Permanent Portfolio

CRAIG ROWLAND is a serial entrepreneur who has been associated with several technology start-ups, two of which were ultimately purchased by Cisco Systems, Inc. At his last company, Psionic Software, Inc., he was founder, president, and CTO when purchased by Cisco. Another company Rowland was associated with was purchased by 3Com Corporation. He has provided consulting services to other start-up companies in addition to raising millions of dollars in venture capital for his own business. J. M. LAWSON is an attorney and retirement plan consultant. His practice involves retirement plan design and compliance issues, as well as assisting employers in creating and monitoring retirement plan investment policies and procedures.

• Foreword xiPreface: Life is Uncertain xvAcknowledgments xixChapter 1 What is the Permanent Portfolio? 1A Simple Idea 1A Simple Allocation 3Simply Great Results 3Chapter 2 The 16 Golden Rules of Financial Safety 5Rule #1: Your Career Provides Your Wealth 6Rule #2: Don’t Assume You Can Replace Your Wealth 6Rule #3: Recognize the Difference between Investing and Speculating 6Rule #4: No One Can Predict the Future 7Rule #5: No One Can Time the Market 7Rule #6: No Trading System Will Work as Well in the Future as It Did in the Past 8Rule #7: Don’t Use Leverage 8Rule #8: Don’t Let Anyone Make Your Decisions 9Rule #9: Don’t Ever Do Anything You Don’t Understand 9Rule #10: Don’t Depend on Any One Investment, Institution, or Person for Your Safety 10Rule #11: Create a Bulletproof Portfolio for Protection 11Rule #12: Speculate Only with Money You Can Afford to Lose 11Rule #13: Keep Some Assets Outside the Country in which You Live 11Rule #14: Beware of Tax-Avoidance Schemes 11Rule #15: Enjoy Yourself with a Budget for Pleasure 12Rule #16: Whenever You’re in Doubt about a Course of Action, It’s Always Better to Err on the Side of Safety 12Investing and the Rules of Life 12Recap 13Chapter 3 Permanent Portfolio Performance 15Growth, No Large Losses, and Real Returns: The Holy Trinity 16Only Real Returns Matter 24Looking at Total Performance Over Time 26Recap 30Chapter 4 Simple, Safe, and Stable 33Simplicity 33Safety 34Stability 35Making the Most of Your Investments 36Expect the Unexpected 44Recap 46Chapter 5 Investing Based on Economic Conditions 47When Diversification Fails 48A Different Way to Diversify 55Four Economic Conditions 57Four Economic Conditions þ Four Assets ¼ Strong Diversification 60How the Portfolio Works with Economic Conditions 62Recap 64Chapter 6 Stocks 65Benefits of Stocks 65Risks of Stocks 66Volatility 67Owning Stocks 68Recommended Stock Index Funds 69Which Type of Index Fund to Use? 70Why Use an Index Fund? 70Avoid Actively Managed Stock Funds 74Indexing is a Marathon 78Beware of Trading Costs 79Large-Cap and Small-Cap Stocks 80International Stock Funds 81A Warning About Company Stock 84No Index Funds—What to Do? 85Recap 85Chapter 7 Bonds 87Benefits of Bonds 87Risks of Bonds 89Volatility 90Bonds and Deflation 92Owning Bonds 93Bonds to Buy 94Buying Bonds 94Other Bond Risks—The Case for Treasury Bonds 98Bonds to Avoid 103Flight to Safety 108Earning Money Multiple Ways 111Bond Risk Matrix 112Bond Funds and Retirement Plans 114Recap 114Chapter 8 Cash 117Benefits of Cash 117Risks of Cash 120Volatility 121Owning Cash 123Cash Risks—The Case for Treasury Bills 128Cash to Avoid 132Cash Risk Matrix 140Cash and Retirement Plans 140Recap 141Chapter 9 Gold 143Benefits of Gold 144Risks of Gold 145Volatility 147Causes of Inflation 148Gold Protects During Extreme Events 149No Interest, No Dividends, No Problem 152Why Do Central Banks Hold So Much Gold? 153Owning Gold 153Buying Gold 154Buying and Storing Gold at a Bank 157Gold Funds 158Assets to Avoid 163Limit Gold Bullion Sales Taxes 171Other Considerations 171Recap 173Chapter 10 Implementing the Permanent Portfolio 175Key Concepts 175Four Levels of Protection 177Level 1—Basic—All Funds 179Level 2—Good—Funds, Bonds, and Gold 182Level 3—Better—Funds, Bonds, and Gold 185Level 4—Best—Funds, Bonds, Gold, and Geographic Diversification 187All In, or Wait? 190Other Portfolio Ideas 192Final Considerations 193Recap 194Chapter 11 Portfolio Rebalancing and Maintenance 195Two Primary Purposes of Rebalancing 197Rebalancing Maintains Firewalls 199How to Rebalance: Rebalancing Bands 201Withdrawals and Rebalancing 203Timing Can Influence Rebalancing 203Adding New Money to the Portfolio 204Allocating Dividends 204Different Approaches to Rebalancing 205Emotional Aspects of Rebalancing 206Rebalancing and Taxable Accounts 207Recap 208Chapter 12 Implementing the Permanent Portfolio Internationally 209The World is Not Flat 209Applying the Same Principles Across Countries 212Various Country Options 214Canada 215Europe 218United Kingdom 222Australia 223Asia, Middle East, and the Rest of the World 225Developing Country Investing 226Recap 228Chapter 13 Taxes and Investing 229Simplicity is Often the Best Tax Strategy 229Tax-Free Savings Vehicles 231Types of Taxable Events 231Ordering of Assets and Tax Planning 233Retirement Accounts and the Permanent Portfolio 238Individual Retirement Accounts 241Pensions, Social Security, and Other Plans 243Tax-Loss Harvesting 243Final Thoughts on Taxes 245Recap 246Chapter 14 Institutional Diversification 247What is Institutional Diversification? 247Why Institutional Diversification? 248Identity Theft 251Natural Disasters 252Terrorism 252Cyber Attack 252How to Divide Your Money 253Recap 254Chapter 15 Geographic Diversification 257Then and Now 257What is Geographic Diversification? 257What Assets Should Be Kept in a Foreign Account? 258Why Geographic Diversification? 258Geographic Diversification and a Warning for U.S. Citizens 262Even Politicians Do It 264The Reality Risk Spectrum 265Types of Geographic Diversification 267Overseas Gold Storage Options 270New Zealand 270Australia 273United States 276Switzerland 278Intermediaries for U.S. Citizens 283Swiss Gold Storage Services for U.S. and Non-U.S. Citizens 285Safe Deposit Boxes 287Geographic Diversification Matrix 289Disclosing Accounts—U.S. Citizens 290Emergency Options 292Other Options 293Recap 293Chapter 16 The Variable Portfolio 295Why a Variable Portfolio? 296Three Rules for the Variable Portfolio 296Modifying the Permanent Portfolio 299Can You Really Ever Beat the Market? 299Recap 300Chapter 17 Permanent Portfolio Funds 303The Permanent Portfolio Fund 303Global X Permanent ETF 307Recap 309Chapter 18 Conclusion 311Recommended Resources 313About the Authors 317Index 319

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