Permanent Portfolio For Wealth Preservation

The Personal MBA recommends the Permanent Portfolio strategy (http://personalmba.com/permanent-portfolio/) for investing. In this portfolio, investments are equally split between cash or equivalent, gold bullion, long-term US bonds, and a total stock market index.



Can anyone with actual successful investing experience comment on this strategy or modifying it to use a "Dogs of the Dow" strategy in place of the Total stock market index component?



Crawling Road also blogs extensively about the Permanent Portfolio (http://crawlingroad.com/blog/2012/01/01/permanent-portfolio-2011-results/).

Comments

  • Hi Jacob,

    Without doing much research on it (although i think i have seen something similar before), it is a pretty sensible, long term strategy. What you need to do is balance your bond and stock holdings to a set ratio (what i'd seen before was 30/70) and sit back and watch magic happen image/smile.png' class='bbc_emoticon' alt=':)' /> Some very general comments on those types of strategies below



    The plus side:
    • As the stock market gets weaker and bond values get stronger, to maintain the ratio you're force to sell bonds and buy stocks. This means that you are typically selling overvalued bonds to buy stocks when they're undervalued, and vice versa as the market improves
    • Any index matching investments (i.e. ETFs) are a good low risk, low maintenance risk strategy


    The negative side:
    • It is a fairly low risk way to run an "active" portfolio, which means its fairly low reward as well. However, it is generally a pretty happy medium for those who have other things that they're passionate about as opposed to watching the stock market. e.g. you can end up mis-timing when you buy-sell if you automate the process
    • Any investment strategy which uses bonds is incompatible with negative gearing which can make it a bit slower to get started (because you have to use all your own money) and can mean that you miss out on some tax benefits (not that tax avoidance should be a primary consideration for an investment strategy!)
    • Again if you want to spend more time on it you can buy stocks based on micro market considerations on whether the individual stock is undervalued which lets you do the whole thing at a finer resolution, but again higher maintenance/risk


    In summary, its a lot better to just start doing something rather than waiting around figuring out the best plan. Even if you make a mistake at least you've learned something out of it and got more experienced image/smile.png' class='bbc_emoticon' alt=':)' />
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  • BrianHKerrBrianHKerr Quantified Biohacker
    Im young so dont believe what I say... but I always go for the dumbbell approach... to EVERYTHING... I would recommend investing in early stage start-ups you like or keeping the cash around...maybe a money market... but make sure you have use for it... I think all this medium risk nonsense is foolish and a sure way to stay with the flock. No one ever wins with a scarcity mentality.



    Just my two sense...
  • edited August 2012
    I would stay away from US cash, bonds and the US stock market, foreign investments are going to be more lucrative. The USA is not going to be able to pay on its bonds, nor will US cash be a good thing to hold on to.

    Silver I think is a better "investment" (more like safety net for your worth) right now, the ratio is between gold and silver is messed up and gold is not going down any time soon, silver will have to catch up. Gold is of course a safe haven as well.



    To explain why I'm recommending against putting money in anything USA- Current debt is around 17 trillion, we currently pay back our debt by borrowing more money - selling bonds to foreign central banks (think about this on a smaller scale, does it make sense to pay off a credit card with another credit card?)

    Other central banks will not be bailing us out by buying our bonds when they realize it's going to be impossible for us to pay them back.

    When the FED raises interest rates (even to say, 5%.. 7-10% is more likely..) our annual interest will be 1 trillion/year, almost half of the total taxes collected by the federal government.

    and to top it all off, USD will likely be losing its' reserve currency status worldwide which will not help the upcoming crash of the USD.



    Notes:

    I am not an Economist, I simply read a lot of economics books and watch a lot of econ discussions on youtube.

    So, take what I said with a grain of salt, but do the math yourself to see if investing in USA makes a lick of sense.



    Cheers and buy some AG/AU.
  • samsam
    edited February 2013
    I would be very careful about a cookie cutter approach to investing and building portfolio's. The mainstream financial industry just like the mainstream diet/health industry is about 90% B.S. and 10% good worth while content. A couple things I have learned since setting out and investing on my own in 2004.



    Entry price is critical. Buying at current levels is likely to lead to average or below average returns depending on what you select.



    Evaluate each stock as if you were buying the whole business outright. Market capitalization is the figure to use. The question is would I pay 100 Billion for XYZ company. You want to avoid common mistakes such as 3,000 per share is way to much. Some of my best gains over the time I have been investing have been buying BRK.B at a price of 3,200/share (approx. a 60% gain as of today).



    Some resources I would recommend (all free except for the books)-



    Motley Fool discussion boards: incredible wealth of information and posters there are very knowledgeable and will challenge you. Their articles on the 13 steps to investing is a good place to start.



    Books: One up on wall street by Peter Lynch, The Intelligent Investor by Ben Gram, Warren Buffets annual letters to share holders, and there are many others but these are some of the most successful investors in today's world.



    Sam

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