Harry Browne’s Permanent Portfolio with fee-free ETFs

UPDATE: Since most brokerages are now offering fee-free trades, this article is somewhat moot. The one change I suggest is moving from the S&P 500 index fund to the Russell 3000 total-market fund (IWV).

In reviewing the timing suggested for Harry Browne’s Permanent Portfolio re-balancing, I came across an article that back-tested monthly re-balancing. Harry’s original plan was to re-balance once a year. Monthly re-balancing results in a compounded growth rate of 9.6%, much better than the 6.2% achieved when re-balancing once a year.

The problem is that trading once a month costs money. For instance, a normal trading transaction may cost $6.95 per trade. Balancing once a month times four funds, times a buy and sell for each add up. That can cost $55.85 per month. However, some brokers offer quite a few commission-free funds for trade, so below are the alternatives I’ve picked.

Asset ClassHB ETFFee-free ETF
Stock MarketSPYSPTM

Of course some people are uncomfortable with most gold ETFs because they generally only represent gold futures, and the futures market is akin to a ponzi scheme with less physical gold than there are futures contracts. Therefore, a gold trust like PHYS might be your preference, even though trading in the fund incurs fees.

Logical Invest has a monthly Permanent Portfolio re-balancing algorithm that uses the back-test monthly method from the article above to suggest a re-balancing strategy.

As an aside, I had the pleasure of meeting Harry Browne in 2000. He was a towering man (intellectually and physically) and I miss his contributions to the libertarian movement.