BROADCASTS.com

b"With\\xa0Michael Batnick, Director of Research at Ritholtz Wealth Management and writer of the blog Theirrelevantinvestor.com
The definition of a permanent portfolio (in the U.S.) is one constructed of one-quarter U.S. stocks, one-quarter cash, one-quarter long-term government bonds, and one-quarter gold\\u2014simple and easy to understand.
Michael Batnick, Director of Research at Ritholtz Wealth Management and writer of the blog Theirrelevantinvestor.com
explains to our listeners the benefits and drawbacks of the permanent portfolio and why it\\u2019s not for everyone.
With an equal distribution of asset allocations, a permanent portfolio is resistant to volatility; in fact, Michael estimates it may be about half\\u2014or even less\\u2014as vulnerable to market volatility as a standard 60 stocks/40 bonds portfolio. That\\u2019s a positive feature. When a bear market hits and stocks are dropping like acorns from an oak in a windstorm, you can sit back and relax.\\xa0
Not for the faint of heart investor.
But what happens to your serenity in a bull market when stocks are rising and your brother-in-law with the 60/40 portfolio is dancing in the street and ordering a private jet with his earnings? That\\u2019s not so much fun.\\xa0 The challenge for the permanent portfolio investor is having the ability to sit back through these upsides in the market and watch everyone around you making so much money.
Since we all know that what goes up must eventually come down, Michael reminds us that, although bull markets are comparatively long, a bear market always follows and the gnashing of the teeth through those downturns\\xa0 strikes a heavy emotional toll. As Michael tells it, \\u201cThe challenge with the 60/40 portfolio is, of course, that the bear markets are quick and they're vicious. Eighteen months doesn't feel that quick, but the challenge of the permanent portfolio is that the bull markets are so long.\\u201d\\xa0 You have to have the mentality to hang in there.
The permanent portfolio versus the classic 60/40
Going back to 1976 when Barclay\\u2019s Aggregate Bond Index began, the classic 60/40 portfolio did just a bit over 10% a year and the permanent portfolio did a little less at 8.4% a year, which doesn\\u2019t seem like so much until you consider the difference that 1 \\xbe% can make. One dollar would have had a total return of 5000% with the 60/40 and only 2600% with the permanent. Less wealth created, for sure, but the permanent portfolio gives you the ability to stay invested for 30 or 40 years, but you must give yourself reasonable expectations.
Holding a permanent portfolio in today\\u2019s environment might require the stoicism of a monk\\u2014 stocks are rising, cash is at zero, and bonds and gold are dropping. However, when the downside occurs, it\\u2019s just the opposite for the permanent portfolio investor who can sit back and snooze while the economy trembles. But, Michael adds \\u201c\\u2026expansions are much longer lasting than contractions.\\xa0 They (permanent portfolio investors) sit around waiting for the last laugh, but they could be waiting for a decade or more.\\u201d
It\\u2019s a choice not every investor is willing to make."