If you are looking for an exciting role in customer service, food service, or retail, connect with a job at the airport. Get started in a role that offers competitive wages, consistent schedules, and fast-tracked management while you work in a vibrant, exciting environment where security is a priority. The airport has it all.

You can have it all too. Visit cmhserviceindustry.com to learn more. Personal Finance Episode 30. On today's show, what if it were possible to build a portfolio that could succeed no matter what the economic climate happened to be? And what if that portfolio were incredibly simple, incredibly low cost, and incredibly low maintenance?

Could it exist? Today's show is a discussion with Jake DeSilis of The Voluntary Life of Harry Brown's concept of the permanent portfolio. So welcome to the Radical Personal Finance Podcast for today, Tuesday, July 29, 2014. I'm glad you're here. Today's show is going to be an interview with Jake DeSilis of The Voluntary Life, and today we're going to be talking about the permanent portfolio, which is an investment concept pioneered by a man named Harry Brown.

And we're going to talk all about that in detail and have a conversation. I hope you'll find it interesting. The name Jake DeSilis may be familiar to you. If you remember, he was already on the show. He was on the show with Episode, I think it was 22, was it?

Hold on just a moment. Let me check. Jake DeSilis, Jake DeSilis, Episode 20, Entrepreneurship. Show entitled Entrepreneurship is the only opportunity to seek financial freedom that is open to anyone. So that's Episode 20. If you enjoyed that interview, or even if you enjoyed this one, go back and listen to that one.

You'll find it at RadicalPersonalFinance.com/20. But at today's show, we're going to talk about something a little different. So I've enjoyed Jake's podcasts over the years, and I've thought that he did an excellent job in the past discussing the concept of the permanent portfolio. And so I thought it'd be more fun to bring a guest on and talk about the concept together rather than me just talking on and on about it.

Because I think it's a really valuable concept. So today's show, we're going to talk about the permanent portfolio. Before we do that, and I'm not going to do much in the intro here as far as talking about details. Before we do that, I do have to give just a quick disclaimer.

Anytime we talk about investment philosophies and investment topics, and unfortunately this is important. I know you get tired of these stupid disclaimers, but they are important. I'm going to bring a lot of people on this show. My goal. I want to bring a lot of people on this show from a lot of different philosophies and grill them.

I view having a podcast as kind of my little opportunity to ask people all the questions I've wanted to ask them but never had time to ask them in the past. So I'll try to bring people on from all different walks of the investing world. I'll try to bring people on that I agree with, that I disagree with.

I will talk about agreeing with people and disagreeing with people. I'm just interested in learning, and I love to bring people on that I disagree with more than - probably more than I would do people that I agree with. And so this is just the start about that. I want to provide some really great content as far as providing some real meat for you when it comes to thinking through investments.

But none of this is going to be investment recommendations. None of it is investment suggestions. That's very important. That's not just a disclaimer that people put on radio shows. Your situation is incredibly unique, and there is - my opinion - there is no one investment strategy that's going to serve everybody because depending on where you're at in your financial plan, depending on where you're at in your life cycle, depending on where you're at as a person, on what your personal inclinations and proclivities are, that's what's going to ultimately design - determine your investment choices.

So I'm going to try to bring you lots of even conflicting guests on here, and I'm doing that by design to try to help you to think. And my hope is that as time goes on, you'll start to see and understand the things that are similar among different investing approaches and the things that are different.

And then with greater education, you'll be able to figure out what's right for you. So that's going to be today's show. I'm excited about doing it. The interview is pre-recorded, so I'm going to play it now. But I really enjoyed doing the interview, and I hope that you enjoy listening.

So here's the interview, and then I'll be back with some additional thoughts for you. So Jake, welcome to the Radical Personal Finance Podcast. I'm glad you're here with us again. Yeah, thanks. So last time we talked about entrepreneurship, and I enjoyed that conversation, and I'm sure we could talk for a few more hours about that.

But I know that we've got a couple of other things that we would enjoy talking about. And one of the things that I wanted to talk about today is a concept called the permanent portfolio. So we'll let you kind of explain a little bit of what that is. But I thought where we'd start is, how did you first come in contact with the concept of the permanent portfolio?

How did you discover it? Yeah, well, I discovered it through Harry Brown. So I read Harry Brown's book, How I Found Freedom in an Unfree World, which is a book about achieving freedom in your own life. It's a great book, and it was really influential on me. And it's actually been really influential on my podcast, Voluntary Life.

And so I knew that book, and I knew about Harry Brown, and I knew that he had made his money as an investment advisor. And I was just getting really serious about getting into investing at the same time. This is sort of in the early 2000s. And so I found his radio show, which he was doing at the time, an investment radio show.

And I downloaded all the MP3s of his episodes on investment. And I also read a book of his, which he describes the permanent portfolio, which is called Failsafe Investing. And that's, by the way, a very good introduction to the permanent portfolio. But that's how I found out about it.

It was originally through Harry Brown, who was the guy who basically came up with this strategy. And I read loads of other investment books and other investment sort of approaches. And I found lots of useful stuff in them. But nothing convinced me. Nothing really worked for me or seemed to be as useful and to fit my needs as much as the approach of the permanent portfolio.

And by the way, I just wanted to say also, I should say at the beginning that I'm an individual investor, and I use the permanent portfolio. And in our discussion, I can talk about my reasons for choosing this approach and why it works for me. Anyone listening, obviously, you'll have to do your own research.

You'll have to decide for yourself which investment approach works and make your own decisions about your money. So I'm not going to give advice. But I will explain why I think it's the best approach for me. And hopefully, that can be useful for others who are interested. I think that's super valuable because there are a lot of excellent investment approaches.

And one of the things that I'm kind of developing when the show is where I talk about investments is that the key to any investment philosophy is understanding your philosophy and understanding what your goals are and understanding what you're trying to accomplish so that you can stick with that philosophy in the good times and the bad times.

And what I've observed is a lot of times, people don't understand their philosophy and they don't understand what they're actually doing. For example, I'm very attracted to the permanent portfolio, but I don't practice it because it's not appropriate, as I perceive, for my needs. So I love the way that you said that.

It's important. It's not just a stick-in disclaimer here. It's important. You need to understand what you're trying to accomplish and then the strengths and weaknesses of whatever investment philosophy and strategy you're following. So go ahead and follow that path along. What attracts you to the -- first of all, explain what the permanent portfolio is and then what attracts you to it.

Yeah. And just one more point on what you just said, actually. Really, really great point that Harry Brown makes in his book and in his approach to investing is one of his fundamental rules is that you should never invest in anything that you don't understand. And that, to me, is -- I really took that to heart.

And I think that's really important, that whatever approach you follow, it's really important to know why you're following that approach and to understand what you're doing with your money so that you have -- you're making informed choices. When I first got interested in investing, I went to a bunch of investment advisors in my bank and other banks and various places, and they all basically said, "Entrust us with your money, and we will put it into this fund, and this fund does really well." And I said, "Okay, well, what's the strategy of the fund?" And then there was a lot of talking and a lot of smoke and a lot of mirrors, and I could never get to the bottom of it.

And in fact, it was at the same time that I was getting interested in the permanent portfolio. So I would say, "Well, look, here's this strategy. It's so clear that I can backtest it, and I have backtested it for the last 10 years, so show me your backtest of your strategy." And they couldn't do that because their strategy was ad hoc and it was done on the fly.

And so that's one of the things that's great about this approach is I understand it, and you can too, and it's very transparent and clear. And that was one of the reasons why I kept finding this to be the right approach. I think that was a long detour, and I'm not sure I answered your question.

What was it you were asking me? Let me actually jump in, and then we'll go back to the question because it's an important point. There was something -- so I come from that world of being an investment advisor. I'm a former investment advisor, and professionally in those meetings. And there are a number of problems, which we don't need to get to right here, but this is one of the major problems in investment advice is that looking back on -- if you're talking with an individual advisor about what their specific strategy is, there are very few clear, replicatable industry standards for, "This is how I've done.

Let me prove to you what I've done." Because if you are actually managing individual portfolios for clients, then each client's results are going to be different based upon what that client needs. And so it's very challenging to answer that question, and rightly so, but yet it's an important one that does need to be answered.

But the main point I was going to give is that one thing I used to tell, which is why I like in Harry Brown's book and his book, "Failsafe Investing," don't do anything you don't understand. I used to tell this to my clients, and they would often not take me up on it, but I still think it's valuable advice.

And it is hard to put into practice, but years ago, I remember when I was a teenager, I was listening to a Brian Tracy tape, and he said, "Spend as much time researching the investment opportunity that you have as it took you to earn the money that you're going to put into the opportunity." And the point was that if you're going to make a $10 investment, well, go ahead and research that for as much time as it takes you to earn $10.

If you're going to make a $10,000 investment, don't make that investment until you've spent an equivalent amount of time as it might take you to earn $10,000 learning about the investment. Now I think that that's not the struggle with even saying that, and I would tell it to my clients just to kind of encourage them to do their due diligence and understand their strategies.

You reach a point where you can't practically do that once your portfolio grows large, but by then you'll be so far down the road that you'll be well-educated and you'll really understand what it is that you're doing. So if you're doing something yourself, if you're a do-it-yourselfer, that's fine.

Understand your strategy so that you stick with it. If you're hiring a professional advisor for some services that they provide, that's fine. Then you'll understand what services that professional advisor is providing or isn't providing. And you won't assume that they're doing something that they're actually not capable of doing.

You won't assume that you're hiring your advisor to beat the market when I, as an advisor, would tell a client quite clearly, "Listen, I'm not capable of doing that, so don't hire me for that." And so the research and the understanding is so key. That's why, frankly, Jake, that's why I'm creating the show, is to try to provide straight talk on all this stuff to give people a tool in their arsenal when they're trying to research these topics.

Right, right. So the question was, I can't remember what the question was. Basically, explain what the permanent portfolio is and how it works, first of all. Yeah, okay. So let me back up a little bit before that, because I can go into say, "This is the portfolio and this is what it works," but just to explain the criteria for the portfolio.

So there's very different approaches to investing. And like what you were just saying, some people may prefer to entrust their investment to somebody else to manage and so forth. Other people prefer to manage things themselves. And that's definitely with this approach, the permanent portfolio is more for people who are interested in managing their own investments.

Then there are various approaches to investing as to whether or not you want to be an active investor and be trying to time the market and speculate on the next big thing, or whether you take the approach that it's really hard to get that right. It's an art, not a science.

And you can't predict what's going to happen in markets, and therefore you need a more passive investment strategy. And that's true of the permanent portfolio. But unlike some of the passive investment strategies that are very focused on stocks, the permanent portfolio also tries to tackle another concern that many investors have, and that is to do with the fragility and the problems with the economy that comes from manipulation and the money supply.

In particular, the problems that come from central banks controlling interest rates and the damage that that can cause, either in creating inflation or in creating depression. And we can go into maybe the details a bit more of that. But these are some of the concerns that are behind the permanent portfolio.

And so as a strategy, the permanent portfolio is a passive investment strategy that involves splitting your investments into four different asset classes. And you split your investments into those four different asset classes in order to be able to do well or survive or not get completely hammered in any specific economic situation that you can envisage.

And so the four asset classes are stocks, cash or short-term treasury bonds, long-term bonds or long-term treasuries, and gold. And so those are the four fixed categories that you invest in. And you basically split your portfolio equally, 25% between these four. And the idea is what you do is you rebalance periodically when any one of those investments reaches a rebalancing band.

And people have different rebalancing bands. The one that most people use is if it drops to below 15% or if it goes to above 35% or some people use 40% of your total portfolio. So when you do that, what you're doing is you're saying, basically, I don't know what's going to happen.

Maybe we're going to have hyperinflation. So I'm going to hold some gold. Or maybe we're going to have economic prosperity. So I'm going to hold some stocks. Or maybe we're going to have a tight money recession. So I'm going to hold cash. And I'm also going to have cash so that I can take advantage of any rebalancing opportunities.

Or maybe we're going to have a long-term depression. So I'm going to hold long-term bonds. Because in each of those economic circumstances, those assets tend to be the ones that the money rushes into. So you kind of split your portfolio between those four asset classes. And then you basically just rebalance.

So if you get to a point where it's like, wow, gold seems to have done really well. So there we go. Now I've got 40% of my portfolio in gold or 35% of my portfolio in gold. You sell that down and rebalance back to 25% each. And in doing that, what you're doing is you're basically selling the assets that are expensive.

And you're buying the assets that are cheap. And much of the benefit of the permanent portfolio comes from what people term volatility harvesting. So you basically-- if the markets are going all over the place, and some stuff's going up and down, and people are finding it really hard to predict, if you take the approach, well, I just can't predict what's going to happen.

Maybe long-term, there's going to be hyperinflation. But that could be five years, 10 years. Who knows? Maybe long-term, there's going to be prosperity. But we could stay in this kind of economic doldrums for years longer, like Japan did. So what you're doing is you're saying, I don't know what's going to happen.

But I do know that whatever happens, I will have assets that will do well in any economic environment that I can envisage. And therefore, I'll basically use those to carry the portfolio through. And in doing so, you don't benefit from the big highs that, for example, stocks have in the 1990s, when you had years where you were getting 20%-plus growth in stocks in multiple years.

You don't benefit as much from those big highs. But on the other side, you also don't get the big lows when you get a stock market crash. And you basically even out a lot of the volatility, whilst, in general, protecting yourself from any really significant economic catastrophes. It's a very humble approach to investing.

And that's one of the things that I like about it, is that basically, the idea is, let me just admit that I'm not a genius, which, for many people who get involved in investing, is very challenging to make that admission. But let me admit that I'm not a genius.

And let me see if I can design a system that will work no matter what. And I highlighted four paragraphs here, short paragraphs, at the end of Harry Brown's book, "Failsafe Investing." And to me, I think it displays exactly what you're talking about, as far as just this idea of, I'm a human.

I can't know it all. So let me design a plan that works no matter what. And these four paragraphs say this. The beginning of investment wisdom is to accept that we live in an uncertain world, and that we can never have enough information to know for certain why the market went up or down today, let alone what it's going to do tomorrow.

We only know a little about the present and much less about the future. No one can tell you when the stock market will peak, how far it will fall, or which market group will lead the way back up. Human beings aren't able to foresee the future in any useful way.

For every example cited of an investment forecast that came true, I can point to five that didn't, some of which may have come from the same forecaster. Only when you abandon the hope that some advisor, some system, some source of inside tips is going to give you a shortcut to wealth do you gain control over your financial future.

And when you give up the search for certainty, an enormous burden is lifted from your shoulders. You can begin to invest realistically, and that's much easier than the search for certainty. Yeah. And just a couple of words on that. I mean, you know, I think there is a humility there in what Harry Brown's approach is.

And also, it's also a question of taking economics seriously. You know, in economics, you know, there is a very clear understanding, especially the Austrian School of Economics, there's a very clear understanding that human action is not predictable. It's not systematically predictable. It's an art to try and work out what's going to happen in the future with people.

It's not a science. You can make predictions, and you can luck out, but it's not systematic. And if you take that to heart, as all the passive investors do who invest in index funds for stocks, they all kind of have taken that to heart in one respect, in that they've said, like, look, we can't predict which stocks are going to work, so we're just going to take an index fund, and we're just going to sit it out and basically not speculate.

And I think that approach is great, and that's exactly what the permanent portfolio does in stocks, is it holds an index fund of stocks across the whole stock market. But the permanent portfolio takes that approach even further and says, OK, so we can't predict which individual stocks are going to go up and down, but we also can't predict whether or not stocks as an asset class are going to suffer for, you know, a decade like they did in the 1970s or in the 2000s.

And so as well as being passive in terms of your allocation of stocks, it also takes a much broader look at the economy and says, I want to be out not just in one asset class, because even though if you only have stocks you can do really well in decades like the '90s, who knows whether another decade like the 1970s or the 2000s is coming along where you could spend 10 years not keeping up with inflation.

And that's tough. That's a long time to basically be losing money from your investments. And so that's the other sort of side of that humility is it's a humility in that you don't sort of think that, you know, you know the future and you're a wizard. But it's also just simply realistic about economics.

I like that it brings in a discussion of the problems of central banking and the control of the central banking system and the central bankers try to influence on the economic system. I assume that that, although I haven't researched it, and correct me if I'm wrong, I assume that this was a big, big factor in Harry Brown's, you know, in his background coming as a libertarian and then, you know, eventually running for president as a libertarian candidate a couple of times in the end of the 20th century.

And so kind of trying to say how can I design an investment approach that will take this into account and function? Because all of those four aspects, all of that is based, those things are not the four scenarios that we can have, whether depression, inflation, deflation, you know, tight money recession.

None of that is based upon, none of that is based upon an individual company's performance. That's all based upon the business cycle and based upon trying to counteract what the central banking system is going to do. And I like the permanent portfolio, especially for people who are very concerned about those aspects.

You know, I've had a number of people, a lot of people are constantly asking questions. What do we do with the dollar? And the dollar is getting weaker and so therefore isn't the right move to sell all my stocks and buy gold and silver coins. And so to me, this is a more rational approach where if you're concerned about that, instead of saying that you know exactly what's going to happen, instead of saying that you know that the dollar is definitely doomed, that stocks are definitely going to crash because your latest prognosticator has said so, and that gold is definitely going to be the thing that goes up in value, you can take a more modest standpoint.

And now you're prepared if we have a time of prosperity, you're prepared if we have a time of inflation, you're prepared if we have a time of recession, and you're prepared if we have a time of deflation. And so I think this is a more rational, for people that are very concerned about central bank activities and things like that and their influence on the economy, I think this is a really rational approach for them to consider.

Yeah, and that's absolutely stuff that Harry Brown was very, very much thinking about when he designed this. I mean, this is really an investment strategy that is designed for a world of fiat currencies. And when Harry Brown, I mean, he made his money on betting against the American dollar, on betting about the American dollar being devalued when it went off the last remnants of the semi-gold standard in the early '70s.

That's actually how Harry Brown made his fortune. This is the funny thing is that he was a speculator. He actually lucked out, so to speak, in terms of his timing to a certain degree. But he also saw enough of what's going on in the market to realize that you can't find opportunities to time the market like the way that he did in the early '70s with gold.

So yeah, he was very much aware of the problems of fiat currencies that we've had since the early 1970s. And there are lots and lots of people who look at fiat currencies and look at the ability that banks have to just type new zeros into their accounts in a way that if you or I did that, it would be fraud and it would be unbelievable to anyone that we could be taken seriously.

It's such an obvious crime. But central banks can do that, and that's just the way that it works. And Harry Brown was very, very aware of the negative effects that that can have on the business cycle. But the difference is that whereas there are some people who look at fiat currencies and look at what central banks can do, what the banksters can do, as they're called, and they say, right, I'm going to invest all my money into hard assets because any day now, the West is just going to crumble and we're going to have a total meltdown, hyperinflation.

It'll be like Germany in the 1920s. And the thing is that I can understand that mathematically, you know, the ever-increasing government debt and so forth, that something's got to give at some point. But there is no way to see whether or not that's going to be this year, next year, or whether or not something will happen in the energy sector that will suddenly give a new boost to the economy and so forth, or whether or not we could go into a sort of moribund phase of very, very low economic activity, a bit like what happened to Japan in the '90s.

So you just can't tell. And the good thing about the permanent portfolio is that, you know, whereas sometimes people who focus just on stocks just kind of, in a sense, don't think about the risks of hyperinflation and the kind of problems that stocks had in the '70s, it takes that into account.

But it also is realistic enough to say, yeah, the currency could be seriously devalued, there could be some kind of economic meltdown, but there might not be. So best to be in a situation where you don't have to be sort of thinking that you haven't put all your eggs in one basket, basically.

And the danger is, if you think there's going to be an economic meltdown, you're going to start seeing confirmation bias, and you're going to start reading the news and say, oh, look, look, there's the first signs of it. And you start having this kind of doom mentality, where everything looks like the economy's about to totally melt down.

And I mean, it really looked like that in 2008. And then who would have thought that one of the asset classes that would do really well in the years following 2008 would have been long-term treasuries, as they did in 2011. It was one of the asset classes that carried the portfolio.

That's not something that anybody who expected meltdown was talking about before. And they were all talking about getting your money out of currency and into precious metals. And funnily enough, since then, gold has actually gone down. So you just can't tell what's going to happen. And so that's why this approach is the one I like.

Because the other thing is, I don't want to have a new job as a full-time investor. I want to live life and enjoy myself and get out there and do fun things that I find fulfilling. I don't want to have to be reading financial news all the time. And I don't want to have to be worrying about whether or not my investment strategy is vulnerable to the latest problems in the economy or government actions.

And this is the great thing about the permanent portfolio approach. I very rarely check my portfolio these days. When I first started investing, I checked it every single day. And then I started checking it every week or so. And then I started checking it every month. And now I check it probably every quarter, because I actually have an action to update my portfolio once a quarter.

So I consciously check it, but I don't check it every day. So my problem with it, and I'm interested in what your thoughts are about this, is that I recognize the beauty of the design. I recognize the beauty of, like you said, just the ability to read the newspaper and not worry about it.

You know, to say, "Well, okay, I'm pretty well covered no matter what that is." But the problem is that I'm one of these guys where I would just be so uncomfortable owning that much gold. And the problem is that this portfolio is designed to provide for somebody who is -- the portfolio is designed to take advantage of the changes in economics and the economic cycle and the business cycle.

But when I look at it, I look at it and say, "Okay, cash, if I'm allowed to take cash out and I'm allowed to use cash for my own purposes, then it's smart for me to have cash." But usually when I assess an allocation in an investment portfolio, for me to have 25 percent of an investment portfolio in cash, unless I'm counting personal reserves, cash reserves, emergency funds, opportunity funds, things like that, if I'm trying to keep some cash in case I stumble across a good investment opportunity, I usually wouldn't count that.

So for me to say I'm going to keep 25 percent of the portfolio in cash, that's a little hard to stomach. Then to say I'm going to buy gold, and to me, 4,000 years of economic history notwithstanding, basically if I buy gold coins, I'm buying something that the only thing that contributes to the price is supply and demand.

And so the only thing that drives the price of the gold is supply and demand. There's no intrinsic value to it. All the people may disagree with me, but what am I going to do with a brick of gold sitting in my living room? There's maybe a value to it from a jewelry perspective in other cultures, in India or China where they actually use gold jewelry, but I don't own any gold jewelry.

I don't wear it. I'd be swindled in an instant if I were trying to buy or sell gold jewelry. So the only thing that it's driven by is supply and demand. And then bonds, I get so uncomfortable about the movement of that. I get so uncomfortable about the change in value as interest rates adjust, and plus I just don't see any value for them for me.

So I would feel more comfortable owning shares of 10 great companies. I'd feel more comfortable if I had a $100,000 portfolio or a million dollar portfolio, whatever the number was, I'd feel more comfortable just owning one company, Coca-Cola stock or Walmart stock or Exxon or something like that. And I would diversify probably into more than one company, but if I had 10 companies, I would feel more comfortable with the ability of those companies to get through an economic crisis and readjust.

And so I'd be curious if you comment on that. Yeah, I'll comment on, because you said a few things there. So let's talk about gold first. And this is definitely one of the assets that a lot of people, especially if they haven't invested in precious metals before, think like, why would I want 25% of my portfolio in gold?

Firstly, I mean, I think it's worth backtesting. It's always worth looking. What are you going to use to make these decisions? One of the things that's interesting is the empirical evidence. And gold has played a really important part in the portfolio a few times. And it's played a really important part in the times when everyone else was toast.

One of the interesting things is the 1970s and the 2000s, if you were all in stocks, you would have had a really bad time. And funnily enough, the only time that I would have really-- I mean, I'm not a speculator, but if I could use the knowledge of the future and we went back to 2000, I would be fully in gold.

And I'd ride that decade out in gold, because it was an amazing decade for gold. Really, really strong growth. On the other hand, in the 1980s and the 1990s, it was a really bad time for gold. So there is that. You've got to look at the evidence of what's actually happened.

And the interesting thing is that in times when your favorite asset class, if you like, the stocks, would have done really badly, gold did really well. But the other thing about gold-- and this is a very interesting thing-- it's actually the non-paper asset in the portfolio. And there is something about this part of the permanent portfolio that is really, really helpful and useful.

And that is it has a certain amount of asset protection built in. Because the idea is that all your paper assets are vulnerable to the black swan event of who knows what happens. There's some kind of civil unrest. There's-- I don't know-- the government goes crazy. In the 20th century, bad things happened in Europe many, many times.

And the government suddenly turned it into totalitarian regimes in Germany. And really bad stuff can happen. And when that does happen, paper assets are risky. Because you may not get your money back. And you may not even retain ownership. And one of the interesting things about the permanent portfolio is that you hold gold.

And the recommendation is that you hold it outside your country of origin. And the idea with that is that if something really weird happens-- let's say that there's some kind of terrible civil unrest or things get really bad-- then you have physical assets that are not paper assets. And that's-- even in the case of a kind of really unusual black swan meltdown event, you still have an asset that is physical, tangible.

And yeah, you're right. It's based on supply and demand. But it's considered precious by humans. And it has been for thousands of years. And it may-- who knows? There's no guarantees with the permanent portfolio. This could stop working if suddenly there was some other way of creating gold. Or if suddenly Bitcoin really takes off and people don't need gold anymore.

There's lots of things that could happen. But that's one of the reasons, I think, that it's really useful to have gold. Because from all the evidence that we have of the past, it's a very useful asset for certain periods in the economic cycle when other assets do really badly.

Nothing else has held up in periods of really strong inflation and negative real interest rates in the way that gold has. And stocks haven't. And obviously, neither has cash and bonds. But gold has. And not only that, you get that kind of built-in asset protection. And you said some stuff about bonds.

But does that-- before getting onto that, does that sort of answer your question about gold? Yeah, it does. And what you said about portable money makes all the sense in the world to me. So I'm very sympathetic to that. And I'll give you a couple examples. I live in Florida.

We have hurricanes. And so I've always thought it was important. I've told clients and told people in the past, make sure you have some cash with dollar bills that's not that you can get at in case there's a hurricane coming and the ATM is out of money. I feel the same way about gold.

Now, this would be dependent upon where somebody is. But as far as where they are in the wealth building, if you've got $1,000 to your name, it's probably not a good idea. I wouldn't say go buy gold coins with $250 of it, because you're going to need that money to do something else that's more tangible.

But if you're in the phase of your wealth building where you've built wealth, then having some gold coins on hand where you can get to them or outside of the country, put it this way, the Jews that got out of Germany were probably those who could buy their way out.

And you can walk into any country in the world and a couple of gold American Eagles or Kruger Rands or whatever it is that you have, and you can get done what you need to get done. And it seems smart for me, for somebody who has wealth, you never know when something could happen.

You never know when a government could go crazy. You never know when you might be sued into oblivion completely out of the blue. You never know when you might be accused of a crime that you didn't commit. And so it seems intelligent for me to build backup plans. And gold coins, I mean, there's not a more tangible intent -- what's the word?

Meaning there's not a more tangible, compact way to move large amounts of wealth than with gold coins. It just makes all the sense in the world to me. It's just when I come to thinking about it from a portfolio perspective and saying, "Ugh, 25%" -- and here would be the other thing.

What do I want this portfolio to do for me? Is this a portfolio that's going to be my wealth that I just want to make sure is always there? Or is this a portfolio that's going to support me? And I'm kind of close as far as how much I can pull off the portfolio based upon my numbers.

And I want you to go on to bonds, but this is why, for me, the thing that annoys me about most financial conversations is the answer is it's personal. It's personal. I'm at one stage of my wealth building. You're at another stage of your wealth building. You've built a company and sold it and traveled the world.

I have not yet done that. So the financial advice for me is going to be very different than the financial advice for you. And that's where this approach to the permanent portfolio may be perfect. Like we said in the beginning, it may be perfect for one person and may be absolutely the worst advice in the world for the second person.

So it's intensely personal. But I agree with you. What you say makes all the sense in the world about gold from that perspective. So I get it. Keep going on the bonds or feel free to respond. Yeah. I mean, just another quick thing on gold. You mentioned what would happen if you were Jewish in Nazi Germany and trying to escape.

But also think of like, what if you had some means in Russia before the revolution? Let's say that you owned a factory and you owned a business or whatever. If you fled, that's it. If you had some money in the stock exchange in Russia, that would have been it.

That would have been all gone. But if you had kept some gold abroad, then you would have had something to go to. And the same if you were trying to escape from fascist Germany or any of the other crazy regimes that have sprung up in the last 200 years.

So I think that's the key thing, is that it offers a protection against the events that you don't have to worry about happening and plan for going to live in the woods. Because even if the worst things happen, then you still actually have a really good built-in protection for those type of events.

But you don't have to devote your life to it in terms of becoming a survivalist and changing your whole lifestyle just in case the world falls apart tomorrow. So that's the gold part. And hyperinflation is definitely something that happens all the time. Currencies devalue to nothing all the time.

It's happened very recently in Zimbabwe. I've actually got some Zimbabwean currency on my wall behind me. I'm just looking and so I am a 100 trillionaire from the currency. That's worthless. And that's just one example that can happen to any currency. So that's what gold protects you for. The thing about bonds...

Real quick before you go on to bonds, I want to make another comment. The stuff we're talking about with gold coins, and then I'm going to go on to cash, and we can go on to bonds, but this is the stuff that I wish more people spent time thinking about from the perspective of their own financial plans.

Because for the exact same reasons you said why gold can be a valuable asset class for people to consider, I'm going to skip ahead of bonds and go to cash. I was just speaking with somebody recently, and this person is fairly wealthy, and they made a comment that they keep several tens of thousands of dollars of cash at home in physical bills that they can physically access.

And the reason, they said, was because that's how you get a deal, is that just the opportunity. You're driving down the road, somebody's selling a boat or a car, someone's selling a car for 20 grand, but you can walk up to them and say, "Listen, I'll give you 10, and I'll give it to you right now." The ability to get your hands on 10,000 bucks, to be able to buy a car at half price, is going to make a much bigger difference in your personal financial plan than is the fact that your large cap, you know, gross stock portfolio grew at 11% this year.

You're going to get a lot more of a savings from the half-priced car. And so the key is to view these things as integrated. So if we can, you know, if the gold can be, "Okay, I've got this plan in place. If this happens, and hey, if the prices go up, that'd be great.

If this protects me and my portfolio, and I can view this comprehensively, that's awesome." And if the cash is cash that's sitting on the reserve, you know, it's dry powder in case of starting a business, or it's money so that you can make that real estate deal when the widow next door is selling the house, and you've got the cash to do it, I think that would be permitted and would be a really valuable part of having these asset classes available.

Viewing this as comprehensively, you know, viewing this as comprehensively and not just saying, "Well, my mutual fund is going to give me a 10% return, so that's going to make all my wealth." No. All the wealthy people that I've talked to and worked with, there's usually some of this wheeling and dealing when they see an opportunity, as in the house next door is going to go on the market, but if I make them a cash offer, and I can give a $20,000 down payment, right now I can get it for substantially below market and figure out the financing later, you've got an opportunity.

So, go ahead. Yeah, just on cash. Yeah, yeah. Just on cash. So, it's certainly true that, I mean, I'll give you an example of the way that this has worked for me. So, shortly after I really got into investing, the stock market crashed in 2008, and the price of shares dropped really significantly in the UK, and as they did in the States and so forth.

And so, I then rebalanced following, in I think early, I can't remember exactly, but I think it was early 2009, when the price was very low, and I was able to do that because I had cash. Obviously, I don't keep the cash, I actually do keep short-term treasuries, so you don't actually have to literally keep cash, you can put it into short-term treasuries and get some interest on it, although admittedly, these days, it's not enough.

Your friend who actually carries that amount of cash around, that's a little bit racy for my blood. I wouldn't really want to be carrying big bags of cash around. But nonetheless, the point being that you can get it out of the bank or out from your investment broker without incurring capital gain, because it's not, you know, if you're all locked up in assets, then if an opportunity comes along and you have to sell something, you know, you can incur capital gain tax liabilities because you're rebalancing, whereas if you have cash, then you have a lot of flexibility to react when you need to rebalance, because you have that significant part of the portfolio that is cash.

And as you said, you know, you also need to have cash available for emergencies, for stuff to happen and so forth, and for me, that's all part of the cash allocation. So you can -- basically, you can put it into short-term treasuries or short-term gilts, as they're called in this country, and get some interest on them, and also that gives you a certain amount of additional protection from holding it in a bank, because the problem is that the bank actually, you know, essentially, you're only guaranteed up to a certain amount by the government, and the bank actually takes ownership of your cash when it's not your cash when you have it in a bank account.

So you're lucky to get it back. If the bank has problems, you may not do. It's a little different if you hold it in gilts with a broker, because then it doesn't quite fall under the same situation as cash being transferred into their ownership. It doesn't make it 100% safe, but it's safer than putting money directly into a bank.

And that's another of the sort of protection mechanisms built into the permanent portfolio that I think are really interesting. Harry Brown was very aware of the problem of banks collapsing, and he was -- you know, he really looked carefully at what are you going to do if that happens?

How will that affect you? And so he actually advises not to keep money in literal cash in a bank, but to put it into short-term treasuries and hold it in that form. Right. And that's -- I love that method of thinking. I love the redundancy, the redundancy, the redundancy.

To me, a well-built financial plan takes into account as many of these things as possible in a way that's appropriate to an individual. So you can get to the point where, you know, there are many ways -- there might be many ways that you would have cash. You may keep $100 in your wallet or 100 pounds in your wallet.

You may keep 1,000 bucks at home. You may keep a little bit of money in a hidden away somewhere, and then you may keep some of it in the bank for ease. You may keep some of it with your broker so that you can quickly rebalance the portfolio in some kind of cash account there, and you may keep some direct with the treasury in T-bills.

And you may diversify some -- you know, that's what I love about this way of thinking is when you plan, as Harry Brown did, when you plan for the doomsday scenarios, it brings such a strength -- it can bring such a strength into your portfolio that your financial plan, if everything goes perfectly well, your financial plan is in great shape.

And then if everything goes crazy, your financial plan is in great shape. And the likelihood is it's probably somewhere between those two extremes. It's probably not a black swan event and probably not all peaches and roses. And so then you're well taken care of so that you can continue your lifestyle, you know, no matter what happens.

>>Yeah. And you know, there are definitely some people who would look at some of these scenarios and think like, "Oh, that's not going to happen. I'm not worried about, you know, civil unrest. I'm not worried about the banks going under. I'm not worried about some kind of crazy economic meltdown." >>Look what happened in London a couple years ago, right?

>>Yeah, but the point I would make is, the point I would make is, this approach may not be for them. You know, if you really don't -- obviously, I personally think that, you know, even if I'm not particularly -- even if I don't rate the likelihood of any of these things happening to be particularly high, I just really enjoy the peace of mind of knowing that I'm prepared for any economic condition.

And that gives me a lot of peace of mind. Some people might say, "I'd rather not be prepared for any economic condition because I rate the probability so low, and I'm just going to bet everything on stocks because I think that's going to give me the biggest return, or I've got another favorite asset class, or I've got a particular speculation.

I'm going to throw all my money into that," and so forth. There are people who do that, right? And this approach wouldn't be right for them. They wouldn't -- you know, this definitely -- there's -- if you're trying to even out volatility and you're trying to limit catastrophic risk as much as you can, which is what the permanent portfolio is all about, then you're going to miss out on some big wins, which is the cost of, you know, missing out on the big losses as well.

And so that's definitely what -- who this approach is going to appeal to more, is people who are considering their investments as being something that they want to keep safe and that they want to be able to keep ahead of inflation with and give them, you know, a return that the market can give them.

Then they're not trying to beat the market. That's what this approach is all about, whereas other people might think that they can beat the market and they might have a totally different approach. And so it really depends on your philosophy and your approach. Yeah, I agree. Well said. You had some comments about bonds, because I'm not a bond lover.

I'm going to -- at some point on this show, I'm going to have some bond traders and bond managers on, because I do think it's a useful asset class, but you had some comments you wanted to make about bonds. Yeah. Well, I mean, the thing about bonds is -- the way I think about bonds is that, again, this is a portfolio that's been designed for a world in which central banks can just change the interest rate by manipulating the bond market, essentially, is the way that they do it.

And what that means is that you can be -- all of a sudden, you know, the interest rate can just be totally changed on you, and that can have huge effects on your savings and so forth. But the interesting thing about long-term bonds is that the longer the length of the duration of the bond, the more they respond to interest rate changes.

And that's actually what Harry Brown was designing in. And the reason for that is that, you know, what happens if the interest rate drops or is pushed down, as it does and is held down in times of sort of economic depression, then the capital value of long-term bonds goes up, because the market overall is giving you a smaller return, individual return on investment, so a smaller percentage.

Therefore, if you hold a fixed-interest bond with a higher interest, then the capital value of that bond goes up. So you are essentially kind of hedging yourself against what could happen in any scenario with the currency, basically, with manipulation of interest rates. If there's a tight money recession, then you have a large proportion of your money in cash, and the interest rates are going to shoot up, and you're going to be able to be benefiting from that, even though it's going to damage the capital value of your long-term bonds.

But if the other thing happens and interest rates are held down, capital value of your long-term bonds goes up. So this is sort of -- and the interesting thing is that there's something called bond convexity, which is like basically the lower interest rates get, then the more effect that a little push on interest rates has on that capital value, too.

So basically, that's the idea behind why the bonds are in there. They're to protect you in any economic circumstance, and there are some conditions, particularly like a long-term sort of depression-type thing, where bonds have been basically the best asset to hold. So yeah, that's basically the rationale behind that part of the portfolio.

And they give you some income. Not a lot in the moment, it has to be said, but they're another interest-producing asset. >>Did he ever talk about how to keep the duration of the portfolio long? So for example, did he -- so he recommended holding long-term national bonds. So in the U.S., that would be U.S.

Treasury bonds. And the idea is eliminate the risk -- eliminate the repayment risk, eliminate creditor risk by not buying corporate bonds, and then buy long-term U.S. Treasuries, about 30-year terms, so that you have a very long-duration bond so that it will be very sensitive to interest rates. But did he ever talk through practically what the -- if your duration starts to get shorter, or if your duration starts to get to 25 years, 20 years, at some point in time, you're supposed to lengthen your duration?

Do you know of anything about that? >>Yeah, I mean, you can apply the permanent portfolio to basically any country. And so I happen to be in the U.K., and it will be different in the States and so forth. But I mean, the basic idea is get the longest bonds that you can get, get fixed interest and the longest bonds that you can get, if you're pursuing the strategy, obviously, of the permanent portfolio.

And then if, you know, after a while, if it starts to get too short, then you just sell them and get longer ones again. And so for the long-term bonds, it's fairly straightforward. You just -- if the duration starts -- I mean, I haven't been investing that long that it's really going to make a huge difference.

But if it starts to get too close to a shorter term, then you just sell those and buy the treasuries or the gilts that are currently available at the longest term. For short-term bonds, for the cash element, it's a little different. And you build basically a ladder. So the way that you do that is you buy a few that mature in a year -- sorry, you buy a certain proportion that mature in a year and then another proportion that matures in two years and then three years.

And some people go a bit further out, like maybe four or five. But with the cash element, it needs to be relatively short periods. And then you just -- when one set of bonds matures, you then just buy at the top of your little time ladder of three to five years again.

So you just keep cycling through in that way. With the long bonds, it's really straightforward. You just don't do anything. You just buy the longest term that you can. You let them sit there. And then maybe after 10 years or so or whatever, you sell them and buy another really long set.

>>Right. Right. Do you know anything -- do you remember or have any knowledge of what the actual returns would have been for this portfolio? >>Well, I'm based in the U.K. So I did my own back testing. And before I got into investing -- and I think I did that for 10 years -- I don't remember now because it was way -- I think it was like 2005.

And I tested it back for the 10 years previously. And it was just under 10%, I think, was the nominal return. And it was ahead of -- keeping ahead of inflation as well. So comfortably ahead of inflation with 10% nominal. Obviously less inflation adjusted. And that, I think, is -- I mean, you can look this up on Craig Rowland's site.

Craig's written a great book about the permanent portfolio. And his site is crawlingroad.com, I think. And he has a whole series of data for the American permanent portfolio. And I'm really speaking from memory here. But I think it's somewhere in the range of 8 to 10% nominal. And then that means inflation adjusted, you're still maybe 2 or 3% ahead of inflation.

So basically, you know, it keeps up with inflation. It gives you a relatively decent return. But it doesn't give you the same volatility that you get from being invested in one individual asset class. But as I say, if you want the exact numbers, I don't have them off the top of my head.

You have to have a look for American ones on his site. Yeah, that's about what I remembered. And I'll check that out. It doesn't give you the same returns. And it'll be interesting to see, you know, in the world that we live in. That's the thing with investment, is you never -- it's easy to look back and say, this is what this has done historically.

But you know, there may be many reasons for that. And I like this strategy. I think it's a well-built strategy to try to understand what the reasons may be. It'll be interesting to -- >>Sorry, there's one more thing I was just going to add to that. The key thing is also that it hasn't had the catastrophic losses that stocks have suffered when the business cycle turns.

That's the interesting thing about the permanent portfolio, is it doesn't give you super big growth. It gives you a decent growth. But it doesn't give you super catastrophic losses. There's been a couple of years when you've had losses more than 5%, I think. But most years, there's really very little loss.

Again, have a look at the actual data for America, because I can't remember it. But Craig's got it all on his website. >>Right. And that's -- to me -- and feel free to comment on this. But that's one of the ones where -- that's an example of some of the things that -- where individual investors' temperament and individual investors' situation is so important.

If I woke up tomorrow and stocks had declined in value by 50%, I would be thrilled. Because what that would say is, unless there was some structural thing that had occurred overnight, I can get a major discount. And then the only way to experience the loss is if I sell.

So if I have the stomach for that, to sit through the losses, yes, the gains do have to come back. So if you have a 50% loss in one year, you have to have far more than a 50% increase to bring the values back. But I have the -- but if I have the stomach for it, I can sit through it.

If I don't have the stomach for it, then I need to make sure that my strategy is one that's going to allow me to not -- that's going to allow me to get through that. And that's one of the things that's always -- it's kind of a struggle getting back through -- coming out on this side instead of being in the investment advisor space where -- I'm not sure exactly what I'm trying to express, but just that losses -- you only lock in your losses if you sell.

And so the key is to avoid the need to ever sell during a loss period. And to me, the way that you accomplish that is -- the way that you accomplish that is with good financial planning and good cash flow planning and good anticipating what the needs would be.

And so it may be perfectly fine to have a very speculative portfolio if there's no need for the cash and you know that I can allow this portfolio to sit out here and wander around in value for the next 10 years and I don't need to pull money from it.

It's a very different thing than if I'm 70 years old and I'm systematically liquidating 5% of my portfolio. Well now in this -- and I don't have any cash reserves -- now the losses could be devastating to me. >>Can I comment on that? >>Go ahead. Feel free. >>Yeah, because I think that there's some really interesting things there.

First of all, you're absolutely right that -- I've talked to a lot of people who invest solely in stocks. And their attitude is, "I don't really care if there's 10 years of rough going because then there's going to be some times where it's going to be super boom times and they will more than make up for it in the very long term." And I think in the very long term, you know, with stocks, that -- the evidence seems to support that, right?

But 10 years is a long time for me. I don't want to see my portfolio lose money for 10 years. And I'm not -- I don't have the stomach also for an overnight 50% drop. I don't want to see that. And that's partly because of my -- I'm actually quite -- I'm a conservative investor in the sense that I focused on entrepreneurship as a way of creating my wealth.

And the investment for me, I want that to be safe. I want that to give me a decent return given what the market can bear, so to speak. And I want to be able to get on with my life and do other things. Other people have a totally different approach.

They are -- as you say, I mean, if you're early on in your investments and you really want to get into stocks, then if the prices fall significantly, then it's buying time. And that's great. The one thing I would disagree with you on, or that I've never been able to get behind that idea that, you know, you only lock in losses if you sell.

Because I view the portfolio at any specific time -- people say this about their houses as well when they consider their houses to be investments, even though the house that you live in is a consumption item, not an investment. But if the property value falls, they think, well, I'll only actually lock in the loss if I sell.

But in any investment, the way I think about it is, like, you know, at any particular moment in time, your portfolio is worth what your portfolio is worth. And just because you don't sell it, it doesn't change the fact that you've just effectively had a huge opportunity loss if you're in a stock that's fallen.

That's value that's gone, right? So although I understand the approach, I view it from the perspective of I don't want to experience those catastrophic losses because I want to just get on with focusing on the rest of my life. I don't want to be an investor all day, every day, and worry about it.

And psychologically, it's certainly true that losses -- just from the way that we're built, evolution has made losses hit us harder than gains cheer us up, if you see what I mean. People psychologically suffer more. And you can psych yourself out of that in some ways and rationalize your way out of that.

But to a certain degree, it affects everyone. And so I don't want to experience that. But also, it seems to me like the attitude that, well, even if stocks do badly for multiple years, they'll pick up in the end, I can't get behind that because I kind of think, yeah, but you just had 10 years of bad losses.

That doesn't make any sense to me. Or not bad losses, but 10 years not keeping up with inflation. And that to me, that's a real loss. Even if you haven't sold, the value is still lower. >>Right, and I think -- and it's a good question. And if you don't mind, let's just stop here and talk about it for a minute.

Because these are the kinds of questions that I think many people have. And I'll give you my answer. And I think that -- and I'm interested in your thoughts. I think where this comes from, you are 100% right about all of the behavioral evidence that I have read points to the fact that losses are -- we feel losses substantially more than we enjoy gains.

We feel the pain of losses substantially more than we enjoy gains. And so we're very loss-averse as individuals. The problem comes down to how well do we know what we're investing in. So if we use terms like stocks, which are useful for the purpose of this conversation, if we use terms like stocks, that's a very general term.

That's something where we don't actually know what we're referring to. We don't know whether we're referring to a group of three companies or we're referring to a total market in general in a conversation like this. You and I are referring to just the general stock market as measured by something like a total stock market index or a major -- an S&P 500 index, something like that, or a European index -- we'll pick one of the European indexes.

And here would be the example. >>Just to be clear, and that is -- and when I say stocks, that is actually the approach to permanent portfolio. It is an index fund-based approach that you go for total market. There's no speculation on individual stocks. So sorry, but carry on. But that's -- when I say stocks, that's what I mean.

>>Perfect. So under the total -- so to me -- let me use two different examples. So under the total market scenario, you don't really know what you own except for the fact that you own all of the companies. And so in that scenario, what you're essentially -- under this investing philosophy, you're basically assuming that over time, good companies will always grow in value.

Because if they're not growing in value, then their shareholders, their board of directors are gonna replace the company management and they're gonna figure out how to grow in value. Companies just don't sit around and do nothing. They're not just flat. They have to be growing, which leads into the perpetual growth conversation.

But companies have to be growing over time. And so we're assuming that the market is efficiently priced. We're assuming that there's lots of players. And so every individual's company stock price is an accurate reflection of that company's value. And as such, the prices on the whole of the general stock market is an accurate reflection of the value of all of these companies.

And so if those prices are going up and down in value, it's because there's some other ancillary, there's some reason for it. Now the example -- and that's a rational approach. But if you were back running your company, doing pedestrian consulting, and I don't know what you sold your company for, so let me just make up some numbers.

And let's just say one day you were sitting down looking at your assets on the company balance sheet and you were saying, "I think this company is worth at least $100,000." And if I came in and offered you $40,000 one day and then $140,000 the next day, and then came in and offered you $40,000 the next day, that wouldn't necessarily affect how you -- the actual value of the company.

That would just affect the price of the company. And so you probably wouldn't lose that much sleep over the offer that I had made you. 'Cause I'm clearly a schizophrenic investor if I'm offering you these two very different -- two very different values. And so this is where I think you have an advantage if you're not in the total market world.

If you are someone where -- let's say that you were managing the Walton Family Foundation and as such you had hundreds of millions of dollars of Walmart shares. Just because Walmart shares decline in value by 30 or 40 percent overnight doesn't mean that necessarily the value of Walmart is affected by that 30 or 40 percent.

But that's where you have an intuitive connection to the company. Now if you don't have an intuitive connection to the company where you just have this general asset class called stocks, then it really is concerning. And so most people don't know what companies they actually own. Most people don't know what -- they don't know what companies they're actually invested in.

Like we just simply don't know. And because we don't know, we can't feel comfortable of the fact that even though the price that's being offered today has declined, that the value of this company is still good. Or we don't know that, hey, the value of this company just got destroyed because -- I posted a link on Twitter the other day about Blockbuster -- all the traders betting on Blockbuster ten years ago when Netflix was coming out.

So I guess what I'm trying to say to wrap up and let you respond is I don't know how to solve this problem. And I've struggled with this mentally for a while. Excuse me. That's thunder outside if you can hear that. I've struggled with this -- it wasn't a gunshot.

It was pretty close thunderclap. I've struggled with this problem trying to figure out how do we solve this problem. Because there's very little connection for people -- the connection that you had as an entrepreneur to your company, you don't have with the stocks in your portfolio. So you're viewing -- most people, you may not be, but most people are viewing the stocks in their portfolio very differently than how they view their own company.

And that's why then people are much more likely to bail all of a sudden. Whereas if your house -- and that's why people will sit through their house and they'll take the point of, well, my house declined in cost by 50% because they'll say, well, it's my house. It's where I live.

So I feel like I'm being a little bit wordy. So I'll shut up and let you respond. But I just haven't figured out how to solve this problem of connecting people to the assets that they actually own. >>Yeah. Okay. A couple of thoughts on that. When you say people bailing when values go down, I mean, the interesting thing is that what we're talking about with a strategy like the permanent portfolio is that if stock prices go down significantly, then -- I mean, obviously, it will depend on where your particular portfolio is, but you will most -- in almost any circumstance, you will be investing into stocks.

So the great benefit of having a strategy like this is you don't have to worry and think about, like, oh, I don't know, maybe I shouldn't be buying stocks because they've just gone down. You just -- you rebalance into the asset classes that are low from the asset classes that are high.

And that takes out a lot of that sort of, you know, fretting over stuff that you can't control or do anything about. So that's a nice feature which I just wanted to highlight of this approach is that whereas some people see a stock market crash, for example, and get totally freaked out and they start selling, the funny thing about a strategy like the permanent portfolio is you will automatically buy into cheap assets in the sense that you'll automatically be rebalancing in.

And that's exactly what happened to me. I actually was forced to buy into stocks in -- as I said, after the crash of 2008 because I needed to balance -- rebalance my portfolio. And at the time, it didn't feel great, you know. It didn't feel great buying stocks when they were really down because, oh, what do I know?

They might go down again. And that's all -- obviously, that's also possible, too. As it turns out, stocks then went up. And there you go. So that's one thing just on that aspect. But the other thing I wanted to say, though, is you're absolutely right that I did view my company totally differently to the way that I view my investments.

And that is the difference, I think, of -- I felt like I really -- I can influence the business that I run. I can have an impact on it. I know the ins and outs of its true value, if you like. I mean, that's a bit of a big discussion of what that actually means.

But I know that it's a value-generating machine that is going to continue to be able to produce things that people want, even if today, because everyone's freaked out about the market, the price may be low. But that was -- I'm talking about a company that I built from scratch, upwards.

And even then, you know, I was also subject to changes in the economy as a whole and so forth. But if you're not building that company, if you're an outsider looking in, then you need to have a lot of insight, I think, to be able to really understand opportunities for value investing, so to speak.

And some of the problems, I think, with value investing, with the approach overall, is the idea that you can determine where the market's not valuing stocks properly and that you're going to have better knowledge on that than other people. To me, that's tricky, because if you're not involved, if you're not inside and you don't really understand what's going on, then I think it's -- in some senses, I think it's more realistic if you want to be able to just get on with your life to not even try, which is the approach that I take as an index investor for stocks and as a sort of passive investor overall in terms of following an approach like the permanent portfolio.

>> Yeah. And what you point out as far as the sense of ownership -- well, not just the sense of ownership, but the actual ownership and the ability to influence things. One of the things that I've struggled with and I've observed -- and I don't think I ever really figured this out when I was working as an investment advisor -- is I think people sometimes are looking for stocks to do things that they can't -- that they're not able to do.

And two examples pop to mind, one exactly what you just said, and then another one as far as what they can actually do in your portfolio. Let me go with the number two first. You didn't make your money with the permanent portfolio. The fact that your ability to sit back and relax and enjoy life and travel to Mexico and work on your books and work on your projects because you're financially independent, that didn't come from the permanent portfolio.

Your lifestyle may now be afforded by the portfolio -- your strategy may now be the permanent portfolio, but that came because you built a business and because, you know, I assume that you were able to get far higher rates of return than 10 percent. Because 10 percent rates of return, unless you have a very long period of time, just doesn't get you financially independent unless you have either a very high savings rate or a long period of time.

It doesn't get you financially independent in a short term. But building a company that does have value, that you can basically create money -- I mean, that's how I think of building companies is you create money, you create assets out of nothing through the application of human skill and ideas and effort and energy.

You turn human capital into something that can ultimately be sold and turned into financial capital and that's so tangible when you build a business. So that's the point is that you built the business and then you had the lump sum of money that you say, "I now need to invest so that I can sustain my lifestyle and protect this asset." The second thing is that sense of ownership.

A lot of people are looking for that and it may not be in stocks. And my encouragement to many people is that you may want -- if you don't understand, if you don't like investing in stocks, if you don't like investing in publicly traded companies that you cannot influence, you're not going to be an activist shareholder unless you are.

But if you don't like that, it's okay to say, "I'm not going to purchase this asset class. I'm going to walk away." And what's happened over the last 30, 40, 50 years is we've gotten to the point where now a majority of the population is invested in stocks and a majority of the population is exercising control over their portfolios.

And we've done that without providing any -- and there's no education. There's no formal schooling or education on investment markets or how they work, capital markets, how they function. And so we've got a world of amateur investors, none of whom are comfortable with the subject, but yet in the 401(k) system we have in the States -- and I don't know what your system is there in the UK -- but now instead of professional investors, everyone is forced to do it.

And so we've got to make up some ground with the education, with new investment strategies to help people and give them the tools that they need to be able to manage their portfolios. And it's okay to say, "I don't want to own stocks." If you're uncomfortable with it, it's probably better to go away and build a small local business that you can have that sense of ownership and sense of control where you're not worried about what the banker thinks it's worth.

You know what it's worth because it prints your paycheck and it prints your dividends and you can feel confident of the fact that that business has a market, that business can be passed on, that business can fund your retirement. So those are just two points that I don't think we talk about enough when we talk about investments.

>>Yeah, and I just want to say I really agree with you. One of the things, in fact, that Harry Brown emphasized in his book is not to consider investing as the source of your wealth. And he basically emphasizes the point that what you do in terms of your work, that's how you're going to make your money for the vast majority of people.

And yeah, there are a couple of exceptions, but the vast majority of people, it's what you do in terms of your skills are what are going to make you money. And in my case, that was entrepreneurship, building a business, and so forth. And that's exactly how I view the permanent portfolio as the place to park that, keep it safe, and so forth, not as a get-rich-quick scheme.

It's really not. And it's the last of the -- you should never consider it now, because it's actually designed not to have volatility. So I absolutely agree with you that the key, I think, is to focus on what your individual skill sets are, what you can do that is rare and valuable, what you're able to do to generate value in the world.

And for me, it was entrepreneurship, and that's how I made my money. And the investment, and that's one of the reasons why I'm such a conservative investor is because I created it elsewhere, and now I just don't want to blow it, basically. And that's the reason I take that approach.

And as you say, there are real limits to any paper asset appreciation and value. And you really have to do something where you can create significant value and significant change in the world, like building a business, in order to kind of get to a point where you have financial independence.

And it would be -- I think it would be wrong to expect the permanent portfolio to create that for you. That's not what it's for. It's to protect you against all of the economic circumstances that can happen, and to give you a return that's above the rate of inflation.

And you mentioned that 8 to 10 percent that I was talking about historically, that's not even -- I mean, that's actually before inflation. That's not taking into account inflation. There's less than that in terms of a real return. It's like 3 or 4 percent or something. For the American one, again, you'd have to check the actual numbers.

But that's the general approach. So I hope that that gives people a perspective on my personal take on why this has been a useful approach for me to adopt. And there is also one more thing I'd like to say about the approach, which is that, you know, although the permanent portfolio is a really -- one of those set it and forget it type investment strategies, where you can get on with your life and do other things, Harry Brown also gave some great advice about speculating.

And he basically said, look, if you want to -- if you think that something interesting is happening in the markets and you want to speculate, and you think you might know about something or understand something that could give you an insight into how things are going to develop, then if you want to do it, just do it.

Create a speculative portfolio. He calls it the variable portfolio. And just be clear with yourself about exactly how much of your money you're going to devote to that, and be clear with yourself and conscious about why you're doing it, what your sort of boundaries are in terms of not kind of refunding it from your permanent portfolio, not subsidizing any losses from the -- in your speculations from the PP.

But his approach was very flexible in that, you know, he recognized that people do like to invest in specific things that they may know about as a speculation. But he just had a very clear idea that you should be honest with yourself about saying, this is me having a go.

I reckon this might be a good thing to invest in. Who knows? I'm going to go for it. I reckon I've got an insight into where the market's going. So I'm going to invest in Bitcoin or I'm going to invest in precious metals or I'm going to invest in property or whatever it is, whatever particular thing that you think you have some insight in.

And the idea in doing that is you don't keep morphing your overall strategy when the next big thing comes along. You have kind of like a walled playground for your speculation, which is called your variable portfolio. And you dedicate only a specific amount of money that you're willing to lose, that you're happy that you could just -- that could go to zero.

And for the money that you're not happy to lose, for the stuff that you want to protect, you use a strategy with the built-in protections like the permanent portfolio side. So that's another bit of built-in flexibility. And even then, there's no guarantee, even with all of those built-in protections, there could be circumstances where the permanent portfolio could do really badly.

That's another aspect about not being able to predict the future. But in terms of what we do know and what we can predict, I think it's a great approach for giving you that less volatility and lots of safety features. I think it is, and I want to comment on a couple of things you just said, and then we'll kind of wrap up.

The two things you said, number one, about speculating, I'm glad that he put that in there, because it is always interesting to me that in general, my observation is many people who write books usually made their money based upon some aspect of speculation or based upon some aspect of providing or building a company, not necessarily on building wealth -- excuse me, not necessarily on what they have said.

So Harry Brown, he speculated on the decoupling of the dollar from the gold standard. He made a pile of money, and then he had that problem of how do I protect this money? And I think that -- so then it's easier once you have a pile of money to then say -- look at it and say, you know, here's the money that I'm not willing to -- here's the money that I'm not willing to lose.

I think especially for entrepreneurs, this is an important point. Your experience with being a conservative investor is similar to my experience in working with clients. I have found that entrepreneurs are among the more conservative of investors. Generally it seems like employees are more aggressive than entrepreneurs are, and I don't know why, although I have some hypotheses that it may be due to the need to take -- the responsibility that an entrepreneur -- where it weighs on their shoulder, the observation of the risks that exist, whereas maybe an employee is not exposed to those risks every day, it's more of like I come here, I do this job, and I'm done.

But I found most entrepreneurs to be very -- to be very risk averse. >>Can I give you my take on that? >>Sure. Go ahead. >>So, I mean, for me, there was so much risk in entrepreneurship. You know, there's so much kind of roller coaster risk involved in starting a business and growing it, and I think for entrepreneurs -- I mean, this is my experience.

That was such a huge risk, and I borrowed a lot of money to do it, and it could have all failed, and it was a big set of unknowns, and I had to deal with all those unknowns the whole time. But I think for me, that was where all my risk taking went, was into entrepreneurship.

That was my big -- my budget for risk taking got used up in the venture. And so once I actually made money with the venture, it was like, look, I don't want to take any more risks. That's it. That's great. It worked. Now I just want to be safe, and I don't expect this to be like winning the lottery in terms of investments, but I think that's partly is that entrepreneurs are already taking very significant risks, whereas I think maybe if you're in an employee situation, it's more like, well, I'm not really taking any big risks, so, you know, let's see whether or not I can take a punt and maybe make some big returns on more risky investments.

Maybe that's one of the sort of reasons for that mindset. But I do find it interesting, your experience of dealing with the two client types. That's really interesting to hear. >>Right. And entrepreneurs also get very frustrated at the lack of control and are quicker to bail and say, that's it.

I can't control what these stock prices are going to do, so I'm going to go and take my money and invest it with my buddy and his business where at least I can have a little bit more of an inside line. And many people have made money on that.

The other aspect of what you were saying just about the portfolio is I think that's where I always come back to is the financial planning perspective. And a lot of people may not understand what I mean by that, but what I mean is that investment management is only one part of it.

And here you have an investment philosophy and an investment approach that can work very well. But then at the end of the day, rationally, we have to go back to financial planning. And so you say, well, how do I figure out what is the money that I can afford to lose?

Well, if you're an entrepreneur and you've worked hard to build a company and you sit down and you say, here's the lifestyle at which I would like to live, here's the income that I need to make sure, do I have enough money that I could carve off some of it and make sure that I would never, at least never, have to go back to work again if I didn't want to?

That's the number. And so you've got to focus on those financial planning calculations and allow those to influence your other decisions. For a young person just getting started, I think it is reasonable to take more risk, not because theoretically you have time for stocks to recover, but because if you haven't spent a lifetime building something, if you haven't invested 10 years into building a company, then it's okay to go ahead and take a risk.

But once you've invested 10 years into something and you've sold that company out, you may do it again, but you may want to go ahead and make sure that you never have to do it again if you don't want to. And so, and then the last thing on the speculation, it'll be interesting to see what happens as time goes on.

I was reading over the weekend, I read a piece by William Bernstein, who is a respected academic on the subject of investing, has written a lot on index funds and developed the theory of index funds from the academic perspective. And he wrote an essay on Harry Brown's permanent portfolio, and he was acknowledging and he was tracking the flows in and out of the permanent portfolio mutual fund that is available as a proxy for investor behavior.

And he was talking about the problem and the benefit of the permanent portfolio, and this has been my experience with every investment philosophy, it all comes down to the behavior of the investor, is that people will run to, he was in his essay, and I'm not sure if you've read it, Jake, but he said people will run to the permanent portfolio in times that are bad, and then they will be attracted to the next fancy object when the times are better.

And as such, they will never reap the benefits of the permanent portfolio, and it's quite sad. Right, that's interesting. And I would also say that I personally, obviously this is a personal decision, I wouldn't be interested in the permanent portfolio fund for a couple of reasons. One is that it's not exactly the permanent portfolio.

I mean, the structure of the fund is from a slightly earlier variation. I believe that it holds some silver and various other things. I don't know the exact, I'm not certain of the exact composition, because we don't have it here anyway, it's only in the States, as far as I know.

But I wouldn't, so it's not quite the same strategy as the one that I really know and understand. There are some things in there that don't make 100% sense to me. But also, I guess this is maybe a personal thing too, I think part of the benefit of the permanent portfolio is the control that you get from managing it yourself.

And the very, some of the things like holding gold abroad and stuff, I'm not quite sure how that would work if it was in a fund. You wouldn't get the same protections that you do if you manage it yourself. So that's just my personal take on that. Right, and I agree with you 100%.

That's where the permanent portfolio, from the perspective of a little bit of gold here and there, a little bit of cash here and there, all those other advantages, and the low cost, the ability to strip out all your cost, to me, that's very attractive. But when you turn it into a mutual fund and you say, "Okay, I'm going to pay, I think it's 70 or 80 basis points of fees so that they can hold cash and gold, and it's still locked up in a mutual fund, so it's still a paper asset.

So yes, the gold market may go up or down, but it's still a paper asset now." It just doesn't make as much sense to me as doing it yourself. So I agree with you. Jake, if someone were interested in knowing more about the permanent portfolio, where would you send them to do their research and educate themselves?

So the first thing that I would really recommend is to read Failsafe Investing by Harry Brown. It's a super easy read. It's a short book, and it's a great introduction to the permanent portfolio. If you're interested in a more in-depth treatment and a more up-to-date treatment, then the book called The Permanent Portfolio by Craig Rowland and J.L.

Lawson is a very good sort of detailed treatment of how do you buy gold and where should you hold it and how do you buy bonds and so forth. It's really, really good, but it's much more technical and much more in-depth. I would say that the Harry Brown book is a good starter.

There's also Craig's website, thecrawlingroad.com, I think, has got articles about the permanent portfolio, and you can find links there to the Permanent Portfolio Discussion Board, where various people who are taking this approach, individual investors, talk to each other about things that they find and problems that they've dealt with, and they are a very nice bunch and they help each other, so that's another resource.

I also have a number of discussions about the Permanent Portfolio on The Voluntary Life, so if you look under the tag "investing," then you can find that. I can give you that for the show notes, too, Joshua. Yeah, that would be great. I will echo Harry Brown's book, Fail Safe Investing is Excellent, and it's simple.

One thing he did in that book, he actually divided the book into two sections and wrote part one and gave his, what was it, 11 or 12 or 13 rules of investing, something like that, and then he said everything he had to say, and then he gave a part two and said more on each of them, so if you want the deeper version, you can read the whole book, but if you're not much of a reader, you can just read the first half.

I really liked a lot of what he had to say in there, and it's good, good rules to keep in mind. And then a warning on the Permanent Portfolio book, it's excellent. It's not light. The authors have put a lot of time into it, and so don't, unless you've spent some time just thinking about this, don't expect us to wade through it.

It's very much a how-to, and this is a compliment, it's not a criticism of the book, but it's very much a how-to, and it's a how-to implement the portfolio across platforms, so if you're looking for just a mutual fund, an exchange-traded fund solution, if you're trying to figure out how to buy gold with a Swiss banker or with the Australian Mint or the Perth Mint, things like that, it's not a light read, but it is well done.

And I haven't spent much time in there for him, but I'll have to go over there and read some of the articles. I would enjoy that. So, Jake, thanks so much for being with us. I've really enjoyed this conversation, and I hope that it's a helpful resource for our listeners.

Thanks, Joshua. It was great chatting to you again. And that's our show. Hope you enjoyed that. Jake, thank you for coming on. I enjoyed having you. I feel like we have lots of stuff to talk about, and an hour was plenty for today, but we certainly could have gone on and chatted about lots of other stuff.

I think you did also an excellent job representing the permanent portfolio and some of the ideas and the concepts in it, and I want to thank you for doing that. And I want to thank you for everything you're doing over at Voluntary Life as well, promoting the causes of personal liberty and freedom and voluntarism and all of those types of things.

So thank you for coming on. I appreciate it. And I hope you enjoyed today's show. This is just the first of many of these types of shows that I'd like to bring you. I feel like we don't do a good enough job of bringing in-depth, investing content to the public, so I'd like to bring many, many more kinds of these shows to you of interviews with various people, as well as bring you in-depth, more and more of this in-depth teaching content to build on so that you have a firm grasp of knowledge to understand a lot of concepts that maybe you've just heard the words and haven't been able to understand before.

Thank you for listening today. Give me some feedback. Let me know what you thought of the show. Joshua@radicalpersonalfinance.com via email or on Twitter @radicalpf. If you haven't left a review, I'd be thrilled if you leave an iTunes review. And even what's even better today, I've got an email newsletter set up.

I know we're bringing you a lot of shows. Every single day there's new content. You'd be surprised if you were able to listen to all of the shows. So the best way to keep pace on the shows and figure out the content that you are interested in is come by the blog at radicalpersonalfinance.com and enter your email address and sign up for the email newsletter.

And every day I will send you the complete show notes for the show, not just even a blurb where you got to click over the site, but the complete show notes so you can tell right in your email if it's a topic that you're interested in listening to and you can just pop over and listen to the episode from there.

So that would be my recommendation for you so that you can keep pace. We're here every single day, Monday through Friday, with in-depth financial content like this. So hope you enjoyed it. Have a lovely Tuesday, everybody. Peace out. Peace out. Cheers, y'all. If you are looking for an exciting role in customer service, food service, or retail, connect with a job at the airport.

Get started in a role that offers competitive wages, consistent schedules, and fast-tracked management while you work in a vibrant, exciting environment where security is a priority. The airport has it all. You can have it all, too. Visit cmhserviceindustry.com to learn more.