A:

A permanent portfolio is a portfolio construction theory devised by free-market investment analyst Harry Browne in the 1980s. Browne constructed what he called the permanent portfolio, which he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split into growth stocks, precious metals, government bonds and Treasury-bills and rebalanced annually would be an ideal investment mixture for investors seeking safety and growth.

Harry Browne argued that the portfolio mix would be profitable in all types of economic situations: growth stocks would prosper in expansionary markets, precious metals in inflationary markets, bonds in recessions and T-bills in depressions. Acting on his beliefs, Browne eventually created what was called the Permanent Portfolio Fund, with an asset mix similar to his theoretical portfolio in 1982: 35% government securities, 20% gold bullion, 15% aggressive growth stocks, 15% real estate and natural resource stocks, 10% Swiss franc bonds and 5% silver bullion. Over a 25-year period, the fund averaged an annual return of 6.38%, only losing money three times. It outperformed the S&P 500 in the years immediately following the dotcom bust.

Although the fund was considered a successful investment for providing investors security with moderate growth, during the 1990s, the Permanent Portfolio Fund badly underperformed compared to the stock market. During that period, it was not uncommon for stocks the appreciate 20-30% annually, while the permanent portfolio rose just over 1% each year. Today, many analysts agree that Browne's permanent portfolio relied too heavily on metals and T-bills and underestimated the growth potential of equities and bonds. (To learn more, read Major Blunders In Portfolio Construction.)

RELATED FAQS
  1. What does the end of the quarter mean for portfolio management?

    Take a deeper look at why the end of a financial quarter, and all of its accompanying reports, is a significant event for ... Read Answer >>
Related Articles
  1. Investing

    Permanent Portfolio Locks In Long-Term Profits

    Harry Browne believes his "permanent portfolio" theory is the ideal long-term investing strategy.
  2. Financial Advisor

    The Workings Of Equity Portfolio Management

    Achieve analytical efficiency by applying your evaluation to a key set of stocks.
  3. Financial Advisor

    5 Popular Portfolio Types

    Learning how to build these portfolios will increase your investing confidence and give you financial control.
  4. Financial Advisor

    What is Portfolio Management?

    Portfolio management is the act of maximizing the return on a portfolio. This is done with trading decisions made for the marketable securities in that portfolio. A portfolio manager, or a team ...
  5. Investing

    Understanding Portfolio Investment

    Portfolio investment involves buying securities with the expectation of earning a return on them.
  6. Insurance

    How Good An Investment Is Life Insurance?

    Compared to other options, does it ever make sense to include cash-value life insurance in your investment portfolio? A look at the pros and cons.
  7. Investing

    Rebalance Your Portfolio to Stay on Track

    Like a tune-up for a car, this re-alignment should minimize trouble down the road.
  8. Investing

    Major Blunders In Portfolio Construction

    Do you have the best mix of investments? Find out how to make sure.
  9. Investing

    Mutual Fund Tune-Up Delivers High-Powered Performance

    Rebalancing your portfolio will protect you from risk and ensure that your investments are performing at their best.
  10. Investing

    Top Uses For Bonds

    Find out what bonds can do for your investment portfolio.
RELATED TERMS
  1. New Mexico State Investment Office Trust

    The New Mexico State Investment Office (SIO) is responsible for ...
  2. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  3. Permanent Current Asset

    The minimum amount of current assets a company needs to continue ...
  4. Modern Portfolio Theory - MPT

    A theory on how risk-averse investors can construct portfolios ...
  5. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment ...
  6. Brown Bag Meeting

    An informal meeting that takes place over lunch. This type of ...
Hot Definitions
  1. Private Placement

    The sale of securities to a relatively small number of select investors as a way of raising capital.
  2. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  3. Backward Integration

    A form of vertical integration that involves the purchase of suppliers. Companies will pursue backward integration when it ...
  4. Pari-passu

    A Latin phrase meaning "equal footing" that describes situations where two or more assets, securities, creditors or obligations ...
  5. Interest Rate Swap

    An agreement between two parties (known as counterparties) where one stream of future interest payments is exchanged for ...
  6. Custodian

    A financial institution that holds customers' securities for safekeeping so as to minimize the risk of their theft or loss. ...
Trading Center