Harry Browne’s Permanent Portfolio 2016 update

harrybrowne

Harry Browne (1933 -2006)

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.”

2016 returns for the portfolio, implemented with fund portfolios at iShares and Vanguard are tabulated below.

Portfolio Total Market Gold Long Treasury T-Bill Permanent
Portfolio
iShares 12.59% 8.88% 1.36% 0.75% 5.90%
Vanguard 12.53% 8.69% 1.20% 0.99% 5.85%

Portfolio composition

The Permanent Portfolio investment strategy is based on the economic cycle, which is composed of four basic categories:

  1. Prosperity
  2. Inflation
  3. Deflation
  4. Recession

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 Permanent Portfolio
USpermport

Historical performance

Ishares

A Permanent Portfolio can also be constructed using Blackrock iShares ETFs (Exchange- traded funds).

Permanentportfolio

  • 25% iShares Core S&P Total Market ETF
  • 25% iShares Gold Trust ETF
  • 25% iShares 1-3 yr. Treasury Bond ETF
  • 25% 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 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) Short Treasury  (SHY) PP with
ST Treasury
2016 12.59% 8.88% 1.36% 0.75% 5.90%
2015 0.96% -11.71% -1.65% 0.45% -2.99%
2014 13.01% -0.43% 27.35% 0.48% 10.10%
2013 32.67% -27.94% -13.91% 0.23% -2.24%
2012 15.98% 8.37% 3.25% 0.31% 6.98%
2011 1.55% 5.66% 33.60% 1.43% 10.56%
2010 16.15% 27.94% 9.26% 2.22% 13.89%
2009 27.06% 23.46% -21.53% 0.54% 7.38%
2008 -36.78% 5.45% 33.77% 6.64% 2.27%
2007 5.26% 30.95% 10.14% 7.30% 13.41%
2006 15.13% 22.33% 0.85% 3.84% 10.54%

iShares Compound Annual Growth Rate (CAGR)

iShares CAGR Std dev
3yr CAGR 4.19% 6.68%
5yr CAGR 3.42% 5.84%
10yr CAGR 6.38% 5.94%

Vanguard

Below is the historical performance of a Vanguard Permanent Portfolio for the time period in which gold bullion ETFs were available (2005).

Since Vanguard  closed its treasury money market fund over most of the  analyzed period, 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 (VISTX) PP with
ST Treasury
2016 12.53% 8.69% 1.20% 0.99% 5.85%
2015 0.29% -11.78% -1.54% 0.45% -3.15%
2014 12.43% -0.58% 25.28% 0.71% 9.46%
2013 33.35% -28.09% -13.03% -0.10% -1.97%
2012 16.25% 5.26% 3.47% 0.69% 6.42%
2011 0.96% 11.20% 29.28% 2.26% 10.93%
2010 17.09% 27.25% 8.93% 2.64% 13.98%
2009 28.70% 27.12% -12.05% 1.44% 11.30%
2008 -37.04% 2.99% 22.52% 6.68% -1.21%
2007 5.49% 31.07% 9.24% 7.89% 13.42%
2006 15.51% 23.44% 1.74% 3.77% 11.12%
2005 5.98% 16.65% 6.61% 1.77% 7.75%

Vanguard Compound Annual Growth Rate (CAGR)

Vanguard CAGR Std dev
3yr CAGR 3.92% 6.49%
5yr CAGR 3.20% 5.56%
10yr CAGR 6.32% 6.50%
12yr CAGR 6.83% 6..03%

Keep in mind that past performance does not forecast future performance.

Addendum

Returns for the Permanent Portfolio from 1985 to 2004 are tracked on the Simba spreadsheet. The calculations are based on the Vanguard US total market stock index fund, the Vanguard long-term and short-term treasury funds and  the IAU ishares exchange-traded fund.

Year Return Year Return
1985 19.15% 1995 18.07%
1986 16.15% 1996 5.04%
1987 7.13% 1997 7.14%
1988 4.52% 1998 10.11%
1989 12.93% 1999 5.12%
1990 1.00% 2000 2.36%
1991 12.18% 2001 -0.50%
1992 3.60% 2002 5.66%
1993 11.95% 2003 13.65%
1994 -1.41% 2004 6.30%
1995 18.07%

The data source for all tables is on Google Drive.

About

Barry Barnitz, administrator of both the Bogleheads® wiki and of Financial Page, a Bogleheads® blog

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