This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Permanent Portfolio Proves to Be a Valid Strategy

NEW YORK ( TheStreet) -- At the depths of the financial crisis, many investors wanted to forsake equity markets forever in favor of alternatives that would hopefully deliver smoother returns and minimize the fear that was so pervasive back then.

One strategy that got a lot of attention, in both traditional media and the blogosphere, was the so-called permanent portfolio -- a concept attributed to Harry Browne in the 1980s whereby investors put equal 25% portions into equities via a broad domestic index fund, gold, long-dated U.S. treasury bonds and cash. The big idea, as Browne saw it, is that there will always be at least one of the four that's doing well, which should smooth out the more volatile times like what the markets endured in 2008.

The Permanent Portfolio Fund (PRPFX) is an actively managed fund that stays reasonably true to the Browne concept and has a 30-year track record. Morningstar reports that as of July 31, PRPFX had 13.5% in cash, 32% in equities, 27% in bonds and 26% in precious metals -- most of which was gold. Very little of the bond allocation is actually in long-dated bonds, which is a byproduct of the active management and could spare the fund some performance drag, if interest rates continue to rise.

Over the last 10 years, PRPFX has performed exactly as one could have hoped for, rising 130%, which is more than the S&P 500's 97%, and turned in those gains with much less volatility. As the S&P 500 bottomed out in March 2009 with a 56% decline from its October 2007 peak, PRPFX only went down 23% from its peak.

Perhaps wanting to capitalize on PRPFX's success, the Global X Permanent ETF (PERM) brought the Browne concept to the market in the exchange-traded fund wrapper a year-and-a-half ago. PERM allocates 25% to long-dated U.S. treasury bonds, while the precious metals allocation includes a little bit of silver and uses short-dated U.S. treasuries as a proxy for cash, but it seeks out a more diversified approach with the equity exposure. Eight percent of the fund is in U.S. large-cap stocks, a similar 8% in materials stocks with smaller weightings to real estate equities, U.S. small caps, foreign stocks and natural-resource companies.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
PERM $24.77 -0.17%
TLT $130.29 -0.88%
AAPL $127.60 2.28%
FB $83.09 2.87%
GOOG $535.38 2.16%

Markets

DOW 18,034.93 +208.63 1.17%
S&P 500 2,100.40 +19.22 0.92%
NASDAQ 4,994.6020 +62.7870 1.27%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs