I was recently involved in a thread on Facebook in which the original commenter was telling of their fear of investing a large lump sum of money in the stock market, especially given its current condition.  The group revolves around personal finance, but it is not a libertarian group.

Many in the group advocate something similar to Warren Buffett.  They think the best advice is to invest in a broad U.S. stock market index fund (such as Vanguard) that has very low fees.  They advocate buying and holding because “the market always goes up in the long term.”  Although they are following the advice of Warren Buffett, it is important to note that Buffett was highly successful because he didn’t do what he now advocates for others to do.

The responses to the original comment on this particular thread did vary, but the consensus opinion seemed to be to just invest the money now in stocks and not look at it for a long period of time.  It may go up or down in the near future, but you can almost be sure it will be much higher in 2 decades, or something along those lines.

The advocates of such a strategy can never answer (at least to my satisfaction) why a Japan-like scenario is not possible in the United States.  Japan is a first-world country.  If someone invested at the top of the market in 1989, they are still down by about half.  That is almost three decades now.

The answer I typically get, if there is any, is that the U.S. is not Japan.  And they say that if the U.S. stock market does that bad, then we are all in trouble anyway.  But I don’t completely agree with that because a down stock market doesn’t necessarily mean a collapse of the division of labor and a virtual collapse of civilization.  During the Great Depression of the 1930s, there was still 75% of the working population with jobs, even during the worst time.  Sure, times were really tough, but there were still people who were thriving.

It is no different in Japan today.  The stock market has been down for three decades, but it is not as if everyone is living in poverty.  Despite its massive problems, there are still many prosperous people living in Japan.

I am not saying that the U.S. or the U.S. stock market will end up like Japan.  I am just saying that it is possible, and a prolonged downturn in the stock market is a real possibility.

Now returning to this thread on social media, I stated that PRPFX is a good alternative.  For anyone that knows me on this blog, I am an advocate of setting up a permanent portfolio or something resembling it.

I have discussed the mutual fund PRPFX before.  It is a little different from the permanent portfolio as described by Harry Browne.  PRPFX does some stock picking, even though no one stock makes up a large percentage of the portfolio.  It also invests about 5% in silver. It also buys some Swiss franc-denominated assets.

Still, overall, PRPFX is pretty good.  As of this writing, I am not, nor have I ever been, an affiliate for the mutual fund.  But I am constantly recommending it.

In this discussion with mostly non-libertarians, I didn’t want to take the time to lay out the permanent portfolio.  It would get too complicated for some, and they would lose interest.  It was easier to just mention PRPFX.  I don’t expect to sell many people on it in such an environment, but you never know if one person will look into it and like it.

The one comment I received back (not from the original commenter) was that the expense ratio for PRPFX is high.  It is currently shown at 0.82%.  And to be fair, it is high compared to something like VTSAX, which doesn’t require much management because it is just buying the total stock market.

To be sure, the expense ratio for VTSAX is currently 0.04%.  It is almost nothing.  Meanwhile, PRPFX is closer to 1% per year than it is to zero.

Of course, investing in a mutual fund is a lot more than just management fees and expense ratios.  It matters not just how the fund has performed and is expected to perform.  It matters how much risk you want to take.

In my opinion, a fund like VTSAX is riskier than PRPFX by a large multitude.  If the stock market crashes by 50%, then I hope all of the investors in VTSAX are proud of having saved that 0.82% expense ratio.

For me, that 0.82% is an insurance policy.  It is a small price to pay to sleep at night.  There are no guarantees, but if the stock market crashes by 50%, I don’t expect PRPFX to go down by any more than 10%, and even that would be dramatic for this fund.  I will gladly pay the 0.82% in order to avoid the 50% drop.

You can, of course, set up your own permanent portfolio.  This could include VTSAX, which fits nicely for the 25% stock portion.  But you have to manage your portfolio, and you have to rebalance it when it is appropriate.

This is why I advocate PRPFX to those who want to keep it simple.  They don’t have to buy several funds.  They don’t have to be disciplined to rebalance when one asset class goes way up or way down.  They can pay the 0.82% and have it done for them.  It is a small price to pay in the larger picture of things.