{"id":614,"date":"2022-03-21T07:48:51","date_gmt":"2022-03-21T07:48:51","guid":{"rendered":"https:\/\/investorimpactlab.com\/?p=614"},"modified":"2022-03-30T06:04:52","modified_gmt":"2022-03-30T06:04:52","slug":"harry-browne-permanent-portfolio","status":"publish","type":"post","link":"https:\/\/investorimpactlab.com\/harry-browne-permanent-portfolio\/","title":{"rendered":"Harry Browne Permanent Portfolio: A Detailed Review"},"content":{"rendered":"\n
In every manner of building wealth, one thing remains common: risk and profit analysis<\/strong>. Whether a business or investment, this factor has a huge impact on decision-making.<\/p>\n\n\n\n Further, this common factor is treated differently by different people. Many consider risk a part of investment and are ready to take big decisions. Others take a very conservative view. They would not like to invest in anything that has the potential of giving them losses.<\/p>\n\n\n\n And then some people try to find a middle ground by investing in medium-risk options<\/strong>. The ones that can give good profits over a period of time.<\/p>\n\n\n\n Harry Browne Permanent Portfolio tries to strike a balance between these two. It was created by Harry Browne, an American investor, author, and politician.<\/p>\n\n\n\n This article will look at what Harry Browne’s Permanent Portfolio is. Plus, its composition, assets allocation, and many more things will be covered.<\/p>\n\n\n\n So let’s get going!<\/p>\n\n\n\n Harry was a well-known American politician,<\/strong> writer, and investment guide<\/strong>. He made significant contributions to the libertarian movement. He was even selected as presidential nominee on the Libertarian Party ticket. Browne has also authored various articles and books on investment and libertarian politics.<\/p>\n\n\n\n One of his many investment advice was the permanent portfolio. He based the portfolio on the long-term approach.<\/a> This could save investors from high volatility using broad diversification of assets.<\/p>\n\n\n\n Browne first introduced a permanent portfolio concept in his book ‘Fail-Safe Investing.’ The basic idea is to have an asset mix that will survive and thrive in any kind of economic environment.<\/p>\n\n\n\n The portfolio has such a design that it has something for everyone. For example, if there is inflation, gold will go up, and cash will lose value. Similarly, cash will increase in value during a deflationary period. And bond performance will go down.<\/p>\n\n\n\n The four crucial assets for diversifying the assets are US Stocks, long-term bonds, cash, and gold. He believed four assets would protect the portfolio from inflation, deflation, and stagflation.<\/p>\n\n\n\n Further, he classified them into four basic categories. He also combined them with asset allocation –<\/p>\n\n\n\n This way, the portfolio stands strong against different economic conditions. This is why this portfolio is also known as a lazy portfolio.<\/p>\n\n\n\n The Harry Browne Permanent Portfolio is a simple, four-asset investment mix<\/strong>. Its structure provides stability and profitability in any economic climate. The portfolio works on the idea that it’s difficult to predict which assets will outperform.<\/p>\n\n\n\n So it’s best to have a diversified mix that will do well no matter what’s happening in the economy.<\/p>\n\n\n\n The four asset classes in the Harry Browne Permanent Portfolio are – US stocks, long-term bonds, cash, and gold.<\/strong><\/p>\n\n\n\n Browne recommends investing in these assets in equal proportions. Also, the investment should be regardless of what the economy is doing. For example, if you think inflation is on the horizon, you would buy more gold and less cash. But if you think the economy is headed for a recession, you will do the opposite.<\/p>\n\n\n\n During my analysis, I found low allocation to stocks very strange and not a deal maker. As we all know, equities are generally the driving force behind a portfolio’s return. But here, the portfolio’s 25% allocation<\/strong> doesn’t give much growth potential. It’s a low point, especially for long-term investors with a high-risk tolerance.<\/p>\n\n\n\n Another thing that I found, the portfolio doesn’t provide any international(ex-US) holdings. International stocks and bonds are now famous among investors and boost diversification.<\/p>\n\n\n\n But, there’s one more view to it. Browne couldn’t include the international stocks as they weren’t popular during portfolio establishment. So, I’m Neutral about this.<\/p>\n\n\n\n Furthermore, the portfolio has a low turnover<\/strong>. It is great for investors who want to cut their tax bills<\/strong>. You’ll only need to make changes when any underlying asset experiences a major change.<\/p>\n\n\n\n For example, if the market crashes and US stocks lose half their value, you’ll need to sell some stocks. At the same time have to buy long-term bonds to maintain your 25% allocation.<\/strong><\/p>\n\n\n\n Choose Harry Browne Permanent Portfolio if you want a simple, low-maintenance investment mix<\/strong>. Such a portfolio will do well no matter what the economy is doing.<\/p>\n\n\n\n The portfolio’s four asset classes provide stability and profitability in any economic climate<\/strong>. Plus the low turnover means you’ll rarely need to make changes.<\/p>\n\n\n\n Moreover, one thing that I like the most is the stability and profit margin this portfolio holds. I can say that the portfolio is a rock-solid choice if you are looking for the most balanced ETF portfolio.<\/p>\n\n\n\n But, I noticed a few more advantages and disadvantages, which I’ll be listing below.<\/p>\n\n\n\n Since the portfolio is broadly diversified, it doesn’t need much maintenance. You have to keep rebalancing it from time to time. Also, you don’t need to watch the markets constantly. There is no need to make any rash decisions when the economy takes a turn for the worse.<\/p>\n\n\n\n The final advantage of the portfolio is its tax efficiency. Since it’s broadly diversified, investors can sell individual assets. This helps them keep their taxes low, especially for high-income earners.<\/p>\n\n\n\n Thisportfolio is created in a way that can provide safety to the investors. Investors using the permanent portfolio approach don’t have to think about huge losses. Even during economic downturns, which is explicitly appealing for investors approaching retirement.<\/p>\n\n\n\n There will always be a cost to investing. But this approach has considerably lower expenses compared to other portfolios in the market. The savings are an outcome of a focus on certain assets. Long-term bonds and index ETFs tracking US markets have minimal expense ratios than their competitors.<\/p>\n\n\n\n Furthermore, gold is relatively cost-effective to maintain. It takes absolutely nothing for you to keep money in your pocket.<\/p>\n\n\n\n The biggest advantage of a permanent portfolio is that it protects your purchasing power. No matter what happens in the economy, your purchasing power will remain intact.<\/p>\n\n\n\n This portfolio is suitable for long-term investors who want to protect their wealth. Those who don’t mind sacrificing some returns for safety can go with it.<\/p>\n\n\n\n The biggest con of this portfolio is that it underperforms during bull markets. Since it’s a conservative portfolio, it doesn’t take part fully in the market’s upside. Yet, this is also its biggest strength as it protects you from the market’s downside.<\/p>\n\n\n\n This portfolio is not suitable for short-term investors. It doesn’t allow them to take part fully in the upside of the market. Short-term investors should look for other portfolios that are more aggressive.<\/p>\n\n\n\n The biggest con of Harry Browne’s permanent portfolio is its limited upside potential. This is because it’s focused on preservation rather than growth. You won’t lose any money in a downturn. But you also won’t make as much as you would if invested in a more aggressive portfolio.<\/p>\n\n\n\n The performance of Harry Browne’s Permanent Portfolio has been mixed over the years. Here are some of the elements of its performance.<\/p>\n\n\n\nKey Takeaways –<\/h2>\n\n\n\n
What Is a Permanent Portfolio?<\/h2>\n\n\n\n
Permanent Portfolio – Review<\/h2>\n\n\n\n
Advantages<\/h2>\n\n\n\n
Require the least maintenance<\/h3>\n\n\n\n
Tax efficiency<\/h3>\n\n\n\n
Safety<\/h3>\n\n\n\n
Low cost<\/h3>\n\n\n\n
Protects purchasing power<\/h3>\n\n\n\n
Suitable for long-term investors<\/h3>\n\n\n\n
Disadvantages<\/h2>\n\n\n\n
Underperform during bull markets<\/h3>\n\n\n\n
Not suitable for short-term investors<\/h3>\n\n\n\n
Limited upside potential<\/h3>\n\n\n\n
Harry Browne Permanent Portfolio – Performance<\/h2>\n\n\n\n
Composition<\/h3>\n\n\n\n