Bogleheads-Especially Tayor

I read an article in Barron's two weeks ago referring to the Permanent Portfolio Fund. Did some research and it seems very impressive on a 1, 3, 5, 10 and since inception, 1983 year basis. I own all Vanguard funds in my 40-60 retirement portfolio, but was thinking of adding some of this fund. It has a Global Conservative Allocation. Interested in comments and if anyone else is aware of this fund.

Artie 

By coincidence, I have been tracking Permanent Portfolio for some time and also am impressed with its  performance. It's  more  of  a hedge fund  than any thing  else. I  am considering  a  5%  allocation to it. I don't have any asset class that resembles it.

Tony 

The allocations in the fund are completely static, and there is almost no active management going on.  You can replicate the fund by yourself by buying a few funds and ETFs for much cheaper.  I still don't understand why people buy this fund.

Dao
 

Dao,

Thanks for your info. Could you be more specific on the funds and the ETFs that replicate the fund? Thanks.

Artie 

Morningstar shows recent purchases of new positions in this fund. So I wouldn't exactly call it static. I opened a position in this fund today.

 Jim

The idea behind PRPFX seems to be reasonable enough, but it is expensive for a fund providing a static allocation of

Gold ......................... 20%

Silver ....................... 5%

Swiss Franc Assets ........... 10%

U.S. and Foreign Real Estate

and Natural Resource Stocks .. 15%

Aggressive Growth Stocks  .... 15%

U.S. Treasury Bills, Bonds and

Other Dollar Assets  ......... 35%

There is no good reason to pay an ER over 1% for a fixed allocation to t-bills -- with t-bills yielding about 1% right now, you would currently be losing money on that portion of the pie.  And, of course, you can buy the t-bills with no expense ratio at Treasurydirect.

And there are ETFs that cover all of these classes much more cheaply.  Breaking it apart would allow you to allocate your assets in a more tax-sensitive manner, if you have both taxable and tax-advantaged accounts.

Suggested ETFs might include: Gold GLD, Silver SLV, Swiss Francs FXF, Tbills BIL, etc....

Best, Russell

As someone else said, there is a long thread on the Permanent Portfolio concept on the other board:

http://www.diehards.org/forum/viewtopic.php?t=15434&mrr=1208373111

The Permanent Portfolio Fund and the Permanent Portfolio Strategy have diverged over the years a bit. The fund is a more complicated allocation than the strategy advocated by Harry Browne in his later books. The Permanent Portfolio strategy is basically this:

25% - S&P 500 Index fund

25% - Long Term US Treasury Bonds (20+ years) 

25% - Treasury Money Market Fund

25% - Gold

You hold in this portfolio money you can't afford to lose. If you feel like speculating you do it with a Variable Portfolio (this is optional). The only rule is you can't use money from the Permanent Portfolio to re-fund your Variable portfolio if it lags the market or you lose it all. The portfolio is re-balanced whenever an asset is 15% or less or 35% or more (sell or buy to bring it back up to 25%).

The portfolio is designed to do well across the four basic economic conditions of prosperity, inflation, recession and depression. It has low volatility and respectable returns in the 9-10% range over the past few decades given the low level of risk.

I believe that Harry Browne's 16 Golden Rules of Financial Safety are worth reading and following. They contain a lot of very good wisdom:

http://harrybrowne.org/articles/InvestmentRules.htm

Russel,

     As you can see there are no 1% T-bills in the top 25 holdings in the portfolio. However, if there are any, it's of no consequence. With the number 1 ratings in 1,3, 5, and 10 year periods in there Global Conservative Allocation category and number 2 in since inception-1983, It's irrevelant. The 1.11% expense fee is worth it. Also, the cost of trading in and out with ETFs you mentioned further reduce the actual cost of the fund. 

Artie

PRPFX is a good model to use if you want to construct a balanced portfolio of truly non-correlated assets... but it works best as a model, not as an individual mutual fund holding... folks who hold 2% of it as a "buffer" are clearly paying far too much for the impact to their overall portfolio...

Ajw
 

As you can see there are no 1% T-bills in the top 25 holdings in the portfolio. However, if there are any, it's of no consequence. With the number 1 ratings in 1,3, 5, and 10 year periods in there Global Conservative Allocation category and number 2 in since inception-1983, It's irrevelant. The 1.11% expense fee is worth it.

I would disagree with your tense -- the 1.11% expense fees have been worth it.  I would still be hard pressed to pay 0.95% expenses (yay, the ER dropped) for a passive, albeit unique fund, which is 65% invested in assets with little to no growth potential.  A pile of gold will generally store value, but it doesn't grow.  Swiss bonds and US short-term bonds don't grow much, especially when you cut 1% off the top. 

For the record, the bond allocation is basically a ladder of treasury notes -- the longest matures in 16 months -- rolled over monthly.  This makes up roughly one quarter of the entire portfolio.

If I were to build a similarly diversified portfolio, to hold through thick and thin, I would go with

• 25% global stocks (yay, earnings!)
• 25% bonds (yay, interest!)
• 25% reits (yay, rent!)
• 25% ccf's (yay, insurance!)

It's diversified, has growth potential, and I can build it cheap!  And I don't have to worry about the management....

p.s. I will leave it to the mathematically-inclined reader to determine what the 1983-1998 returns must have been to give 10-year returns of 9.41 yet "since inception" returns of 6.86.

Russell,

     Thanks for your honest opinion on the fund. You covered a thorough analysis and revealed things I wasn't aware of, especially the malfeasance of management. I thank you for it and as a result will not be investing any position in the fund.

     It also demonstrated that the Bogleheads site continues to provide a comprehensive reporting of information extremely valuable to its participants. Thanks again.

Artie

Tim & Beeman,

I am confused?  They did make a buffalo nickel.  Wasnt it the penny that was indian head?

What the heck do I know, I sold my coin collection early on when I needed some capital.  I was never good a collecting things other than junk!

Brian

I have a small amount invested in this fund (less than 1% of my portfolio.).  I think it is a nice diversifier.  It zigs when the rest of my portfolio zags.  The expense ratio is a little high, but the fund is unorthodox, and there is no comparable low cost fund for the small investor.

I like it.

Petrocelli 

Bought in several months ago, and it's about 7% of my fairly conservative port which includes index funds.  For me PRPFX has done well so far, is good in a taxable account, and I think will be a keeper.

 Big Steve