Investors often turn to highly defensive assets in times of great economic or political turmoil. That's why gold and Swiss bond prices jumped as an immediate reaction to last week's horrific London bombings.

Nevertheless, there is more to creating a diversified defensive portfolio than stuffing gold coins in a safety deposit box.

One fund manager that has created a successful 'rainy day fund' formula is Mike Cuggino, portfolio manager for the $260 million

(PRPFX) - Get Report

Permanent Portfolio fund. Cuggino holds a wide array of non-correlated assets designed to preserve purchasing power regardless of what happens in the world.

Cuggino's fund holds 35% of its assets in U.S. bonds; 25% in gold and silver (actual bars, not exchange-traded funds like the

streetTRACKS Gold Shares

(GLD) - Get Report

); 15% real estate and energy stocks, including

Chevron

(CVX) - Get Report

and

Texas Pacific Land Trust

(TPL) - Get Report

; 15% in other U.S. stocks; and 10% in Swiss government bonds.

Despite its heavy emphasis on defense, the Permanent Portfolio fund has only been down three years over its 23-year lifetime, showing once again that diversification, not stock-picking, provides the major portion of an investor's returns.

TheStreet.com's

Gregg Greenberg spoke with Cuggino about playing defense in an increasingly dangerous world.

To watch the StreetWatch video, click here.