HH The Permanent Portfolio

For the money you need to take care of you for the rest of your life, set up a simple, balanced, diversified portfolio.

Presumably you are not thinking in these terms when you are under forty or fifty years of age. While you may (and should) have goals, the farther away they are the less certain you can be of achieving them. Given one’s changing circumstances and the unknowns regarding economic conditions (especially inflation), it is unlikely you know the amount of money necessary until you are closer to retirement.

Mr. Browne’s portfolio is well-suited to the preservation of wealth. It is less well-suited for its creation.

Rather than a lifetime investment strategy, I suspect Mr. Browne was intent on showing that a single portfolio allocation could work regardless of the state of the world or markets. If that were his goal, he succeeded. He showed that a well-designed simple portfolio, with minimal oversight, could work. His work and the empirics it produced took much of the magic from financial advisors, hedge fund managers and the like. Browne’s efforts demystified much of investing.

The Universal Lifetime Portfolio

Browne’s Permanent Portfolio was permanent but it need not be. Marginal modifications can be made that retain its simplicity and increase its effectiveness.

The Universal Portfolio represents an approach nearly identical to that of the Permanent Portfolio. Like Mr. Browne’s work, it uses the same assets (plus one more) but modifies the risk components as one ages. Essentially, it represents three different forms of the Permanent Portfolio — one that is “risky” (young), one that is “normal” (middle-age) and one that is “safe” (later-age). Each of these is “permanent” for the period of time held.

The Universal Portfolio was inspired by Browne’s work. It is simplistic, passive and employs Browne’s philosophy. An article dealing with the Universal Portfolio will follow shortly.

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Wendell Brown 10 months 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.