Permanent Portfolio Derivation and Historical Performance

This graphic is designed to help readers understand the logic and assumptions embedded in the Permanent Portfolio model by Harry Browne. It is also a useful framework for understanding how to construct  regime-based portfolios. The results are re-published from an earlier article written by Corey Rittenhouse at Catallactic Analysis. It was a very good post (and good blog) and is worth reading for more background. Some other very good posts on the subject are:

GestaltU: An interesting three-part series on the Permanent Portfolio and tactical applications:

Systematic Investor: An interesting article on the Permanent Portfolio showing risk parity applications and implementation in R:

1990-2012

Annualized Return

Annualized Volatility

Risk Reward Ratio

Permanent Portfolio

6.06%

6%

1.01

Stocks

7.2%

15.05%

0.48

Bonds

6.25%

11.39%

0.55

Gold

6.23%

15.54%

0.4

Cash

1.86%

1.62%

1.15

Stats by 5 Year Period

1990-1994

Annualized Return

Annualized Volatility

Risk Reward Ratio

Permanent Portfolio

2.49%

5.69%

0.44

Stocks

4.35%

13.17%

0.33

Bonds

3.46%

8.77%

0.39

Gold

0.24%

10.09%

0.02

Cash

1.27%

2.09%

0.61

1995-1999

Annualized Return

Annualized Volatility

Risk Reward Ratio

Permanent Portfolio

6.47%

4.52%

1.43

Stocks

27.5%

12.67%

2.17

Bonds

2.99%

7.64%

0.39

Gold

-6.67%

14.75%

-0.45

Cash

1.29%

1.52%

0.85

2000-2004

Annualized Return

Annualized Volatility

Risk Reward Ratio

Permanent Portfolio

4.47%

5.43%

0.82

Stocks

-0.89%

15.98%

-0.06

Bonds

7.92%

10%

0.79

Gold

7.56%

12.8%

0.59

Cash

1.53%

1.37%

1.12

2005-2009

Annualized Return

Annualized Volatility

Risk Reward Ratio

Permanent Portfolio

8.16%

2.26%

3.61

Stocks

1.17%

4.71%

0.25

Bonds

3.55%

4.4%

0.81

Gold

20.16%

5.62%

3.59

Cash

3.61%

0.49%

7.32

2010-2012

Annualized Return

Annualized Volatility

Risk Reward Ratio

Permanent Portfolio

11.64%

6.31%

1.84

Stocks

10.46%

16.76%

0.62

Bonds

17.4%

15.8%

1.1

Gold

16.46%

20.52%

0.8

Cash

1.19%

0.79%

1.52

Simulated Performance [1990 – 2012] using ETFs, extending data with proxy.

Asset

Proxy

Used

ETF

Used

Stocks

S&P500 Cash Index

1990-1993

SPY

1993-Present

Bonds

30 Year Bond Future

1990-2002

TLT

2002-Present

Gold

Gold Cash Index

1990-2004

GLD

2004-Present

Cash

3 Year Bond Future

1990-2002

SHY

2002-Present