If you’re a fan of the Marvel Cinematic Universe, you’re probably familiar with Thanos, the supervillain who wanted to gather six infinity stones to secure his future and ultimately rule the universe. Building a permanent portfolio is kind of like that, but much more friendly and less evil!
Building a permanent portfolio with your investments can provide a level of stability that other investment strategies may lack. So, even though we’re not talking about superheroes or taking over the universe, a permanent portfolio is a powerful tool that can help you create a secure financial future.
Keep on reading to learn more about the superpowers of a permanent portfolio.
What is a permanent portfolio?
A permanent portfolio is a meticulously crafted investment portfolio that strives to produce favorable returns in all economic circumstances. Created by investment analyst Harry Browne back in the 80s, it is founded on four fundamental principles.
- Security: The investment is protected against any economic scenario.
- Stability: It must have low volatility.
- Simplicity: Its construction must be simple. It is not necessary to be a finance expert.
- Profitability: It should always produce gains.
Essentially, your investment portfolio is similar to a folder where you store important documents, except that in this case, it contains stocks and other financial instruments.
So, when it comes to setting up a solid permanent portfolio, there are four assets you should consider: stocks, bonds, gold, and cash. The idea is to create a mix of these assets that will help you ride out any market ups and downs and minimize risks.
It might seem kind of weird to put such different things together, but each asset serves its own purpose and can help you achieve steady growth over time. The main suggested distribution to build a balanced permanent portfolio is:
- 25% of stocks: Investing in stocks will ensure good profitability when the market is growing.
- 25% of bonds: Being the creditor of a bond can benefit you in times of prosperity or deflation.
- 25% of cash: Having cash can help you in times of a global recession. Cash can be understood as short-term U.S. Treasury bills.
- 25% of gold: Having precious metals can help you during times of inflation.
Interesting, isn’t it? But, you may still be wondering: What are the benefits of a permanent portfolio? Well, let’s go on with that…
Benefits of a permanent portfolio
Investing in a permanent portfolio has become increasingly popular among investors due to its numerous benefits.
Perhaps the most significant advantage is that it reduces the risk of losing your invested capital, making it a reliable and secure investment option. While no investment is entirely safe, a permanent portfolio can serve as a helpful tool to minimize your risks.
Another perk of a permanent portfolio is that you don’t need a profound understanding of the business world. Understanding some basics, plus an initial awareness of what is in a permanent portfolio, and learning how the market operates will be enough.
The most appealing attribute of a permanent portfolio is probably its focus on generating profits at all times, regardless of economic conditions. Whether in times of prosperity or economic crisis, a permanent portfolio can bring returns due to its diversified composition.
Drawbacks of a permanent portfolio
The permanent portfolio may not be the best investment strategy for you if you’re seeking high returns. Depending on factors such as age, investment timeline, and overall goals, you may find it a too-conservative strategy. For instance, if you’re a young investor, you’ll be able to take on more risk and find that having only 25% of your portfolio allocated to stocks may be limiting your growth.
While this approach is respected for its security and stability, it may not align with your objectives if you are looking for rapid and substantial gains. If this is the case, you may want to consider exploring other asset allocation methods that come with greater risks but offer better profit potential.
Furthermore, the permanent portfolio has also faced some criticism for its reliance on gold. While gold has traditionally been used as a hedge against inflation, some investors argue that this is no longer relevant in today’s market. This could be a concern for those who prefer a more contemporary approach to investment management.
It is worth noting that the portfolio does include other asset classes such as bonds, stocks, and cash, which may help to balance out the reliance on gold. Ultimately, it is up to each individual investor to decide if the permanent portfolio aligns with their investment goals and risk tolerance.
How to get started
If you’re an investor looking to reduce the risk of losing when you invest, a permanent portfolio may be a reliable method for you. On the other hand, if you don’t have much experience, you too can use the basics of a permanent portfolio to build your own diversified portfolio.
If you want to create a lasting permanent portfolio, a great starting point is to invest in exchange-traded funds (ETFs). These funds can help you diversify your portfolio across the four main asset categories we talked about earlier. To do that you can use the FlexInvest platform.
FlexInvest is an all-in-one investment solution made to give you access to the stocks of the most important companies in the world. There you’ll also find plenty of ETFs that invest in stocks, Treasury bills, Treasury bonds, and gold; the perfect combination for your permanent portfolio!
The best part about FlexInvest is that it includes fractional shares options, meaning you can start investing in all these assets with as little as $5!
Before you start, keep in mind that the method of the permanent portfolio is just one of the many ways to build your investment portfolio. Make sure to explore the rest of our articles to learn more strategies and tips that can lead you to become a successful investor.