Does the mythical 'permanent portfolio' work?

A popular investment model examined.

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    A man walks next to screens showing stocks at the Athens Stock Exchange, in Athens. The famed 'permanent portfolio,' is ideal for weathering turbulent financial times. But it's not suitable for every situation, as its name suggests.
    Petros Giannakouris/AP
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There's a hushed whisper over the phone (or coming through my email) anytime the late Harry Browne's "Permanent Portfolio" is brought up. In certain circles, it has taken on an almost mystical quality since its advent in the 1970's. Clients and prospective clients are asking me about it all the time...(the book it is based on here: Fail-Safe Investing: Lifelong Financial Security in 30 Minutes )

For the uninitiated, the Permanent Portfolio, as practiced by the mutual fund founded in 1982 based on Browne's theory, is a mix of:

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

So, does it work?

The short answer is, in a secular bull market, it's not great, but it was tailor-made for an environment like the one we've been through these last eight years - it is the new Hot Dot. And investors are chasing that Hot Dot right into the namesake Permanent Portfolio fund, according to Investment News.

For years, [the Permanent Portfolio] fund languished while investors chased surging stock and bond markets. At the end of 2001, after stocks had rallied 17-fold over two decades, Permanent Portfolio had assets of $52 million. Now, 10 years later, the fund is beating all rivals and assets have surged to $15.6 billion...The fund gained an annualized 10.5 percent in the five years ended Sept. 13, the best return among 2,153 balanced funds tracked by Chicago-based Morningstar Inc., most of which divvy their assets among stocks, fixed income and cash.

Classic performance chasing, everyone wants that Hot Dot in their portfolio. We all know that gold and bonds did a lot of the heavy lifting here...the question for investors piling in now is whether that allocation remains suited for the next ten years. While I big on asset allocation in my own practice, I'm not so sure that any portfolio referring to itself as "permanent" is ideal for every market environment and it is very rare to see one investment style dominate in multiple cycles.

So the new decade's Permanent Portfolio should probably look somewhat different than the last decade's.


Permanent -- and peculiar -- asset mix pushes this fund to top (Investment News)

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