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.