How to Invest in the Stock Market and Beat 80% of All Investors

First, we only allocate 25% to the shares of our Permanent Portfolio. The Permanent Portfolio uses four different asset classes and we initially limit our exposure to 25% in each asset class. We then rebalance the entire portfolio when any asset class reaches a rebalancing trigger of 35% or 15%. Stocks are our hedge for prosperity, but we also have hedges for inflation, deflation and recession in our Permanent Portfolio. The different asset classes we use are stocks, bonds, cash, and gold, and these asset classes respond differently depending on what is happening in the economy. Therefore, by using a permanent portfolio, we will always have at least one well-performing asset class. The Permanent Portfolio has gained more than 8% compounded annually over the last 40 years with low volatility.

Here are the specifications for investing in stocks for our Permanent Portfolio:

1. We avoid individual stocks because of their risks and the trading costs involved. The shares of the company are also individual shares, so we also limit our exposure to risk. We also eliminate the need for individual company research and stock selection, freeing up a lot of our personal time to do the things we enjoy. The Permanent Portfolio is really low maintenance.

2. We also avoid actively managed mutual funds because more than 80% of them can’t even beat their benchmark like the S&P 500.

3. We want to use a market capitalization weighted total stock index fund with low fees. Since there are so many companies represented in these funds, we get great diversification and lower risk than stocks in a single company. Since few operations are carried out in the fund, we also obtain great tax efficiency.

4. Any dividend received from our fund is allocated to our cash allocation, therefore we deactivate any dividend reinvestment plan (DRIP). This is consistent with our Permanent Portfolio strategy of buying low assets and selling high.

If you live in the US, you may want to explore using exchange-traded funds that have low fees. You can even buy and sell some of these exchange-traded funds with no commission on some of the discount brokers. I’ve listed a few exchange-traded funds here, but there are others available from Schwab and Fidelity, for example. There are also regular total stock market mutual funds available if you prefer. If you live outside of the US, there are also total stock market funds available in your country.

Examples of US ETFs:

• Vanguard Total Stock Market Index (VTI) fund with an administrative expense ratio (MER) of only 0.05%

• IShares Russell 3000 Fund (IWV) with a MER of 0.20%