An up close look at an investment strategy that can handle today's uncertain financial environment Market uncertainty cannot be eliminated. So rather than attempt to do away with it, why not embrace it? That is what this book is designed to do. The Permanent Portfolio takes you through Harry Browne's Permanent Portfolio approach—which can weather a wide range of economic conditions from inflation and deflation to recession—and reveals how it can help investors protect and grow their money.
Written by Craig Rowland and Mike Lawson, this reliable resource demonstrates everything from a straightforward four-asset Exchange Traded Fund (ETF) version of the strategy all the way up to a sophisticated approach using Swiss bank storage of selected assets for geographic and political diversification. In all cases, the authors provide step-by-step guidance based upon personal experience.
- This timeless strategy is supported by more than three decades of empirical evidence
- The authors skillfully explain how to incorporate the ideas of the Permanent Portfolio into your financial endeavors in order to maintain, protect, and grow your money
- Includes select updates of Harry Browne's Permanent Portfolio approach, which reflect our changing times
The Permanent Portfolio is an essential guide for investors who are serious about building a better portfolio.
Table of Contents:
Foreword xi
Preface: Life is Uncertain xv
Acknowledgments xix
Chapter 1 What is the Permanent Portfolio? 1
A Simple Idea 1
A Simple Allocation 3
Simply Great Results 3
Chapter 2 The 16 Golden Rules of Financial Safety 5
Rule #1: Your Career Provides Your Wealth 6
Rule #2: Don’t Assume You Can Replace Your Wealth 6
Rule #3: Recognize the Difference between Investing and Speculating 6
Rule #4: No One Can Predict the Future 7
Rule #5: No One Can Time the Market 7
Rule #6: No Trading System Will Work as Well in the Future as It Did in the Past 8
Rule #7: Don’t Use Leverage 8
Rule #8: Don’t Let Anyone Make Your Decisions 9
Rule #9: Don’t Ever Do Anything You Don’t Understand 9
Rule #10: Don’t Depend on Any One Investment, Institution, or Person for Your Safety 10
Rule #11: Create a Bulletproof Portfolio for Protection 11
Rule #12: Speculate Only with Money You Can Afford to Lose 11
Rule #13: Keep Some Assets Outside the Country in which You Live 11
Rule #14: Beware of Tax-Avoidance Schemes 11
Rule #15: Enjoy Yourself with a Budget for Pleasure 12
Rule #16: Whenever You’re in Doubt about a Course of Action, It’s Always Better to Err on the Side of Safety 12
Investing and the Rules of Life 12
Recap 13
Chapter 3 Permanent Portfolio Performance 15
Growth, No Large Losses, and Real Returns: The Holy Trinity 16
Only Real Returns Matter 24
Looking at Total Performance Over Time 26
Recap 30
Chapter 4 Simple, Safe, and Stable 33
Simplicity 33
Safety 34
Stability 35
Making the Most of Your Investments 36
Expect the Unexpected 44
Recap 46
Chapter 5 Investing Based on Economic Conditions 47
When Diversification Fails 48
A Different Way to Diversify 55
Four Economic Conditions 57
Four Economic Conditions þ Four Assets ¼ Strong Diversification 60
How the Portfolio Works with Economic Conditions 62
Recap 64
Chapter 6 Stocks 65
Benefits of Stocks 65
Risks of Stocks 66
Volatility 67
Owning Stocks 68
Recommended Stock Index Funds 69
Which Type of Index Fund to Use? 70
Why Use an Index Fund? 70
Avoid Actively Managed Stock Funds 74
Indexing is a Marathon 78
Beware of Trading Costs 79
Large-Cap and Small-Cap Stocks 80
International Stock Funds 81
A Warning About Company Stock 84
No Index Funds—What to Do? 85
Recap 85
Chapter 7 Bonds 87
Benefits of Bonds 87
Risks of Bonds 89
Volatility 90
Bonds and Deflation 92
Owning Bonds 93
Bonds to Buy 94
Buying Bonds 94
Other Bond Risks—The Case for Treasury Bonds 98
Bonds to Avoid 103
Flight to Safety 108
Earning Money Multiple Ways 111
Bond Risk Matrix 112
Bond Funds and Retirement Plans 114
Recap 114
Chapter 8 Cash 117
Benefits of Cash 117
Risks of Cash 120
Volatility 121
Owning Cash 123
Cash Risks—The Case for Treasury Bills 128
Cash to Avoid 132
Cash Risk Matrix 140
Cash and Retirement Plans 140
Recap 141
Chapter 9 Gold 143
Benefits of Gold 144
Risks of Gold 145
Volatility 147
Causes of Inflation 148
Gold Protects During Extreme Events 149
No Interest, No Dividends, No Problem 152
Why Do Central Banks Hold So Much Gold? 153
Owning Gold 153
Buying Gold 154
Buying and Storing Gold at a Bank 157
Gold Funds 158
Assets to Avoid 163
Limit Gold Bullion Sales Taxes 171
Other Considerations 171
Recap 173
Chapter 10 Implementing the Permanent Portfolio 175
Key Concepts 175
Four Levels of Protection 177
Level 1—Basic—All Funds 179
Level 2—Good—Funds, Bonds, and Gold 182
Level 3—Better—Funds, Bonds, and Gold 185
Level 4—Best—Funds, Bonds, Gold, and Geographic Diversification 187
All In, or Wait? 190
Other Portfolio Ideas 192
Final Considerations 193
Recap 194
Chapter 11 Portfolio Rebalancing and Maintenance 195
Two Primary Purposes of Rebalancing 197
Rebalancing Maintains Firewalls 199
How to Rebalance: Rebalancing Bands 201
Withdrawals and Rebalancing 203
Timing Can Influence Rebalancing 203
Adding New Money to the Portfolio 204
Allocating Dividends 204
Different Approaches to Rebalancing 205
Emotional Aspects of Rebalancing 206
Rebalancing and Taxable Accounts 207
Recap 208
Chapter 12 Implementing the Permanent Portfolio Internationally 209
The World is Not Flat 209
Applying the Same Principles Across Countries 212
Various Country Options 214
Canada 215
Europe 218
United Kingdom 222
Australia 223
Asia, Middle East, and the Rest of the World 225
Developing Country Investing 226
Recap 228
Chapter 13 Taxes and Investing 229
Simplicity is Often the Best Tax Strategy 229
Tax-Free Savings Vehicles 231
Types of Taxable Events 231
Ordering of Assets and Tax Planning 233
Retirement Accounts and the Permanent Portfolio 238
Individual Retirement Accounts 241
Pensions, Social Security, and Other Plans 243
Tax-Loss Harvesting 243
Final Thoughts on Taxes 245
Recap 246
Chapter 14 Institutional Diversification 247
What is Institutional Diversification? 247
Why Institutional Diversification? 248
Identity Theft 251
Natural Disasters 252
Terrorism 252
Cyber Attack 252
How to Divide Your Money 253
Recap 254
Chapter 15 Geographic Diversification 257
Then and Now 257
What is Geographic Diversification? 257
What Assets Should Be Kept in a Foreign Account? 258
Why Geographic Diversification? 258
Geographic Diversification and a Warning for U.S. Citizens 262
Even Politicians Do It 264
The Reality Risk Spectrum 265
Types of Geographic Diversification 267
Overseas Gold Storage Options 270
New Zealand 270
Australia 273
United States 276
Switzerland 278
Intermediaries for U.S. Citizens 283
Swiss Gold Storage Services for U.S. and Non-U.S. Citizens 285
Safe Deposit Boxes 287
Geographic Diversification Matrix 289
Disclosing Accounts—U.S. Citizens 290
Emergency Options 292
Other Options 293
Recap 293
Chapter 16 The Variable Portfolio 295
Why a Variable Portfolio? 296
Three Rules for the Variable Portfolio 296
Modifying the Permanent Portfolio 299
Can You Really Ever Beat the Market? 299
Recap 300
Chapter 17 Permanent Portfolio Funds 303
The Permanent Portfolio Fund 303
Global X Permanent ETF 307
Recap 309
Chapter 18 Conclusion 311
Recommended Resources 313
About the Authors 317
Index 319
