Thursday, January 12, 2012

The Permanent Portfolio - Rock Steady

Greetings! It's been awhile but I'm back.

My absolute all-time favorite passive portfolio is called the Permanent Portfolio. I have not found any portfolio strategy nor money manager that can boast long-term consistent annual returns to beat the Permanent Portfolio. 

Going back to 1972, the Permanent Portfolio boasts an average annual return of nearly 10%. It's biggest down year in the last 40 years is just under 4%. You read that right - in a very tumultuous 40 years, the Permanent Portfolio has never lost more than 4% in one year! Even in the stock market meltdown year of 2008, the Permanent Portfolio posted a small positive return.

So how did it do in 2011 when the stock market was all over the place and ended up a paltry 1% for the year? Well, I'm glad you asked. In 2011 the Permanent Portfolio was up over 11%. Steady as she goes! No big portfolio gyrations. No worrying about what to do when stocks are going down big or going up for that matter. Basically no fuss, no muss.

Here is how each of the 4 components did for 2011 (using ETFs):
LT Treasury Bonds (TLT): +33.6 
Gold (GLD): +9.6 
Cash - Short-Term Treas Bond (SHY): 1.4%
       Total US Stock Market (VTI): +0.9
(hat tip Craig)

I use the Permanent Portfolio as the benchmark to measure against my own portfolio. Is it better to be an active full-time speculative investor or does it make more sense to simply do the Permanent Portfolio and fuhgeddaboudit? After beating the Permanent Portfolio handily in 2009 and 2010, I lost in 2011 by a country mile. 

I wonder why the story of the tortoise and the hare  pops up in my mind as I ponder about my speculative investment strategy to try and compete with this slow and steady competitor known as the Permanent Portfolio over the long-term? Bueller??

For more in-depth posts about the Permanent Portfolio, I highly recommend a friend of mine's blog: Watch for his soon to be released book on the Permanent Portfolio as well.

1 comment:

  1. That was a very successful portfolio,for sure you manage it very good.Good one.