How to Invest Safely and Generate Income for Life.pdf
1. How to Invest Safely
and Generate Income
for Life
So how do you invest safely and what is the investment strategy? It's called the
Permanent Portfolio. Permanent because it applies from cradle to grave, whether
you have modest savings or millions of dollars. Portfolio because it's a mix of
very specific asset classes. It has a proven track record; as of April, 2015 it
earned over 8% per year compounded over the last 40 years. It can help You
generate an income for life. It's simpler, safer, less volatile and lower cost
investing (0.15% per year cost vs. industry average 1.08% per year). It puts more
money in Your pocket and less in theirs.
It's not meant for speculating, but for Your longer term savings and investments
like retirement, 401K, IRA, ROTH, etc. It helps You buy low and sell high;
opposite to what most people do. It doesn't require You to do market timing,
forecasting or guessing which asset will outperform. It uses an asset allocation
that responds to what is happening with the economy; prosperity, recession,
inflation or deflation. It allows You to become self-sufficient and not dependent on
outsiders to manage Your own money. You won't hear about it from investment
dealers, brokers, financial advisers or insurance agents because there is no
money in it for them.
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2. This Permanent Portfolio helps us mitigate risk. The assets used tend to zig and
zag with respect to each other and are contrasting. So as a blended mix they
improve portfolio stability. Stability also helps mitigate the sequence of returns
risk, which is especially important during the spending or retirement phase. Each
asset class is exposed to different risks and also hedge against different risks.
You have probably heard of asset correlations; they don't really exist. Stocks
don't go up because bonds go down and stocks don't go down because bonds
go up. The assets in the Permanent Portfolio behave differently depending on
what's going on with the economy. You can do a financial stress test of a financial
institution but you can also do one on Your own portfolio. What would happen to
Your portfolio if an asset like stocks dropped by 50%? If You held a traditional
60% / 40% stock / bond portfolio, Your total savings would have dropped 30%. If
You held the Permanent Portfolio, your impact would only have been 12.5%. No
one likes a loss but the Permanent Portfolio helps mitigate that risk.
Fear and greed were Your worst enemies but not anymore. If You were like most
people, You were buying high and selling low. But now You will have a much
more disciplined approach to follow without Your emotions getting in the way.
You'll be buying low and selling high, systematically. If You were like most people,
You were also too busy chasing returns, trying to time or beat the market. You
probably didn't do as well overall as some of the market indices did; this has
been described as the "behavior gap" which the Permanent Portfolio will help you
close.
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3. The Permanent Portfolio investment strategy is pretty simple. You initially buy
four different but very specific asset classes in equal proportions: in general they
are stocks, bonds, cash and gold. You then hold these assets until any one asset
class drifts to 35% or 15% of the total value of the portfolio; then you rebalance
the whole portfolio back to 25% for each asset class.
This process takes the emotions out of the equation and systematically guides
you to buy low and sell high. You can construct this portfolio at a weighted
average cost of only 0.15% per year, which means you keep the majority of the
gains not the financial institutions. The specific assets used in this strategy are
what makes this work.
Once you have the Permanent Portfolio in place and progress into your spending
or retirement phase, you can mathematically guarantee yourself an income for
life using my "Income for Life Formula". You will be able to spend "x" percentage
of Your portfolio each year subject to a "y" percentage cap based upon the
previous year's income. Mathematically guaranteed income for life.
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