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jiltedjen

Cracking Book

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Hello All

Time and time again this book has proved its weight in gold:

The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy

I highly recommend the book, absolutely cracking. The only 'sure fire' way to come out smelling of roses whatever happens in the economy.

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Hello All

Time and time again this book has proved its weight in gold:

The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy

I highly recommend the book, absolutely cracking. The only 'sure fire' way to come out smelling of roses whatever happens in the economy.

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The approach is to allocate your assets 25% stocks, 25% long term treasuries, 25% cash and 25% gold on the basis that during prosperity stocks perform well, during prosperity and deflation long-term treasuries perform well, cash performs well during periods of `tight' monetary policy (anyone remember those?) and gold as the ultimate protection against inflation, local currency devaluation and financial chaos. At the end of each year you re-balance the fund, effectively forcing you to sell high and buy low across the respective asset classes. The premise of the approach is that no one can predict the future (especially in the long-term) then by adopting this approach you should have some asset that will perform and hopefully compensate for those that don't.

Although the book presents US-orientated analysis I have replicated for the UK using Barclays' Equity Gilt study 1899 to 2007 and this approach yield an average real return of 4% on an average 20-year rolling period (my timeframe for retirement). An equity only strategy only beat this approach when looking at 1980-2007 (which is a somewhat unfair comparison from depth to peak). Gold is an interesting, sometimes government regulated asset which didn't move from 1899-1919 and 1940-49 but offered significant gains in 1973-74 and 1980 when everything else was getting hammered.

In addition to the strategy, the book advises how to diversify your holdings across different institutions (i.e. don't' keep all in one SIPP, e.g. Equity Life, one bank e.g. Northern Rock) or even in one country (anyone remember exchange controls?).
Very clearly written book but although outside of US is covered would appreciate more depth for my home market the UK.

Update - first year performance, note: trading/mgt costs not included as they will reflect the specific vehicle through which someone invests and size of assets under management. The following shows the performance of £100k worth of portfolio based on the products chosen to reflect the Permanent Portfolio approach. Given the current low level of interest on short-term products and trading costs I have left the cash balance in my Hargreaves Landown account accruing 0.1%! Any suggestions for products I may be missing welcome.

My Investment in BONDS - Treasury 4,1/4% 2046, on £25,000, £474 interest was paid and £4,333 capital gain resulting in a 19.3% return

My Investment in EQUITY - HSBC FTSE 250 Index on £25,000, £628 dividends was paid, £1,000 (fluke) capital gain resulting in a 6.6% return

My Investment in GOLD - EFTFS Metal Securities Ltd Eft Phy on £25,000, £774 capital gain resulting in 3.1% return

My Investment in CASH held in my Hargreaves Lansdown SIPP account at 0.1% accrued £25!

Across a total portfolio of £100,000, £1,127 interest payments and dividends were paid and total capital gain of £6,107 resulting in year end (3rd DEC) total of £107,234 a 7.2% nominal return.

Thoughts - 7.2% gain across the portfolio in a year where RPI to Dec14 was 1.6% ~ A real return of 5.6%. Ironically the asset that I was most fearful in investing performed the best. I feel that Bonds were (and still) are overpriced, however, what this years' performance has demonstrated to me is that although whatever I believe may eventually be correct, I am personally not good at timing so this approach is already protecting myself from myself. Although this approach was applied on the 3rd Dec13 I will re-balance tomorrow and will report back next year. Happy New Year!

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