Harry Browne's Permanent Portfolio Made Money Last Year.

[Snodog]

For those who may not know the Permanent Portfolio consists of:

25% S&P 500 index
25% Long term treasuries
25% Cash
25% Gold

This mix has returned a little over 9% the last 37 years and actually made 1.97% in 2008. It has only lost money a few times and the returns are steady. Your not going to be flying high with 40% returns when the market is on a tear but you shouldn't have any 10%+ losses either.

The premise behind it is that no one knows the future (16 months ago everyone was saying inflation was coming and to short long term treasuries -we actually got deflation and long term treasuries soared).

Each asset in the Permanent Portfolio will perform at different times. The stocks will do well in prosperity, the Long Term Treasuries will do well in deflation, and the Gold will do well in inflation. Each asset by itself except for the cash is highly volatile, but when you add them all together they balance each other out and you get consistent returns.

My portfolio actually resembles a "high octane" Permanent Portfolio. I don't have the cash, my stock allocation is higher and riskier and I don't have as much in gold. I like fooling around with different combinations to backtest using Simba's spreadsheet. If you don't want to DL anything you can do much the same thing here.

[Broken Arrow]

Thanks for sharing this!

Harry Browne's portfolio concept has been covered quite extensively elsewhere, in part because of his adherence to the belief that no one can predict the future, and that asset allocation is there to help mitigate this unknown quantity. Therefore, the asset allocation needs to cover all the bases. I don't know if this concept originated from him (probably not), but he certainly helped popularize it... and rightly so.

I still think most regular investors should stick with pre-set arbitrary asset allocations whenever possible, so that most can minimize the risk of mis-allocation. That said, for those times when it can't be done, or for those who understand enough asset allocation and would like to "optimize" one to suit their own needs, Harry Browne is a good person to turn to.

That being said, the only thing about it is that such an arbitrary asset allocation may not be ideal to suit everyone's needs. Certainly, the asset allocations of someone starting life in their 20's is still very different than someone who is starting retirement in their 60's.

Unlike the Old Testament Commandments, I too believe that there is room for a little bit of tweaking. For example:

20% International fund.
20% S&P 500 fund.
20% Total bond market fund.
20% TIPS mutual fund.
20% Cash / Money Market fund

This gives you a basic 40% stocks / 60% bonds and cash asset allocation, and yet, still covers you on all fronts.

I have to go, but thanks again for sharing, because I think it's very important to stay grounded about the purpose behind asset allocation (which is mitigate risk, not leveraging gains).

[Snodog]

Originally Posted by Broken Arrow

20% International fund.
20% S&P 500 fund.
20% Total bond market fund.
20% TIPS mutual fund.
20% Cash / Money Market fund

This gives you a basic 40% stocks / 60% bonds and cash asset allocation, and yet, still covers you on all fronts.

Here is how your portfolio compared to the perm port.

           BA       PP
1972	12.67%	19.07%
1973	-4.81%	16.41%
1974	-6.19%	13.83%
1975	20.66%	7.09%
1976	8.54%	10.24%
1977	6.03%	4.76%
1978	12.00%	11.92%
1979	9.71%	40.65%
1980	17.50%	12.28%
1981	5.04%	-5.33%
1982	9.47%	20.84%
1983	16.05%	3.89%
1984	10.69%	2.61%
1985	24.43%	18.96%
1986	25.50%	17.69%
1987	9.30%	6.85%
1988	15.91%	4.12%
1989	15.68%	14.01%
1990	-0.47%	1.95%
1991	17.24%	10.66%
1992	3.36%	2.94%
1993	15.36%	11.70%
1994	2.17%	-1.17%
1995	14.27%	16.69%
1996	8.59%	5.43%
1997	10.90%	7.58%
1998	12.08%	11.50%
1999	12.50%	4.10%
2000	-0.58%	2.68%
2001	-2.47%	-0.43%
2002	-2.17%	5.01%
2003	16.33%	12.81%
2004	9.02%	6.02%
2005	5.62%	7.95%
2006	10.31%	11.14%
2007	8.81%	12.46%
2008	-15.39%	0.80%

CAGR     8.67      9.17
St Dev   8.62      8.19
Down SD  4.70      2.43

[Snodog]

Originally Posted by Broken Arrow

Thanks for sharing this!

Thanks! I am a spreadsheet geek at heart so this stuff is like crack cocaine to me.

[Scanner]

in part because of his adherence to the belief that no one can predict the future,

I say, "Speak for yourself" LOL.

Seriously though, I do tend to like portfolio's "evenly spread" like Harry Browne but I like to move on some contrarian principles.

[Broken Arrow]

Thanks for the number crunching, Snodog. As expected, mine was a more aggressive and volatile portfolio that did better in good years and worse in bad. But not necessarily better. Interesting.

Scanner, if you'll notice, the idea behind his asset allocation was to try to evenly spread among the non-correlated asset classes, which does include negative beta (or contrarian) stuff.

In other words, balance is the key, not a certain favoritism towards any particular class, as that is exactly the kind of investor risk that he wanted people to avoid.

I've mentioned this already, but here's the link again for what several people have proposed (called "lazy portfolios") based on Harry Browne's ideas... which if you think about it, is pretty ubiquitous nowadays. Mr Browne just doesn't always get the credit he deserves for his work in this area.