In a year when most investments are battered and many nest eggs have been badly bruised, only a few mutual funds have withstood the beating. One of them, the Permanent Portfolio Fund, provides important lessons for all investors.

Signs of a successful formula: The fund hasn’t had a losing year since it dropped 3% in 1994. Even in the current rocky year, the fund gained 5.5% as of June 30, compared with the Standard & Poor’s 500 stock index’s drop of 13.2%.

Bottom Line/Wealth asked the fund’s manager, Michael J. Cuggino, how individual investors can protect themselves in these turbulent times…

NEVER HAVE AN AWFUL YEAR

Instead of just trying to “score” big with a few strong stock picks, the fund reduces risk by spreading its bets across a wide spectrum of investments, including Swiss bonds and precious metals in addition to more traditional holdings. Since the fund started in 1982, each of the asset classes it holds has had good and bad years. But there are never instances when any two asset classes act in exactly the same way. Most often, some of them are rising while others are declining, and still others are flat. As a result, the fund has had only three years with negative returns in its 26-year history.

Conservative investors may want to hold a high percentage of their assets in bonds, a relatively safe asset. More aggressive investors may prefer keeping more assets in stocks. The ideal portfolio will include a mix of aggressive and conservative choices. Once you settle on an allocation that suits your temperament, stick to it and don’t panic. Many investors will be tempted to buy stocks in bull markets and sell during downturns — but this is the worst possible approach.

WHERE TO INVEST NOW

The Permanent Portfolio Fund’s allocations are usually between 31% and 38% for bonds…and between 13% and 17% for growth stocks. The asset classes and the share of the fund’s assets that I am devoting to each class now…

  • Bonds and cash equivalents: 35%, including 20% for Treasuries. Treasuries and other investment-grade bonds make money nearly every year, including those periods when stocks are falling. Even in the worst times, Treasuries deliver steady income. I hold a mix of long-term bonds — with maturities of 10 years or longer — and shorter-term bonds. If rates rise, the long-term bonds will suffer losses, but they provide higher yields.

  • Gold and silver: 25%. When investors fear that the economy will worsen, or when the inflation rate rises, many sell stocks and take shelter in precious metals. That boosts prices of gold and silver. When investors feel confident, or if the inflation rate is falling, they embrace stocks and dump precious metals, depressing their prices. In the Permanent Portfolio Fund, gold can be from 18% to 22% of assets and silver from 4% to 6%. The precious metals have had a big run of rising prices, and I am keeping them near the middle of their target ranges. For most investors, rather than own actual gold bullion or silver bars, it’s better to own a mutual fund or exchange-traded fund (ETF) that holds precious metals.

    • Examples of ETFs: SPDR Gold Trust (GLD)… iShares Silver Trust (SLV).

  • Growth stocks: 15%. To ensure that you achieve some growth, invest in solid stocks with increasing earnings. These are leading companies with long records for delivering strong earnings. I aim to hold a stock for at least three to five years. To avoid putting all of your eggs in one basket, hold stocks of companies of all sizes in a variety of industries.

    • Two of my favorite growth stocks…

  • Fluor Corporation (FLR). The construction company builds oil refineries — a booming business, especially in emerging markets. Recent share price: $82.60.

  • Hewlett-Packard Company (HPQ). The maker of printers and personal computers has been gaining market share. Recent share price: $43.53.

  • Real estate and natural resources stocks: 15%. These stocks tend to hold their value because the com­panies own tangible assets, whether that means land, office buildings or nickel mines. Sometimes, however, the two sectors move in different directions. In the past year, natural resources stocks have been red hot. That has provided an important boost at a time when most other stocks, including many real estate stocks, have slid.

    • My favorite real estate and natural resources stocks now include…

  • BHP Billiton Limited (BHP). The company produces aluminum, iron ore and other minerals. With strong global demand, it should enjoy growing sales for years to come. Recent share price: $72.95.

  • BRE Properties Inc. (BRE). This real estate investment trust (REIT) owns rental apartments in upscale Western US markets. Recent share price: $49.43.

  • Freeport-McMoRan Copper & Gold, Inc. (FCX). Prices of copper have been climbing for the past several years, boosting profit margins for this producer. Recent share price: $98.74.

  • The Ryland Group Inc. (RYL). Like other home builders, this one has been reporting losses. But because it has a relatively small backlog of unsold properties, the company should bounce back nicely. Recent share price: $26.50.

  • Swiss bonds: 10%. The US dollar has been dropping as investors worldwide worry that big budget deficits will hurt the US economy. But Swiss-denominated securities are not plagued by such uncertainties. The Swiss government avoids deficit spending and does its best to make sure that the currency remains strong. It is difficult for individuals to buy Swiss bonds, but they can hold a mutual fund or ETF that invests in Swiss bonds.

    • Example: Loomis Sayles Global Bond Fund (LSGLX).

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