The Permanent Portfolio by Harry Browne aims to protect and grow your money in an unpredictable world by diversifying across four fundamental economic conditions.
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Asset Allocation
How to build a Permanent Portfolio
| % | Asset Class |
|---|---|
| 25% | United States Large Cap Blend Stocks |
| 25% | United States Long Term Treasury Bonds |
| 25% | United States Treasury Bills |
| 25% | Global Gold |
Other Versions
Browne specifically chooses T-bills for the cash portion of the portfolio, and the charts all show the returns according to his recommendation. However, if you read about the Permanent Portfolio it’s pretty common for its followers to choose short term bonds. The charts with short term bonds are pretty similar.
Author
Harry Browne
Author, politician, and investment adviser. An advocate for free markets and free people, Harry Browne was the Libertarian presidential nominee in 1996 and 2000. He talks about the Permanent Portfolio in his book Fail-Safe Investing.
Overview
The Permanent Portfolio is built on the idea that while the future is unknowable, the economy fluctuates between a few known states — prosperity, recession, inflation, and deflation. While some portfolio managers apply the idea of “risk parity” to balance the volatility risk between assets, Harry Browne believed in using the same idea to balance economic risk. So he chose four assets that he saw as uniquely qualified to respond positively in each of the four economic conditions.
Prosperity: stocks
Recession: cash
Inflation: gold
Deflation: long term treasuries
Brown equally weighted the four assets to protect and grow his money no matter what happens in the market. And the resulting portfolio has proven to be one of the most consistent on record with dependable returns, low drawdowns, and high withdrawal rates.
In addition to Browne’s own writings, An excellent modern guide is The Permanent Portfolio: Harry Browne’s Long-Term Investment Strategy by Craig Rowland and J. M. Lawson.
Performance
Since 1970, an investor in the United States holding the Permanent Portfolio earned an average 5.1% real return, with a baseline CAGR of 4.0% over 15 years. It supported a 5.5% safe withdrawal rate for 30 years and 4.2% indefinitely. Its worst peak-to-trough loss was 19%, and the longest a new investment spent below water was under 5 years.
Permanent Portfolio Performance
| # | Metric | What it measures |
|---|---|---|
| 5.1% | Average return | Mean annual return after inflation |
| 4.0% | Baseline real return (15 years) | What 15-year stretches returned in the weaker outcomes |
| 5.5% | Safe withdrawal rate (30 years) | Highest spending rate that lasted 30 years in the worst case |
| 4.2% | Long-term withdrawal rate | The SWR floor over very long retirements |
| 19% | Deepest drawdown | Worst peak-to-trough loss after inflation |
| 5 years | Longest drawdown | Longest a new investment stayed below what you put in |
| 7.6% | Volatility (standard deviation) | Year-to-year variation in returns |
Charts
Different ways to visualize the Permanent Portfolio
Comparisons
How the Permanent Portfolio compares to other options
Alternatives
Portfolios with a similar structure or design intent
Golden Butterfly — My own evolution of the Permanent Portfolio tilted towards prosperity
All Seasons Portfolio — A similar investing philosophy built around economic risk parity
7Twelve Portfolio — A portfolio that broadly diversifies across many asset categories
Articles
Insights that mention the Permanent Portfolio
Discussion
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