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

November 10, 2011

November 10, 2011: Long Live The ETF Permanent Portfolio

I believe that many retail investors (and probably pros, too) entangle security investments so as to render them impractical at best, hopelessly confusing at worst.This is why it is wise to divide one's portfolio into three distinct parts. I recommend an Income Portfolio, a Permanent Portfolio and a Speculative Portfolio - kept at three divorced discount brokerages. ETrade, Schwab and Scottrade will suffice nicely. Why three brokerages? Think diversification if sophisticated hacking invades, which is not if, but when. Keep a paper trail of each account as a backup.

For relatively conservative investors, 35% of assets in the Income Portfolio, 55% in the Permanent Portfolio and 10% in the Speculative Portfolio makes sense. Regarding the moving parts, I defer the Income Portfolio to the "experts" that regularly grant one the wisdom of their knowledge (plus a healthy dose of self-esteem) on sites such as, and your own taste for yield. The Speculative Portfolio should only contain funds that are not precious to you and are limited to "bets" based upon solid research from multiple sources, which abound. The three portfolio approach encourages self-discipline.

I will focus upon the Permanent Portfolio, which is a must core holding for all investment seasons. The objective should be preservation of capital with modest total appreciation. Probably the best model is the Cuggino Permanent Portfolio Fund, which has stood the test of time. My bias against investing in this fund is the large cash position it maintains to account for redemptions and portfolio rebalancing. And the fund expenses, of course. Establishing a Permanent Portfolio on your own using ETFs and rebalancing every five months or so is a better idea if your nest egg totals $50,000 plus (maybe less). With no cash wasting away my experience has been that performance will be superior, even adding the modest transaction costs.

The following portfolio is not new for my readers, and has been favorably commented upon earlier by fee-based investment professionals and others. Granted, some think it sucks, but it admittedly gave them pause to think and devise their own.


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 Resources Index ETF (IGE) 5%
Vanguard Energy ETF (VDE) 5%
iShares FTSE EPRA/NAREIT Developed World Real Estate ex-US ETF (IFGL) 5%
Vanguard REIT ETF (VNQ) 5%
Market Vectors Agribusiness ETF (MOO) 5%

Dividend/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%

In hand with this model, I recommend subscribing to an excellent, unbiased predictive world intelligence service. Stratfor ( is a worthy choice.

I also recommend that securities be not one's sole place to park all investments. Multiple income streams are needed to keep on track. Find them.

We live in challenging times on many fronts.