The Permanent Portfolio

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Over the long term, this passive investing approach has been shown to produce above average returns for patient investors. Why? There are many reasons, but primarily because investing in index funds costs much less than nearly any other method.

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According to Browne, the Permanent Portfolio should provide three key features : safety, stability, and simplicity. He argues that your permanent portfolio should protect you against all economic futures while also providing steady returns. It should also be easy to implement.

There are many ways to approach safe, steady investing, but Browne has some specific recommendations :

Hold 25% of your portfolio in U.S stocks, to provide a strong return during times of prosperity.

Hold 25% in long-term U.S Treasury bonds, which do well during prosperity and during deflation (but which do poorly during other economic cycles).

Hold 25% in cash in order to hedge against periods of "tight money" or recession.

Hold 25% in precious metals( gold, specifically) in order to provide protection during periods of inflation.

To use the Permanent Portfolio, you simply divide your investment capital into four equal chunks, one for each asset class. Once each year, you rebalance your portfolio. If any part of your portfolio has dropped to less than 15% of the whole, or grown to over 35% of the total, then you reset all four parts to 25%

That's it. That's all the work involved.