# The Permanent Portfolio



## robusta (14 February 2015)

Found this concept last night while listening to a podcast. The concept is to invest in; 25% stocks, 25% bonds, 25% Gold and 25% cash. Hold each asset until it reaches 35% on the upside or 15% on the downside then buy or sell to get back to original weightings.

US returns around 9.5% P/A over a 40 year period with low overall portfolio volatility.

http://www.marketwatch.com/story/a-portfolio-for-all-seasons-2013-07-19?page=2


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## galumay (14 February 2015)

robusta said:


> Found this concept last night while listening to a podcast. The concept is to invest in; 25% stocks, 25% bonds, 25% Gold and 25% cash. Hold each asset until it reaches 35% on the upside or 15% on the downside then buy or sell to get back to original weightings.
> 
> US returns around 9.5% P/A over a 40 year period with low overall portfolio volatility.
> 
> http://www.marketwatch.com/story/a-portfolio-for-all-seasons-2013-07-19?page=2




I am surprised the returns are that good, I think US shares are about 11-12% p/a over the same period, I would have thought that gold with no income and low bond and cash rates would have had more of a negative impact.

I suppose that view is skewed by the bond and cash rates in the last couple of years in the US - basically zero!

I also imagine the lower exposure to the volatilty of shares and gold with the addition of bonds and cash is good for those who dont have the stomach to handle the volatilty and dont mind sacrificing a bit of performance for peace of mind.

EDIT - just thought too, is that result skewed by the effect of the change from the gold standard? Gold was certainly a lot more volatile during that 40 year period than say the previous 60.


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## qldfrog (14 February 2015)

Since august I am following a test using a slightly similar system:
25% O/S shares, 25% ASX shares (both ETF index) and 50% cash;
each time the balance cash/shares ratio differ from 50% by more than 5% I switch cash->shares or reverse
100k 07/08
107.4k to date in a bit more than 6 months
I include non reinvested dividends and interests as cash
was debated in a thread I try to find it asap
I am very confortable with this investment style.


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## qldfrog (14 February 2015)

check from post #129 Re: Shares or Property?  to post #150 or so; Post 141 has a nice work from Deep State on a rerun simulation

https://www.aussiestockforums.com/f...t=28671&page=8&p=834323&viewfull=1#post834323
this triggered my desire to give it a go for a portion of my portfolio;
definitively one part I do not worry too much  about at night
Hope it helps


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## robusta (15 February 2015)

galumay said:


> I am surprised the returns are that good, I think US shares are about 11-12% p/a over the same period, I would have thought that gold with no income and low bond and cash rates would have had more of a negative impact.
> 
> I suppose that view is skewed by the bond and cash rates in the last couple of years in the US - basically zero!
> 
> ...




I agree it was really surprising to see the returns were so good. The only reason I can think of is the inbuilt mechanism that makes you buy low and sell high in all four asset classes. Too often investors get emotionally involved and do the opposite.

Good point regarding the gold standard, I wonder if that volatility will continue for the next 40 years.


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## robusta (15 February 2015)

qldfrog said:


> Since august I am following a test using a slightly similar system:
> 25% O/S shares, 25% ASX shares (both ETF index) and 50% cash;
> each time the balance cash/shares ratio differ from 50% by more than 5% I switch cash->shares or reverse
> 100k 07/08
> ...




Looks like a good strategy to me qldfrog, not much overall volatility and buying low, selling high built in.

Ive been giving this some thought over the weekend for my situation. For most of my short investment history I've been pretty close to 100% invested in individual stocks with a view to holding long term. The question I've been struggling with for a while is, I'm happy with that strategy for a bear / sideways market like we have had in recent times but not confident I can resist still being 100% invested at the top of a bull market.

As a long term investor I'm not inclined to dispose of any of my holdings at the moment. So moving forward I'm thinking of working towards a 70% shares, 10% cash, 10% gold and 10% bonds portfolio. This will be through dividends, contributions and the occasional profit taking.

So there is a SPP I want to participate in after that I will put myself on a buying freeze until 10% cash has built up. Then work on the 10% gold. The bonds I will have to really think about because I wont take returns below inflation like they are at the moment.

Now having said all that this is something I want to work towards but I reserve the right to use the cash and sell the gold and bonds during a major market correction and go back to 100% shares. Rinse and repeat.


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## DeepState (15 February 2015)

This is a concept from Bridgewater Associates called the All-Weather Portfolio.  It was created by the founders to be the type of portfolio that their families could keep going in the event of the their demise.  Strange thing, it loads up on bonds in contrast to Buffett. However, it uses leverage to get the returns desired and is considered to do so with a better reward to risk than a straight equity portfolio. It is currently criticized for recommending leverage into bonds when yields are so low.  This has been leveled at the concept for a while now...

I think that, at least, the idea behind how the settings are determined is worth considering.

http://www.bwater.com/home/research--press/the-all-weather-strategy.aspx


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## coolcup (15 February 2015)

While I don't mean to link to another forum here, I thought it was really relevant to this topic. A lot of discussion over at Somersoft on this exact topic. http://somersoft.com/forums/showthread.php?t=81760

The key thing to caution readers is that the permanent portfolio was used with US$ results in mind, not A$. The diversification of risk between the asset classes works well in a US$ context as gold often performs inversely to other asset classes in US$. In A$ it could be quite different.


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## minwa (16 February 2015)

Shannon's Demon - google it. I use it balancing the equity of my different trading systems. I would use it on a share portfolio too if I was running a shares only system.


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## DeepState (16 February 2015)

minwa said:


> Shannon's Demon - google it. I use it balancing the equity of my different trading systems. I would use it on a share portfolio too if I was running a shares only system.




Yep, this is now known as portfolio rebalancing or volatility pumping.  I am a user.  This works.  Glad you are on to it and advocate it.

When the bands for rebalancing move to very wide levels as discussed elsewhere on this thread, even though it seems innocuous, the thresholds matter a great deal and can be misleading in that it picked up large turning points in key markets that are likely peculiar to the time.  That is, not many rebalances actually occurred and those that did more or less turned out to be fairly fortuitous given a selected set of assets in the portfolio. This type of very infreq rebal, although still rebal, is quite different to portfolio rebal of the type referred to by yourself given the frequency we are talking about here.


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## christianrenel (16 February 2015)

DeepState said:


> Yep, this is now known as portfolio rebalancing or volatility pumping.  I am a user.  This works.  Glad you are on to it and advocate it.
> 
> When the bands for rebalancing move to very wide levels as discussed elsewhere on this thread, even though it seems innocuous, the thresholds matter a great deal and can be misleading in that it picked up large turning points in key markets that are likely peculiar to the time.  That is, not many rebalances actually occurred and those that did more or less turned out to be fairly fortuitous given a selected set of assets in the portfolio. This type of very infreq rebal, although still rebal, is quite different to portfolio rebal of the type referred to by yourself given the frequency we are talking about here.




This just shows their many ways to skin a cat, people need to line up the expectation of the market with their objetives. Theses types portfolios handle all market conditions reasonable well. They may not go down so much in bear markets also they will not rally as much in Bull Markets. 

I do some rebalancing on my long term share portfolio, when stocks move to much in one direction. I finds this helps you do not get a build up of one asset class.

Kind Regards 

christianrenel


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## minwa (16 February 2015)

DeepState said:


> Yep, this is now known as portfolio rebalancing or volatility pumping.  I am a user.  This works.  Glad you are on to it and advocate it.
> 
> When the bands for rebalancing move to very wide levels as discussed elsewhere on this thread, even though it seems innocuous, the thresholds matter a great deal and can be misleading in that it picked up large turning points in key markets that are likely peculiar to the time.  That is, not many rebalances actually occurred and those that did more or less turned out to be fairly fortuitous given a selected set of assets in the portfolio. This type of very infreq rebal, although still rebal, is quite different to portfolio rebal of the type referred to by yourself given the frequency we are talking about here.




 Volatility harvesting. Your seccond paragraph is beyond my comprehension. 



christianrenel said:


> This just shows their many ways to skin a cat, people need to line up the expectation of the market with their objetives. Theses types portfolios handle all market conditions reasonable well. They may not go down so much in bear markets also they will not rally as much in Bull Markets.




Done properly with leverage you will smash the index on the upside and shrug off downside. Lots of options/ETFs for diverse assets with leverage in the US market you don't even need to venture into futures market if you dont to.

My portfolio results attached for 2014. A 20% drop in S&P500 in Sep-Oct is shrugged off by a balanced portfolio.


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