In the United States, the advice is everywhere in the financial world.  It comes from Dave Ramsey.  It comes from the financial independence (FI) community. It comes from Warren Buffett. You may even hear it on CNBC.

The advice is for the average person to invest in low-cost U.S. index funds.  It is a strategy of buy and hold.  The basic script is that, in the long run, stocks always go up.  Or if they don’t go up, then we are all in trouble.  It is a bet on the United States of America.

Maybe it is patriotism or ethnocentrism.  Maybe it is just a matter of trusting the system.  Maybe it is just a matter of assuming that since things have always been this way (in our lifetime) that they will always be this way.  There is an assumption that, over the long run, U.S. stocks will always go up.

There have been prolonged periods of a bear market.  The Great Depression is the obvious example.  But that was close to a century ago.  Surely our system has to be more stable today, they say.

If I could go back to 1982 when I was a young child, and I knew then what I know now, then I would have told my parents to put everything in the stock market that they could scrounge up.  Better yet, I would have requested that they buy stocks in my name.

If I knew then what I know now, I actually would have told them to buy stock in Microsoft when it first became available.  But even just buying a bunch of major companies back then would have served well.  Despite some massive downturns, stocks have done very well over the last 3 and a half decades.

But as the SEC likes to say, past performance is not indicative of future results.

The Uncomfortable Situation of Japan

When I discuss this buy-and-hold strategy with someone advocating it, I like to bring up Japan.  It tends to make the buy-and-hold investors uncomfortable, and for good reason.

In 1989, the Nikkei stock index topped out at about 38,915.  As I write this, it is between 20,000 and 21,000. We are approaching the 30-year anniversary of the all-time peak in the Japanese stock index, and it is still nearly half of what it was.  This is not in inflation-adjusted terms.  This is in nominal terms.  It would be worse if we did it in real terms.

I understand I am cherry picking by going back to 1989.  But imagine someone took this buy-and-hold advice at that time. Imagine they dumped all of their life savings in Japanese stocks in 1989.  Are they still waiting for the “long run”?  How long are they supposed to wait?

Sure, this is Japan. It is not the United States. But we are not talking about Zimbabwe or Bangladesh.  It is a first-world country.  In fact, in the 1980s, there were some people worried about Japan taking over the world, economically speaking.

Japan has its problems.  It is densely populated.  The debt-to-GDP is astronomical.  The population is aging.  The economy has been somewhat stagnant.  But it is still a relatively advanced country.  It is still considered a first-world country.

The United States has problems too.  The debt is high here too.  The baby boomers continue to retire, and the unfunded liabilities are massive. Some estimates have put the unfunded liabilities over $200 trillion.

We don’t know how this will play out.  Will it be massive inflation?  Will it be a sustained depression?  Will it be stagnation similar to Japan?

We really don’t know. The one thing I do know is that I don’t want to bet everything on one scenario.  I have worked hard for the money I have been able to save, and I’m sure most people would say the same thing.  Even if you haven’t worked that hard for it, it would make sense to want to preserve it.

This is why I recommend investing in a permanent portfolio, as described by Harry Browne in his book titled Fail-Safe Investing.  The permanent portfolio will probably not make you rich by itself.  What it will do is give you peace of mind.  You don’t have to worry about high inflation or stock market crashes. You can protect your portfolio from virtually any economic environment, while still making a decent return over the long run.

I have written a short e-book on how to set up a permanent portfolio and possible ways to tweak it to fit your personal situation.  It is available on Amazon for just $7.99. If you take away one piece of advice from this book, it could save you thousands of dollars or more over the years.  Better yet, it can save you from a lot of anxiety about stock market crashes or other events. That is why I sometimes refer to it as the “Sleep-at-night Portfolio”.

I just released this e-book late in 2018, but I have not promoted it up until now.  If you are reading this before January 31, 2019, I am running a discount where you can get this book for just $2.99.  Again, this is a miniscule price to pay for less anxiety and possibly saving your portfolio many thousands of dollars over the years.  It will probably save you a ton of time too, as setting up a permanent portfolio is not difficult.  You don’t have to study the financial markets to implement the portfolio.

Pick up this e-book while this discount lasts.  Don’t be a Japanese buy-and-hold stock investor of 1989.  You can do better than that, and it doesn’t take a lot of time or effort.  You do have to go against some of the conventional wisdom.