In a couple of interviews I’ve done recently I have been asked how much of one’s portfolio should be dedicated to gold and silver. Within this, I am asked, how would I divide my money between gold, silver and the alternative ways one can hold them?
As someone who is relatively new to investing and the concept of saving anything (student loans, shopping addiction etc.) I like to look for approaches that have stood the test of time but are adaptable to the changing economy.
This is why I am a big fan of Harry Browne’s Permanent Portfolio. Formed in 1982, the “Permanent Portfolio seeks to provide a sound structure and disciplined approach to asset allocation.”
When I have written about the Permanent Portfolio in the past I have explained that the portfolio is split into four, equal asset classes:
25% Gold
25% Bonds
25% Equities
25% Cash
As Tim Price, advocator of the Permanent Portfolio said recently, ‘the essence of successful asset diversification is to deploy one’s valuable capital across asset classes that each hedge, partly or wholly, against a different type of financial fate.’
In the near future we will look into the success of the Permanent Portfolio across the decades, and for different investors. However at the moment I’d like to look at the role gold and silver play in the portfolio.
I was looking over the asset allocation of the original fund (PRPFX) and was delighted to see that it is physical gold and silver in which the fund is invested. Not only is it gold and silver bars but gold coins as well.
In a few weeks The Real Asset Company will be launching a new coin offering, through the UK’s Royal Mint. The decision to offer coins was an easy one given how often customers expressed a desire to allocate some of their portfolio to coins.
Our decision to offer coins was confirmed when we ran a poll on the matter a few months ago; we asked readers and clients what percentage of their bullion portfolio was allocated to gold and silver coins. The majority of respondents told us that they allocated between 76 – 100% of their precious metals portfolio to coins.
This may seem over the top, but one look at the permanent portfolio allocations in 2013, suggests that it should look at an allocation of at least 50% of coins to bullion.
The top three allocations of the portfolio are as follows:
Gold Coins 13.65%
Gold Bullion 7.44%
Silver Bullion 5.10%
The total gold/silver allocation in the portfolio comes to over 26%. It fascinates me to see that 50% of this allocation is to gold coins and that this this is the largest single allocation of the whole portfolio.
As regular readers will know, the Permanent Portfolio has proven to do exactly what it claims to. Compared to 70/30 funds or portfolios that focus entirely on just on asset class, the permanent approach has acted as a sensible, calm approach to wealth preservation.
Since inception the portfolio has delivered average annual total returns of 6.51% before taxes. In the last ten years the average annual total returns (before taxes) for the Permanent Portfolio have been 7.95%. This is in stark contrast to the Citigroup 3-Month U.S. Treasury Bill Index (1.59%) and the Standard and Poor’s 500 Composite Stock Index (7.41%).
It makes me feel even better to know that over 25% of this is thanks to my two favourite metals, and that The Real Asset Company will soon be able to cater for your entire bullion portfolio.
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