Hello McFinancers!

Today we wanted to take a step back from the news and take a dive into our stock market portfolios. We are going to go over two portfolio strategies: the 60/40 and Harry Browne’s permanent portfolio.

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What Is The 60/40 Portfolio?

The 60/40 stock market portfolio is a common investment strategy that involves allocating 60% of the portfolio's assets to stocks, mutual funds, or ETFs and 40% to bonds. The 60% portion of the portfolio is invested in a diversified range of stocks or equity securities. Stocks have the potential for higher returns but also come with higher volatility and risk. The allocation to stocks aims to provide long-term growth and capital appreciation. The remaining 40% of the portfolio is allocated to bonds. Bonds are considered less risky than stocks and provide income through periodic interest payments. They also add stability to the portfolio and can serve as a hedge during stock market downturns. It's important to note that the specific allocation percentages can be adjusted based on individual risk tolerance and investment goals. Some investors may opt for variations like 70/30 or 50/50 to better align with their financial needs and preferences.

What Is Harry Browne’s Permanent Portfolio?

Harry Browne's Permanent Portfolio is an investment strategy designed to provide consistent returns while minimizing risk. It is based on a simple and balanced allocation of assets: 25% in stocks, long-term treasury bonds, cash, and gold. This stock portion of the portfolio is allocated to domestic stocks or stock funds. These investments are intended to provide growth potential and benefit from economic prosperity. Investors can pick individual stocks or a total market index fund. A quarter of the portfolio is invested in long-term U.S. Treasury bonds. These bonds are considered a safe haven asset and provide stability to the portfolio. They can also benefit from deflationary or recessionary environments. Another portion of the portfolio is held in cash, such as U.S. Treasury bills or money market funds. This provides liquidity and acts as a hedge against economic uncertainty or inflation. The final quarter of the portfolio is allocated to precious metals, primarily gold. Gold is seen as a store of value and a hedge against currency devaluation and inflation.

The Permanent Portfolio is designed to perform reasonably well in various economic conditions, including inflation, deflation, economic growth, and recession. Its diversification across these four asset classes aims to reduce overall risk while providing some level of growth and stability. The idea behind this strategy is that no single economic scenario should significantly harm the entire portfolio. Investors who follow this strategy typically rebalance their portfolio periodically to maintain the 25% allocation in each asset class. It's essential to note that while the Permanent Portfolio aims for stability, it may not produce the highest returns during bull markets, but it seeks to minimize losses during bear markets and economic downturns.

What Does It Mean For You?

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