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Initially, this was referred to as the PERMANENT PORTFOLIO because it’s meant to PERMANENTLY last throughout your entire life, no matter WHAT HAPPENS in the market:
25% Stocks which do well in GROWTH.
25% Bonds that do well througH DEFLATION
25% Cash Or Treasury Bills which does well in a RECESSION
And 25% Gold which does well with INFLATION
The creator, Harry Browne, said that this portfolio would do well under ANY CONDITION, because - no matter what happens - you’d be making money, while minimizing the chance of losing anything.
In fact, MutinyFund reported that, from 1970 to 2012…the “Permanent Portfolio” has a growth rate of 8.55% with a maximum loss of 18%….while 93% of the rolling 12-month periods delivered positive returns.”
However…there was a hidden problem: even though holding on to 50% Cash and Gold worked in the 1970’s throughout runaway inflation and skyrocketing precious metals price - throughout the last 40 years…they’ve both underperformed - A LOT.
That’s where The Cockroach Comes In: https://mutinyfund.com/cockroach/
Instead of diversifying across 4 brackets…they argue that the trick is to diversify…WITHIN the diversification. Within these 4 sectors…you’re pretty much investing in EVERYTHING that could possibly happen…including, Elon Musk announcing that he’s planning to sell 10% of his Tesla Holdings…and, even more interesting is that - this “Cockroach Portfolio” also includes an equal allocation to BITCOIN…which, I have a feeling…helps increase these returns by a MONUMENTAL AMOUNT.
From the stock market perspective…SO FAR, the highest risk adjusted returns…historically…seems to have come from the SP500…MEANING, if you’re young, you plan to hold on for at least 20 years, and you don’t mind the rollercoaster ride along the way…if history is any indication, throwing in an SP500 index fund has the best chance at coming out ahead.
On the other hand, if you want VERY similar returns…with even MORE diversification…a TOTAL STOCK MARKET INDEX FUND, that covers EVERYTHING, would give you an even broader investment with slightly less volatility.
If you wanted SLIGHTLY more coverage to the “What If” scenario, since - technically - those only cover the US markets - you could allocate 15% to an INTERNATIONAL STOCK MARKET INDEX FUND, so that way - you’ve got some diversification, around the world.
And if we go even further, in terms of maximizing returns…there have been multiple articles and studies which now suggest that a 2-5% allocation to BITCOIN could wind up INCREASING your profit substantially, while helping you diversify through a new asset class.
Now, of course…since EVERY INVESTMENT has the potential to DROP in value…there SHOULD be a “safety net” that you keep easily accessible…and, for most people - a 3 to 8 month emergency fund, in a high interest savings account, should be more than enough.
So, all of this is to say that: the best way to beat the market…isn’t to beat the market..but, instead, to find the best RISK ADJUSTED RETURN that you can, which - typically happens when you diversify as much as possible.
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