Book: The Permanent Portfolio, Craig Rowland

Review

This is a modern interpretation of the book Fail-Safe Investing by Harry Browne. It’s the same concept but with modern examples. This is a fantastic book and an investment strategy I use myself. Highly recommended.

tl;dr

25 percent each: stocks, bonds, gold, cash (short-term bonds)

The Permanent Portfolio

The Permanent Portfolio is a strategy to embrace uncertainty in the markets. The main goal is to prevent major losses. Surprisingly, backtests also show that over the long-term PP also beats highly volatile stock-only portfolios. Rebalance once a year or when an asset reaches 15% or 35%. Keep some assets outside the country in which you live.

Summary

  • 25 percent each: stocks, bonds, cash (short-term bonds), gold
  • The Permanent Portfolio is a strategy to embrace uncertainty in the markets.
  • Investing should be a process of taking part of the earnings from your career and allowing them to grow safely.
  • Taking big risks with money you worked hard to earn is literally gambling with years of your life that you can’t get back.
  • Don’t use leverage.
  • No bank, brokerage, or company lasts forever.
  • Speculate only with money you can afford to lose.
  • Keep some assets outside the country in which you live.
  • If your portfolio doesn’t at least earn the rate of inflation each year you are losing money.
  • The Permanent Portfolio depends on volatility in its individual asset classes, and it works as a package.
  • Stocks that have been held for many years are just as risky as stocks that were purchased yesterday.
  • Only four basic configurations of an economy at any given time, and those are:
    • 1. Prosperity
    • 2. Deflation
    • 3. Recession
    • 4. Inflation
  • Gold should not necessarily be thought of as a long-term investment, but as a long-term insurance policy protecting against bad economic events.
  • You want to own the cheapest and most broadly based stock fund available.
  • Total stock market funds also provide slightly better long-term performance.
  • Vanguard Total Stock Market is an excellent example of an index fund.
  • Only 11 percent of all stock transactions today are individual retail investors.
  • Fund managers can’t beat the market. They are the market.
  • If you are using ETFs, pool up your money to do a bulk purchase once a quarter or bi-annually from your cash allocation.
  • Bond prices move opposite to interest rates.
  • For cash, safety should be the first priority.
  • Canton Bank of Z├╝rich ETF for gold ETF (Ticker: ZGLD)
  • Investors should avoid small gold bullion bars.
  • Physically visit the box so they have a record of it.
  • The entire portfolio should be rebalanced when any single asset reaches either a high of 35 percent of the total allocation or falls to a low of 15 percent of the total allocation
  • The caveat is that the portfolio is designed to work inside of your own country’s economy.
  • In Europe it normally makes sense to diversify across the entire Eurozone