I am a big advocate of investing financial assets in a permanent portfolio as outlined by Harry Browne in his book Fail-Safe Investing.  I recommend at least half of one’s financial assets go into a permanent portfolio or something similar.

The setup is straightforward.  You are buying just 4 asset classes, all in equal parts.  They are as follows:

• 25% stocks
• 25% long-term government bonds
• 25% gold
• 25% cash or cash equivalents

The idea is to protect your assets in virtually any financial environment, while still getting long-term growth.  It isn’t the most exciting way to allocate your money, but it can help you sleep at night.  The portfolio can be a little frustrating during a bull market in stocks (as we’ve had for the last decade) when it seems like everyone else is making good money.  But when that environment changes, you will be thankful for the permanent portfolio.  You don’t need to ride a constant roller coaster.

I go into detail of the permanent portfolio in my short e-book titled How to Set Up a Permanent Portfolio.

One alternative option to the permanent portfolio is to invest in the Permanent Portfolio mutual fund.  The symbol is PRPFX. It makes it easy and convenient to get a permanent portfolio, especially if you can buy it in a retirement account.

However, I do warn people that PRPFX is not a perfect match to the actual permanent portfolio as described above.  There is more speculation in it, which can be good or bad.  Like any mutual fund, you also have to pay a management fee for the fund.

The Current Allocation

Here is a breakdown of PRPFX according to the annual report ending January 31, 2019.  The breakdown is as follows:

• 20.66% gold assets
• 5.89% silver assets
• 7.49% Swiss franc assets
• 7.61% natural resources (stocks)
• 12.59% real estate (stocks)
• 20.39% aggressive growth stocks
• 17.13% corporate bonds
• 7.46% U.S. Treasury securities

It adds up to almost 100%.  As you can see, the allocation is quite different from the permanent portfolio.

The portion allocated to Swiss francs may actually be down a little from where it once was.  I never agreed with this allocation, and I still don’t.  You don’t need foreign currency.  You are protected against dollar depreciation (or whatever currency you are using) with your gold allocation.

And why the Swiss franc?  I know it has been a historically stable currency, relatively speaking.  But it is no longer backed by gold (just like every other currency).  The franc could easily go down, just like the euro or yen.

The next thing that may stick out to you is the allocation of over 5% to silver.  In the real permanent portfolio, the only metal you invest in is gold.  With PRPFX, the gold allocation is reduced closer to 20%, so the precious metal allocation is still close to 25%.

The problem here is that silver is far more volatile than gold.  It will likely do better than gold in a bull market for precious metals.  But when the metals perform poorly, silver will tend to do far worse than gold.  In other words, the additional silver allocation adds more volatility.

In terms of stocks, PRPFX goes way over the 25% allocation.  It is actually over 40%.  And more importantly, it speculates in particular stocks. The fund isn’t just buying a broad index fund, such as an S&P 500 fund.  It is buying specific stocks in specific sectors.

To be sure, if any one stock went to zero, it wouldn’t hurt PRPFX terribly, but it would be a little noticeable.  And if there was a general crash in stocks, the stocks picked by the fund managers could very likely go down even more than the broader U.S. market, especially if energy and real estate took a big hit.

Meanwhile, the bond and money market allocations are light, and part of the bonds are corporate bonds, which can technically default, especially in a down market.

I am not sure how well PRPFX will hold up in a major recession or depression, especially if it is somewhat deflationary where stocks are crashing and gold and silver are also going down.  In this scenario, I think the real permanent portfolio will hold up a better than PRPFX.

This isn’t a recommendation against PRPFX.  Again, the fund is very convenient, and it adds a little more aggressiveness in a portfolio that was designed to be very conservative.  Some people may like this aspect.  I just want to make sure you know what you are getting into if you decide to purchase PRPFX in lieu of setting up a regular permanent portfolio.