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Permanent Portfolio

What is the Permanent Portfolio?

The Permanent Portfolio is an investing strategy developed by the late Harry Browne. It is a simple plan for protecting and growing your hard earned money and it is used by amateur and professional investors.

Why is it called the Permanent Portfolio?

Harry explained that once you set up this portfolio, it never needs to be changed. Keep it for life. He recommended rebalancing the portfolio once a year but its also a common strategy to rebalance when one part of the portfolio grows or shrinks by more than 5%.

What is the Strategy?

Is this really a good strategy?

Yes. Harry explains that there are 4 types of economic conditions: Prosperity, Inflation, Deflation, and Recession. The Permanent Portfolio benefits from all 4 conditions. Moreover, if one asset class is having a particularly troublesome time, you can take solice in the fact that the losses will be contained to a fixed portion of the portfolio.

Why 25% Stocks?

Stocks benefit during periods of Prosperity. However, prosperity is not a guarantee. A common 60/40 portfolio split between stocks and bonds would lose much more in value than the Permanent Portfolio. Harry recommended the S&P 500 (SPY or VOO) for this allocation of the portfolio.

We agree with Harry that the S&P 500 is an excellent choice. However, we also believe in owning stocks directly and we think 5%-10% of your portfolio should be comprised of high quality individual companies. You can use our service to make sure that you own financially strong companies.

Why 25% Long Term Bonds?

Long Term bonds benefit during periods of Deflation. Deflation is when money increases in value. Bonds also benefit from periods of Prosperity, but not as much as stocks. Harry insisted that only U.S. government bonds are to be used in this allocation because it is extremely unlikely that the government would default on its debts.

Harry recommended owning the bonds directly, but you also get exposure to long term bonds through popular ETFs like EDV, TLT, and VGLT.

Why 25% Gold?

Gold benefits from periods of Inflation, when money is losing value. Inflation can happen when the government prints too much money. Gold also benefits from any kind of government instability as it has been used as money since before governments existed.

Harry recommended owning gold physically, but if that is not an option you can get exposure to gold through popular ETFs like IAU or GLD.

Why 25% Cash?

In a Recession, cash is king and 25% of your wealth will be instantly protected. Cash also serves as "dry powder", meaning that if you need to rebalance the portfolio, you'll always have the cash needed to bring up another part of the portfolio. Harry recommened keeping the cash portion in a money market account or short term U.S. treasuries (SHY, SHV, or SCHO).

This is fascinating. How can I learn more?

It's all explained in Harry's book Fail-Safe Investing. It's an easy book to read and it will explain perfectly why the Permanent Portfolio is the method to use for managing your wealth.


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