Canadian & US Permanent Portfolios
The keystone of our investment philosophy is the permanent portfolio. We believe investor’s should have this as their core holding in the preservation of capital. The principle objective of the Canadian & US Permanent Portfolios is to protect investors through all economic environments. To achieve this, the portfolio hedges against all economic conditions at once by investing in set target percentages of non-correlating asset classes.
With interest rates now so low and the economic horizon so uncertain, the Canadian & US Permanent Portfolios are an outstanding way of investing to maximize returns while minimizing risk. Given the current fragile and over-levered world economic environment, it is no longer possible to consider a portfolio of bonds alone a safe portfolio. The real threat of hyperinflation and currency devaluation could severely diminish the purchasing power of what might have formerly been considered a conservative portfolio. A well-structured and properly hedged portfolio can help avoid the pitfalls of an unpredictable and dangerous economic environment and, indeed, profit from it. The fact that the gains achieved will likely be tax efficient only adds to the benefit.
The permanent portfolio was first introduced by Harry Browne and Terry Coxon in their 1981 book, Inflation Proofing Your Investments. The strategy was designed to hedge against all types of economic scenarios: prosperity, inflation, deflation, and recession. By allocating one’s capital into assets that do well in each of these economic conditions, a balanced and hedged portfolio is achieved, whatever the economy or the stock market is doing at any given time. Periodically, the weightings in the portfolio are re-adjusted to their original starting percentages so that balance is maintained. Gains are taken on asset classes that are performing well and weight in underperforming assets is added while they are out of favour. This periodic adjusting enhances overall performance.
The four asset classes that Browne and Coxon used originally are:
25% Stocks (S&P 500 Stock Index Fund)
25% Long Term Bonds (US 30-Year Treasury Bonds)
25% Gold (Physical Bullion)
25% Cash (Treasury Money Market Fund)
The rationale for these choices is:
Stocks: during times of prosperity, stocks participate in the economy's expansion and growth;
Long Term Bonds: in times of deflation, bond prices tend to go up and they provide reasonable income in times of prosperity;
Gold: during times of higher or hyperinflation, gold will rise and provide a hedge against currency devaluation;
Cash: in a recession, cash will provide a buffer against losses in other asset classes and will also do well in deflationary times. It will provide income as well.
There are many benefits to a basket investment structure:
We are very positive about our Canadian and recently introduced US Permanent Portfolio. If you would like additional information, please call Andy at 416-929-6432, or Paul Filipiuk at 416-869-8206