It’s tough to forget the stock market crash of 2008. Portfolios tumbled. Investors felt like they had eaten plates of rotten fish. Unfortunately, another crash is coming. We don’t know when, but the sun always sets on every bright bull market.
But at least one portfolio idea turns such wisdom inside out. The late American writer, politician and investment adviser Harry Browne created the Permanent Portfolio in 1981, which includes an equal mix of stocks, long-term bonds, cash and gold. Mr. Browne said it would deliver smooth investment returns. He also said it wouldn’t crash when stocks fell off a cliff. Thirty-eight years later, we know that he was right. Today, you can also build this portfolio with specific exchange-traded funds .
Over longer periods of time, the Permanent Portfolio doesn’t beat the market. Over the 36 years between 1983 and 2019, it averaged a compound annual return of 7.79 per cent. That compares with 10.92 per cent for U.S. stocks. But the Permanent Portfolio was easier on the nerves. Its worst year was 2008, when it dipped a paltry 3.59 per cent.
Mr. Browne’s original portfolio included just U.S. stocks, U.S. bonds, cash and gold. But Canadians can reduce currency risk by replacing U.S. bonds with Canadian bond ETFs. And they can diversify the portfolio further by including a Canadian and a global stock market ETF, instead of just using a U.S. stock index.
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