Thursday, May 5, 2011

the permanent portfolio

I came across a very good article on Harry Browne's permanent portfolio. He recommends a 25% allocation on cash, stocks, bonds and gold respectively and all you have to do is to rebalance your portfolio once a year to maintain the said allocation. What draws me to his strategy is that it makes a lot of sense. According to him, the future economic environment is always uncertain and impossible to predict accurately, so a prudent investor need to have investments that will do well in each situation. In times of prosperity, stocks do well; in times of inflation, gold performs very well; when interest rates fall, bonds are the winners and in times of recession, cash is king. So regardless of the economic condition, the investor with the permanent portfolio will not lose all of his investment and he is guaranteed that one of it will yield very good returns that will compensate for the poor performance of the other three. The added bonus is that you only need to spend a few hours each year in maintaining your portfolio and forget about it the remaining 364 days. I hope you include Browne's permanent portfolio into your own personal investment philosophy, I certainly have.

My only comment is that he did not include real estate which is also a very important asset class. Happy investing!

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