HH The Permanent Portfolio

Wouldn’t it be nice to not have to worry about investment decisions? The late Harry Browne, libertarian and investment adviser, thought so and proposed what he termed the Permanent Portfolio. His concept changed the way many looked at investing.

Browne’s Permanent Portfolio

Harry Browne created a portfolio designed to never need changing (except for periodic re-balancing due to valuation changes). It consisted of only four elements – stocks, gold, fixed income and cash – in equal proportions. Browne’s rationale was simple: in deflationary periods, cash and bonds were expected to perform well while stocks would perform well in more normal conditions. Gold would excel in inflationary conditions.

Using the permanent portfolio, Rip van Winkle would have made money during his prolonged nap.

Browne described his effort thusly:

For the money you need to take care of you for the rest of your life, set up a simple, balanced, diversified portfolio. I call this a “Permanent Portfolio” because once you set it up, you never need to rearrange the investment mix— even if your outlook for the future changes. The portfolio should assure that your wealth will survive any event — including an event that would be devastating to any individual element within the portfolio… It isn’t difficult or complicated to have such a portfolio this safe. You can achieve a great deal of diversification with a surprisingly simple portfolio.”

So, how would this hands-off strategy have worked out had you applied it? It would have performed as intended according to the Finpage.blog. Using just four IShare ETFs to represent the four equal components of the Permanent Portfolio they tested the outcomes.

Finpage Simulation of the PP

Here are the four Ishare ETFs used to replicate the PP:

  • iShares Core S&P Total Market ITOT
  • iShares Gold Trust IAU
  • iShares 1-3 yr. Treasury Bond TLT
  • iShares 20+ yr.Treasury Bond SHY
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Wendell Brown 3 years ago Member's comment

What does that righthand column, referring to 'with ST Treasury', mean? Since there are four components and short-term treasury is one of them - and since in the original finpage article the percentage without that qualification is different - I can't figure it out.