Despite the reservations that everyone may have regarding cash, bonds, gold or shares, Browne's method at least has the merit of making us aware that there are possible alternatives to the investments that we usually use and above all that these can even prove extremely effective during certain periods.
Even if you don't want to or can't devote ¼ of your portfolio to each of these assets, there's nothing to stop you from diversifying your assets a little more with these other investments. Browne helps us avoid being caught off guard like La Fontaine's cicada.
Let's now take a quick look at the assets at our disposal:
Cash / short term bonds
Having a little cash is a good thing, especially when the stock market is overvalued. Not only does it avoid buying overpriced stocks, but it also keeps ammunition ready to fire when the stock market plummets. Even the big Warren Buffett, a strong supporter of stocks, likes to keep cash on hand. Cash is King as the saying goes.
Browne and others also seem to think that it is even particularly useful in times of deflation. But the evidence, particularly in Japan in the 1990s, proves him wrong (a 100% stock portfolio ou 50%actions / 50% obligations aurait été plus efficace). Dans les années ’30, c’est l’or, aux vertus pourtant anti-inflation, qui a été le plus efficace.
The problem with cash is that with the current expansive monetary policies, interest rates are close to zero. "Savings" accounts bring in almost nothing. The rates on short and medium term bonds in Switzerland are even negative!
Investing 1/4 of your portfolio in an asset that brings in nothing, or worse, will definitely lose money, is difficult to conceive for anyone with the slightest financial knowledge. Yet Mr. and Mrs. Average do this not with 1/4, but with all of their savings, which is obviously much worse (and we are not even talking about the risk of losing purchasing power due to theinflation, because currently in Switzerland, luckily, we don't know any...).
So a little cash, yes, to take advantage of opportunities, but not to invest sustainably. There is no real reason to take this asset into account in the portfolio. Graham also suggests in theSmart Investor to do dollar cost averaging (investing the same amount periodically), which reduces timing errors. Obviously, we will wait patiently if there is nothing more interesting to sink our teeth into...
Strategies of the same kind as that of the Permanent Portfolio, but without cash, that is, composed solely of gold, stocks and bonds, actually show a better result. Marc Faber, a Swiss investor known for his "bear" leanings, even suggests replacing Browne's "cash" portion with real estate. His asset allocation portfolio is among those that offer one of the best long-term returns (using only a buy & hold approach - simple to follow for a passive investor).
In short, for cash/short term bonds : do not take into account permanently in the allocation of the portfolio, invest periodically using the dollar cost averaging technique, unless there is nothing left to sink your teeth into.
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And another excellent article!
As you say, many people park almost all their savings in cash and bonds, because it seems so safe. In fact, the only certainty is that this way we will lose money...
Even if, in fact, inflation in Switzerland is a bit like the courage to not behave like a sheep: it doesn't really exist 😉
Thanks bro 😉