When choosing funds to diversify their invesment portfolios, most people simply consider the various forms of stock and bond mutual funds. They assume that having x% in large cap, small cap, and international and x% in bond funds makes their investment portfolio diversified. The problem with this thinking is the near 30 year bond bull market is nearing its end. When interest rates rise, bond funds will perform terribly. Also, when interest rates rise substantially, the stock market will also perform poorly because higher rates = higher borrowing costs for companies = lower earnings. Considering interest rates are near 0, and Ben Bernanke is a believer in the Taylor rule, when rates rise, they will rise quickly.
In order to squeeze out more performance in our portfolios when interest rates begin to rise, it will be necessary to thing outside of the box. One mutual fund to consider is the Permanent Portfolio (PRPFX). This fund consists of 20% gold, 5% silver, 10% Swiss Franc assets, 30% stocks, and 35% dollar assets. It is considered a conservative allocation fund and has performed admirably over the last 10 years. Here is a link to the semi-annual report if you want to view the holdings and other information about the fund.
The fund is not designed to have huge returns, and investors should not expect the fund to return 10% per year, as it has over the last ten years. It is designed to be a conservative place to put your money. Average annual returns are
1 yr: -1.92%
3 yr: 11.52%
5 yr: 7.72%
10 yr: 10.44%.
Very recent performance has been poor, mainly due to the price of gold and silver collapsing over the last year. However, a very attractive characteristic of this fund is it has only been down one out of the last 12 calendar years. In 2008 it was down 8.36%. But, almost all mutual funds were down that year due to the financial crisis. If you are looking for a conservative mutual fund that is diversified among several asset classes, the Permanent Portfolio should be high on your list.