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Convert Harry Browne’s Idea Into Your Crypto Permanent Portfolio

Back in the 1970s, Harry Browne, a successful investor and a libertarian, wanted a way to invest his money that didn’t require being glued to the stock market reports published every day.

Cover of Fail-Safe InvestingFail-Safe Investing by Harry Browne

He created what he called his “Permanent Portfolio,” which he used to great success. His goals for this portfolio were safety, stability and simplicity.

He eventually wrote a book about it and his other investment ideas — Fail-Safe Investing: Lifelong Financial Security in 30 Minutes.

His idea still applies today, which you can use to create your own crypto permanent portfolio.

Browne’s Four Asset Classes

Harry Browne divided up his financial world into four types of assets:

  1. stocks, to grow his assets during prosperous times
  2. long-term U.S. treasury bonds, which would do well in prosperous times and deflationary times (but not during inflationary times)
  3. gold, which would protect his money during times of inflation
  4. cash, which would protect him during recessions and “tight money” times

He believed, based on examining financial records, and his own experience, that stocks and bonds were negatively correlated, and gold and cash were negatively correlated.

What that means is that if stocks go up, bonds usually go down, and vice versa. And if gold goes up, the value of cash goes down (usually because gold goes up in inflationary times and cash is worth less).

So Harry set up his permanent portfolio to take advantage of these negative correlations, knowing that in any given year, one of the four would do quite well, one would lose, and the other two would likely be relatively flat.

He placed the exact same amount of funds into each category:

  • 25% in stocks
  • 25% in bonds
  • 25% in gold
  • 25% in cash (or cash equivalents, like money market funds)

At the end of each year, he’d review his portfolio. If any of the four asset types had grown to more than 35% of the total, or shrunk to less than 15% of the total, he’d rebalance it.

Here’s how he did that, using $100,000 as an example.

On January 2, Harry put $25,000 into each asset type. He bought stocks he thought would do well, and bonds that would earn a good yield. He bought $25,000 in gold, and put the cash into an account where it earned interest. (Interest rates on savings were much higher than they are today.)

And then he did nothing with his portfolio until the end of the year. He didn’t fret over downtrends, or get excited over uptrends. He didn’t look for alternatives to poorly performing stocks, or buy more of the ones doing well.

He did nothing.

Until the end of the year, when he rebalanced his portfolio.

If it was a good year, his portfolio might now be worth $110,000, and look like this:

  • 36% in stocks
  • 22% in bonds
  • 19% in gold
  • 26% in cash

To get his portfolio back to 25% splits, each of the four asset types would need $27,500 (110,000 / 4).

He would then sell enough of his stocks ($12,100) to get their value down to $27,500.

Since his cash portion would now be worth $28,600, he would use the excess $1,100 plus the proceeds from selling the stocks to buy $3,300 in bonds and $6,600 in gold.

The beauty of Harry’s approach is that it forced him to do what the experts tell us to do, but which most of us never do:

Buy low and sell high

Whichever of his four assets did well over the year would always see some liquidation, while those that did poorly would always see some accumulation.

And then he’d be ready to let his investments sit for another year, at which time he’d rebalance them again.

Favorable Tax Treatment As Well

In the U.S., investments held for a year or longer have lower capital gains taxes applied against them. So Harry would also win out by reducing his tax burden (and his reporting burden) since he held all his assets for at least a year.

The Crypto Permanent Portfolio

We can use Harry’s idea to take a lot of the stress, and tax burden, out of investing in crypto. Here’s what I propose holding in what I call the crypto permanent portfolio:

  • 25% in Bitcoin (BTC)
  • 25% in Ether (ETH)
  • 25% in other altcoins
  • 25% in stablecoins (GUSD, USDC, BUSD)

Unfortunately, none of these are negatively coordinated with any of the others, so it’s unlikely to produce outsized gains in one and a loss in another asset type.

When markets are up, or down, stablecoin interest rates are usually high. When markets are flat, and investors aren't in the market as much, stablecoin rates go down.

Flat markets mean that cryptocurrencies are trading in a tight range.

It’s more likely to produce gains in BTC, ETH and other altcoins, or produce losses in them.

However, the gains or losses are likely to be unevenly distributed, so we can still adjust at the end of every year.

A good year (one with rising prices) might see a $100,000 portfolio grow to $125,000 (a 25% gain). Or more!

A bad year (with falling prices) might see the portfolio drop by 15%. Or a lot more!

If you’re retired and can’t afford to risk much on cryptocurrencies with a lot of volatility, we could switch it to this:

  • 20% in BTC
  • 20% in ETH
  • 20% in other altcoins
  • 40% in stablecoins (since they have practically no volatility)

The overall return will be less in good years, while any losses will be reduced by interest earned on the extra stablecoins.

Important Note: Since we’re holding these assets for at least a year, it makes sense to park them somewhere and let them earn interest, either as rewards on a rewards platform, or by staking them.

We’ll include the interest they earned over the year in their totals when calculating the rebalancing.

A Good Year

We’ll start with a good year, since we’re optimists. And we’ll start small, with a $10,000 portfolio.

At the end of the year, the portfolio is worth $16,440 more.

We’ll also use the portfolio with 40% invested in stablecoins, for the extra protection against big losses.

  • BTC grew by $1,470, including interest earned by holding $2,000 in the BTC Supercharger on Freeway (at 43% APY)
  • ETH grew by $1,500, including interest earned by holding $2,000 in the ETH Supercharger on Freeway (at 43% APY)
  • Altcoins grew by $1,750, including interest earned by holding $2,000 in the BNB, ADA and DOT Superchargers on Freeway (at 21.5% APY)
  • $4,000 of stablecoins earned $1,720 in interest from Freeway (at 43% APY)

To rebalance, stablecoins now need $6,576, or $856 more than we began the year with. BTC, ETH and the altcoins now need $3,288 each.

So we swap out of $462 of the BNB, ADA or DOT Supercharger and into the USD Supercharger on Freeway. A day later, we swap out of $182 from the BTC Supercharger. Another day later, we swap out of $212 from the ETH Supercharger. We swap all of them into the additional $856 of stablecoins.

The portfolio now looks like this:

  • BTC – $3,288
  • ETH – $3,288
  • Altcoins – $3,288
  • Stablecoins – $6,576

A Down Year

The next year, the portfolio shrinks by 15%. Earning 43% and 21.5% interest from Freeway has kept the loss much smaller than it could have been.

We could have reduced it to almost zero by swapping all the crypto Freeway Superchargers into the USD, EURO and/or GBP Superchargers until crypto prices started to rise again.

For the purposes of this example, we’ll assume that we left funds in the crypto Superchargers.

The portfolio, which started the year at $16,440, is now at $13,975.

Stablecoins earned $2,828 in interest for the year (rounded to the nearest dollar), and now make up 67% of the portfolio. So BTC, ETH and the altcoins lost almost $5,300 total. Good thing they were earning high interest rates!

The new share for stablecoins will be $5,590 (rounded up). So we trade out of $3,815 of stablecoins and put it into BTC, ETH and altcoins so that they now have $2,795 each.

The third year could be another down year, or an up year, or a flat year. At the end of that year, and all future years, we rebalance by selling some assets that did well and buying some that didn’t perform well.

Continuing On With the Crypto Permanent Portfolio

You can see how selling high and buying low reduced the loss in the second year. (It will even out any gains from good years too. If you’re like me, though, you’re more interested in not losing the money you have than you are in making lots of it.)

You can also see how earning interest can boost returns in the good years, and reduce the losses in the bad years.

So it’s important to park your assets where you can earn rewards income, or to own assets that can earn you a staking income.

Parking your retirement funds on Freeway, where they’ll earn up to 43% interest or 21.5% interest, depending on which assets you hold, will go a long way to helping you flourish during retirement.

What If You’re on a Fixed Income and a Tight Budget?

If you’re retired and living on a small fixed income, I would recommend owning only stablecoins if Freeway didn’t have a swap feature. Since you can swap out of crypto assets and into USD, EURO or GBP superchargers, which have little volatility (except for inflation), you can protect the retirement savings you have.

You may want to start your permanent portfolio with a lower weighting for the crypto assets. Perhaps go down to 10% for BTC, ETH and the altcoins, boosting your stablecoin holdings to 70%.

Or, if you use Freeway Superchargers, be content with the 43% you can earn on USD, EURO, GBP, CAD and AUD holdings without getting involved with crypto at all.

Disclosure: If you join using the button, you’ll receive a bonus of 2% of the interest you earn, for the next two years. Freeway will also pay me for referring you.