Alaska's PFD - A Study In Investing

Alaska's Permanent Fund Dividend (PFD) is where the mythical sum of money comes from that Alaskans get paid every year just for living in Alaska.The plan was hammered out when the Alaska pipeline was being built.Back then, the men in power thought that the population should benefit when the nonrenewable resources were stripped from the land and shipped elsewhere.But rather than just pay out the money as it came in, they built a successful investment plan that has the PFD positioned as a major power in the Alaska economy.

Those that run the PFD have built fund worth about $40 billion, and it continues to grow.Not only do fees on the oil extracted from Prudhoe Bay and other places in Alaska continue to contribute to the principal of the fund itself, but also fees paid on mineral extraction go into it as well.
The portfolio of the PFD has been built to include investments in stocks, bonds and real estate both in Alaska and outside of the state.While this carefully maintained balance has not totally insulated the fund through the hard times, it has allowed it to weather the downturn in the economy much better than anyone may have expected.Record oil prices have also helped in that regard.
This allows the state to pay about 650,000 Alaskans, every man woman and child who qualify, around $1,000 depending on how the formula works out (which is far too complicated to go into here.)That means that at the end of September or the beginning of October the PFD is pumping about 650 million dollars into the state's economy.Granted some people save their PFD, some put it away for their child's education and some get out of the state to someplace sunny like Hawaii or Disneyland in February, but all of that stimulus into the state's economy helps people who get the PFD and again at the places where the PFD is spent.
It seems amazing that such a red state, and make no mistake about most of Alaska is Republican and hardcore so - how else could anyone explain Sarah Palin and Ted Stevens? - could ever conceive of such a socialist idea as the PFD, but it exists because the men who created it knew what it meant to be out in the land experiencing nature.They knew the beauty of the great outdoors, and they knew that if someone were going to gain from it, it shouldn't just be the company exploiting the resources.
What can we learn from the PFD?The first thing that we can take from it concerns investments.A diverse portfolio is the best way to hedge against a downturn in any one sector.When stocks went south, investments in real estate helped keep the fund at its high value.When real estate went down, investments in precious metals kept the fund afloat.It is this kind of diversity that helps to keep the fund growing.
The fund also has a well laid out plan for expenditures and distribution.This plan is followed year after year so that even when the oil and minerals run out, there will still be money to give out to the people of Alaska.As long as the movement to pay it out all at once never takes hold, the population of Alaska can expect to get a nice sum of money every distribution period.
Fund diversity and discipline is something that everyone can do to help grow their money.It will take both to weather the financial storms generated by big banks and government complacency.