The Permanent Portfolio Revisited

04/04/12 Baltimore, Maryland – Volatility tends to correlate with risk, but not always with return. Skydiving delivers more heart-stopping thrills than chess, but it also produces more heart-stopping disasters. Driving a Formula 1 race car produces a lot more million-dollar paydays than sitting in a La-Z-Boy. But no one ever crashed their La-Z-Boy into a wall and burst into flames.

At least skydivers and race car drivers understand their risks — more or less — and are knowingly accepting these risks in the pursuit of a particular reward. By contrast, many investors assume risks unwittingly, and out of all proportion to the potential rewards.

They are driving race cars, not to win millions of dollars, but to win a $50 gift card to Dave & Busters. They are tight-rope walking across Iguazu Falls, not to obtain international acclaim and a possible movie deal, but simply to get to the other side. That’s not a good trade.

Read the rest here.

While economics is a common thread topic on this blog, I almost never offer specific investment advice. The only exception I can recall making is that I do endorse the late Harry Browne's Permanent Portfolio for those who by choice or necessity are conservative investors. The mutual fund of the same name (ticker symbol PRPFX) also works and is one of very few actively managed mutual funds (which are usually a rip off) that I could support.