The Permanent Portfolio

How you can build a portfolio that lasts a lifetime.

The Permanent Portfolio

In The Permanent Portfolio, Craig Rowland and J.M. Lawson discuss Harry Browne’s investment strategy, which he came up with in the 70’s and also wrote about in his book Fail-Safe Investing: Financial Security in 30 Minutes.

We’ve talked before about Fail-Safe Investing, which outlines some of the rules and philosophy behind Browne’s approach. But what Rowland and Lawson do in their book is dive deeper into how to actually implement a permanent portfolio.

That said, let's dig right in on the key things to consider when implementing a permanent portfolio.

Lesson 1 – The Permanent Portfolio

The permanent portfolio is based on one simple fact: we can never predict the future.

And if we can’t predict the future, why bother with speculation or actively trading to try to beat the market?

Browne argues that instead of trying to find the ideal market timing for our investments, we should create a diversified portfolio that protects against risk at all times, regardless of what’s going on in the world.

So your permanent portfolio will have a 25% allocation across four different assets that will be profitable in different economic conditions:

  • Stock in times of prosperity
  • Gold during inflation
  • Cash during recessions
  • And bonds during deflation

In this way, the permanent portfolio has a built-in hedging system.

For example, when the stock market goes down, gold and bonds tend to go up.

When gold or bonds go down, the total stock market tends to go up.

Lesson 2 – Stocks

In times of prosperity, living standards are rising.

Inflation is not too high, interest rates are low or declining, and businesses are thriving.

In short, the economy is expanding and creating the ideal conditions for stocks to do well.

Rowland and Lawson recommend owning a broad-based stock index fund that doesn’t try to beat the market.

There are 5 main requirements when choosing a right fund:

  • It tracks a stock index such as the S&P 500 or Total Stock Market
  • It has an expense ratio below 0.5% per year
  • It is passively managed
  • It is well-established companies with a track record for index investing
  • It is 100% invested in stocks at all times

Both Exchange Traded Funds (ETF) and unit trusts are good options for this purpose, but when trying to decide between the two, it’s wise to look at the trading costs involved.

When trading an ETF, you will likely have to pay commission fees. If you do decide to buy into an ETF, you can lower commission costs by buying in bulk either quarterly or bi-annually.

Some example of US funds to consider:

  • Vanguard Total Stock Market unit trust (VTSMX)
  • Vanguard Total Stock Market Exchange Traded Fund (VTI)
  • iShares Russell 3000 Index Exchange Traded Fund (IWV)
  • Fidelity Spartan Total Stock Market (FSTMX)
  • Schwab Total Stock Market (SWTSX)

It’s always important to consider the fees involved because they can get really expensive over time and cut down the value of your portfolio.

When building a permanent portfolio, Rowland and Lawson suggest that it’s best to invest where you are living and working.

More often than not, international investments add more risk to your portfolio.

Of course, this advice is most relevant for those trading in the US stock market, where many large international companies are based.

If you are living in Malaysia, you still might want to trade internationally if you are looking for more choice.

The easiest way to get access to access to US funds mentioned above is through Malaysian robo adviors such as Stashaway and Wahed Invest (who need a halal equivalent).


Deflation is a period in which prices are falling as the purchasing power of a currency increase. (Good news for those with cash; bad news for those with debt.)

In the 1930s, deflation triggered the Great Depression due to a collapse in investment purchases.

While bonds also do well during times of prosperity, it’s during times of deflation that bonds provide their most value to your permanent portfolio. Due to their stability, they can help to offset any volatility in the stock market.

For example, in 2008, US Treasury Bonds gained nearly 35% while the stock market took a nosedive.

For the Permanent Portfolio, only 25-30 year US Treasury Bonds are appropriate because:

  • They have no default, credit, political, or currency risk
  • Their long maturity allows them to profit from volatility during periods of deflation
  • They are fixed-rate bonds, without inflation adjustments built in

There are three ways to buy U.S. bonds:

  1. Buy directly from the auction at the U.S. Treasury. However, auctions only occur at certain periods and you might not be able to purchase bonds at your own convenience.
  2. Buy through a broker (secondary market). This is the recommended method to purchase bonds as it’s convenient, and you still own them directly.
  3. Buy through a bond fund. Unless options 1 and 2 are not possible for you, then this method is not advisable because it might be hard to find a 25-30 year bond through a fund.

When the treasury bond reaches 20 years of maturity, sell it and purchase a new 25-30 year bond to replace it so that you can maintain the 25% value of the bond allocation in the permanent portfolio.

Once again, the easiest way to get access to access to US bonds mentioned above is through Malaysian robo adviors such as Stashaway and Wahed Invest (who need a halal equivalent).


Recession is a period in which money is tighter, businesses are slumping, customers have less cash to spend, and unemployment is rising.

This is a period where having the 25% of the portfolio in cash (or cash equivalents) comes in handy.

Essentially, cash will help stabilize the portfolio in times of volatility. You can hold interest, dividends, or capital gains from other assets in cash.

Cash can also be used for emergencies.

Within the Permanent Portfolio, you should hold your cash in Government Bonds with maturities of 12 months or less.

These t-bills can be purchased through the same channels as US treasury bonds. As with bonds, you should hold the bills directly instead of purchasing through a fund.

Once again, the easiest way to get access to access to US treasury bonds mentioned above is through Malaysian robo advisors such as Stashaway and Wahed Invest (who need a halal equivalent)..


Inflation is a period in which the purchasing power of a currency decreases due to increased supply. In general, consumer prices are also rising.

During this period, gold will act as your portfolio insurance, providing returns when inflation and political or economic uncertainty are high.

While gold is highly volatile on its own, when combined with the other three assets it reduces the overall volatility of your permanent portfolio.

There are several ways to invest in gold:

  • Purchase and physically store gold bullion. If you choose this method you will need to pay for storage in a safe location as well as insurance.
  • Buy gold at a bank. Some banks offer custody accounts, where they hold the gold for you with their own safes and security. There are two kinds of custody accounts:
    • Allocated accounts provide you with a specific lot of gold in your name, meaning you are the owner of that gold.
    • Unallocated accounts, on the other hand, hold your gold in a pooled account where you have a claim to a portion of the pool.

      It’s said that this is the most common form of gold investment worldwide — in part because it is cheaper and more convenient than allocated gold.

      But in this case, the gold remains the property of the bank, and you essentially become a creditor of the bank.

      This makes it riskier in times of uncertainty, when the bank might not own enough gold to back the value of unallocated gold investments.

  • The third way to invest in gold is through a fund. Not an ideal method, but better than if you don’t invest in gold at all.

If you have to go with a fund, then Rowland and Lawson recommend the following exchange-traded or closed-end funds:

  • iShares Gold ETF (Ticker: IAU)
  • StreetTracks Gold ETF (Ticker: GLD)
  • Physical Swiss Gold ETF (Ticker: SGOL)
  • Sprott Physical Gold Trust (Ticker: PHYS)
  • Central Fund of Canada (Ticker: CEF)
  • Central Gold Trust of Canada (Ticker: GTU)
  • Canton Bank of Zurich ETF (Ticker: ZGLD)

Regardless of how you decide to invest in gold, you should also hold some gold overseas for geographic diversification.

Being in Malaysia, you also have the option of buying gold through an app called HelloGold.

Implementing the Permanent Portfolio

Now that you know what a Permanent Portfolio is, you can apply it to your own investing practice. Firstly: buy all the assets at once.

The Permanent Portfolio only works if each asset has 25% value, and trying to figure out the best time to buy gold, stocks, or bonds will defeat the whole purpose of it.

Though ideally you are buying low, the Permanent Portfolio is based on the idea that it’s near impossible to successfully time the market.

So it’s best to just buy all the assets you need at once.

Protecting your portfolio

When putting together your portfolio, you should decide on which level of protection you are comfortable with:

Level 1 – Basic
In this level, your entire portfolio is in ETFs and/or unit trusts — a quick and cheap way of getting it set up.
However, it does not allow for you to hold the bonds or physical gold directly.

Level 2 – Good
In this level, your stocks, cash, and most of your gold is in ETFs and/or unit trusts, while your bonds and some of your gold have been purchased directly.
This decreases some of the fund manager risk, and you have control over the storage of some of your gold.

Level 3 – Better
In this level, you are protected against volatility in the financial sector. Your stocks and cash are in ETFs and/or unit trusts, while your bonds are owned directly, and your gold are physically stored in a secure location.

Level 4 – Best
In this level, you have high protection against threats to your life savings. Your stocks and cash are in ETFs and/or unit trusts, your bonds are owned directly, and 100% of your gold is physically held in both domestic and international storage. This geographic diversification mitigates the risk of a natural or manmade disaster, or government confiscation.

Maintaining your portfolio

Once your permanent portfolio is set up, the maintenance is simple: once a year, check if the value of your four investments have stayed within 15-35%.
If it has gone outside the 15-35% range, simply rebalance the portfolio back towards 25%. Another time you may want to check your portfolio is when you notice a big change in investment prices.
If you need to withdraw the portfolio, Rowland and Lawson recommend first subtracting from the cash balance until it reaches 15% value.
Then you would rebalance the portfolio back.

If you want to add to the portfolio, you should buy more of the worst performing asset rather than buy for each asset equally.
This is so that you continue to buy low and sell high.

While the Permanent Portfolio was initially designed to work in the US economy, the strategies in this book can also be effective in Malaysia.
However, as Malaysia is an emerging market prone to some instability, it would be wise to have investments overseas as well.

Reducing institutional risk

Another key point in the book is the need for institutional diversification.The brokerage accounts you open should be spread across different institutions, in case a problem occurs in one of the institutions. It also minimizes any damage if one of your accounts is frozen, or falls victim to theft.

The same goes for investing in ETFs or unit trusts: never invest in just one account.

The Permanent Portfolio Recap.

In this summary, we covered 6 main lessons.
Lesson 1 was focused on why the permanent portfolio was a good idea.
Lesson 2 was focused on how to choose your stocks.
Lesson 3 was focused on how to choose your bonds.
Lesson 4 was focused on how your cash equivalent assets should look like.
Lesson 5 was focused on your gold buying options.
And lesson 6 was how to implement the permanent portfolio, how to protect it and how to maintain it.

Our Thoughts from More Money Malaysia

All-in-all, the Permanent Portfolio is based on the idea that passive investments will get you better returns than if you try to beat the market.

By building on Harry Browne’s original ideas, Rowland and Lawson break down the Permanent Portfolio into practical strategies for long-term financial stability.

Creating a permanent portfolio is a great start for those who are looking to protect their wealth over time.

Although not all of these assets are as easy to get a hold of, there is a way to replicate it pretty closely.

The first is to use a robo advisor (like Stashaway or Wahed Invest) to get your stock and bond exposure.

The second is to use Hello Gold to get your gold exposure.

Action Steps

Now that you know what the main lessons are from The Permanent Portfolio, here are the next steps.

Step 1 – Decide if you are focused on protecting your wealth or are willing to lose it to grow it faster.

Step 2 – If you want to protect it, then implement the permanent portfolio.
If you cannot get access to the ETFs suggested, you can use a robo advisor (like Stashaway or Wahed Invest) to get your stock and bond exposure.

You can also use Hello Gold to get your gold exposure.