The Permanent ETF: A Lesson in Diversification (Discusses foreign PPs)

[Ad Orientem]

NEW YORK (TheStreet) -- A couple of months ago Global X launched the Permanent ETF which is a play on the old Harry Browne concept of putting 25% equal portions into equities, longer term bond, Treasury bills or cash and gold. The big idea is that no matter what is going on in the world at least one of the four segments will be doing well.

The Permanent Portfolio Mutual Fund(PRPFX_) comes close to Browne's original idea and has an outstanding long-term track record that makes studying this worthwhile. PRPFX has an annualized 10-year return of 10.92% vs. 4.1% for the S&P 500 Index including dividends. In 2008 when the S&P 500 declined by 37% PRPFX only went down by 8%.

The Global X version is pretty true to the original but does take some liberties with the equity portion by including small exposures to REITs, natural resource stocks and foreign stocks as opposed to having the entire equity tranche in one broad index fund.

Along the lines of taking liberties with the equity allocation, perhaps other variations can be explored. The point here is not necessarily to mimic Browne's idea in other individual countries but to understand a little the diversification benefits from the portfolio and assess what can be taken from the strategy and applied to your own portfolio.

Read the rest here.

[MediumTex]

NEW YORK (TheStreet) -- Along the lines of taking liberties with the equity allocation, perhaps other variations can be explored. The point here is not necessarily to mimic Browne's idea in other individual countries but to understand a little the diversification benefits from the portfolio and assess what can be taken from the strategy and applied to your own portfolio.

In other words, you can take a tried and true strategy, and potentially tweak it in a way that will increase its risk and reduce its returns.

One of the most amazing things that I continue to see with PP-related discussions is this never-ending desire to tweak a strategy that has been shown to work beautifully with no tweaks, and when tweaks are applied they are normally precisely the wrong tweak at exactly the wrong time.

It would be like if I bought a new car and immediately disassembled it and put it back together based upon my own understanding of how a car should be built.  It would be absurd for me to believe that an action like that would actually result in a better car.