Harry Browne's Permanent Portfolio

On the back of a post here in the Gold thread, I did some more digging on Harry Browne

Interesting fellow was old Harry and he wrote several books

The Permanent Portfolio was created in 1981 by Harry Browne, an American investment adviser, writer and politician who died in 2006.

It’s dead simple. You put your money into four equal buckets: stocks, long-term government bonds, cash, and yes, gold.

In the 30 years since Browne first wrote about it, the Permanent Portfolio has delivered an annualized return of more than 8%.

Even since 2000, the start of the worst decade for stocks since the Depression, it has hovered around that 8% mark. No wonder it’s attracted a new generation of disciples.

The logic behind this is the perception that the economy is always in one of four states:

  1. Prosperity
  2. Inflation
  3. Recession
  4. Depression

In each of these environments, one class of investments will over-perform enough to compensate for the underperformance of the others.
I think it has historically tracked the stock market, apparently without the volatility. There is also an annual rebalancing of the portfolio to ensure an equal balance of investment funds within those 4 buckets

Harry Browne

Source

There is an actual US Fund called the Permanent Portfolio Fund that in 2001 had funds of around $52 million and in 2011 of $15.5 Billion (flight to safety?) this fund is made up of:

35% Bonds
30% Stocks (US)
20% Gold
10% Swiss francs/ Swiss government debt
5% Silver

Harry says that you should divide your investment money into two categories:

  • Money you cannot afford to lose.
  • Money you can afford to lose.

For that money you cannot afford to lose he prescribes his “permanent portfolio” for safety, stability, and simplicity as per the below

  • 25% in U.S. stocks, to provide a strong return during times of prosperity. For this portion of the portfolio, Browne recommends a basic S&P 500 index fund
  • 25% in long-term U.S. Treasury bonds, which do well during prosperity and during deflation (but which do poorly during other economic cycles).
  • 25% in cash in order to hedge against periods of contraction or recession. A money market fund.
  • 25% in precious metals (gold, specifically) in order to provide protection during periods of inflation. Browne recommends gold bullion coins.

I'd read other pieces where the precious metals was a combination of gold & silver, others just mention gold.

Once a year, if any part of the portfolio has dropped to less than 15% or grown to over 35% of the total, you re-balance the portfolio to ensure weightings of 25% in each asset allocation.

There's a thread here on the Permanent Portfolio's Performance and Historical Returns

PS: For the money you can afford to lose, Harry suggests a “variable portfolio”, with which you can do anything you want

A couple of charts (with sources) track the portfolio

permanent-portfolio-decade.png

Source

PRPFX+vs+sp500.PNG

Source

There's an actual US Permanent Portfolio Fund: PRPFX

As I said, interesting reading
 
Another interesting tidbit and link with regards to Australia surfaced re: gold

In Australia part IV of the Banking Act 1959 (the one that allows confiscation of private gold for the good of the commonwealth) is merely "suspended" (not removed from law). The mechanisms are already in place and only need a stroke of the pen from the Governor General to invoke.

Gold within Australia borders would not be able to travel outside of Australia if times are tough.

http://www.comlaw.gov.au/Details/C2011C00034/Html/Text#param145
 
His books included

  • Fail-Safe Investing
  • Why Government Doesn't Work
  • The Great Libertarian Offer
  • How I Found Freedom in an Unfree World
  • Investment Strategy in an Uncertain World
  • Rule Your World!
  • Freedom Speeches
  • The War Racket
  • How You Can Profit from the Coming Devaluation & Monetary Crisis
 
How I Found Freedom in an Unfree World has been highly recommended to me by a very successful friend.

I'm only 1 chapter in, but it seems great.
 
How I Found Freedom in an Unfree World has been highly recommended to me by a very successful friend.

I'm only 1 chapter in, but it seems great.

Hadn't read it, but just found it via the wide world of web as a pdf

Let us know what you think as a review?
 
But the AUD has nearly doubled in the last ten years..

Unless there was some way to hedge the fund,wouldn't the fact that the AUD has nearly doubled vs the USD over the last ten years negatively affect the fund's performance for Australians?
 
Unless there was some way to hedge the fund,wouldn't the fact that the AUD has nearly doubled vs the USD over the last ten years negatively affect the fund's performance for Australians?

I'd be looking at bonds in your home country, same as cash and investing in gold:confused:

The US Market makes up a large part of the world markets
 
Permanent Portfolio

An Australian version of the Permanent Portfolio is now available as a registered managed fund
It is the Hamilton Investment Fund. - Multi Asset Portfolio and the product disclosure statement is available at www.multiassetfund.com.au
Minimum investment is $5,000.
 
On the back of a post here in the Gold thread, I did some more digging on Harry Browne

Interesting fellow was old Harry and he wrote several books



Harry says that you should divide your investment money into two categories:

  • Money you cannot afford to lose.
  • Money you can afford to lose.

For that money you cannot afford to lose he prescribes his “permanent portfolio” for safety, stability, and simplicity as per the below

  • 25% in U.S. stocks, to provide a strong return during times of prosperity. For this portion of the portfolio, Browne recommends a basic S&P 500 index fund
  • 25% in long-term U.S. Treasury bonds, which do well during prosperity and during deflation (but which do poorly during other economic cycles).
  • 25% in cash in order to hedge against periods of contraction or recession. A money market fund.
  • 25% in precious metals (gold, specifically) in order to provide protection during periods of inflation. Browne recommends gold bullion coins.

I'd read other pieces where the precious metals was a combination of gold & silver, others just mention gold.

Once a year, if any part of the portfolio has dropped to less than 15% or grown to over 35% of the total, you re-balance the portfolio to ensure weightings of 25% in each asset allocation.

There's a thread here on the Permanent Portfolio's Performance and Historical Returns

PS: For the money you can afford to lose, Harry suggests a “variable portfolio”, with which you can do anything you want

A couple of charts (with sources) track the portfolio

permanent-portfolio-decade.png

Source

PRPFX+vs+sp500.PNG

Source

There's an actual US Permanent Portfolio Fund: PRPFX

As I said, interesting reading


Thought might be good idea to update the chart. I have included the max range as well starting from 1982 to present. (^GSPC is S&P500 index).

attachment.php


Cheers,
Oracle.
 

Attachments

  • Screen Shot 2014-07-28 at 11.07.18 pm.png
    Screen Shot 2014-07-28 at 11.07.18 pm.png
    60.3 KB · Views: 558
Just reading an update on this portfolio, apparently its only had 4 losing years since 1971, the largest drop was in 1981 when it fell 4.1 %. In 2008, when stocks dropped about 37 %, it lost less than 1 %.
 
Just reading an update on this portfolio, apparently its only had 4 losing years since 1971, the largest drop was in 1981 when it fell 4.1 %. In 2008, when stocks dropped about 37 %, it lost less than 1 %.

That is great. But what about the total compounded annual returns since 1971? I am not too concerned about the volatility. I am more interested in the long term what sort of returns can I expect.

Cheers,
Oracle.
 
That is great. But what about the total compounded annual returns since 1971? I am not too concerned about the volatility. I am more interested in the long term what sort of returns can I expect.

Cheers,
Oracle.

Hehe...I think you well know Oracle :) When only 25% of the portfolio is growth assets, you know you are in trouble. Don't even mention the tax effectiveness of 50% of the portfolio being made up of cash and bonds. Permanent underperformance is a given. Pass.
 
Back
Top