The Permanent Portfolio
We outlined Harry Browne’s Permanent Portfolio in An Investing Primer.  Next we’ll look at a way to implement it using exchange traded funds (ETFs).  To review, the Permanent Portfolio consists of one quarter each of cash-equivalent short term Treasuries, long term Treasuries, stocks, and gold.  Suitable ETFs for each of these would be the iShares Short Treasury Bond fund SHV, the iShares Long Treasury Bond fund TLT, the Vanguard Total World Stock Index fund VT, and the iShares Gold Trust IAU:

SHV 25%
TLT 25%
VT 25%
IAU 25%

What about cash in this portfolio? Invariably you’d have some residual cash in bank or brokerage accounts. Just count it along with SHV; in other words, SHV plus cash would make up the requisite 25%.  It’s also worth noting that Browne recommended actual physical gold; an investor following this recommendation in an ETF context could allocate maybe 20% to physical and the remainder to the ETF for convenient rebalancing.

The portfolio can even be further simplified to just three funds:

GOVT 50%
VT 25%
IAU 25%

Browne used a barbell approach to Treasuries, using only the shortest and longest term maturities, almost perfectly captured by the iShares funds SHV and TLT.  At the time he proposed it, however, there was no simple way to own essentially the whole maturity spectrum.  Now there is, with the iShares fund GOVT, which covers the span from one to thirty years, omitting only the portion less than one year to maturity.  Residual cash would occupy that space.

Investors with large portfolios or who trade infrequently, and who may prioritize ultra low expenses over fewer funds, can go the other direction and split the Treasury allocation between three Vanguard funds:

VGSH 16.25%
VGIT 17.50%
VGLT 16.25%
VT 25%
IAU 25%

No, it’s not really necessary to carry out the percentages to two decimals!  These just happen to result in the most even distribution of dollars among maturities.  In fact a lower percentage of the medium term fund VGIT (think of IT as standing for Intermediate Term) and a higher but equal allocation to VGSH (SH for short) and VGLT (LT for Long Term) would come closer to Browne’s original barbell distribution.

Without departing too far from the original Permanent Portfolio allocation, investors who prioritize income could split part or all of the stock allocation (VT) among the Wisdom Tree US Total Dividend fund DTD and the Vanguard Total International Stock fund VXUS:

GOVT or VGSH-VGIT-VGLT 50%
IAU 25%
DTD 12.5%
VXUS 12.5%

The 3-1-3-1 Portfolio
Some investors may prefer a higher allocation of stocks, maybe because they prize income over the robustness that the more balanced allocation to gold and Treasuries may offer:

GOVT 37.5%
DTD 12.5%
VT 37.5%
IAU 12.5%

Due to the less balanced stock allocation (50%), there is a bit more risk in this mix.  On the other hand, one of the risks that gold covers is dollar depreciation, and that’s partly taken up by the presence of non-US stocks in VT. 

So why “3-1-3-1”?  It’s an easy to remember 3/8, 1/8, 3/8, 1/8.  If you’ve got an $80,000 portfolio, it’s $30,000, $10,000, $30,000, $10,000.  If it’s $800,000, it’s $300,000, $100,000, $300,000, $100,000.  And if you’ve got $80 million … well, you probably don’t care because you’ve turned the whole thing over to Mr Drysdale.

The 10-20-30-40 Portfolio
This portfolio sits between the above with a stock allocation of 40% (DTD plus VT), Treasury allocation of 40%, and gold 20%:

DTD 10%
IAU 20%
VT 30%
GOVT 40%

It may also please investors who like easy to remember, round number percentages…

Customize to Suit
The multiplicity of these model portfolios is intended to reflect the fact that investing isn’t a one size fits all proposition.  Individual investors differ in circumstances, goals, and even tastes.  What if, for example, you had some shares of favorite stocks, say, Cedar Fair, or Texas Pacific Land Trust?  Can they fit into this picture?  Unless they’re an overly large proportion of your investable assets, sure.  They would displace a portion of the funds allocated to the same asset class.  In this example, these are both US equities.  You could balance the extra US stock allocation by adding an equal dollar amount of the Vanguard Total International Stock fund and use the total to offset part of the world fund VT.  This would help maintain the US-nonUS balance embedded in VT. So for example if your template were the three fund model above, and you had 2.5% each in Cedar Fair and Texas Pacific, the change would look like this:

From:
GOVT 50%
VT 25%
IAU 25%

To:
GOVT 50%
FUN 2.5%
TPL 2.5%
VXUS 5%
VT 15%
IAU 25%

For even more emphasis on dividend income than the 3-1-3-1 Portfolio offers, it could be modified like this:

From:
GOVT 37.5%
DTD 12.5%
VT 37.5%
IAU 12.5%

To:
GOVT 37.5%
DTD 25%
VXUS 25%
IAU 12.5%

The key is that the allocation to each broad sector, US stocks, non-US stocks, US Treasuries, and physical commodities remains the same share as your original overall target.

Another possibility is to broaden your physical commodity allocation beyond gold, say with silver.  In this case, simply replace a part of the IAU allocation with SLV.  Be aware however that the further you depart from the starting template, the more you may affect its original characteristics.  As of this writing in early 2020, silver, for example, is historically cheap relative to gold and some investors believe it likely to outperform in the coming years.  On the other hand, because of its greater industrial use, swings in silver prices tend to be more highly correlated with those of stocks than gold, so the overall portfolio volatility may increase as gold is substituted with silver.  An example of such a modification, using the three fund model as a template:

From:
GOVT 50%
VT 25%
IAU 25%

To:
GOVT 50%
VT 25%
IAU 20%
SLV 5%

Other personalizations could include allocations intermediate between the model portfolios above.  One characteristic they all have in common, however, is that they’re variations on Harry Browne’s original Permanent Portfolio, which was formulated with American investors in mind.  They use funds listed in the US.  At the highest level, they also divide the portfolio one half into US assets and one half into global assets.  Half in American stocks and bonds.  Half in physical commodities and global stocks.  The former are unique to the US, the latter are the same no matter where you are in the world.  Investors who live outside of the US should keep this in mind … for them, the corresponding model portfolios would use assets denominated in their own coin of the realm.  A British investor, for example, would substitute at least a portion of the US Treasury allocation with an analogous allocation to British gilts.

Stock allocations for instance are readily adjusted within this framework by altering the balance between GOVT and DTD in the US half and between IAU and VT in the World half.  You may have noticed for example that that’s just the difference between the three fund portfolio and the 3-1-3-1 Portfolio – the former is just the latter with some shifted from GOVT to DTD in the US half and some shifted from IAU to VT in the World half.

The essence of these model portfolios is in the principles discussed and providing a framework for thinking about how investments work together in an investment portfolio.  Questions or comments about them can be posted in reply to posts on the Posts page.

Further Resources
The web has a wealth of financial news, commentary and model portfolio ideas.  Some of my favorites are listed below.

MarketWatch
Real Investment Advice
Wolf Street
NorthmanTrader
Portfolio Charts
Bonner & Partners
Research Affiliates
Advisor Perspectives