The Permanent Portfolio Harry Browne's Long-Term Investment Strategy

CRAIG ROWLAND is a serial entrepreneur who has been associated with several technology start-ups, two of which were ultimately purchased by Cisco Systems, Inc. At his last company, Psionic Software, Inc., he was founder, president, and CTO when purchased by Cisco. Another company Rowland was associated with was purchased by 3Com Corporation. He has provided consulting services to other start-up companies in addition to raising millions of dollars in venture capital for his own business.

J. M. LAWSON is an attorney and retirement plan consultant. His practice involves retirement plan design and compliance issues, as well as assisting employers in creating and monitoring retirement plan investment policies and procedures.

Foreword xi

Preface: Life Is Uncertain xv

Acknowledgments xix

CHAPTER 1 What Is the Permanent Portfolio? 1

A Simple Idea 1

A Simple Allocation 3

Simply Great Results 3

CHAPTER 2 The 16 Golden Rules of Financial Safety 5

Rule #1: Your Career Provides Your Wealth 6

Rule #2: Don’t Assume You Can Replace Your Wealth 6

Rule #3: Recognize the Difference between Investing and Speculating 6

Rule #4: No One Can Predict the Future 7

Rule #5: No One Can Time the Market 7

Rule #6: No Trading System Will Work as Well in the Future as It Did in the Past 8

Rule #7: Don’t Use Leverage 8

Rule #8: Don’t Let Anyone Make Your Decisions 9

Rule #9: Don’t Ever Do Anything You Don’t Understand 9

Rule #10: Don’t Depend on Any One Investment, Institution, or Person for Your Safety 10

Rule #11: Create a Bulletproof Portfolio for Protection 11

Rule #12: Speculate Only with Money You Can Afford to Lose 11

Rule #13: Keep Some Assets Outside the Country in which You Live 11

Rule #14: Beware of Tax-Avoidance Schemes 11

Rule #15: Enjoy Yourself with a Budget for Pleasure 12

Rule #16: Whenever You’re in Doubt about a Course of Action, It’s Always Better to Err on the Side of Safety 12

Investing and the Rules of Life 12

Recap 13

CHAPTER 3 Permanent Portfolio Performance 15

Growth, No Large Losses, and Real Returns: The Holy Trinity 16

Only Real Returns Matter 24

Looking at Total Performance Over Time 26

Recap 30

CHAPTER 4 Simple, Safe, and Stable 33

Simplicity 33

Safety 34

Stability 35

Making the Most of Your Investments 36

Expect the Unexpected 44

Recap 46

CHAPTER 5 Investing Based on Economic Conditions 47

When Diversification Fails 48

A Different Way to Diversify 55

Four Economic Conditions 57

Four Economic Conditions þ Four Assets ¼ Strong Diversification 60

How the Portfolio Works with Economic Conditions 62

Recap 64

CHAPTER 6 Stocks 65

Benefits of Stocks 65

Risks of Stocks 66

Volatility 67

Owning Stocks 68

Recommended Stock Index Funds 69

Which Type of Index Fund to Use? 70

Why Use an Index Fund? 70

Avoid Actively Managed Stock Funds 74

Indexing Is a Marathon 78

Beware of Trading Costs 79

Large-Cap and Small-Cap Stocks 80

International Stock Funds 81

A Warning About Company Stock 84

No Index Funds—What to Do? 85

Recap 85

CHAPTER 7 Bonds 87

Benefits of Bonds 87

Risks of Bonds 89

Volatility 90

Bonds and Deflation 92

Owning Bonds 93

Bonds to Buy 94

Buying Bonds 94

Other Bond Risks—The Case for Treasury Bonds 98

Bonds to Avoid 103

Flight to Safety 108

Earning Money Multiple Ways 111

Bond Risk Matrix 112

Bond Funds and Retirement Plans 114

Recap 114

CHAPTER 8 Cash 117

Benefits of Cash 117

Risks of Cash 120

Volatility 121

Owning Cash 123

Cash Risks—The Case for Treasury Bills 128

Cash to Avoid 132

Cash Risk Matrix 140

Cash and Retirement Plans 140

Recap 141

CHAPTER 9 Gold 143

Benefits of Gold 144

Risks of Gold 145

Volatility 147

Causes of Inflation 148

Gold Protects During Extreme Events 149

No Interest, No Dividends, No Problem 152

Why Do Central Banks Hold So Much Gold? 153

Owning Gold 153

Buying Gold 154

Buying and Storing Gold at a Bank 157

Gold Funds 158

Assets to Avoid 163

Limit Gold Bullion Sales Taxes 171

Other Considerations 171

Recap 173

CHAPTER 10 Implementing the Permanent Portfolio 175

Key Concepts 175

Four Levels of Protection 177

Level 1—Basic—All Funds 179

Level 2—Good—Funds, Bonds, and Gold 182

Level 3—Better—Funds, Bonds, and Gold 185

Level 4—Best—Funds, Bonds, Gold, and Geographic Diversification 187

All In, or Wait? 190

Other Portfolio Ideas 192

Final Considerations 193

Recap 194

CHAPTER 11 Portfolio Rebalancing and Maintenance 195

Two Primary Purposes of Rebalancing 197

Rebalancing Maintains Firewalls 199

How to Rebalance: Rebalancing Bands 201

Withdrawals and Rebalancing 203

Timing Can Influence Rebalancing 203

Adding New Money to the Portfolio 204

Allocating Dividends 204

Different Approaches to Rebalancing 205

Emotional Aspects of Rebalancing 206

Rebalancing and Taxable Accounts 207

Recap 208

CHAPTER 12 Implementing the Permanent Portfolio Internationally 209

The World Is Not Flat 209

Applying the Same Principles Across Countries 212

Various Country Options 214

Canada 215

Europe 218

United Kingdom 222

Australia 223

Asia, Middle East, and the Rest of the World 225

Developing Country Investing 226

Recap 228

CHAPTER 13 Taxes and Investing 229

Simplicity Is Often the Best Tax Strategy 229

Tax-Free Savings Vehicles 231

Types of Taxable Events 231

Ordering of Assets and Tax Planning 233

Retirement Accounts and the Permanent Portfolio 238

Individual Retirement Accounts 241

Pensions, Social Security, and Other Plans 243

Tax-Loss Harvesting 243

Final Thoughts on Taxes 245

Recap 246

CHAPTER 14 Institutional Diversification 247

What Is Institutional Diversification? 247

Why Institutional Diversification? 248

Identity Theft 251

Natural Disasters 252

Terrorism 252

Cyber Attack 252

How to Divide Your Money 253

Recap 254

CHAPTER 15 Geographic Diversification 257

Then and Now 257

What Is Geographic Diversification? 257

What Assets Should Be Kept in a Foreign Account? 258

Why Geographic Diversification? 258

Geographic Diversification and a Warning for U.S. Citizens 262

Even Politicians Do It 264

The Reality Risk Spectrum 265

Types of Geographic Diversification 267

Overseas Gold Storage Options 270

New Zealand 270

Australia 273

United States 276

Switzerland 278

Intermediaries for U.S. Citizens 283

Swiss Gold Storage Services for U.S. and Non-U.S. Citizens 285

Safe Deposit Boxes 287

Geographic Diversification Matrix 289

Disclosing Accounts—U.S. Citizens 290

Emergency Options 292

Other Options 293

Recap 293

CHAPTER 16 The Variable Portfolio 295

Why a Variable Portfolio? 296

Three Rules for the Variable Portfolio 296

Modifying the Permanent Portfolio 299

Can You Really Ever Beat the Market? 299

Recap 300

CHAPTER 17 Permanent Portfolio Funds 303

The Permanent Portfolio Fund 303

Global X Permanent ETF 307

Recap 309

CHAPTER 18 Conclusion 311

Recommended Resources 313

About the Authors 317

Index 319

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