Fail-safe investing? Harry Browne’s permanent portfolio

“The first rule of investing is don't lose money; the second rule is don't forget rule number one.” — Warren Buffett
 
At the end of March, I asked you what topics you'd like to see covered during Financial Literacy Month. I received many great suggestions, and will continue to fulfill requests not just in April, but for months to come. One comment especially caught my eye. Kenneth F. LaVoie III wrote:

Never again will I be in a position to lose 50% of my money. There must be a way to see the Big Picture and lighten up on areas that are over-valued, but still enjoy an average return at least approaching that of the market as a whole…I'd love to hear some simple strategies that require a little thought, and don't just focus on keeping a lot of money in cash and short term bonds.

It sounds to me as if Ken is asking about defensive investing, which is actually something I've been thinking about a lot lately. When I was younger, my investments were mostly speculative. They were gambles. I wanted to earn huge returns — and I wanted them today. Even two years ago, I was investing in Countrywide and The Sharper Image.

But as I've built wealth and become better educated about money, I've become a defensive investor. I've become less interested in quick gains. Last year's market collapse was another shock to the system, not just for me but for many others. We've realized that our risk tolerance isn't as high as we once thought it was.

Risk tolerance is the degree to which you, as an investor, are willing to accept uncertainty — and possible loss — in the investments that you make. If you have a high risk tolerance, you're willing to accept large fluctuations in your investment returns in exchange for the possibility of large gains. If you have a low risk tolerance, you'd rather your return was constant.

More and more, I've become a fan of index funds — mutual funds built to track the broad movements of the stock market. They don't outperform the market, but they don't underperform it, either. To learn more about index funds, I've begun to attend the quarterly meetings of the local Diehards group.

The Diehards are fans of John Bogle, who founded The Vanguard Group, and who is considered the father of index funds. The Diehards mostly hang out in an internet discussion forum, but from time-to-time they meet in groups around the country to discuss investing.

At the last meeting, we took turns describing our current asset allocations and what we've done to respond to the faltering economy. It was no surprise that most people hadn't done much to change their investing strategies. What was surprising is that although everyone was a fan of John Bogle, I was the only one whose portfolio was composed primarily of index funds.

Each member of the Portland Diehards group has his own approach to investing. Many focus on real estate. But one man's choice especially appealed to me. Craig told the group that he has based his asset allocation on Harry Browne‘s “Permanent Portfolio”.

Asset allocation is the division of money among different types of investments. The classic example is the basic 60/40 split: 60% invested in stocks and 40% in bonds. “Asset allocation” is just a fancy way of saying “the things in which I've invested”.

After listening to Craig's explanation of the Permanent Portfolio, I picked up Harry Browne's little book, Fail-Safe Investing. Browne divides investment money into two categories:

  • Money you cannot afford to lose.
  • Money you can afford to lose.

For the former, Browne recommends investing in a “permanent portfolio” that provides three key features: safety, stability, and simplicity. He argues that your permanent portfolio should protect you against all economic futures while also providing steady performance. It should also be easy to implement. (For the money you can afford to lose, Browne suggests a “variable portfolio”, with which you can do anything you want — even invest in Beanie Babies!)

There are many ways to approach safe, steady investing, but Brown has some specific recommendations for his own Permanent Portfolio:

  • 25% in U.S. stocks, to provide a strong return during times of prosperity. For this portion of the portfolio, Browne recommends a basic S&P 500 index fund such as VFINX or FSKMX.
  • 25% in long-term U.S. Treasury bonds, which do well during prosperity and during deflation (but which do poorly during other economic cycles).
  • 25% in cash in order to hedge against periods of “tight money” or recession. In this case, “cash” means a money-market fund. (Note that our current recession is abnormal because money actually isn't tight — interest rates are very low.)
  • 25% in precious metals (gold, specifically) in order to provide protection during periods of inflation. Browne recommends gold bullion coins.

Because this asset allocation is diversified, the entire portfolio performs well under most circumstances. Browne writes:

The portfolio's safety is assured by the contrasting qualities of the four investments — which ensure that any event that damages one investment should be good for one or more of the others. And no investment, even at its worst, can devastate the portfolio — no matter what surprises lurk around the corner — because no investment has more than 25% of your capital.

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

Browne's Permanent Portfolio is unlike anything I've ever considered before, but I have to admit: I like it. A lot. It has a distinct “get rich slowly” feel to it. That is, this portfolio is not designed to earn lots of money; it's designed to not lose money.

What's more, the Permanent Portfolio is based on the smart investment behaviors we've explored before. It's a passive strategy built on diversification. It doesn't use market timing. It's a defensive investment strategy that also happens to produce a decent return.

Diversification is often mentioned with asset allocation, and for good reason. Diversification is the process of investing in many different things, of not putting all of your eggs in one basket. Studies have shown repeatedly that by investing in different types of assets that aren't correlated (i.e. do not move the same way at the same time), investors can reduce risk while maintaining (and sometimes increasing) return. This is the power of diversification.

All of this is a long way of saying that, like Kenneth F. LaVoie III, I too am interested in reducing my risk while maintaining a decent return. I understand that, in general, risk and return are intertwined. If you want maximum possible returns, you must accept great risk. If you want no risk, you will receive meager returns. But as William Bernstein demonstrates in The Four Pillars of Investing [my review], diversification can lower risk while increasing return.

To read more about the Permanent Portfolio, check out the following articles:

I should also point out that there's actually a mutual fund built around the concept of the Permanent Portfolio. PRPFX has an impressive record, though one based on less than a decade of data.

Note: Just because I am giving serious consideration to the Permanent Portfolio does not mean that you should do the same. Please base your investment decisions on your personal goals and psychology, not on my personal goals and psychology.

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Writer's Coin
Writer's Coin
11 years ago

I think one subject that should be explored more is context. I’m sure JD is getting tons of requests about how to invest without losing money right now. Of course he is–the stock market just tanked and lots of people lost lots of money. But what will happen with these very same people when stocks start to shoot up on the next bubble? Will they remember these lessons or hop on the next trend that comes along, like the Internet, like real estate? This is a great time to educate these people, and hopefully when the next hot idea comes… Read more »

the weakonomist
the weakonomist
11 years ago

Reducing risk while maintaining a market return is about as easy as beating the marking while maintaining market risk.

Diversification, asset allocation, and portfolio balancing are about all you can do to avoid overexposure, unless you put half your assets in bonds and cash which will kill your return to about the rate of a decent CD.

ABCs of Investing
ABCs of Investing
11 years ago

I’m not crazy about precious metals.

Something to keep in mind with a portfolio like this is that it is a more conservative portfolio than a 100% equity portfolio (obviously).

This isn’t a bad thing at all, but investors have to remember that when times are good – if the equity markets go up 10% then this portfolio might only go up 5 or 6%.

There is no ‘magic’ portfolio – when you reduce risk you also reduce expected return.

Mr. GoTo
Mr. GoTo
11 years ago

There are a number of “permanent portfolios” floating around the investment world. Search for “couch potato” or “lazy man” porfolios and you will find them. This one from Browne is one of the worst that I have seen for a number of reasons.It is way overweighted in precious metals which have a terrible long term track record. TIPS are a much better inflation fighter. Having 25% in long Treasuries is also a mistake because of interest rate risk. Where are the foreign equities and real estate components? I don’t think Browne carefully studied the concept of investing in non-correlated assets.… Read more »

Joey
Joey
11 years ago

I’m not a trinkets (gold, silver) fan. Right now, keeping my money in savings accounts seems like the best plan for me. Since I make so little to begin with (grad student stipend), it makes more sense to try to [i]save[/i] than it does to invest.

Will Crowthers
Will Crowthers
11 years ago

Asset allocation via indexed funds is the way to go. It was recommended to me several years ago that I read The Intelligent Asset Allocator by William Bernstein. I read the book and have never looked back. For my full review, read here: http://www.twentysomethingsense.com/category/book-recomendation The book defends asset allocation and diversification via indexed funds and even dives into some of the math that supports it. Its a well written book focusing on building a portfolio that you manage for life (re-balancing). It sounds like the book above is quite similar. The bottom-line is that you must allocate appropriately, you must… Read more »

Tim
Tim
11 years ago

Low fees are a must. Index funds mixed with US treasuries can provide all the balance needed in a long term portfolio. If you want a safer investment mix up your treasury asset allocation. Buy direct and keep your fees low.

Chelsea
Chelsea
11 years ago

Is it worth adding a 10% “risk” area? I’m thinking that most of us don’t like risk, but do like the possibility of big returns — and think (foolishly or not) that we can achieve them. If you let 10% of that portfolio be ‘play’ money, you can satisfy that need to think you can make it big w/o jeopardizing your whole portfolio. And if you’ve chosen wisely, you’ll have an offensive line in your defensive savings.

joejoeice
joejoeice
11 years ago

25% in precious metals is high. It seems like in an effort to make the system straight forward and simple, the groups were broken into equal quarters, but why? Each of these classes is defensive against a certain risk, but I wouldn’t say each of these risks are equally likely to occur. Put 5% more in each of the first three areas and at most 10% in metals. Or, do as Chelsea at 8 says and let 10% of your money be a risk area (like a sector fund or even individual stocks). Then, the numbers could be 25%, 25%,… Read more »

BloggingBanks
BloggingBanks
11 years ago

So basically you have a 50% allocation to fixed income with this portfolio. If you try living off that portfolio in retirement you are very likely to run out of money in the first decade of retirement.

Chris
Chris
11 years ago

I will be curious to see where your reader’s risk tolerance will be in 3-5 years when the market is going gangbusters. I have found that our risk aversion is directly proportional to the direction of the stock market. That is why most of us suck at investing, we get really risky when the market is up and get really defensive when the market it down. Sounds like little has changed.

P.S.: I love gold as an end-of-the-world hedge, but 25%?? Yikes. What about foreign exposure? The US is not the only stock/bond market in the world.

Corporate Barbarian
Corporate Barbarian
11 years ago

I like the balanced approach, though I’m surprised he has precious metals at 25%, and in gold bullion. What about funds that invest in precious metals?

Michele
Michele
11 years ago

I agree that 25% in precious metals seems awfully high. I tend to be a bit of a conservative investor and like to add long-term CDs into my portfolio as a hedge. Yes, they keep my total return rate lower in good times, but keep my return rate much better in bad times. It all depends on your comfort level – or risk tolerance.

Steve
Steve
11 years ago

The 25% says to me that this is something the author made up, not something based on math and analysis of the markets.

Rick Francis
Rick Francis
11 years ago

As others have mentioned this portfolio seems very imbalanced, and somewhat arbitrary:
Note that it has no small cap stocks, no foreign stocks, and no real-estate (i.e. REITs), those are some pretty important asset classes to ignore. Putting 25% in gold is VERY high- gold hasn’t historically been a good investment. Other investments can serve as inflation hedges- TIPS, stocks real estate. Finally having only 25% invested in stocks seems VERY conservative to me…Unless I was in my 90’es I would be concerned about outliving my money.

-Rick Francis

elisabeth
elisabeth
11 years ago

one more voice to say 25% in “gold”!?! A very unliquid asset, and kind of if you’re really worried about a situation in which you would need gold to trade with, you might be better off investing in a lot of survival gear.

Krystal
Krystal
11 years ago

I absolutely love Harry Browne. Maybe it’s the political party affiliation. I guess I just gave myself away.
However, I do think the gold ratio is quite silly. But maybe I don’t understand it. If the economy collapses, who can afford to buy your gold coins? Or who would want to trade for them? Gold doesn’t feed the kids. Are you not actually buying the coins, but betting on their gain in value?
I wish he was still with us to explain more and talk about the current economy.

joejoeice
joejoeice
11 years ago

At first glance, I hated the PP. However, for those of you who are into the hard numbers, check this out:
http://crawlingroad.com/blog/2008/12/22/permanent-portfolio-historical-returns/
It may make you hate it slightly less. I still would be far more invested in stocks and way less in gold. The PP numbers are impressive, though. Since 1972 it has a 9.7 average return. And it only posted a loss two years (-3.9 and -2.5) That is a pretty good return for such a low volatility.

Mark Wolfinger
Mark Wolfinger
11 years ago

Defensive investing is not good enough. Remember how everyone believed that diversification and proper asset allocation would be sufficient? That was only one year ago. The reason people believed those things work is because they work during bull markets. The best method for controlling risk and GUARANTEEING that your losses are capped (limited) is to HEDGE your investments. And options are just the tools for reducing risk and protecting the value of a stock market portfolio. Using collars is best for that purpose, but alternatives are available. Options are easy to understand, but too few people understand how to benefit… Read more »

Jan
Jan
11 years ago

@Weakonomist > Reducing risk while maintaining a market return is about as easy as > beating the marking while maintaining market risk. Harry Browne’s PP is built to protect your buying power during hyperinflation too. Most regular diversified portfolio’s can’t do that. @Mr. GoTo > There are a number of “permanent portfolios” floating around the > investment world. Search for “couch potato” or “lazy man” porfolios > and you will find them. There are many “lazy portfolio’s”, but this one currenty does better than all the others in this ongoing comparison: http://madmoneymachine.com/portfolios/ @joejoeice > 25% in precious metals is high.… Read more »

Rich
Rich
11 years ago

Nice Post Jan! I actually like PRPFX. The buy in is low, the beta is 0.73 relative to the SP500 and SD is 11. Not to mention the returns over the last few years have been great for defense. Coupled with a little more diversity of indexes and you’ve got good blend between passive and active.

The Personal Finance Playbook
The Personal Finance Playbook
11 years ago

The most important thing an investor can do in times like these is stay the course with a portfolio that’s well suited to that investor’s risk tolerance and goals. If you’re feeling the urge to bail out of the stock market right now, maybe you had more money in stocks than you should have based on your own risk tolerance. You can’t control short-term market fluctuations, but you can control your actions in response to them. Markets are crazy and often unsettled, stay calm and trust your approach. If you believed in it when you initially invested, it shouldn’t be… Read more »

ABCs of Investing
ABCs of Investing
11 years ago

Jan says:

Harry Browne’s PP is built to protect your buying power during hyperinflation too. Most regular diversified portfolio’s can’t do that.

Jan, this is not correct. The only portfolio that has a chance (but is not guaranteed) to do well in a hyperinflationary scenario is one that is 100% gold.

This portfolio is only 25% gold so it’s ability to preserve buying power will be fairly limited.

kitty
kitty
11 years ago

I don’t think there is one portfolio for every situation. As was mentioned a lot of times buy and hold doesn’t mean buy and forget. Buying an index fund or putting money into the treasuries doesn’t mean you should ignore the economy. Paying attention to the economy doesn’t mean you are engaged in market timing or are trying to catch the exact top or exact bottom. But it could help you identify a bubble and not buy at the top. Sure you could sell to early or buy too late, but it’s better than losing over 50%. For example –… Read more »

Jan
Jan
11 years ago

@ABCs of Investing says: The only portfolio that has a chance (but is not guaranteed) to do well in a hyperinflationary scenario is one that is 100% gold. This portfolio is only 25% gold so it’s ability to preserve buying power will be fairly limited. Page 29 of the book says: “During 1973—77, stocks generally lost about 20%, but gold rose by 153%. During 1981—86, gold fell 34%, while stocks rose 80%. During these periods, stocks and gold didn’t cancel each other out; the winner had a bigger impact on the overall outcome than the loser did. The portfolio continued… Read more »

Joe Light
Joe Light
11 years ago

Hey J.D., this is a long way’s away from a portfolio the magazine would recommend, but I will say this: Any portfolio, no matter how conservative, is FINE as long as you’re willing to save enough to compensate for the return you’re losing. The portfolio basically has 50% of your money in no-risk investments. Right now, investors are getting paid almost nothing for keeping money in cash or U.S. Treasuries. The 10-year Treasury bond, for example, has a yield of 2.85%. Do you think inflation is going to be less than 3% for 10 years? That said, of course, you… Read more »

getagrip
getagrip
11 years ago

I have a problem with the statement about classifying your investments as: “Money you cannot afford to lose. Money you can afford to lose.” If you honestly think you have money “you can afford to lose” give it to charity or blow it at Vegas on a good time. Otherwise, the principle is basically going conservative with the bulk of your investment funds and going high risk with some other, unknown, percentage of your money. Isn’t that a form of diversification? Additionally, with such a basic premise, did the author actually run any numbers over various twenty year or thirty… Read more »

Kevin W
Kevin W
11 years ago

I agree that the 25% allocation to physical gold is daft. On a common sense level I don’t understand the appeal of gold. It is an inert, deadweight lump of capital sitting in your basement. When you invest in stocks, bonds, or real estate, you are turning capital over to working human beings who apply their ingenuity and labor to wringing as much positive economic benefit out of that capital as they can. Call me an optimist, but I have to believe that human ingenuity and labor will beat inert hunks of metal every time. To be fair, Browne came… Read more »

Tyler Karaszewski
Tyler Karaszewski
11 years ago

I tend to think that this conversation is largely moot from a personal finance perspective. Sure, there are lots of different tweaks and adjustments you can make to a lot of different investment strategies trying to maximize your return, or minimize your risk. But, if you’re not actually all that interested in this stuff, and all you’re really trying to do is make sure you’ve got enough money stashed away for retirement, the fact that you have a bunch of money in *any* investment is still pretty good. If you retire with $3 million in bonds, or in the stock… Read more »

DebtGoal
DebtGoal
11 years ago

There’s a focus in this discussion on the value of index funds for asset diversification. Are ETFs even better substitutes and what are their downsides if any?

Katy
Katy
11 years ago

One thing I hear said very little about investing, that is a big missing piece: Learn about what you are investing in. Study it. If you want average returns, get a high yield savings or money market account. Or maybe some index funds. If you want to make anything better, then pick one or two areas and really, REALLY learn about them. Learn how to tell the real experts from the flashy experts. Learn how to read the trends of that tiny area of the market yourself. Learn what makes your own personal part of the market tick. Real Estate,… Read more »

David
David
11 years ago

Diversification – GOOD! Index funds – with a little work you can do better than an index fund. If you want to be a mediocre investor and do no work go the index fund route. I’m always surprised that someone will spend hours shopping for clothes/cars/whatever but won’t spend a little bit of time learning how to find good companies to invest in. I’m one who agrees that the % in Gold is too high. However, I do agree that you should own some Gold. I have a small percentage in a gold ETF and another small percentage in a… Read more »

Jason Unger
Jason Unger
11 years ago

What about international investing? Does he ever mention it?

Ross Williamsr
Ross Williamsr
11 years ago

“Risk tolerance is the degree to which you, as an investor, are willing to accept uncertainty – and possible loss – in the investments that you make. If you have a high risk tolerance, you’re willing to accept large fluctuations in your investment returns in exchange for the possibility of large gains. If you have a low risk tolerance, you’d rather your return was constant.” This is more confusion of risk and volatility. They aren’t the same thing. Risk is when you lose part of your investment. Volatility is the ups and downs of the market. Your tolerance for risk… Read more »

Stephen Drone
Stephen Drone
11 years ago

Please note that PRPFX is based on the CONCEPT, and the concept ONLY, of Browne’s actual permanent portfolio. He did not endorse it, and it has strayed a long way from his basic idea.

Jimmy
Jimmy
11 years ago

Thanks for the interesting post, I’m always interested in asset allocation and different investing styles, even though I find this particular portfolio way too conservative.

To the comments that said they would just put their money into a savings account – keep in mind that there is a risk to that too. You’re losing several percent a year due to inflation (which changes based on whatever the current rate is), even though the balance hasn’t dropped. You’d be far better off using a money market fund or any of the other methods mentioned by other posters.

Ryan
Ryan
11 years ago

I think a lot of people who are down on the idea of putting 25% of their portfolio into gold are a little short-sighted. A few points: 1) Harry Browne said, “The best kept secret in the investing world: Almost nothing turns out as expected.” Most investors’ asset allocations are predicated on the idea that the United States will remain a free, mostly capitalist nation indefinitely. There is no guarantee of this. War, violent regime change, governmental collapse and other ‘unthinkable’ events are the norm in human history, not the exception. Gold serves as a hedge against political risk. 2)… Read more »

craigr
craigr
11 years ago

JD, Thanks for posting this nice write-up. I run the Crawling Road blog that you mentioned. Let me address a few concerns of people: 1) Yes I thought the same thing that many others have about the portfolio being crazy at first. As I researched it though, it became obvious that it’s crazy like a fox and very well thought out. It is not arbitrary at all. 2) Yes it holds gold. Most investment advisors hate gold. I used to hate gold, but SOMETIMES it’s the only asset that will work in a very bad market that is undergoing severe… Read more »

MT
MT
11 years ago

this is a little crazy of an asset location. as others pointed out, if you are aiming to build a retirement portfolio on this, good luck. this might sound crazy given the current cause of the economy, but gold long-term is a very poor “investment”; it in reality has a negative return given storage costs, etc and is a straight inflation hedge. either using a balanced real estate index fund (i know, but keep reading) will, over the long-haul, provide steady dividends as well as a hedge against inflation; as the $ rises, so to will the underlying property value.… Read more »

Ryan
Ryan
11 years ago

MT says:
“…will provide much more steady returns than his proposed portfolio”

Have you even looked at the volatility and returns of the Permanent Portfolio as opposed to your recommendation? The Permanent Portfolio is made up of volatile elements, but it constructed in such a way that the portfolio as a whole is REMARKABLY non-volatile. It’s worst year saw a loss of around 4%. This year saw your suggestion lose around 30%.

Read the research before you dismiss the concept.

ff99twl
ff99twl
11 years ago

As a newbie to the site, I appreciate the comments that have been posted, very good stuff. Thanks folks for being out there in internet land for the folks who need to learn that which we learned in our own ways and continuing to learn in our own ways year after year.

MT
MT
11 years ago

@Ryan (#40) we may be talking apples and oranges here. my viewpoint is skewered a little since i’m probably a lot younger than you and am in prime years to take a little risk (plus, i am a finance grad, so i think his suggested allocation is horribly conservative). the allocation i propose is pretty well balanced overall and would be a good portfolio that all financial planners would put a gold star on(i would be curious to see your ‘30% loss’ math for the year…). my whole point is that the proposed “permanent” portfolio is mainly a misnomer. call… Read more »

craigr
craigr
11 years ago

MT, The Permanent Portfolio portfolio has had a CAGR growth of 9-10% since the early 1970’s. It is on par with a much heavier stock allocation with significantly less risk. It not only can and does grow retirement savings, but it also preserves capital during very bad markets. The past 10 years through 2008 has seen a 100% stock portfolio with a CAGR of about 1.3%, a 50/50 stock/bond portfolio of 4.1% and the Permanent Portfolio 4×25 allocation with 6.3% annualized returns. Over the past 20 years, a 100% stock portfolio has returned 8.6% CAGR with a standard deviation of… Read more »

craigr
craigr
11 years ago

MT,

According to my data, the portfolio allocation you suggested returned -23.65% in 2008, -26.47% after inflation.

2008 returns for the asset classes suggested are as follows:

Large Cap Blend (S&P 500 equivalent): -37.04%
Small Cap Blend: -36.07%
Real Estate Investment Trusts (REITs): -37.05%
TIPS: -2.85%
Vanguard Total Bond Index: +5.05%

Gerard Sorme
Gerard Sorme
11 years ago

Harry Browne died in 2006. With all the turmil, don’t you wonder what his PP would look like today?

Kevin W
Kevin W
11 years ago

@craigr
You raise some valid points, but I do have to fact-check your statement that “Harry Browne was well aware of TIPS.” US TIPS were first issued in 1997, and you say “The portfolio idea was first presented in the late 1970’s and then refined to its final form by 1987.” It’s plain that Browne couldn’t have considered TIPS as an alternative to gold in the Permanent Portfolio.

craigr
craigr
11 years ago

“Harry Browne died in 2006. With all the turmil, don’t you wonder what his PP would look like today?” I’ve spoken with a very close associate of his that is still alive today. He remains convinced that if Harry Browne were alive today the portfolio would remain unchanged. After all, it works so why change it? In 2008 the portfolio turned a slight profit of 1-2%. It worked exactly as designed in the worst market in a generation. Harry Browne understood history and certainly financial history. Both he and Terry Coxon (who co-created the portfolio with Browne), were very well… Read more »

craigr
craigr
11 years ago

“t’s plain that Browne couldn’t have considered TIPS as an alternative to gold in the Permanent Portfolio.” No he did know about TIPS. I’m certain of it. He even answers questions about them in his investing radio shows about TIPS vs. Gold. He was adamant about not using TIPS for gold in the portfolio. He talks about gold, commodities, inflation indexed bonds, etc. in this show: http://www.crawlingroad.com/finance/harrybrowne/radio/04-10-24.mp3 I don’t have the room to discuss this topic here, but it’s critical to remember that high inflation is a currency crisis. It’s not that prices are “going up” but the dollar is… Read more »

Kevin W
Kevin W
11 years ago

How exactly did he factor TIPS into a plan developed in the 1970s when they weren’t invented until the 1990s?

I’m not trying to provoke a flamewar or anything, but I don’t see how that could possibly be the case.

craigr
craigr
11 years ago

Kevin, “How exactly did he factor TIPS into a plan developed in the 1970s when they weren’t invented until the 1990s?” Inflation indexed bonds have existed in other countries well before 1997. The British offered them in 1981 onward for instance (maybe earlier??). The earliest example was in 1780 in Massachusetts according to one source I found. So the idea has existed for quite some time. As for factoring them in, Browne always re-evaluated his advice. He was famous for admitting when he made a mistake because most investment advisors never do that. If he thought that TIPS would work… Read more »

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