(Part 21)

Today we are going to talk about the Permanent Portfolio, proposed by Harry Browne, who wrote more than 12 books, was a financial advisor and even a presidential candidate in the United States. This portfolio is the first, which we talk about in this series, which includes the third major class of assets or ways to invest our money.

The Permanent Portfolio is also very simple and got that name because according to its creator, once you build it you don’t have to change the mix, even if your perspectives about the future change. The idea is that this portfolio guarantees us that our heritage will survive any event, even one that could be devastating for any of the individual elements that make it up.

In other words, the idea is for it to perform less volatile and more consistently, albeit at the cost of perhaps slightly lower performance.

This portfolio is built with ETFs in the following way (we already talked about where and how to buy them):

25% in large-cap North American stocks. We can use both the VTI (Vanguard Total Stock Market ETF) and the VOO (Vanguard S&P 500 ETF), among others. I personally prefer the first.

25% in Short-Term United States Treasury Bonds. We will use the iShares Short Treasury Bond ETF (SHV).

25% in Long Term United States Bonds (20 years or more). One of the representative ETFs of this asset class is the iShares 20+ Year Treasury Bond ETF (TLT).

25% in Gold – there are also several ETFs that follow the price of gold (they buy physical gold that is stored in secure vaults), such as the iShares Gold Trust (IAU) with an expense ratio of 0.25% per year or the SPDR Gold Shares ( GLD) which charges 0.40% per annum. We will use the former for our analysis.

In the same way as we have done before, we will simulate how an initial investment of $1,000 and annual contributions of $2,000 would have behaved (this amount is updated every year with inflation, which is the same thing we should do in real life) . The dividends of the ETFs are reinvested and we also do an annual rebalancing of our portfolio. The ending balance in the table is presented adjusted for inflation (however, the percentage yield is nominal). In this case, the period analyzed is shorter due to data availability (from January 2008 to May 2022)

As we can see, this portfolio is also balanced, with moderate risk. For that reason, it’s worth comparing it to two other portfolios we’ve already reviewed: the Andrew Tobias Portfolio and the 60/40 Portfolio.

Let’s visualize the three portfolios graphically, to illustrate both the growth and the volatility and declines over the years. The graph handles nominal values ​​(balances) – not adjusted for inflation, unlike the table.

The permanent portfolio has a lower volatility (standard deviation). However, what strikes me the most is that the maximum drop is much more limited than in the other two portfolios. This makes it suitable for people with higher risk aversion. Thus, it fulfills its objective of performing well (comparatively) in difficult times, when markets fall (like the ones we are experiencing now).

It is true that the performance may be a bit lower. However, the Sharpe ratio is the most attractive of the three portfolios compared. Remember that this is a risk-adjusted return measure.

Don’t miss the next installment in which we will present a very interesting portfolio, which includes commodities more broadly. Although we have already shown that commodities are by far the worst asset class, if we combine them in the right way, they can add value.

[email protected]

Joan Lanzagorta

Personal Finance Coach


Senior executive in insurance and reinsurance with strategic business vision, high leadership, negotiation and management skills.

He is also a Personal Finance columnist in El Economista, Personal Finance Coach and creator of the page www.planetusfinanzas.com

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