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Originally, Harry Browne came up with the idea of the Permanent Portfolio that could weather almost any economic environment. This included 25% cash, 25% long term bonds, 25% stocks and 25% gold and silver. However, since the stock market is currently in the middle of a secular bear market and possibly approaching another strong leg down, and since the bond market looks like it may have already peaked or is at best ready to move sideways for a year or two, it now seems prudent to simply hold all one's wealth in cash and gold. This is what Richard Russell advises, and he's been investing for 70 years and has 10,000 paying subscribers to his newsletter! (See Richard Russell's in Cash and Gold: 'No Time to Be Cute'.) It is really quite simple, maybe even a no-brainer.
All one has to do is liquidate all stocks and bonds and buy enough gold equal 50% of one's total portfolio, cash being the remainder. It is probably also good to include some silver too, perhaps 50% cash and a mix of gold and silver for the other 50%, since both silver and gold are monetary metals. It's basically like holding all cash - 50% in fiat currency, which can be devalued to zero, and 50% in money that has to be dug out of the ground and will always retain value. Physical gold and silver held in one's own possession are usually the safest way to go, so as to avoid counterparty risk and systemic risk. This way, you have 50% of your assets out of "the system." For convenience (especially in an IRA or 401-K where you can't hold the physical metal), GTU and SVRZF are ETFs that are also safe partial substitutes due to their management with a good track record; but these are subject to some slight counterparty risk and systemic risk. Since central banks and wealthy investors are aggressively buying gold on dips, it seems unlikely that gold will go down considerably. Silver is more volatile, since it's market capitalization is much smaller (less than 1% of gold's). Thus, a conservative No-Brainer Permanent Portfolio might be 50% cash, 40% gold and 10% silver.
A more aggressive No-Brainer Permanent Portfolio might be 50% cash, 20% gold and 30% silver, since silver's fundamentals are much stronger and since silver's price is undergoing extreme price suppression due to concentrated short selling on the Comex. (It's almost 30% of annual production! Much higher than concentrated short selling in any other commodity on Comex.)
Those who are extremely bullish on silver might even want to try 30% cash, 20% gold and 50% silver.
With a new law requiring all purchases of $600 or more to be filed with a 1099 starting in January 2011, US investors may want to try to finalize their portfolio re-allocation soon, before the last minute rush in November and December and before the fall season, when prices normally rise. There is no tax liability on sales of gold and silver in a qualified retirement plan whether or not the 1099 filing is required. |
