The Permanent Portfolio – The Best Long Term Investment Strategy

Here is the reality when investing your money. In my experience even successful and well off people don’t like complicated investments. In fact, it’s been shown over and over again that the best investors avoid complex investment products entirely. Why do they do this? Because those types of investments tend to hide and cover up a ton of risk and many moving parts you can’t see right away. One way you can do this is to simply split your money up into four equal parts. It’s what I have done for my wife’s retirement plan and we both sleep well at night knowing the money is well diversified. Enter Craig Rowland who has written the permanent portfolio based on Harry Browne’s previous book called Fail Safe Investing.

Read what people have said about The Permanent Portfolio here

Personally I really really dislike complicated investment products of any sort no matter how dressed up they are. In Canada think index linked GICs. The bank people make all kinds of claims and promises when in fact it’s just another way for them to charge fees on products you don’t understand. Eventually you’ll find out you made a mistake because you really didn’t understand what you were doing, If you don’t understand it and buy anyway you’re just doing a dumb thing with your hard earned money.

Have a Strategy

Keep your investing style simple as you can. The simpler you keep your investments the more likely it is they will grow. This is what has worked for me along with keeping costs low and paying as little tax as possible.

If you learn anything at all from this post it should be that you don’t need a complicated investment strategy to do well in the markets. Over time a simple strategy will outperform complicated ones. This has been proven in many tests over the decades. Don’t fall for the hype. In this strategy you could divide your money up equally into the four asset classes depicted to the right of the post.

Four Equal PartsIf someone is trying to sell you something and you don’t understand how the investment works and how you’ll make money within about five minutes, just walk away. You may miss the next hot opportunity like junior gold stocks, but you don’t understand it may be a total dud. Instead of investing you should be staying away.

Understand What You’re Doing

The best and brightest investing minds on the planet have no trouble admitted they avoided investments they didn’t understand. Warren Buffett said he missed the whole tech bubble of the nineties because he didn’t understand how these companies were going to make money. So, don’t let anyone shame into buying something you don’t understand. It has to make sense to you if it doesn’t walk away.

This strategy should be deployed even for very large portfolios. Complexity will kill your returns. Do you understand how a hedge fund works? These products conceal many hidden costs and risks that may be hard for you to recognize from the outside. By the time you discover them it will be too late.

Lessons Learned

Plainly put, investing does not need to be, nor should it be complicated There is a very strong relationship between complicated products and lower performance. You don’t want this type of risk in your life. The Permanent Portfolio is both simple and easy to implement.

The simpler investments do not have those kinds of risks. The more opaque the product is the more likely it is to have hidden risks associated with it. What you want to do is be able to identify and diversify those risks out of your investing life. You don’t need any surprises like the 2008 stock market crash to remind you of this. These kinds of surprises can be expensive. Unfortunately, this is what you get when you invest money on products you don’t understand. Don’t go out and look for trouble with your money. Avoid complication at all costs and keep things simpler.

What to do?

I didn’t do this in 2008 as I was exposed to too many penny stocks because I got swayed by the siren song of higher returns. Anytime that happens it surely will lead to pain. I lost over 80% of my investable assets and it took another two years for me to recover from that mistake. I panicked and sold a lot of losers because I simply didn’t understand what I was invested in. In hindsight I should have held on and let the market recover. This was a very expensive lesson to learn. Having a permanent portfolio in place would have protected me and I actually would have had a slight gain after the crash instead of mind numbing losses.

I was also investing on my own as I do now but I didn’t fully understand the risks I was taking. I now like to invest my money and watch it grow by investing in either big blue chip companies that pay me a dividend and also broad market ETFs that give me exposure to the whole world that I can’t get by trying to pick individual companies. I am now an income and low risk investor.  You could do worse than investing in a permanent portfolio type of investment. More on income investing in future posts.

Do you like simple products that you understand? How do you invest your money? Feel free to leave a comment or ask a question.

Keep it simple!

If you would like a copy of this book you can purchase it here

2 thoughts on “The Permanent Portfolio – The Best Long Term Investment Strategy

  1. Hi Peter,

    The idea of an investment fund used to sound so complicated, but not so much now. I’m still not confident to invest on my own, I always rely on the advice of my bank. But my husband and I have a retirement fund that we’ve been paying into for about 20 years, which is great because my husband reaches retirement age in about 8 years and I have another 12 years before I retire so we’re feeling pretty secure.

    However, reading your post has inspired me to consider investing on my own … a small investment to start with.

    Thanks for this information 🙂

    • That’s great Gaylene. I would try and look elsewhere besides your bank. Learn as much as you can because nobody will care about your money more than you do. Thanks for dropping by!

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