Gyroscopic Investing

Over the last 10 years, the "permanent portfolio" strategy made popular by libertarian investor Harry Browne several decades ago has had quite a heyday, earning insane amounts more than any U.S. stock market index.

The goal of the strategy was to essentially give the investor the ability to mess with his or her portfolio once per year, and then ignore it from that point onward. The idea was that a portfolio that has certain assets would be able to survive just about anything.

Although a little arbitrary, Browne decided to keep the portfolio incredibly simple and made it 25% stocks, 25% cash, 25% bonds, and 25% gold.

If you believe the end of the dollar is near, but don't want to bet the farm on any particular time frame, then this portfolio is likely for you.

This is enough to give a lot of investors an upset stomach because it essentially ignores the old idea that since equities make more money than most asset classes over time, we should put more toward equities. So does it work?

Why The Four-Way Allocation?

Browne's reasoning was fairly simple: He wanted the portfolio to be prepared to handle spikes in inflation, recessions, prosperity, stagflation, and depression.

Stocks are added for prosperity. Cash is added for depression. Bonds are added for recession. Gold is added for inflation.

Did it "work"? That depends on your measure of success. Browne's purpose wasn't to make as much as possible, but instead to provide investors with an incredibly boring, simple portfolio that does fine over time without fear of getting obliterated. By that standard, it's done wonderful.

More recently, financial author Craig Rowland revisited the permanent portfolio. He allocated his portfolio the way he should have: 25% stocks, 25% long term treasury bonds, 25% gold bullion, and 25% cash.

He believed this portfolio would be optimal through what he considered all possible market conditions: prosperity, inflation, deflation, and recession.