Permanent Portfolio

A permanent Portfolio is a portfolio strategy I came across through The Voluntary Life, one of my favorite podcasts. The core tenet is that you put your wealth in diversified asset classes. The Permanent Portfolio strategy was conceived by Harry Browne, who wanted a strategy that works regardless of which specific economic cycle we’re in:

  • Prosperity
  • Inflation
  • Deflation
  • Recession

Advantages of a Permanent Portfolio

A permanent portfolio has a number of advantages. These include:

 
  • A permanent portfolio translates into profit to investors regardless of the economic cycle. For example, according to Browne, Treasury bills would boom during depression, bonds in recessions, growth stocks would do well in expansionary markets, cash in depression, and precious metals in inflationary markets
  • A permanent portfolio reduces losses and minimizes impact of market volatility while still increasing in value over the long term
  • A permanent porfolio is an easy to manage investment. Once you have set up your portfolio, you only need to rebalance it once a year

Disadvantages of Permanent Portfolio

  • Although cash is expected to do well during depression, keeping cash may prevent investors from seizing other growth opportunities
  • A permanent portfolio is a relatively rigid investment strategy, which means investors may miss out on alternative investment avenues
  • The permanent portfolio strategy expounded by Browne focused on US stocks as international stocks were fairly new. This means he did not include emerging markets in his analysis and asset allocation
  • Stocks grow over time more than the other assets included in the permanent portfolio. By allocating only 25% investment to stocks, investors may miss out on stock growth

How to Structure a Permanent Porfolio

There are many ways one can build their permanent portfolio because of the existence of many asset class options. Browne (and Jake from The Voluntary Life) put their money in these asset classes, equally divided:

  • 25% stocks, great during prosperity or declining inflation
  • 25% gold, good during bad inflation and general global insecurity
  • 25% long term bonds, profit while interest is declining and during deflation
  • 25% cash, great during recession

Perment Portfolio Fund

  • Browne eventually created what was called the Permanent Portfolio Fund, with an asset mix similar to his theoretical portfolio in 1982. From 1976 to 2016, a hypothetical permanent portfolio would have generated an 8.65% annual return, for a total return of 2,600%. A more standard 60/40 portfolio would have generated a 10.13% annual return for a total return of 5,050%. The permanent portfolio did have some advantages during this period, though. The 60/40 portfolio had a standard deviation of 9.6, compared with 7.2 for the permanent portfolio. — Investopedia

Permanent Portfolio Bitcoin

We believe bitcoin is the new gold, all digital and online (though better stored offline with a hardware wallet), and as bitcoin maximalists our ideal share of the digital gold is also much higher.

Rebalancing your portfolio

With Browne’s strategy you can rebalance every year, or when a specific asset goes below or over a specific band. E.g. stocks have gone up and are now 31% of your portfolio, you sell and buy whatever asset has dropped. Your specific tax situation is very important when it comes to rebalancing. You want to minimize capital gains tax. Browne suggests that you rebalance your portfolio once a year to maintain the 25% target weights.

It also makes sense to consider moving countries or becoming a perpetual traveler.

 

Ideal Satoshi FIRE portfolio

Bitcoin is much volatile than other assets. And this will be remain like this until it will take over the role of gold and international settlement, so until the price of 1 bitcoin will be at least $300,000 you can expect strong market movements. It doesn’t make sense to rebalance too much with bitcoin in your portfolio.

Here are 3 different bitcoin portfolio ideas:

Conservative

  • between 1% and 5% bitcoin
  • rest in cash

Conservative crypto investing

Great for folks who love a bit of risk (e.g. have been trading shitcoins)

  • 25% permanent portfolio bitcoin
  • 25% indexfunds
  • 25% whatever floats your boat
  • 25% cash

Burning Man FIRE

  • 50% bitcoin
  • 10% index funds
  • 10% p2p investing (for a nice cash flow)
  • 10% real estate
  • 10% random stuff
  • 10% cash

Further Reading About Permanent Portfolio