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Permanent Portfolio Derivation and Historical Performance

November 1, 2012

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
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13 Comments leave one →
  1. finsovet permalink
    November 11, 2012 5:54 am

    Reblogged this on Финсовет – Инвестиции без жадности и страха and commented:
    А вот классический “перманентный портфель”, основанный в 80-е как первая стратегия “рисковового паритета”. Сейчас у этой стратегии очень много поклонников, в том числе знаменитый Рей Далио.

  2. November 13, 2012 2:20 am

    Really great job. What about adding a bit of seasonality? :-)

    My blogs:

    http://backtestingvix.wordpress.com/

    http://nightlypatterns.wordpress.com/

  3. nick permalink
    February 17, 2013 6:28 pm

    May I ask how you rebalanced the portfolio? annually, quarterly? Many thanks, Nick

    • corey rittenhouse permalink*
      February 19, 2013 6:10 am

      Hey Nick, the portfolio was rebalanced on an annual basis if any of the holdings fell below 15% or went above 35% allocation.

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