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The Permanent Portfolio

  • Mar 26
  • 7 min read

“I have a steady job and some savings and want to do something with it other than just keep it in the bank. I know nothing about the stock market. I don’t even know where to open an account. A colleague said he bought some Palantir and it has done well. Family members recommended mutual funds. I know you talk about gold and cryptocurrency all the time.


But going from money in my savings account to purchasing all these investments is so overwhelming and I don’t know where to start. Can you help me?”


My friend’s sister called me a few weeks ago and asked me this question. She was panicky and overwhelmed by all these choices, none of which she could intellectually grasp. Not that she isn’t smart. She did her MBA in marketing, moved out of India, learnt a new language, got a job at Big Oil, and acquired citizenship in an EU country.


She just didn’t understand the stock market.


I get it. I have been in the same position, albeit in a different market. I was in Boston on a business trip, and my then-girlfriend (now wife) gave me a list of things to pick up at Sephora. There was no Sephora in India and I had no idea such places existed.


Supermarkets are easy to navigate. You just look up and there’s a sign that says what’s in the aisle. It’s not hard at all to figure out where you need to go to buy shampoo and milk.



Sephora was a world unto itself. There were no markers. There wasn’t even a discernible organizational system. No walkable aisles, just a haphazard layout with diner-like stools and countertops with mirrors.


Yet it all made sense for the two dozen female shoppers at the store. Bewilderment when confronted with something new is normal.


Being in finance, I take knowledge and access to markets for granted. People in this industry are guilty of talking down to unsophisticated (read: newbie) investors.


My friend’s sister (let’s call her Priya) came to me ‘cos she knew me since we were yay high.


My first act was to calm her down. She had money in the bank. A study found that most Americans didn’t even have $400 in emergency funds. Having savings already put her ahead of the pack.


She had a job, so that takes care of insurance. No debt except for a mortgage. She was in a pretty sweet position financially.


Why the anxiety to ‘do something’, especially when she doesn’t know what to do?


Because Indians have a cultural habit of thinking money should be put to work. There’s good reason for that. Official inflation figures in India run to about 10% a year. The unofficial rate is much higher. Banks pay about 3% in interest, and if you’re in the 30% income tax bracket you are falling behind the inflation rate by 8% a year. In 9 years, money in the bank loses 50% of its value. Indians save a lot because they are forever fighting currency depreciation.


Priya had her savings in euros. She wasn’t fighting an uphill battle versus inflation. She was in a completely different place when compared to family members she sought advice from.


Even when circumstances change, cultural habits are hard to break. I have all my savings in AED, which is pegged to the dollar, and I still have to remind myself not to worry about currency depreciation.


As for her colleague who made money on Palantir, well that was just an irrelevant fact. The extra 40 euros would have come in handy on her next visit to Sephora but that was it.


Priya needed a long-term plan. She needed to understand the principles behind investing.


Why invest in the first place?


Because money in the bank loses value due to inflation. And inflation is permanent as long as central banks keep printing money out of thin air.




Famed psychologist Daniel Kahneman has shown that humans are wired towards loss aversion. We prefer ‘the sure thing’ over risk. Investments are inherently risky, whereas money in the bank doesn’t feel risky.


Yet, in the long run, your bank account is far riskier than the market because it locks in a guaranteed loss. Unless you’re Japanese, but that’s a whole other topic for another day.



In Japan, everything is different!
In Japan, everything is different!

Having made the case for investing, the next barrier was – how to invest?


Financial advisors recommend the 60/40 portfolio. Keep 60% of your portfolio in stocks, 40% in bonds, and increase the percentage in bonds as you age. The problem with that approach is the Federal Reserve took interest rates to zero in 2008 and didn’t start raising them until 2022.


When rates were zero, bonds yielded nothing. When rates went up, bonds lost value. And since stocks and bonds became correlated, you were better off being 100% in stocks instead of holding the 60/40 portfolio.


Lighting your money on fire would have at least provided warmth. Bonds are a disaster. Don’t take my word for it – just ask all the failed US banks what went wrong. The answer: their bond holdings.


I told Priya she needs to look into the Permanent Portfolio.



Coined by Harry Browne in the 1980s, the permanent portfolio recognizes the pitfalls of the 60/40 portfolio during times of high inflation. Returns on both stocks and bonds suck when inflation is soaring. Only real assets hold value during such periods.


In the 1970s, gold shot up from $35 to $800 an ounce as the dollar lost value on the international stage. Things became so bad, the US government had to promise to repay creditors in Deutsche marks and Swiss francs. Foreign investors wanted nothing to do with the full faith and credit of the US Treasury. They didn’t want the Fed’s freshly printed money. Why does that sound so familiar in 2025?


Harry Browne was on the right track, but he didn’t take his train of thought far enough. 50% in bonds and cash is an implicit bet on the Federal Reserve not printing too much (they printed $3 trillion over 40 days in 2020) or playing games with the interest rate (the Fed denied that printing money caused inflation, then did an about face and hiked from zero to 5.5% in 1.5 years, then cut by 0.5% to get Biden re-elected, and now threaten to hike rates ‘cos they dislike Trump).


Also, real estate as an asset class didn’t exist in the ‘80s. You bought a plot of land for $400 and built your home with your neighbor’s help. The bank mortgage paid for building materials and wasn’t a 30-year millstone around your neck.


Cryptocurrencies didn’t become investable until the 2010s.


Harry Browne’s Permanent Portfolio is the right framework. It just needs to be tweaked for modern times.


My ideal version of the Permanent Portfolio looks like this:



Rebalance the portfolio once a year on your birthday or anniversary (not along with the herd on December 31st).


If I have 25% of my net worth invested in my business, that counts towards the equities part. 25% invested in my primary residence takes care of the real estate category.


For most small business owners, those numbers are going to be a lot higher. But the point is this – with regards to the Permanent Portfolio, everything counts. If your business is dependent on a booming economy and you own stocks in a long-term account, you’ll end up selling stocks at a loss to repay debt and keep your business afloat during a prolonged recession.


Once you stop the compounding, you start all over again.


Everything counts towards the Permanent Portfolio. Business (equities), primary residence (real estate), luxury goods with resale value (commodities) – everything.


This is just an ideal. Like a flight path. No pilot flies the exact route at the recommended altitude. No individual adheres to an ideal.


Having an ideal in mind helps me think through the risks.


If I have 90% of my net worth in cryptocurrencies, I’m liable to lose it all to a $5 wrench attack.



Incidentally, this is why wealthy crypto folk live in the UAE.


Holding 20 stocks across sectors and countries isn’t diversification. It is diversification within the equities part of the Permanent Portfolio. Necessary, but not sufficient.


As a market professional, I take on far more risk than I consider ideal. But to repeat, that’s the point of having an ideal. I know I’m deviating from it, and I know the risk involved. I understand the downside to the risk I’m taking.


In Priya’s case, 90% of her net worth is the apartment she lives in. The rest is money in the bank, which started this whole conversation, and of course, gold and silver. Gold in the form of jewelry, silver in the form of fabric. She loves her Kanchivaram silk saris – a traditional silk garment woven with fine strands of silver.



She is already well on her way towards figuring out her ideal version of the Permanent Portfolio. Maybe she only wants 5% in stocks and buys Tapestry, LVMH, Burberry and Estee Lauder to start with.


A stock market starter/ basics/ foundation kit for the urban woman
A stock market starter/ basics/ foundation kit for the urban woman

Maybe she purchases an annuity product instead of buying bonds.


Whatever she chooses to do, at least she now understands why to invest, and a framework on which to base her investment decisions.


11 years ago, I was in Priya’s position. I had an IT job and saved more than 50% of my paycheck every month. I knew gold and silver were safe but didn’t know much about investing beyond that. Trying to figure this out led me down the rabbit hole. I fell in love with investment research, switched career streams, and the rest, as they say, is history.



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Good Trading!

Kashyap




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