I am a big proponent of the permanent portfolio, as described in Harry Browne’s book Fail-Safe Investing. I believe it, or something similar to it, should be the rock of everyone’s portfolio. It should be your safety, even though nothing is entirely safe in this world. It should be your home base.
The permanent portfolio is simple. It is made up of gold, stocks, long-term government bonds, and cash (or something similar to cash, like a money market fund). These should be weighted approximately equal at 25% each. If one asset class strays too far outside of a range, then the portfolio should be rebalanced to get you back to an approximate 25% each.
An alternative to the permanent portfolio itself is a mutual fund. The trading symbol is PRPFX. It is designed similar to the permanent portfolio. In fact, it is called the permanent portfolio fund.
I like PRPFX because it is simple and also because it keeps you disciplined. It doesn’t tempt you to speculate and favor one asset class over another. That can be very tempting to do in today’s environment. My suggestion is that if you think we will see big inflation in the near future and you think gold and silver will do really well, then speculate in gold and silver investments outside of your permanent portfolio portion.
I also see a downside to PRPFX. I have discussed this before. I don’t like that it strays from the originally suggested permanent portfolio, particularly with its investments in Swiss francs. PRPFX has the following target percentages:
20% in gold
5% in silver
10% in Swiss franc assets
15% in stocks of U.S. and foreign real estate and natural resource companies
15% in aggressive growth stocks
35% in dollar assets
I have never really liked the portion in Swiss franc assets because the gold portion is already there to protect you from a depreciating U.S. dollar (assuming you are an American and investing dollars). While the Swiss franc has historically been a strong currency, it is still a fiat currency. This was shown last year when the Swiss central bank announced that it would peg the franc to the euro. This has been part of the reason that PRPFX has struggled recently.
In 2011, PRPFX went up just 2.13%. This was during a time of relatively low price inflation, but it is still a poor performance considering that the U.S. economy was not officially in a recession during that time. PRPFX went down 8.36% in 2008. It was the only down year in the last 10 years. In some ways, this was its strongest year, at least relative to everything else. Stocks and gold took a big fall in late 2008, although bonds did fairly well. PRPFX did its job in 2008 in the face of a recession. It followed with really strong years in 2009 and 2010, both up about 19%.
As of this writing, the year-to-date performance for PRPFX is flat. This means you have actually lost a little bit of money to price inflation. The 5-year average return is still almost 8%, which is considerably good in this economic environment.
In conclusion, I don’t like the Swiss francs in PRPFX, and the mutual fund has not performed all that well in the last year. However, unless you go through the trouble of setting up your own permanent portfolio (which I think you should), then PRPFX is still probably the next best alternative. There is a lot of uncertainty in the economy right now and it is hard to say if we will go into a recession, depression, or inflation, or maybe all of the above. Keep your money as safe and sound as you can.