The Permanent Portfolio Asset Allocation: Fail-Safe Investing by Harry Browne


Another non-mainstream book that I’ve been reading is Fail-Safe Investing by the late Harry Browne. His conservative investing philosophies appear to have initially been in vogue during the 1980s, a period of high inflation. These days, with stocks earning basically nothing over a decade, it seems to be making a comeback. In the book, he recommends having two portfolios. For money that you will need for things like retirement, you should create a Permanent Portfolio. For money that you won’t need, you can keep a separate Variable Portfolio that you can speculate with.

The Permanent Portfolio
In general, Browne does not believe it is possible to predict the future, and trying to do so is futile. Therefore, he went out to design a Permanent Portfolio that maintains your purchasing power over all time horizons, both long and short, and also independent of future market conditions.

Here are the four asset classes he believes in, which correspond with four possible modes of the market:

The idea is that no matter what is happening, at least one of the four areas will be doing well, and probably well enough to create a positive total return. For example, in extreme inflation both stocks and bonds might be doing bad, but gold will likely be doing great. His proposed asset allocation is simply an even split between them:

From 1970-2003, according to his website, this mix of asset classes has earned about 9.5% annualized, with a lot less volatility than I would have guessed. This is before expenses.

Permanent Portfolio Mutual Fund (PRPFX)
There is also a managed mutual fund that follows this strategy, although not exactly. It is run by the Permanent Portfolio Family of Funds and the ticker symbol is PRPFX.

Very recently it hasn’t been doing as well. The one-year trailing return is -20.60%, while the Vanguard S&P 500 Index fund has a trailing return of -47.50%, and the Vanguard Target Retirement Income fund has a trailing return of -16.90%. But over the last 5 and 10 years, the fund has beaten out most balanced mutual funds of stocks/bonds.

Food For Thought
I’m not advocating this approach by any means, but I found it intriguing for a variety of reasons. First, it still somewhat follows modern portfolio construction techniques by diversifying across multiple asset classes that are not strongly correlated with each other. Most portfolios these days are only split between stocks and bonds. The stocks part may be split many ways (small cap, international, etc.), but with correlations increasing across the board, that hasn’t really helped add much diversification. Maybe we all need more cash and direct inflation protection.

Second, the Permanent Portfolio is still a passive investment style that does not try to predict the future, time movements in and out of the market, or pick the best mutual fund or hedge fund manager. No stock newsletter or trading systems. You just rebalance across the four broad asset classes if they get lopsided.

There are some extreme notes of caution in his writing as well. For example, the gold is recommended to be kept in physical form, and outside of the United States. The idea being that if our dollar (fiat currency) fails, the U.S. government may also be in trouble. Gold and other property might be confiscated. Browne thinks everyone should have a foreign bank account. (My biggest hurdle is buying gold, personally. I’d rather invest in a commodity like oil or even rice than a shiny soft metal.)

More Information
There is some good discussion on this topic in this Bogleheads post, and the Crawling Road blog has several posts exploring this as well.




  1. The one year trailing return is 20.60%? That seems pretty phenomenal! Did you mean -20.60%?

  2. Maybe it’s also important to consider what will underperform and have 4 sectors split to 4 non-equal parts. Also PRPFX has different %% of stocks and cash (see profile on finance sites).

  3. Excellent article. Now to get ahead it times of a recession, move to bonds at the beginning of the recession. Then, to cash and gold depending on what the government does to create inflation or deflation.

  4. What an interesting approach! His thoughts on offshore accounts and the government failing are a bit scary – I have to admit I haven’t considered such a scenario before, but he makes a good point of protecting yourself “just in case.” Certainly in the current economic times, it’s easy to fall into fear and panic. Part of me wants to remain obsessively optimistic.

  5. You don’t get protection against currency failure, but I would suggest a reasonable substitute for gold would be TIPS, like Vanguard’s TIP etf. Of course TIPS didn’t exist 30 years ago.

    I’m not insensitive to the fiat currency argument, but personally I can’t imagine having more than about 1 month’s salary on hand in gold. Perhaps one month’s salary in silver. But I also disagree with the author. If your gold is in another country when you need it, how are you going to get it? Remember the assumption is that the currency has collapsed and life is more or less in disarray.

    Protection against inflation and social disarray? Firearms and ammunition perhaps. I’d actually offer that the market is showing that right now. A significant amount of buying is against anticipation of a new ban, but I estimate that a good portion is a direct response to anticipated and perceived inflation and insurance against the outlier event of a currency failure.

  6. Gold is not a soft shiny metal… well, it -is-, but that’s not the way it functions.

    It happens to be just about the most pervasive and lasting form of currency existing today.

    When fiat fails, we fall back first on food, water and cigarettes. Once we’re on our feet, gold becomes the medium, or at least the backing for a sound and legitimate medium.

    Oil and rice are not commodities. They only have value in their throughput. That is, they don’t store value well.

  7. He’s about 6 years behind in calculating his annualized return. A lot has happened in the past 6 years, and by not adding that in, to me, puts up red flags.

  8. In times of *unexpected* inflation (which is what you mean), gold will do well (probably). On the other hand, TIPS/I-bonds will definitely do well.

    If inflation is *expected* then short-term bonds will do fine. On the other hand, if you have deflation, then long-term bonds are much better than cash. So this is a (likely) better way to cover all those areas:

    1/4 TIPS
    1/4 Long-term bonds (treasuries)
    1/4 Short-term bonds (treasuries)
    1/4 Small cap value stocks

  9. Hal – Yes, negative 20.6%. What a difference a dash makes.

    Tom – I would normally agree with you as well that is usually a concern. But Browne died in 2006, and his last book update was around 2003. I don’t know who updates his website. You can find more updated (I think reliable, but not third-party verified) return data here.

    Re: TIPS – I like TIPS in a portfolio too, but I think telling a gold bug to replace his bullion with TIPS is like telling a survivalist to replace his hunting knife with loud verbal insults. 🙂

  10. You could definitely do a lot worse.
    This will work to preserve your buying power, although for people that need to actively need to build wealth over the very long term it’s too conservative in the allocation percentages.
    Also replace at least a portion of that gold with TIPS. People overestimate odds on tail disasters like a dollar collapse.

  11. @Jonathan: My biggest hurdle is buying gold, personally. I’d rather invest in a commodity like oil or even rice than a shiny soft metal.

    And I understand the limitation, but rice and oil aren’t effectively “good forever”. In a similar fashion it’s really hard to exchange rice for a house or a car. Gold has the benefit of portability that is essential in a non-fiat currency.

    @Andy: I’m expecting inflation and I still don’t like your mix. The TIPS are subject to complete collapse b/c they’re still just IOUs. Plus they’re based on a pretty flaky measurement system for inflation.

    In fact, 3/4 of your portfolio is issued by a government that has demonstrated no interest in maintaining the purchasing power of your dollars. If you’re in the US, you’re investing in a country that has no surpluses to speak off (no savings surplus, no government surplus, no trade surplus). In such a scenario, none of the government-issued treasuries will be able to provide you with more purchasing power.

    Unless you’re seeing something I’m not seeing here?

  12. The likelihood of having inflation, deflation, prosperity, and recession are not the same. It doesn’t make sense to allocate equal proportions. Cash is basically very short-term bonds. So we are down to stocks, bonds, and commodities. If you view it from that angle, it’s not that unconventional, although most conventional allocations don’t give commodities 25% or put all allocation to commodities into just gold.

  13. “The likelihood of having inflation, deflation, prosperity, and recession are not the same. It doesn’t make sense to allocate equal proportions.”

    TFB – The response I would suspect Browne would give is – how do you know that? The future is unknown.

  14. ChrisMR says:

    If the US government fails, you have bigger problems than a small amount of gold in an offshore account will fix.
    Buy a large gun, lots of bullets, and a lot of batteries for your flashlight.
    I think back to the guy from the movie Tremors. He was ready for the gov’t to collapse and anarchy to break loose.
    As for holding physical gold, while it may be useful when things start to settle, I would be more focused on surviving the initial chaos.
    At the end of the day, I own no guns (so I cant defend myself) and no gold other than my wife’s jewelry (so Im not much of a target).

  15. ChrisMR says:

    Curt… You are trying to predict the future – so you are taking a theory that says you cannot predict the future, and trying to manipulate it to fit your predictions of the future.

  16. Personally I just like your response in having commodities be in rice… Just think! A storeroom filled with rice! Tho in the short run wouldn’t that be the best iin terms of govt. crashing?

  17. I have to agree with you about owning physical gold. I have some questions about how exactly gold would be transferred from person to person if the entire fiat money system collapses. It’s not like I’m going to walking to the grocery store with an American Gold Eagle to pay for my groceries and expect that they’ll just hack a little chunk off it for payment. Maybe, I don’t understand Gold as well as I should.

  18. This strategy will work for moderate gains while keeping risks to the minimum.. not very diff from the portfolios being recommended by financial planners these days.. good post though..

  19. Gates VP says:


    Yes you are missing something here. Yes we used to hack off chunks and it does seem kind of backwards, but I think you’re missing the whole evolution of fiat currencies here.

    You’re right though, you wouldn’t just walk in and hack off pieces. We stopped doing that a long time ago when we invented the banking system. The original paper currency was just an IOU for gold. If you wanted to actually receive the gold, you could just gather your pieces of paper and “cash them out” at a bank.

    Of course, that was corrupted early on when bankers started handing out more IOUs than they had gold on hand. (effectively inventing money)

    But in an electronic era, you would use something like With an electronic system, you can actually work in fractions of gold and silver. Gold Money only has two vaults, but in worldwide system you would have distributed banks that would let you deposit and withdraw gold locally.

    Most transfers would be electronic using standard secure protocols. Obviously you’d have to trust your bank as well, but you could also just “hoard” your gold and get away with keeping small amounts in the bank. (Just like a “cash under the mattress person”).

    The only really big problem with the gold system is that governments would be unable to “control the money supply”. Right now, if the government wants money, they can just “invent it”. Obama can ask the Fed for bills and then start using them to pay employees and contractors and people to whom they owe money.

    So suddenly Obama has a bunch of money. He hasn’t actually created anything physical. The US doesn’t suddenly have a billion new barrels of oil, it doesn’t have more food or livestock or building supplies, it just has a trillion more IOUs floating around. Of course, those extra IOUs mean that all of the IOUs (dollars) that you and I have sitting in the bank suddenly don’t buy as much.

    And that’s the attraction of gold. People can’t really invent gold. And as long as we all agree to trade in gold (and silver), then it’s easy to keep tabs on our money.

    The reason it’s not very popular is that’s governments don’t really like it and people aren’t always great at grasping how it works. Plus, before the current electronic era, it was definitely a pain to track “fractional” pieces of gold. (obviously wouldn’t be a problem today)

    But here’s the simple reason to consider gold.

    Obama printed 1 trillion with this last budget. That reduced the value of every dollar you have in a bank account somewhere. Now, for the most part, those invented dollars are just replacing all of the invented dollars that disappeared (via bankruptcies). But Obama is going to print more money next year. So the real value of your savings is going to drop again. Obama has promised to print as much money as is necessary to resolve the economic crisis.

    So your government has basically promised to dilute the value of your savings until this “crisis” is over. But they can’t “print” gold.

  20. Braiden Harvey says:

    Great article.

    Braiden Harvey

  21. Crawling Road says:

    Thanks for the mention of my site Crawling Road. The Harry Browne portfolio is unconventional by today’s standards, but actually is very sophisticated as it is based on sound economic theory.

    Yes owning Gold may seem like a Doomsday allocation. Yet in the 1970’s and the past decade Gold has well outperformed both stocks and bonds after inflation yet there were no Zombies and roving gangs of bikers running around America. You can have currency devaluations that don’t destroy the government, just ask Britain.

    You have two of the asset in your post reversed. Cash is to buffer during recessions and some during deflations. Bonds are what you want for deflation protection.

    You don’t want to use TIPS for inflation protection instead of gold because TIPS won’t move powerfully enough under bad inflation to offset the other losses in your portfolio under this condition. Only gold has the track record of upward volatility to offset the debilitating effects of high inflation in your stocks and bonds.

    Lastly, this portfolio allocation has been around in an early form since the late 70’s and the current 25% split form since Harry Browne’s Book “Why The Best Laid Investment Plans Usually Go Wrong” published in 1987. It has a tremendously long track record of delivering stable returns with minimal losses during bad markets. True, it may not be the hottest performer during a raging bull market in stocks, but then again the worst loss it’s ever had was -4-6% in 1981 with a CAGR of about 9-10%. So not too shabby either.

    It’s a portfolio you own when you don’t want any excitement with your investments. I think a lot of people could do with much less excitement in their finances.

    Thanks again for the nice post and review of Fail-Safe Investing. That book is available as an e-book for about $10 from trendsaction and is a very quick and easy to follow read.

  22. Hi everybody, I am certainly late to the game here. However I have created a comprehensive sheet with ALL possible combinations of years (return from 1980 – 1988 or 1978 – 2002) for the “permanent portfolio” as well as “S&P 500”.

    After my analysis permanent portfolio DOES seem to come out ahead. It seems to give 1% extra return than S&P 500. Considering the risk is lowered, this definitely seems like a good plan.

    Lewis, seems like your concern of conservative allocation does not hold here.

    Andy/Gates, if you guys can give me numbers for your allocations, I can do the calculations for that too. Or just ask me for the sheet I made. This forum does not allow attachments, so I can not post the sheet here.

  23. Hey @Vinay, please do share.

    The easiest way to make the data visible is to use Google Docs. They have a spreadsheet product that accepts Excel files. There’s also a publish function so that it can be shared on-line.

    Here’s one I posted for T-bills vs. Stocks vs. Inflation. Definitely an easy way to share.

    As to allocations, I don’t really have a specific change, I actually like this 25/25/25/25, it makes a lot more sense than the current stock/bond split that everyone is suggesting.

  24. Gates, thanks for the tip. Here is my sheet. You can see my sheet at following link (though it is not as flashy as yours):

    Do not get confused on sheet2 in it. The returns in Sheet2 are from the year on the left until 2009 (it is counter intuitive)

  25. Also note Harry passed on a few years ago and is the reason that those charts haven’t been updated I bet. 🙂 I’d be curious if someone would be able to crunch the numbers for the years since.

  26. For those who are not fans of PRPFX I could suggest another permanent portfolio that is perhaps a bit less heavy on metals. Bear in mind this is designed as a conservative and passive portfolio that is designed to be “low maintenance” on the part of the investor with only periodic re-balancing required while providing a reasonable return with low risk.

    20% Vanguard Total US Stock Market Index Fund
    20% Vanguard Total World Stock Market Index Fund
    20% Hussman Strategic Total Reserve Fund
    20% Dreyfus International Bond Fund (A)
    10% Capital Group Management Focus Fund
    5% Gold Miners ETF
    5% Gold or Silver Bullion in safe storage

  27. I think people used to use gold wire or thin gold necklaces or
    bracelets for emergency shopping….easier to hack off a piece.
    (we’re talking vikings and the middle ages here)
    And not making yourself a target makes sense, too, in a Mad Max
    world. Macho survivalists want an M-16/AR-15 and lots of ammo
    (or an AK, an AK-47 might be a more dependable weapon, I’m no
    expert), but if you have a survivalist hoard, can you defend against
    the ‘Road Warrior’ gang when they come to ‘recruit’ you? In some
    scenarios, I’d think looking like one of the masses might be a
    better survival option.

  28. Ryan @ IQ test says:

    I don’t know if I can evenly distribute my money like that. I do want to diversify, but that just seems like it is too clear cut.

  29. If you look at ten year cumulative returns for the permanent portfolio…it beats out any moderate or conservative allocation mutual fund…the cumulative return over ten years is about 114%. This is the closest a non “high net worth” individual can get to a hedge fund! The only other fund that has similar performance is Oakmark equity and income….but it doesn’t invest in metals.

    These funds really are good “all in” funds….at the least a good core.

  30. Rothbard says:

    I find it very strange all those who want to replace Gold with TIPS or allocate a lesser percentage as Gold has trounced the equities market for the past ten years. There is a very weird cultural aversion to gold and I think it’s assets that aren’t loved that find the best returns. This is the brilliance the PP.

    Also, history is littered with failed fiat currencies. Our own dollar has collapsed and been revalued several times during the history of the USA.

  31. The point is we all have way to much money in the stock market, I myself have not been able to invest since 2007 when I pulled out most of my money. I am convinced that this is a great buy and hold portfolio. Have something that is going up in each market cycle, and balance the ones that are going down. I am moving my IRA to this on Monday. I am using GLD, VT, SBV, VNQ and EDV. Substituing short term bonds for cash, and adding real estate as a 5 asset class. I have run a sample portfolio for a year on this now, looks really good, less risk, same returns.

  32. Hi Bdahl

    How did it go? In North America I use

    Stocks – split between XIC and VTI
    Bonds – TLT
    Gold – IAU

    Been happy so far and enjoying the lack of stress.

  33. Vinay Aggarwal says:

    Can somebody help me update my sheet for 2009 and 2010 and 2011 (so far) so we can see what really happens when shit hits the fan?

  34. I am interested in converting my portfolio to the permanent portfolio. I have about a 50/50 split between taxable and retirement accounts. How should I allocate the different PP funds to minimize taxes as I start to drawdown.

  35. If this guy knew what he was talking about (Harry Browne) then he would know the permanent portfoilio concept goes back decades beyond the “Fail Safe Investing” book. Self-appointed experts are rarely accurate or informed. As a matter of fact I knew Harry personally so I happen to believe I’m better informed than most.

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