The Permanent Portfolio method by Harry Browne

[paxmao]

This can be very useful for people who have made money with bitcoin and digital assets but eventually would like to create a calmer portfolio. I may write later about how bitcoin could be part of a permanent portfolio reviewed to today's possibilities.

Harry Browne was an US financial advisor, writer and politician.

His most influential work was de development of the permanent portfolio - A tool to build an asset portfolio that is able to perform under any foreseeable circumstance of the markets.  As anyone may guess, the also called "all-weather" does not perform as well as specific portfolios built for special market conditions. The developer of the method was mainly interested in preserving capital with a moderate return.

The basis:
- There are 4 basic scenarios: prosperity, inflation, recession or deflation. You would need assets that do well in each of these to keep a good balance.
- In Prosperity - stocks, to provide a strong return. Bonds will do well as well.
- In Inflation - Gold is the choice (not the only possibility though).
- In Recession - Cash or cash equivalents do well, due to low liquidity in recessions.
- In deflation - Bonds will do great.

This is how the basics look like. Simple? Yes, that is the beauty of it. This type of portfolio have been tested in different countries, so it is not specific to US or other.

[jackg]

I'd do 33:33:34 bonds:gold:stocks.

Gold is a bit of an asset on its own in terms of it having both retail and business demand and the demand being international.
Stocks have better growth generally too than a lot of other assets.
Bonds offer a FIXED return normally so by buying both bonds and cash you're increasing your level of risk quite dramatically imo. If inflation hits 8% and you have a 10 year bond paying 4% a year, you'll be annoyed you did that - especially if it lasts 5+ years and monatory policy can change under extreme circumstances...

[joker_josue]

An interesting concept. I didn't know it, but it even makes a lot of sense.

Adapting to the crypto world, how do you think the investment can be divided?
Long term bonds, I would say would be Bitcoin.


By the way, do you have a link to an article that talks more about this?

[Darker45]

This is interesting. But I wonder, what would be the result of such a portfolio to your desire to increase your worth? Or is this portfolio better on protecting or preserving your wealth rather than increasing it? Will this only result to a break-even at the end of the day?

Or should the bulk of our portfolio jump from one asset to another based on the call of the times to make the most out of the changing circumstances and leave the rest for a hedge?

For example, in our current time, would we rather do away from cash and just risk on, say, Bitcoin? Or should we just devote a small percentage to Bitcoin to avoid the rough seas?

[Poker Player]

-snip

Well, the truth is that there are many types of portfolios and none of them is perfect. Depending on one's personal situation we may require different distributions. In my opinion, if you have a high net worth, for example $4M, I think it is silly to have 25% in cash that will lose you 15% annual purchasing power in the next years. For Gold I'd rather stick with Bitcoin, which is Gold 2.0, although I think it's acceptable to have something like 80% Bitcoin 20% Gold.

But well, as you say, it is a portflio more to protect than to perform so that each part of the portfolio protects you against certain types of problems, so I think it is OK, although I will never use it.

[NeuroticFish]

This is how the basics look like. Simple? Yes, that is the beauty of it. This type of portfolio have been tested in different countries, so it is not specific to US or other.

It indeed looks simple, but imho one has to have at least 500k, but most probably more than 1M USD worth of wealth in order to get even close of thinking to diversify like this.
But maybe I am wrong and then I am open to suggestions/ideas.

[Kong Hey Pakboy]

It indeed looks simple, but imho one has to have at least 500k, but most probably more than 1M USD worth of wealth in order to get even close of thinking to diversify like this.
But maybe I am wrong and then I am open to suggestions/ideas.

That was my first thought too, it is difficult to diversify especially if you don't have enough money or you don't have because as far as I know, it is pretty expensive creating a portfolio that will match that, not to mention that most of them you have to pay a large amount of management fee. I think that it is the end goal but in my opinion, you have to start focusing on one of them first so you can concentrate the wealth and make more money and then diversify.

[joker_josue]

There are no ideal models. There are good models and this seems to be one.

These 4 investment areas are good in all aspects, because it increases investment and ensures less loss when the market falls.
Because normally when one of the areas falls, another is going up.

The question in any investment model, which can never be explained, is when to invest more money or when to withdraw money.
This is because nobody knows the future. It has to be a bet of the undue, after an analysis and what you think will be the best. Also with your needs.

Of course, if the investment value is low, it is difficult to divide it by 4 areas and really have a return. This model will really work better for those who have a greater investment capacity.
But it is still a model, to be analyzed, so that it may be better to invest less amounts at certain times.

[Mauser]

This is an interesting take on asset allocation. I haven't seen the 25% share before. One big thing I find missing is real estate funds. I would probably put half of the 25% hold into real estate just to have some more diversification. Another point that I would make is that cash and bonds are very similar, putting 50% into these two seems to much. I would rather leave 25% in cryptos than going for cash, we still have positive inflation and not getting interest from cash.

[slapper]

Never heard about it before but this concept does make me curious and interested. This should be spread around the globe so that people have more chances to both earning and saving money. Such allocation surely make your funds secure while facing any kind of recession, disaster, or pandemic

But when the world gets developed, some assets in this technique should be replaced with new ones, and I believe bitcoin ( or some sorts of cryptocurrencies) are capable of this list. Besides inflation, bitcoin does reach all of the other requirements in the list. So it is possible for you to replace any of them with bitcoin so that we can utilize this method more effectively

 

[masterzino]

I don't like 50% of this conception.

25% Cash?? Why? Static cash is the sure way to lose value.
I agree it's good to have liquidity in a recession or crisis, but it's much better to keep that 25% in high-liquidity assets than cash.

it's hard to guess what are the other 25% I don't like The Gold.

[bassbity]

The basis:
- There are 4 basic scenarios: prosperity, inflation, recession or deflation. You would need assets that do well in each of these to keep a good balance.
- In Prosperity - stocks, to provide a strong return. Bonds will do well as well.
- In Inflation - Gold is the choice (not the only possibility though).
- In Recession - Cash or cash equivalents do well, due to low liquidity in recessions.
- In deflation - Bonds will do great.

very simple and easy to understand, you have given us a simple but very useful presentation. That is your character who is good at providing information about both micro and macro economic management. Then from the 4 methods, I am sure that an efficient and optimal portfolio management will be created.

[Theb]

Same concept as the 70/20/10 rule on how you allocated your income for your daily needs and investments but only this one is focusing on investments. Although we should keep in mind that this "permanent portfolio" method is literally "permanent" which means the money you are putting in these are for the purposes of investments or holding the assets in long-term which for me personally I don't think applies perfectly to a volatile market such as the crypto market this was an investment strategy that was created in the 80% a time of recession and a great time for investments because most of the assets back then are undervalued.

[dothebeats]

My current financial status cannot diversify as wild as this, though it's an interesting concept for those who have a lot of money in the bank. They will generally have all the money in whatever season there is, and would continue thriving even if the world around them is going down. Then again, you have to have something in the bank for you to be able to support this method. Those who are living from paycheck to paycheck would not be able to do this, even if they are to take odd jobs in between and take all the overtimes they can get.

[mu_enrico]

Ideally, anyone interested in constructing a portfolio should read Markowitz's Modern Portfolio Theory. The %-asset isn't a number that comes up from one's imagination, rather from the calculation.

Why I say "ideally?" Because it's time-consuming, and you may don't have the information needed to do the calculation. Hence, you should ask your investment manager to create a portfolio, not just a guesstimate. But if you can't afford it, go for gold, index fund, term deposit, and a tiny portion of Bitcoin. Easy to get, less hassle.

[paxmao]

I'd do 33:33:34 bonds:gold:stocks.
...

Not bad, it is just that you will not have cash when cash is in demand (recessions and liquidity crisis)

...
By the way, do you have a link to an article that talks more about this?

Harry Browne authored a book, but I am sure there are may updated versions. https://www.amazon.co.uk/Permanent-Portfolio-Long-Term-Investment-Strategy/dp/1118288254

This is interesting. But I wonder, what would be the result of such a portfolio to your desire to increase your worth? Or is this portfolio better on protecting or preserving your wealth rather than increasing it? Will this only result to a break-even at the end of the day?

Or should the bulk of our portfolio jump from one asset to another based on the call of the times to make the most out of the changing circumstances and leave the rest for a hedge?

For example, in our current time, would we rather do away from cash and just risk on, say, Bitcoin? Or should we just devote a small percentage to Bitcoin to avoid the rough seas?

The idea behind the portfolio is to be as lazy as possible while preserving wealth. Now, you can tweak it a be a bit more "active" if you chose so yes.

...
It indeed looks simple, but imho one has to have at least 500k...

Not at all. This is perfectly possible with 1000 USD. It is better if you have at least 5000 to avoid the commissions eating up too much. What you do is to make a "synthetic" porfolio with ETFs or funds.

... Besides inflation, bitcoin does reach all of the other requirements in the list. So it is possible for you to replace any of them with bitcoin so that we can utilize this method more effectively

Bitcoin is still variable in behaviour. It is not bad in recession and great with inflation, but it there is a liquidity crisys like at the start of COVID,... well...

I am thinking that bitcoin could  add some pepper to it. Keep tuned

...

25% Cash?? Why? Static cash is the sure way to lose value.
I agree it's good to have liquidity in a recession or crisis, but it's much better to keep that 25% in high-liquidity assets than cash.
...

Cash or cash equivalents (e.g. short term bonds). But careful, in 2008 cash was cash and bonds markets were on the verge of collapse for a few days.

[jossiel]

To make it calmer, I'll add real estate and properties on that chart.

It's easier to manage it and you don't have to be an expert when you're going to have it. You can have it as an appreciative asset and at the same time, you can earn passively through by renting it out.

That's also the beauty of real estate which I've seen missing on his method.

One big thing I find missing is real estate funds. I would probably put half of the 25% hold into real estate just to have some more diversification.

Likewise, 25% is also a good diversification for its part and most of the rich people have it most in real estate.

[Scripture]

This is a good portfolio to face future problems and of course, it has a good reason to be done.
Though, personally I still prefer cryptocurrency over stocks since this market proves to become more profitable and I can trade anytime I want which is not possible on stocks. Nevertheless, we have to start planning with our portfolios, always expect for a worse scenario to come and if you’re prepared enough you don’t need to worry that much.

[DarkIT]

This is a good portfolio to face future problems and of course, it has a good reason to be done.
Though, personally I still prefer cryptocurrency over stocks since this market proves to become more profitable and I can trade anytime I want which is not possible on stocks. Nevertheless, we have to start planning with our portfolios, always expect for a worse scenario to come and if you’re prepared enough you don’t need to worry that much.

While comparison of stock and crypto, cryptocurrency is the best one.In many ways price of bitcoin was low, then the stock market. You need huge analysis of the stock in certain stock.But the thing is no need to analysis bitcoin the huge.The returns from the bitcoin is more then the returns from the stock.

[pugman]

Cool portfolio but so 1990. Have we not seen enough recessions and market fails? There is a new market fail in the crypto market everyday for fuck sake. We saw what happened to the stocks like GameStop and such.

The idea is cool, simplify your portfolio but fuck gold. It can suck a dirt penis for all I care.

I think the ideal portfolio in 2021 would be to add in either a 5th element for crypto and divide it with a portion of bitcoin/some good DeFis/aspiring NFTs/solid alts like Eth. Spice it up. 

Also, very crucial time for real estate investments. Covid has fucked up the real estate market sooo damn hard. If people can get hands to something good, in the long run it will be :chef's kiss:.