failsafe investing via "Mr B"

You guys remember "Mr B" of the Free State Project -- the one who asked my opinion of Liberty Dollars?

Having read my recent post on gold and hedging, he wanted to introduce us (that's me and you, dear readers) to Harry Browne's "Fail Safe Investing":

Hello again, Mr. Marcus!

Thanks for the reference to the humorous propaganda contest! To the "Dunce" example I would add "affect/effect".

I also enjoyed your "Why hedge?" article. I hadn't seen the split before of one month's expenses in checking, two in savings, and three in CDs. I have been pretty poor with my money up until now, and I am trying to change that. I don't know if you have heard of Harry Browne's Permanent Portfolio idea, but that is what I am now working on. I will also try to build up in separate cash reserves that 1,2,3 breakdown you mentioned.

[... Are you familiar with Harry Browne's "Fail Safe Investing"? ...]

Basically, Mr. Browne says there are 4 basic states to the economy: prosperity, inflation, recession or tight money, and deflation. He splits his portfolio 4 ways amongst stocks, bonds, cash, and gold. The stocks he recommends are just mutual funds that track the SP500 index. His bonds are U.S. bonds, but those with political issues with that can go for corporate bonds (just watch them more closely). Cash for him is short-term treasury notes, but again because of the political issues I would probably prefer CDs or some other private instrument. And gold is gold. His system is intended to hedge against each of the four states of the economy, not just inflation. He said in one of his investment shows that he hasn't found anything that prospers as much in a recession/tight-money situation, but that state is usually self-limiting. You either return to prosperity when people get used to the new prices, or you go to full inflation or deflation. Whichever way things go, one of the 4 investments can then pick up the slack.

Because one of the investments usually increases more than the other three decrease for a given economy change, the overall value tends to stay the same or increase. Over the last 20 years or so, the system has only lost value 4 times, with the worst drop being about 6%. The overall value has actually gained around 9-10%.

I really liked this book. Your readers can order the pdf file online for less than $10 at http://www.libertyfree.com/FailSafe/FSI-Home.htm.

His investment show archives can be found at http://www.harrybrowne.org/Archives-investment.htm. The interlude music is nice, too!

Take care!

"Mr. B"