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
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13 thoughts on “Permanent Portfolio Derivation and Historical Performance

  1. Pingback: Friday links: investable ideas - Abnormal Returns | Abnormal Returns

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  5. 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.

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

  10. Pingback: On the dangers of micromanging your asset allocation | Abnormal Returns

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