Table of Contents
What is a permanent portfolio of index funds?
Permanent Portfolio Results
How to create a permanent portfolio with index funds?
Invest in index funds with inbestMe
What is a permanent portfolio of index funds?
Harry Browne was an American writer, politician and market analyst who even ran for President of the United States as a candidate for the Libertarian Party. But if there is one thing he is known for, it is for having devised the permanent portfolio, which was conceived as a safe, profitable, simple and, most importantly, stable investment alternative in any market situation.
To do this, he identified four types of assets that a portfolio should include, all in the same proportion, 25%:
Shares , because they tend to grow in parallel with economic growth, making them an ideal type of asset in times of expansion.
Gold , the safe haven asset par excellence in high inflation scenarios. In fact, the more the general price level increases, the greater the importance of gold in maintaining purchasing power.
Liquidity , which is essential when credit expansion slows gambling data vietnam phone number down and money in circulation is scarce. It is worthwhile because it allows other assets to be bought at cheaper prices when the economy and the stock market are in decline.
Bonds , interesting when there is deflation and, consequently, when the price of bonds increases.
In addition to this asset allocation, which Harry Browne insisted on respecting in any market circumstances, he also recommended reviewing the portfolio once a year, and rebalancing if the percentage of any of the assets exceeded 35% or was less than 15%.
Permanent Portfolio Results
The permanent portfolio has performed excellently over the last few years. In fact, over the last 50 years, the permanent portfolio in dollars has achieved an annualized return of around 8.65% per year, with only 6 years in the red, and never below -5%.
This return is similar to that obtained by the S&P 500, although in this case there have been many more negative years that have far exceeded -15% in some cases.
In short, the permanent portfolio combines the two maxims that any investor should follow: excellent profitability with low volatility.
Index Funds Investment Guide
How to create a permanent portfolio with index funds?
But how do you create a permanent portfolio? Obviously, buying all the assets separately is not viable for a small investor, due to the high costs involved. That is why the best alternative is through index funds.
The reason is twofold:
On the one hand, because they allow for good investment diversification. In fact, in the case of shares, you can invest directly all over the world through a single fund.
On the other hand, because tax advantages are much better used, especially the transfer. As it is exempt from taxation, transfers can be made between funds to perform balancing without tax impact.
There are different alternatives using funds from large management companies such as Vanguard, iShares, or Amundi:
For stocks, the Vanguard US 500 ST Index Fund Euro Hedged.
For bonds, anything that contains high-quality bonds, such as the iShares Euro Government Bond Index Fund (IE) Class D Acc EUR.
Any money market fund for liquidity, such as the Vanguard Global Short-Term Bond Index Fund Investor Euro Hedged.
The case of gold is the most complicated, as European legislation does not allow the creation of a gold-based fund. However, we can use an ETF instead, such as the ETF db Physical Gold ETC (EUR) EUR.
Unfortunately, you have to combine investing in index funds and ETFs to put together a permanent portfolio as Harry Browne had conceived it.
Invest in index funds with inbestMe
Thanks to inbestMe you can invest in different investment portfolios that use a wide variety of index funds or ETFs. You can have an even more diversified portfolio than the permanent portfolio with reduced costs and the possibility of transferring funds without tax charges.
