The Harry Browne Permanent Portfolio

Today, most mutual funds intended for long term goals like retirement only divide themselves between equities (stock), bonds, and safe cash vehicles like Money Markets. It's assumed that upward trends in stocks are sufficient to combat inflation over time and boost overall net worth to survive comfortably in retirement. Some prefer to take other factors into account, though, and seek less conventional options.

One alternative to traditional allocations in mutual funds is the Harry Browne Permanent Portfolio. This fund's chief goal is to diminish overall risk and provide for sustainable long term growth by splitting its holdings into four quarters: 25% stocks, 25% Treasury Bonds, 25% Cash, and 25% Gold bullion. Another difference is that the portfolio is truly "permanent" - the percentages do not shift toward safer assets over time, much like other funds, where stock holdings are transferred to bonds or cash as an individual approaches retirement age.

The Harry Browne Portfolio's main claim is that it guards against all scenarios, averaging out to a strong performance in all situations: recession, prosperity, inflation, and deflation. This novel approach seems to fly in the face of other investment strategies, but also takes into account more variables than competing funds.

Though many factors deserve to be considered, the one resounding question is this: how does the Harry Browne Portfolio actually perform? The Crawling Road blog cites solid performance: nearly 10% annual return (9.7% to be exact) from 1972-2008. This speaks for itself. A nearly 10% return tops the average 8% stock market return noted by most analysts, and is certainly better than the conservative estimate of finance gurus like Aryn at Sound Money Matters, who plan based on just 4% returns.

Before deciding if a Harry Browne strategy is right for you, it's best to look at all the facts, including potential criticisms. The main issue is with the quarter invested in gold bullion. Gold is wildly controversial, with economic pundits on both sides holding strong opinions. Gold advocates claim that the precious metal will continue its substantial growth of the last few years, while others who are cold towards gold suggest it's in a bubble, with overblown prices that will soon come crashing back to earth.

However, looking at the way gold has historically kept up with inflation, the idea that it could lose you significant amounts of money is unlikely. At the very least, gold will always increase in price with other commodities as inflation sets in. It's also common knowledge that precious metals are useful investments for other reasons. They are ultimately scarce resources with industrial uses, which means there will always be fair demand for metals like silver and gold.

The Harry Browne Permanent may not be for those who are wizards when it comes to the stock market's complexities, nor for those willing to bet everything on equities. But for newer investors looking for stable growth over a long period of time, the strategy embodied in this portfolio may be one worth adopting.

"Permanent Portfolio Historical Returns," Crawling Road

"Is the Average Stock Market Return 8%?" Sound Money Matters