LONG TERM PERFORMANCE

These charts will automatically update every month after the CPI data arrive. Feel free to check back over the coming years to see how the Permanent Portfolio is responding to market conditions.

The Permanent Portfolio is comprised of stocks, 20+ year Treasury Bonds, gold, and T-Bills held in equal amounts and periodically rebalanced. The above chart shows that all of the asset classes have major weaknesses when held in isolation.

The diversified Permanent Portfolio balances the strengths and weaknesses of these asset classes to pursue consistent risk adjusted real returns. As the asset classes drift around because of changing prices, the PP framework calls for rebalancing in order to restore the allocation to its neutral state. The above chart shows the results of a portfolio that used 15%/35% rebalancing bands, bringing all of the assets back to 25% weightings if they drifted too far. This is an important part of the risk management process.

Another way to see the risk management benefits is by looking at peak to trough drawdowns as well as trailing 5 year annualized returns. Versus the individual asset classes, the portfolio's balanced risk taking reduces the occurrence and magnitude of large drawdowns. It also has produced a remarkably stable return profile, almost always earning a decent real return over 5 year periods.
We can also look at some risk/return metrics to see how the Permanent Portfolio's characteristics trump those of the individual asset classes. One can see this most clearly by comparing the risk/return metrics of the PP versus the average of the components. The PP is more than the sum of its components because of strong diversification characteristics between the asset classes.

4 comments:

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  2. Thanks so much for providing this resource. Might be worth stressing on the captions that you're using a log vertical scale, which dilutes the visual impact of the graphs. In particular, it makes the Permanent Portfolio performance look rather more ho-hum than it really is.

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    1. It looks like you just stressed it for me! ;)

      For long run charts I think it is really important to be on a log scale, include dividend/interest reinvestment, and adjust for inflation. Any long run chart that isn't doing all three is a poor indicator of the actual investment experience!

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  3. Very interesting Ryan, keep up with the good work.

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