The “resist all storms” portfolio. The SGBC portfolio.
I’d like to show that there are of course a different strategy of investing out there than the one I am using. For the more timid investor out there I would suggest using the bulletproof portfolio. In simple terms, this portfolio should perform well in all type of market conditions, no matter if the markets are going up or down.
How is this possible you ask? Well, the portfolio is divided in four equal parts. The first consist of Shares, the second part is Gold, third part is Bonds and final part is Cash. In short the SGBC portfolio.
By dividing the portfolio into these four parts you should get parts that behave differently and independently from each other. For instance, shares do very well when the economy is going up and the market is bullish. If the market and economy turns downwards, gold and silver usually does a lot better. When one part becomes bigger then the other parts, you will re-balance the portfolio and use the profit from one group (Sell high) to buy into the other groups (buying low). It makes it easier for the beginning investor to create a “safer” portfolio that leads to a more stable value increase curve.
The re-balancing should be done just a few times a year (maybe just bi-annual), since it’s supposed to be a low maintenance portfolio and you should give the different assets enough time to develop. When you re-balance from one asset to the other assets you are automatically achieving the concept of selling an asset that is valued high and buying into an asset that is valued low. This is hard even for the more seasoned investor of us.
Construct your very own bulletproof portfolio.
So lets start by dividing your cash into the four subcategories in the SGBC portfolio. Let’s say we start out with $10.000.
- Start by putting $2.500 in stocks. I would probably buy into an index fund following the stock market. In Sweden that would be Superfonden Sverige, in the USA I would look into getting Vanguard SP 500 Index fund.
- Buy gold for $2.500. I would not purchase any actually physical gold. It’s a pain to store and there is always the risk of someone stealing from you. So buy “paper gold” thru ETF’s that is a lot more liquid.
- Bonds, should be bought as well for $2.500. Look into 10-year bonds.
- Finally keep $2.500 in high interest paying bank account.
Then sit back for the greater part of the year and re-balance the portfolio like 1-2 times a year. If you can, add another $1.000 a month you can automate the split into $250 and have it invested in the four different categories. This should set your up with a perfect SGBC portfolio that will perform well and move you towards Financial independency sooner rather then later.
Now I can’t take responsibility for creating this portfolio. The idea is actually about 40 years old and was introduced by Harry Brown in his book ”Fail-Safe Investing: Lifelong Financial Security in 30 Minutes”. To explain it even further, Brown identified four different market conditions:
- Growth – when the economy is growing and society is increasing its production and the population gets richer.
- Inflation – is when the value on money is decreasing. This usually means that the price on goods and services increases. In a sense, your cash is worth less tomorrow then they are today
- Deflation– is the opposite of inflation. It means that cash is king and actually increase in value. You can buy more for less money.
- Recession – is the opposite of growth. When the economy is stagnating and society as a whole is loosing productivity and it’s assets.
To cope with the different markets conditions, Brown adopted four assets that behave differently depending on what phase the economy was in.
- Stocks and funds – as we all know a share in a company that produce a service or a product. This type of asset generally do well when the economy is growing. The companies can focus on generating higher profits and it’s easier for them to get capital for expanding which leads to even more profits. (Growth)
- Gold – is a precious metal that doesn’t lose value when you have a lot of inflation. Since there is a very limited amount of physical gold, and you compare it to cash, that the governments can print as much as they want of, you get an asset that will increase in value as there are a supply of more money but the supply of gold is limited. The same principle works for Real Estate, when there are more money out in the market, the price on assets that are limited will increase. (Inflation)
- Bonds – When the market starts a phase of deflation, the value of longer bonds tends to increase. (Deflation)
- Cash – Investing in short interest funds, or short bonds will do well during a recession. When a recession hits, the market will start to sell their stocks and funds, and look for a safer place to put their cash. The trend before has been to buy into short bonds and putting having cash in accounts with high interest. Usually this is also the perfect time to buy cheap stocks and funds, which means it’s great to have some cash on hand. (Recession)
For those who want to learn more about this type of portfolio there are many sources out there. The most common name for this type of portfolio is Permanent portfolio.
Would you invest like this? Is it a reasonable assumption to call it the Bulletproof portfolio?
Since I am not a financial adviser you should make your own decisions and research, the post above is a reflection of my opinion and should be treated as such. Creating a portfolio based on above portfolio should be done after careful consideration and is of your own choosing.