By Howard Gold
What if there was an investing plan that got positive returns in almost every one of the last 40 years and grew your wealth by 9% annually at much lower risk than standard stock-and-bond portfolios?
And what if it was easy to implement, requiring only four funds and occasional rebalancing?
Actually, such a plan does exist. Created by the late Harry Browne, it’s called the Permanent Portfolio. It divides your holdings into four equal pieces (25% each) of stocks, long-term U.S. Treasurys, cash, and gold.
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It sounds almost too good to true, but it’s having a revival now, and one of its most persuasive proponents, Craig Rowland, says it really works.
He laid out why in a 2012 book co-written with J.M. Lawson, “The Permanent Portfolio: Harry Browne’s Long-Term Investment Strategy.”
Tellingly, Rowland is not a professional investor, but was a software entrepreneur who sold two companies to Cisco Systems /zigman2/quotes/209509471/composite CSCO -11.19% .
“I got to see what happens with money when people get a windfall,” he told me in an interview. “…The financial industry moved in…and I saw people losing millions of dollars.”
Rowland was determined to avoid that fate, so he did a lot of research, unconstrained by the conventional wisdom that pervades the financial services industry and the media. And then he came across Harry Browne’s writing.
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Browne, who died in 2006, was one of the original gold bugs, with a series of books in the 1970s extolling precious metals and cautioning investors about currency devaluation. (He also was the Libertarian Party’s presidential candidate in 1996 and 2000.)
Browne was the Peter Schiff of his day, repeatedly warning about the dangers of inflation.
But when Federal Reserve Chairman Paul Volcker wrung inflation out of the economy, Browne shifted gears. Starting in the 1980s, he developed the idea of a permanent portfolio that would preserve and grow wealth in good times and bad.
The concept is easy, and so is the execution, especially with exchange traded funds (ETFs). But it can be counterintuitive and demands subtle thinking, not investors’ strong suit.
Browne’s highly original insight was to link specific asset classes with four basic economic conditions:
1.Prosperity is good for stocks and bonds.
2.Recession is good for cash.
3.Deflation is good for bonds and cash.