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Harry Browne's Permament Portfolio

  • Saturday, March 08 2014 @ 10:24 PM EST
  • Views: 3,354
Other Investors, investment writers, pundits and advisers spend a lot of time mulling and pontificating about how to diversify and structure their portfolios. A whole field in finance - Modern Portfolio Theory (MPT) - has been developed and researched to tackle this challenge of maximizing portfolio returns for a given amount of risk which of course, we would like to be minimized. But we still have many views on how diversified, if at all your portfolio should be and in most cases, financial advisers stick to the time honoured advice when it comes to gold. Hold 5% of your portfolio in gold as insurance, either in the form of gold mining stocks, gold certificates or more recently gold ETFs. Then we have the other side where the advise is often about impending doom and gloom, driving investors to hold the majority of their investment in gold (silver and other precious metals). Is there any middle ground?

I guess anyone could put together a portfolio that is somewhere between the 5% gold and 95% gold but one that has existed for a while and is worthy of a re-look is the Permanent Portfolio. Investment newsletter and book writer Harry Browne, introduced the Permanent Portfolio in his book, Fail-Safe Investing: Lifelong Financial Security in 30 Minutes. This book provides readers with a lot of advice on how to invest (Browne presents 17 rules on investing) and it is probably best known for its suggested portfolio allocation where gold plays a major role.

Browne suggests that your investment portfolio be broken down as:

  • 25% in tangible precious metals (gold) to provide an inflation hedge. By tangible Browne meant gold coins/bars/etc and not stocks or ETFs.
  • 25% in cash for times when liquidity is tight. This could be an interest bearing cash account or a money market fund.
  • 25% in (safe) government bonds for deflationary environments when interest rates would be expected to go down.
  • 25% in stocks for strong returns in times of economic growth. With the wide range of ETFs available, a broad stock market index ETF (low cost) would fit the bill here.

  • Browne recommended rebalancing once a year and then just forgetting about it, hence living up to its Permanent Portfolio moniker. Here is a video discussing Harry Browne's Permanent Portfolio. The interview features Craig Rowland, who has written the book The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy and talks more about this portfolio diversification strategy.

    The Permanent Portfolio is worth researching to see if it fits your investment mentality. But I think that Browne's book is well worth a read regardless.
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