My Passive Income Journal

Harry Browne’s Permanent Portfolio

Harry Browne’s Permanent Portfolio: A Diversified Investment Strategy for Uncertain Times

Investing can be a daunting task, especially in times of economic uncertainty. However, Harry Browne’s permanent portfolio provides a simple and effective investment strategy that aims to generate steady returns while minimizing risk. In this article, we will explore the ins and outs of the Permanent Portfolio and how it can be an excellent option for investors looking for a long-term, diversified investment strategy.

What is the Permanent Portfolio?

The Permanent Portfolio is an investment strategy developed by Harry Browne in the 1980s. Browne was a financial writer, politician, and investment advisor who created the portfolio as a way to protect investors from the risks associated with traditional investment approaches.

The portfolio is designed to be a long-term investment strategy that aims to generate steady returns while minimizing the risk of losses. The portfolio consists of four equally-weighted asset classes, each of which is designed to perform well in different economic scenarios. The asset classes are:

  1. Stocks (represented by the S&P 500 index)
  2. Long-term Treasury bonds
  3. Gold
  4. Cash

The idea behind the portfolio is that each of these asset classes will perform well in a different economic scenario.

For example, stocks tend to perform well in times of economic growth, while bonds and gold perform well during times of economic uncertainty. Cash is included in the portfolio to provide liquidity and act as a safe haven during times of market volatility.

How does the Permanent Portfolio work?

The Permanent Portfolio is designed to be a low-maintenance investment strategy that requires little effort on the part of the investor. The portfolio is rebalanced once a year, with the goal of keeping each asset class at a 25% weighting.

The rebalancing process involves selling assets that have performed well over the past year and using the proceeds to purchase assets that have underperformed. This process ensures that the portfolio remains diversified and balanced, and that the investor is not overly exposed to any one asset class.

Rebalancing only happens once a year.

Over time, the Permanent Portfolio aims to generate steady returns while minimizing risk. While it may not generate the highest returns during periods of economic growth, it is designed to protect investors from the risks associated with market volatility and economic uncertainty.

This is fabulous for sequence risk in retirement.

Advantages of Harry Browne’s Permanent Portfolio

One of the main advantages of the Permanent Portfolio is its simplicity. The portfolio consists of just four asset classes, making it easy for investors to understand and manage. Additionally, the portfolio is rebalanced just once a year, which means that it requires very little maintenance on the part of the investor.

This appeals to the passive investor in me.

Another advantage of the Permanent Portfolio is its diversification. By including asset classes that perform well in different economic scenarios, the portfolio aims to generate steady returns while minimizing risk. This diversification also helps to protect investors from the risks associated with market volatility and economic uncertainty.

Finally, the Permanent Portfolio has a long-term focus. It is designed to be a low-maintenance investment strategy that can generate steady returns over the long term. By taking a long-term approach, investors can avoid the temptation to make impulsive investment decisions based on short-term market fluctuations.

My Passive Income Journal

Disadvantages of the Permanent Portfolio

While the Permanent Portfolio has many advantages, it is not without its disadvantages. One of the main drawbacks of the portfolio is its relatively low returns. Because the portfolio is designed to minimize risk, it may not generate the same level of returns as other, more aggressive investment strategies e.g. 100% stocks.

Additionally, the portfolio’s reliance on gold may be seen as a disadvantage by some investors. While gold has historically performed well during times of economic uncertainty, it is not always a reliable investment. Its value can fluctuate greatly depending on a variety of factors, including market conditions, global politics, and currency fluctuations.

Finally, the portfolio’s focus on long-term investments may also be seen as a disadvantage by some investors. The portfolio is designed to be a buy-and-hold strategy, meaning that investors may miss out on short-term investment opportunities that could generate higher returns. Traders may very much dislike this strategy as a result.

Who should consider the Permanent Portfolio?

The Permanent Portfolio is an excellent option for investors who are looking for a long-term, diversified investment strategy that minimizes risk. It is also a good choice for investors who are new to investing or who do not want to spend a lot of time managing their investments.

The portfolio is also a good choice for investors who are concerned about market volatility and economic uncertainty. By including asset classes that perform well in different economic scenarios, the portfolio aims to protect investors from the risks associated with market fluctuations.

However, the Permanent Portfolio may not be the best choice for investors who are looking for aggressive growth or who are willing to take on more risk for the potential of higher returns. Additionally, investors who are looking for short-term investment opportunities may not find the portfolio to be the best fit for their needs.

How to implement the Permanent Portfolio

Implementing the Permanent Portfolio is relatively simple.

Investors can build the portfolio themselves by investing equal amounts of their portfolio in the four asset classes mentioned above. Alternatively, investors can invest in a Permanent Portfolio fund, which is a fund that is designed to replicate the portfolio (do your research carefully however).

When building the portfolio, investors should keep in mind that the portfolio is designed to be rebalanced only once a year. This means that if one of the asset classes performs particularly well, it may be necessary to sell some of that asset class and purchase more of the other asset classes in order to maintain the 25% weighting.

It is also important for investors to remember that the Permanent Portfolio is designed to be a long-term investment strategy. While short-term fluctuations in the market may cause the portfolio to underperform other investment strategies, the portfolio is designed to generate steady returns over the long term.

I personally think this portfolio is best suited to those who already have sorted out their passive income requirements and the permanent portfolio will safeguard the remainder of their wealth.

In Conclusion

Harry Browne’s Permanent Portfolio is an excellent investment strategy for investors who are looking for a long-term, diversified approach to investing. The portfolio consists of four equally-weighted asset classes, each of which is designed to perform well in different economic scenarios. You will find Harry’s original book here.

The portfolio’s simplicity, diversification, and long-term focus make it an attractive option for investors who are concerned about market volatility and economic uncertainty. However, investors should also be aware of the portfolio’s relatively low returns and its reliance on gold.

Overall, the Harry Browne’s Permanent Portfolio is an excellent option for investors who are looking for a low-maintenance, long-term investment strategy that aims to minimize risk and generate steady returns. By implementing the Permanent Portfolio, investors can take advantage of the diversification benefits of a multi-asset approach while also protecting themselves from the risks associated with market volatility and economic uncertainty.

Cheers

Hugh Walker

1 thought on “Harry Browne’s Permanent Portfolio”

  1. Pingback: Forgotten Ways to Invest - My Passive Income Journal

Comments are closed.