diversify the holding of our assets. Your site has helped give a lot of practical information for doing such.

What comes to mind are the following questions regarding depositing and withdrawing money from the portfolio:

1) After it is all set up and initial money is invested, when you add more money do you automatically split the money up into the 4 parts equally, or do you use that as an opportunity to rebalance the portfolio and increase the value of an asset class that is currently low?  I have been trying to determine if this matters or not either way.

[craigr] I’d put the money into the lagging asset. It’s usually at a better price and I like buying things on sale because you get more for each dollar. Also helps save on taxes because you rebalance less later.

2) Likewise, when you take money out of the portfolio, do you remove it just from the current top performer or from all 4 asset classes equally?  I realize the permanent portfolio strategy is not meant for frequent withdrawals, but nonetheless, I would like to know the correct strategy for when I need to do so.

[craigr] I take money from the “cash” allocation and replenish it once a year personally. That way I can let the other assets grow if they are so inclined. Cash is the least likely to appreciate of all the assets. This also has less turnover costs as your “cash” will probably be in a money market fund that works with smaller withdrawals without additional costs and extra bookkeeping (like tracking gains and losses).

It seems that using a deposit or withdrawal as an opportunity to somewhat rebalance the portfolio would be the way to go, after all, if you buy more of the low asset it then automatically decreases the percentage of the higher asset.  But, I would like to hear your thoughts on this from your experience and analysis.

[craigr] I think you’re looking at this the right way. Buy your lowest performing asset first. If you don’t want to do this constantly, then put the money in your “cash” and then once a year make a bulk purchase into your assets that are lagging to save on transaction costs if you pay them. This is not a problem with open-ended mutual funds (as index mutual funds won’t charge you purchase fees most of the time). But this is an issue with ETFs as you pay a broker fee for buying/selling.

Thanks for writing and I hope that helps.