I am retired and take educated guesses on all things financial.

March 27, 2011

March 28, 2011: Everyone's World and Your Permanent Portfolio

Last May, I suggested that for safety a Permanent Portfolio be considered as investors continue to be held hostage to fickle politicians and unpredictable events here and abroad. I designed a Permanent Portfolio using low cost ETFs to closely replicate the portfolio of Michael Cuggino's 5-star Permanent Portfolio Fund. The goal of this ETF mix? To retain absolute value and rise approximately 2% more than the Citigroup 3-month U.S. Treasury Bill index, re-balanced semi-annually or annually.

As Michael Cuggino has massaged the Permanent Portfolio Fund from his predecessors, Harry Browne and Terry Coxon, to reflect different investment avenues and long term trends,I have done likewise for my current ETF Permanent Portfolio. This begs the question, why adjust the allocation and moving parts of a permanent portfolio when it is designed to be permanent? The answer is that the world is changing at warp speed compared to fifty or even five years ago. Investment products better reflecting the world are available to capture long trends while defending against your best intentioned stock selections going haywire (generally, when you least expect it). Whereas the original Browne portfolio relied on stock warrants, physical possession of precious metal to be held in Switzerland and Swiss Francs in banknotes, and Mr. Cuggino's supposition of pure U.S. Dollar assets to be worth 30% of the portfolio, I have attempted to fine tune the portfolio further using low-cost ETFs and acknowledging that, quite possibly (but not certainly), the U.S. dominant position in the world and concurrently the U.S. Dollar are heading south with dispatch. This would favor such Asian banking and corporate areas such as Singapore.

The investor certainly wants exposure to areas presently out of favor. The intent of the ETF Permanent Portfolio is to protect against placing too many eggs in what the best investment basket du jour is for a given cycle.


Precious Metals: 20%

iShares Comex Gold Trust ETF (IAU) 15%
iShares Silver Trust ETF (SLV) 5%

Swiss Franc Assets: 10%

Currency Shares Swiss Franc Trust ETF (FXF) 5%
iShares MSCI Switzerland Index ETF (EWL) 5%

Singapore Assets: 5%

iShares MSCI Singapore Index Fund ETF (EWS) 5%

Worldwide Real Estate and Natural Resources: 25%

iShares North America Natural Resource Index ETF (IGE) 5%
Vanguard Energy ETF (VDE) 5%
iShares FTSE EPRA/NAREIT Developed World Real Estate ex-U.S. ETF (IFGL) 5%
Vanguard REIT ETF (VNQ) 5%
Market Vectors Agribusiness ETF (MOO) 5%

Growth Stocks: 20%

Vanguard Dividend Appreciation Fund ETF (VIG) 10%
iShares Morningstar Small Company Growth Index Fund ETF (JKK) 5%
Guggenheim Frontier Markets ETF (FRN) 5%
Schwab Emerging Markets Equity ETF (SCHE) 5%

U.S. Treasury Bills and Bonds: 20%

Vanguard Total Bond Market ETF (BND) 10%
Vanguard Intermediate Term Government Bond ETF (VGIT) 10%

It is likely that investor's will have a speculative portfolio divorced from a permanent portfolio, the size to vary depending upon investment style and temperament. Having a permanent portfolio anchor allows the investor to place more focused bets on areas of conviction. While you may agree or disagree with my selections, the concept itself may spur you to elect this strategy.

Having a grip on the geo-political landscape becomes more important day by day. A service such as STRATFOR should become a tool in equal measure to your daily perusal through the stocks charts and gurus.

The author has no position in any of the above stock ETFs and has no profit relationship with STRATFOR.