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:http://crawlingroad.com/blog/. Watch for his soon to be released book on the Permanent Portfolio as well.

Marc Faber: Diversification Advise

Marc Faber, an international investor with a reputation for being a contrarian and making uncanny predictions, offered some straight-forward investment advise on Bloomberg recently. Notice how it is very similar portfolio allocation to the Permanent Portfolio - the major difference is he advises to have 25% in real estate instead of 25% in long term treasury bonds.

Marc Faber: well I think it is very important to maintain diversification, I would advise to be 25 to 30 percent in equities with a large portion in overseas equities in particular emerging economies, I would advise him to hold some gold 25 percent or so, where by I think that for the next 6 months gold would rather decline than go up and I would hold some cash and bonds and then I would own may be 25 percent in real estate.

Be Your Own Portfolio Manager: The Permanent Portfolio

I have heard comments like these in the last few years:

"Investing is too complicated to do it yourself, best to hire yourself a money manager." 
"Only active traders make money these days."
"Passive investing is dead."

Wait a minute, not so fast. If you are taking money seriously and you are not interested in active investing, take a look at a DIY passive investing strategy called the Permanent Portfolio. It has a long-term track record that even the most successful professional money managers would envy.


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 - the worst year in a very tumultuous 40 years has been a loss of only 4%! Even in the stock market meltdown year of 2008, the Permanent Portfolio posted a positive return. 


The Permanent Portfolio allocation is simple but highly diversified:


25% Stocks (in a broad based index such as the S&P)
25% Long-Term Treasury Bonds
25% Gold Bullion
25% Cash


Want another reason to consider the Permanent Portfolio as your investment strategy? It is easy to implement and even easier to manage once it is setup. There is no forking over a fee to a money manager. 


Solid returns. Minimal drawdowns. Easy to DIY. Why don't more people know about this? Quite simply, there is no money in it for money managers and brokers (no fees nor big commissions). In fact, it is in their best interest to keep the Permanent Portfolio under wraps. Not so for those of us that take our money seriously. 

For a helpful explanation and insights in to the theory and application of the Permanent Portfolio, I would highly recommend visiting crawlingroad.com.