Anyone watching from Mars would be scratching their head.' Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. 'Gold gets dug out of the ground in Africa, or someplace. In the comparison of these three portfolios, this was true even though without withdrawals the Permanent Portfolio had the lowest CAGR.

A retiree invested in the permanent portfolio would have run out of money in 2004 (32 years)Ī retiree invested in a portfolio that is has extremely low volatility, like the Permanent Portfolio, can increase his withdrawal rate.

A retiree invested in the 60/40 portfolio would have runs out of money in 1989 (17 years).

A retiree invested in the S&P 500 would have run out of money in 1986 (14 years).

If we backtest the same time period, but we change the original withdrawal amount to $6,000 (6%) and adjust the withdrawal each year for inflation: Even with withdrawals the worst drawdown for the permanent portfolio is only 9.17%, compared to over 30% for the 60/40 portfolio and over 50% for the S&P 500 Portfolio. Now we can see the benefit of the smoother returns provided by the permanent portfolio. Withdrawals start at $4,000 and are adjusted each year to account for inflation. Below we back test the portfolios with an initial value of $100,000 and withdrawals following the 4% rule. Back testing a retirement starting in 1972 provides and excellent stress test. In the period from 1972-1981 portfolios had a hard time keeping up with the extremely high inflation. The worst time to experience large drawdowns is early in retirement. A large drawdown combined with withdrawals can reduce a nest egg to dangerously low levels. Performance of the Permanent Portfolio in the Withdrawal PhaseĪvoiding large drawdowns is important for any investor, but it is especially important to retired investors. While the Permanent Portfolio has not produced outsized gains, it has delivered what Harry Browne said it would steady returns while avoiding devastating losses.

Look at the column that shows the worst year for the portfolios the worst year for the Permanent Portfolio was -5.43% compared to -20.24 (60/40) and -37.02 (S&P 500). The Permanent Portfolio has better risk adjusted returns based on both the Sharpe Ratio and the Sortino Ratio. Look at how smooth the blue line in the graph is. Comparing it to the returns of the other portfolios, you may think the permanent portfolio does not have a very good return history. If you look at the third column above, it shows the compound annual growth rate. Below we show how the portfolio has performed from 1972-2014 compared to a 60% US Stocks/ 40% long-term bond portfolio and the S&P 500.Īll the charts and data in this article are from In theory having at least one asset always doing well would prevent the portfolio from incurring large losses. Harry Browne believed no matter what was happening in the economy at least one of the assets in the Permanent portfolio would be doing well:

25% - Cash (Treasury Money Market Fund).25% - Long Term Bonds (US Treasury 30 Year Bonds).

25% - Stocks (S&P 500 Stock Index Fund).And no investment, even at its worst, can devastate the portfolio - no matter what surprises lurk around the corner - because no investment has more than 25% of your capital.' ' The portfolio's safety is assured by the contrasting qualities of the four investments - which ensure that any event that damages one investment should be good for one or more of the others. Harry Browne had this to say about the permanent portfolio:

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