“For the money you need to take care of you for the rest of your life, set up a simple, balanced, diversified portfolio. I call this a “Permanent Portfolio” because once you set it up, you never need to rearrange the investment mix— even if your outlook for the future changes. The portfolio should assure that your wealth will survive any event — including an event that would be devastating to any individual element within the portfolio… It isn’t difficult or complicated to have such a portfolio this safe. You can achieve a great deal of diversification with a surprisingly simple portfolio.”
2015 returns for the portfolio, implemented with fund portfolios at iShares and Vanguard are tabulated below.
|Portfolio||Total Market||Gold||Long Treasury||T-Bill||Permanent
The Permanent Portfolio investment strategy is based on the economic cycle, which is composed of four basic categories:
Four asset classes provide a means of profiting during each of these four economic states, without having to forecast or predict their uncertain arrival or duration.
- Stocks – for profit during periods of general prosperity and/or declining inflation.
- Gold – for profit during periods of bad inflation; during inflationary episodes gold bullion provides protection against a falling currency and other potential problems.
- Long Term Bonds – for profit during periods of declining interest rates; and especially during a deflation. Bonds also do reasonably well during prosperity.
- Cash – During a recession, no particular asset class is going to do well. The cash in a Treasury Money Market Fund offers stability when portfolio asset classes fall in price. It also protects purchasing power during a deflation.
Equal allocations of these four major asset classes comprise the Permanent Portfolio. For US investors, the portfolio would consist of the following portfolio components.
- US total stock market: 25%
- Gold bullion: 25%
- US long-term treasury bonds: 25%
- US treasury bills: 25%
The performance metric is Growth of $10,000, which does not include transaction costs. While purchasing Treasury bills and bonds can be done directly at an auction with zero transaction costs, the purchase of gold bullion can be subject to commissions and premiums over the bullion price.
A Permanent Portfolio can also be constructed using Blackrock iShares ETFs (Exchange Traded Funds).
- 25% iShares Core S&P Total Market ETF
- 25% iShares Gold Trust ETF
- iShares 1-3 yr. Treasury Bond ETF
- iShares 20+ yr.Treasury Bond ETF
Below is the historical performance of the iShares Blackrock Permanent Portfolio for the time period in which gold bullion ETFs were available (2006). The source for these tables is on Google Drive.
The iShares funds can be held at Fidelity, or TD Ameritrade, which offer no-commission purchases and sales of the iShares Total stock market ETF, (Fidelity), the iShares Russell 3000 ETF (Ameritrade), the iShares 20+ Treasury bond ETF, and the iShares 1-3 years Treasury bond ETF. The gold ETF is the only holding that would incur a commission.
ETFs will also incur spread and premium/discount costs.
iShares Permanent Portfolio Returns
|Year||Total Market (ITOT)||Gold (IAU)||Long Treasury (TLT)||T-Bill (SHY)||Permanent
iShares Compound Annual Growth Rate (CAGR)
Below is the historical performance of a Vanguard Permanent Portfolio for the time period in which gold bullion ETFs were available (2005). The source for these tables is in the Google Drive file mentioned above.
Since Vanguard has closed its treasury money market fund, the short-term Treasury fund is used in place of T-bills. The gold ETF (GLD) is not a Vanguard fund and would therefore incur commission and transaction costs.
Vanguard Permanent Portfolio Returns
|Year||TSM (VTSMX)||SPDR (GLD)||Long Treasury (VUSTX)||Short Treasury (VIFTX)||PP with
Vanguard Compound Annual Growth Rate (CAGR)
Keep in mind that past performance does not forecast future performance.