The Permanent Portfolio is a strategy for diversifying your wealth. It’s an asset allocation that looks like it was lifted from the Old Testament:
- 25% in cash
- 25% in gold
- 25% in shares
- 25% in long-term government bonds
Okay, so you’re not shipping corn in a Phoenician galley or laying down shekels at the local moneylender. You’re investing in stock market listed companies and government debt.
Nevertheless, for an asset allocation the Permanent Portfolio is about as back-to-basics as diversified gets – the 25% slug of gold giving it an especially Old World tang.
The portfolio’s roots lie in the high inflation era of the 1970s, when investing was simpler. Forget robot advisors or quant funds1 – the only thing most people used computers for was playing Pong or Pac-Man.
Back then people still held active funds and shares for decades. They phoned up their stockbroker to do trades – or visited them in-person!
A gloomy minority even buried gold coins in their garden or stashed them under floorboards, before hunkering down to wait for the inevitable nuclear conflict.
Plus c’est change
Nearly 50 years on – it’s a different world. (Well, sort of…)
You might well wonder then what the rather presumptuously named Permanent Portfolio offers us 21st Century investors.
Surely we’ve nothing to learn from an approach you could write on a fag packet? (If we still smoked…)
Well, I believe it’s worth pondering the Permanent Portfolio, and its deceptive simplicity. While it’s too straightforward for an investing stamp collector like myself, I recognise it as a thing of investing beauty.
The Permanent Portfolio’s returns have historically been pretty special, too.
Not the highest returns, granted. But that’s not the only way to judge how well a portfolio performs.
The history of the Permanent Portfolio
The Permanent Portfolio was the brainchild of Harry Browne, a US writer and politician.
Browne’s life was quite a journey – he wrote a classic of the US libertarian movement and ran for president – but it’s his evolution as an investor that’s relevant to us.
Beginning his investing career as a gold bug and newsletter writer, Browne morphed into a proto-passive investor. He came to believe nobody knew much about the direction of markets or the economy.
Expansions and recessions were inevitable but impossible to time. Investors should be fearful of inflation as well as deflation, and also of government interventions.
Cheap index trackers were the investments of choice. Why pay a fund manager when nobody knows anything?
This all resulted in the Permanent Portfolio – the pioneering all-weather asset allocation I outlined above.
The science bit
The Permanent Portfolio is extremely simple, but designed to preserve an investor’s wealth whatever fortune throws at it:
- In good times, the equities should do well.
- In retrenchments, long-term government bonds should shine.
- Gold protects you from calamities – as well as, hopefully, the sort of stagflation that prevailed in the 1970s.
- And cash, well it never hurts to have a supply of the folding stuff to call upon.
Rebalance annually and you might benefit from automatically selling high and buying low. More importantly, you keep your ship on an even keel.
Historical returns from the Permanent Portfolio
Here’s how a Permanent Portfolio, denominated in GBP, would have performed from 1970 against World equities and the 60/40 portfolio:
Permanent Portfolio = World equities, long gilts, UK money market, and gold priced in GBP. 60/40 portfolio = 60% World equities GBP / 40% medium gilts – up to 10-year maturities. Portfolios are annually rebalanced. Fees are not included. Data from Alan Stocker2, British Government Securities Database, A Millennium of Macroeconomic Data for the UK, The London Bullion Market Association, FTSE Russell, and MSCI. November 2025
Note: All returns in this post are inflation-adjusted GBP total returns.
Here’s the trend lines in the graph broken down into their risk and reward elements:
| Portfolio | Annualised return (%) | Volatility (%) | Sharpe ratio |
| Permanent | 4.2 | 6.8 | 0.62 |
| 60/40 | 4.1 | 9.3 | 0.44 |
| 100% equities | 5 | 14.7 | 0.34 |
What’s most noteworthy about the Permanent Portfolio is its very low volatility:
- The average 4.2% return from the Permanent Portfolio came with a standard deviation of just 6.8%. That’s calm.
- By contrast, a 60/40 portfolio (World equities / medium gilts) delivered a 4.1% return and it ladled on more volatility – a standard deviation of 9.3%.
- 100% equities offered the best returns of all but upped the risk quotient yet again, subjecting owners to 14.7% annualised volatility.
Let’s now draft in the Sharpe ratio to help us make sense of that risk versus reward trade-off.
Risk rewarded
The higher your Sharpe ratio, the better your risk-adjusted returns. In other words, the more return you get per unit of risk, as measured by volatility.
On that score, the Permanent Portfolio’s 4.2% average return is achieved with far less grief than the other two portfolios dished out.
An allocation of 100% equities may offer the prospect of higher returns. But they’ll likely come with much more drama attached.
Meanwhile, you can see the Permanent Portfolio’s steady approach at work in the growth chart above. Its green line waggles, for sure. But it doesn’t feature the sickening cliff-drops that punctuate the 100% equities’ blue line or even the concave wilderness years that afflict the 60/40 portfolio (orange line).
Downside protection
The Permanent Portfolio’s relative chill makes it particularly well-suited to retirees and those derisking their portfolios before retirement.
Investors focused on wealth preservation need to avoid devastating losses. That’s exactly what Browne’s asset mix is designed to avoid:
The Permanent Portfolio has only suffered one bear market drawdown greater than 20% in the past 55 years. Compare that with the free falls experienced by more conventional load-outs:
The Permanent Portfolio’s extremely low 25% equities holding reduces the severity of dips when the stock market crashes.
Nicer nightmares
Even the nightmare scenarios tend to be less terrifying:
| Portfolio | Deepest drawdown (%) | Longest drawdown |
| Permanent | -21.5 | 6 years, 6 months |
| 60/40 | -45.8 | 11 years, 11 months |
| 100% equities | -56.1 | 13 years, 9 months |
In inflation-adjusted terms, a 60/40 portfolio lost nearly half its value during its most abysmal run. 60/40 investors also had to endure almost 12 years underwater in the worst case before their portfolio reclaimed its old highs.3
In contrast, at worst the Permanent Portfolio declined less than halve the amount of the 60/40. And its longest bear market recovery time was 45% quicker.
As the table shows, running with 100% equities was hairier still when the brown stuff hit the fan.
Take a walk on the mild side
One of the dilemmas facing investors – whether we recognise it or not – is that long-term average returns conceal some colossal landmines. Monumental blow-ups that can wreak havoc with your plans.
This is known as ‘tail risk’ and you can assess a portfolio’s susceptibility to such extreme unpleasantness by checking its annual return distribution.
The more often a portfolio deep-dives into negative territory, the riskier it is: 
A portfolio comprising 100% World equities has lost nearly 40% of its value – in a single year – twice in the last 50 years. And drawdowns of between 15% and 30% in a single year are standard.
On the other hand, double-digit advances are common, too.
In short, a 100% equities portfolio is an Oblivion-grade rollercoaster.
Contrast that with the more regular 60/40 portfolio:
Eye-watering losses are fewer and shallower. But by the same token, blistering gains are also less frequent. Annual returns are more likely to land in a middling comfort zone.
If you like the sound of that then you’ll love the Permanent Portfolio’s track record:
The Permanent Portfolio hardly ever racks up a double digit loss. In the vast majority of years it makes steady progress and conserves what you have.
Why the Permanent Portfolio works
The key to the Permanent Portfolio’s stabler returns is its diversification, especially its out-sized allocation to gold:
Asset class correlation matrix: monthly real total returns 1970-2025
| Gold | World equities | Long gilts | Money market | |
| Gold | 1 | 0.01 | -0.02 | 0.04 |
| World equities | 0.01 | 1 | 0.14 | 0.1 |
| Long gilts | -0.02 | 0.14 | 1 | 0.39 |
| Money market | 0.04 | 0.1 | 0.39 | 1 |
Quick correlation recap:
- 1 = Perfect positive correlation: when one asset goes up so does the other
- 0 = Zero correlation: the two assets being measured have no influence upon each other
- -1 = Perfect negative correlation: when one asset goes up, the other goes down
These are extremely good numbers. Low and near-zero figures indicate the portfolio’s assets are exceptionally diversified.
Permanently at odds
Even well-differentiated equity sub-asset classes typically have correlations ranging from 0.8 to 0.9+. The highest here is 0.39 betwixt long gilts and money market (which stands in for cash in the mix).
Even 0.39% is a moderately low correlation as it goes, while the other – still better – numbers go a long way to explaining the low-volatility nature of the Permanent Portfolio. Basically when one of its asset is face-planting then the others usually trot on, relatively unbothered.
Of course, by the same token if World equities are on a tear, then it’s also likely that others among the assets will be dragging their heels.
Hence, during bullish times it’s important to focus on the Permanent Portfolio’s goal of balance. Otherwise you’ll be forever grousing about how some laggard or another is cramping your style.
Diversification and gold
Here’s an illustration of how gold in particular has historically proved a diversifier for UK equity investors:
The chart shows how well gold counteracted falls in World equities. Exactly when you’d most want to see a non-stock asset go up – to offset the pain of plunging share prices!
It’s especially notable because in a crash correlations increase. That is, most assets tend to fall together. So if you can own something that doesn’t, you’ll someday probably be glad of it.
Bottom line: the big allocation to gold is the oddest but perhaps also the most important aspect to the Permanent Portfolio.
What have you done for me lately?
The Permanent Portfolio regained popularity between the stock market crash of 2008 and the peak of the gold market bull run in 2011. Scarred by memories of the still-recent global equity rout and attracted by the allure of gold, new adherents flocked to its defensive asset allocation.
With hindsight that was poor timing. This particular golden age didn’t last long – the yellow metal nose-dived 40% from late 2011 until the end of 2015.
Gold has since bounced back with a vengeance, however. And stock markets have soared too.
Yet Permanent Portfolio investors had to cope with their worst ever drawdown of -21.5% in 2023, as all four assets struggled with the post-Covid inflation and interest rate double-whammy.
Survivor’s gilt
No asset was more of a liability in 2022 and 2023 than long gilts. They suffered a dreadful 61% decline from their peak at the outbreak of Covid.
Despite that shock, I’d say the Permanent Portfolio coped reasonably well. Its 21.5% loss in 2023 is no more than a bad cold in comparison to the worst maladies that can befall a stock-heavy asset allocation.
And since then the Permanent Portfolio has recovered its losses and resumed its forward march.
Do recent events mean that long gilts are broken? No. They’re no more broken than equities or gold right after they crash. Those assets are just as capable, if not more so, of delivering an appalling performance.
The real learning point is that although the Permanent Portfolio looks outwardly dull, it actually invests in three highly unpredictable assets. Each one can punch the lights out or punch you in the face.
The genius of Harry Browne is that he chose these volatile assets because they can cover for each other.
One of them is usually charging forward, while another is heading for the field hospital.
Meanwhile cash plods along keeping up the rear.
It’s hard to credit, but highly-volatile individuals can create a surprisingly harmonious environment even though all appears to be churn and chaos.
Think The Expendables, but with Sharper ratios.
Investing in the Permanent Portfolio
The Permanent Portfolio is a self-reliant DIY investors’ dream.
Not as simple as the very simplest global shares and bond mix, admittedly. But a Permanent Portfolio shouldn’t take more than half an hour to set up, and the same again once a year to rebalance.
My co-blogger The Accumulator gave an example setup in his review of model portfolios for DIY investors.
Needless to say you should be investing in ISAs and SIPPs to avoid your portfolio being ravaged by tax.
Permanently a place for the Permanent Portfolio
Active investing is my passion. At times I’ve approached 100 holdings. I’ll also accept higher volatility for hopefully higher returns.
So the Permanent Portfolio is too simple for me. And realistically, I can’t imagine putting 25% in gold.
All that said, compared to when I first learned about the strategy a couple of decades ago – back when I was happily all-in on equities – my need to diversify has increased. The absolute amount I have invested has grown a lot, and my time horizon has shrunk.
The Permanent Portfolio – and its history of decent returns with minimal volatility – is a useful reminder that well-considered diversification need not be a recipe for stagnation.
Those looking to reduce volatility in their portfolios – especially around retirement D-Day – could do worse than spend a few minutes thinking about what it has to teach us.
- Yes, I know there were a handful of pioneering quant funds and already some use of computers. But nothing like the algorithmic trading that dominates activity today. [↩]
- Stocker AJ. 2024. “Total Returns for UK Gilt Sectors of Different Maturities from 1870 Onwards.” [↩]
- This assumes no new savings. [↩]
It’s great to see a serious article about this approach.
My investing approach was heavily inspired by the PP.
I’ve ended up with a moderately big chunk of cash (but for reasons besides asset allocation: http://liberate.life/index.php/2016/09/09/money-tank-taps/) and then besides that, settled on an 80:10:10 split [world equities roughly proxied by Vanguard LS100 : UK Long Gilts : Gold Bullion] .
I’m in it for the very long haul and need the growth so the purist PP isn’t for me but there’s definitely something to be said for a modicum of ‘tin foil hat’!
I agree. It is great to see an article on the PP from a UK perspective. My own portfolio is a sort of 50/50/PP-inspired mash-up:
25% UK
25% World ex-UK
25% Bonds (longish)
15% Gold
10% Cash
An excellent topic! I hope you’re right about it might be a good time to start one: I started up a Permanent Portfolio some months ago with a small but not insignificant amount of my assets. Planning on annual drip-feeding it to double it’s size over the next 5 years (so initially the annual rebalances will likely be achieved by modulating where added money goes rather than selling anything, unless there are huge swings). My allocation is: 25% global stocks VRXXB (“Vanguard Global All Cap Fund”), 25% precious metals PHPP (“ETFS Physical PM Basket” of Gold, Silver, Platinum and Palladium; the most pricey thing in the portfolio at 0.4% OCF but I value the diversification rather than going all gold), 25% long bonds split 1/3 each way between VVUKLG / IBGL / IBTL (those are 20-30 year duration GBP/EUR/USD government bond fund/ETFs) and 25% very short bonds split 1/3 each ERNS, ERN1, ERNU (again GBP/EUR/USD exposure; using these ETFs as a cash/money-market/forex account substitute) . I very much wanted global diversification from it, so didn’t want to be all in the UK or USA or too tied just to sterling or dollars for the bonds.
What motivated (monevated?) me to get into this was I’d convinced myself that the long gilts and precious metals were an area I was underexposed to and that they were in theory a useful diversifier for me… however that bit in the article about “The four horsemen of the investing apocalypse” and “people are worried about all its components” really summarizes my feelings about them very nicely! But by convincing myself they’re all just essential elements of the greater “machine” which is the Permanent Portfolio I could just about bring myself to stomach buying them. I’ll defer judgement of performance for 5-10 years; if I hadn’t put the cash into this it’d have probably been added to my Lifestrategy’60 holding so that’s my benchmark.
“The London market isn’t as big as the US one, where this portfolio originated. True, you probably won’t get much extra diversification benefit, but I think you’ll get some. It’s not much of a complication. Retaining half in UK shares dampens the currency risk.”
UK large cap (i.e. the FTSE 100) seems to rise/fall just as much as ex-UK shares when sterling falls/rises. So maybe one needs to use mid and small cap to lessen currency risk?
I’ve often looped at the PP and it does have its draws.
However, I’m about 75% of the way through “Living off your money” and am trying to work out how to map some of the top portfolios there to the UK market. Maybe I need to wander over to that thread?
Oh, and can I just say that I almost miss the gold bugs with their endless blithering about fiat currencies and the like. What they return in their droves *that’s* the right time to sell gold, which may focus some minds on bitcoin!
@TI – I owe you a debt of enormous gratitude. Yes, the Permanent Portfolio is interesting; I read about it first in the excellent The Intelligent Asset Allocator and it seems like a pretty sound approach.
But for me the golden nugget in your article is the Ulcer Index which I spotted in one of those charts. It’s Genius! Summing up all the drawdowns over a specific period is exactly the risk measurement tool I’ve been looking for! I always thought standard deviation was a rubbish measure of risk and the Ulcer Index seems to fix pretty much of of its problems.
I shall be making liberal use of the idea in future blog posts (with a hat tip to this article, of course).
Cheers.
The permanent portfolio is the first portfolio that caught my eye when I started investing, plus as a libertarian at heart, I can’t help but have some affection for it. Overall, I can’t help but think its a great portfolio for those with a low-risk tolerance.
I run something similar, but instead of so much cash I have REIT ETFs, so invest in property. My asset allocation looks something like:
25% Equities
25% Long Term Bonds
25% Property/REIT ETFS
25% Gold and Commodity ETF’s (50/50 split)
I believe this gives me higher expected returns than the PP but with slightly more volatility. The thing that I find hard is to have 50% of my portfolio producing no expected return, with gold and cash. I also believe this portfolio gives similar, or perhaps, slightly better returns than a standard 60/40 but with fewer swings as gold/commodities are inversely correlated with some form of stocks/bond crash.
@GM – thats definitely on my to read list. Was it you that recommended Ed Bunker? Got any other good book recommendations? Its that time when people ask what I want for xmas 😉
No, not me on Ed Bunker as I had to google him.
LOYM is a heavy read, and one where you’ll need to mark pages to return to later. I’ll dedicate a day to working with the spreadsheet over the xmas break, and will maybe even need to lay off the booze!
@GM aplologies I think I may be confusing you with Neverland..
Cheers for the LOYM comments – I’ve successfully worked through Hale and even Graham so prob. should be just about up to it..
only lay off the booze if *absolutely* necessary..
I found some of Harry Browne’s writing to be very inspiring, and would highly recommend people to read his (out-of-print) books. The explanation for the Permanent Portfolio is fascinating and it makes much more sense once you know the background.
In particular, what most people miss is the PP paradox – the reduced volatility is achieved by having a mixture of non-correlated, highly volatile assets. In most cases this is obvious, except for the equities.
As I understand it, Browne advocated that the equity component should be in highly volatile stocks or funds, so that you really benefit from it in the good times.
Separately, it occurred to me a few years ago that the Personal Assets IT (i.e. the Troy Trojan Fund) approach is not far off a Permanent Portfolio, though I don’t think I’ve ever heard them refer to it.
I read his libertarian manifesto off the back of a recommendation from Andy (comment #1) and very much enjoyed it – lots of good food for thought.
My feeling is that libertarianism is something to aspire to personally, but a truly libertarian society would be brutal for a lot of people..
If I remember correctly the PP is covered in How I Found Freedom in an Unfree World?
@GM / @Rhino
LOYM on my Xmas list, do I need to add a good single malt to get me through it?
William Bernstein wrote an excellent analysis of the pp in Deep Risk.
The portfolio has two levels of diversification. One across asset classes, Two geographically.
The asset class diversification allows variance harvesting when rebalancing, pretty standard portfolio theory. I soul search on the geographic diversification which allows you to avoid Bernstein 4th horseman of the apocalypse … asset confiscation (popular with the shadow chancellor).
Would you give up citizenship for a foreign bank vault? Bernstein feels personally he would pay his dues as the cost of citizenship.
@The Rhino
You’re thinking of ‘Fail Safe Investing’. However, How I Found Freedom is essential reading for anybody who doesn’t like just going with the flow.
I won’t link to it but, if anyone’s interested in learning more, I wrote a reasonably comprehensive review of How I Found Freedom on my site.
Re libertarianism in general: it’s a really attractive idea to me as I subscribe to a ‘win-win’ philosophy and don’t like being coerced. However, I can see that I make these points from a position of privilege and if I was penniless, disabled and lacking well-paid, marketable skills, I may feel differently.
Let’s just say that I might not be rushing to vote for Jeremy Corbyn 🙂
LOYM doesn’t specifically include the Permanent Portfolio as one of the Lazy Portfolios. The footnote on page 217 says, “Evidence-based recommendation could not be made for commodities, including precious metals, based on the data and techniques used in this book.” However there are plenty of other portfolios, including ones proposed by David Swenson, Larry Swedroe and Scott Burns.
Earlier on in the book it says that the Harvesting Ratio doesn’t apply to commodity funds, therefore the book concentrates on different types of equity funds and REITs.
It’s a good book, and as trumpeted by the author it is worth reading sections a few times to fully appreciate it. I’ve learned from it and adapted my portfolio too.
Another book I’ve read recently, which is much smaller than LOYM and far easier to read, is The Index Revolution by Charley Ellis. It gives an insight into the history and development of the investment industry.
“My feeling is that libertarianism is something to aspire to personally, but a truly libertarian society would be brutal for a lot of people.”
it would be brutal for most people
I’ve looked at the PP a number of times and my mind boggles at the simplicity and consistency of it.
I have read elsewhere that the most challenging aspect of running this portfolio is sticking with it when markets are on it a rip and you’re sat crawling along missing out on the big gains.
PortfolioCharts is a great resource! It’s worth a look at the Golden Butterfly portfolio as well, the website creators’ personal favourite:
20% Total Domestic Market equity
20% Small Cap Value equity
20% Long-term bonds
20% Short-term bonds
20% Gold
It is essentially a variation on the PP, as ST bonds equal cash, but it allocates quite a bit more to equities – particularly small cap gives it more of a barbell feel to it. The average return is 6.4%. Like the PP it has a 11% max drawdown, but then it’s longest drawdown is only 2 years, compared to 4 for the PP – and the Ulcer index is a mere 2.6 compared to 3 for the PP.
I fiddle too much with my own portfolio to be fair, so I only approximate this allocation. I have replaced much of the small cap with emerging markets equities. I also find holding LT bonds unpalatable, so I allocate quite a bit of that slice to boring high yield/value equities and also place our EIS solar panel projects in that category. As for cash and ST bonds, we do have a quite a bit in savings accounts, but hold no ST bonds, so the total doesn’t quite reach 40% of the portfolio: the rationale (ahem) being that we are in prime accumulation phase and therefore need to essentially account for expected cash savings for the year ahead in the cash slice.
Got to love libertarians. It’s the ultimate smorgasbord of delusioms.
Don’t want state coercion but absolutely want police and a justice system to protect them and their family and wealth.
Dont want state interference in the free market but absolutely want electricity grids and clean water when they turn the tap on.
Sorry people. Rant over.
I’ve spent a lot of time on Portfolio Charts and have looked a lot at the various portfolios. The thing I can’t get over about the Golden Butterfly is that, for the data they have ( since 1972?) its greàt returns have coincided with the phenomenal bond bull market. Interest rates have been almost continuously falling over the period for which they have data. So the bond heavy portfolios look very attractive from both a total return or drawdown perspective.
Exactly. Bonds will still have that highly coveted negative correlation with equities, but nothing like the returns from the past decades. My bet is that high yield boring equities, propped up by central bank balance sheets, will approximate Lt bonds the best over the coming decade.
@Brod – isn’t the idea they want *minimal* government to cover their basic requirement of not being subject to coercion? i.e. they need police/justice to cover that
its more pared right back rather than cherry-picking on what the states provides front?
I’d imagine they would argue electricity and water are best provided through normal market forces?
I’m not really for or against here – just that i have read that browne book and seem to remember that being the thrust of his argument?
Exactly what do you think police and justice are if they’re not coercion? Rules and natural justice based ideally, but still coercion.
They might well argue that water and electricity are best provided through the market – they’d be wrong though. Change electricity/water supplier and you’ve got to lay new cables/pipes every time. Really?
@Brod – well as far as I’m aware, a libertarian party doesn’t even exist in the UK? Its only a US thing..
Portfolio Charts is a great blog. The main thing I learned from there is that it’s not only about investment returns. It’s also about withdrawal rates (sequence of returns risk), and while PP’s real and nominal return may not be very high, it can support one of the highest withdrawal rates.
Perhaps PP is not as well suited for those in their accumulation phase (e.g. yours truly) as it is for the lucky few of you chaps who are already FI and living off your money? Ok, a 25% slug of cash is unlikely to be my cup of tea even if (when?) I reach the sunny uplands of financial independence, BUT a 15% cash allocation might help me sleep when the bear market comes. Assuming a 3% withdrawal rate, a 15% cash allocation is 5 years’ expenses – almost enough to survive a 1930s style recession, and definitely enough to survive a 2008 style recession as well as pick up some cheap shares on the way.
Thanks for the great article, I really enjoyed the read.
I can totally see how a PP contributes to a low volatility, resilient to stock market crisis portfolio. However, I have two serious doubts about it: a) the high reliance on unproductive asset classes (cash and gold) and b) the low share of equity. Both factors clearly have a very detrimental impact on performance. This gets particularly serious as you follow the PP strategy in the long term. Whereas the low volatility should not matter in the long term (>10 years), the lower yield will hurt tremendously. As a long term investor, I would keep my fingers away from the PP.
thats interesting about the withdrawl rate
maybe the thing is to migrate over time from a high equity to PP across the accumulation phase, then stick with PP for decumulation?
come up with a similar mechanical strategy to say doing the old % in bonds matching your age or somesuch over that accumulation period?
Tom, I was having a look at Personal Assets Trust current make up, a whopping near 25% in cash, but no conventional long bonds. They have another 25% in index linked bonds, mainly US TIPS – presumably as the UK ones are so expensive. 9% in gold and the rest in developed market equities.
As for the Permanent Portfolio, it doesn’t work for me in those 25% ratios as it is incompatible with my predominantly natural yield income focussed portfolio.
But I will definintely increase cash, gilts (intermediate dated) and gold allocations from now on to provide some crash protection and reduce overall volatility.
Commercial property/infrastructure is my 5th asset class, sitting kind of in the middle of the risk spectrum.
But I can guarantee all of us trying to tweak our portfolios and be clever will wish we had a pure Permanent Portfolio when the next big crash happens.
@Brod, could not agree more. They will complain like hell if they get horse (or worse) in their lasagne as well.
One thing worth pointing out about gold is that for a long time it was synonymous with money. That finally stopped when the gold standard was scrapped. Since then I rather suspect that gold has become a lot more volatile and probably took some time to establish what its purpose was, if it has yet, since negligible amounts are used in industry.
Still, someone once said if you like everything in your portfolio you are not diversified and I would certainly hate to have gold, or bitcoins for that matter, in my portfolio. I shall stick with my 60/40 fund for now, but may revise that when I have digested LOYM, which finally turned up this morning. A very quick scan through indicates to me that I can probably safely withdraw far more than the 2.5% (1 divided by 40 years) that I currently use as a spending guide.
Has anyone analysed the effect of replacing gold with index linked gilts?
This is a strategy I think I am most comfortable with and looking to adopt…I just wondered if those of you who decided to take this approach are thanking the gods of investment due to the recent crash and hike in gold price. Its also not a bad time to be sitting on a chunk of cash.
@GoldFinger – I set up a Permanent Portfolio a a trial with £50k in September 2019 – very relieved to have done it – it was down about 2% at the worst point – you can see its exact composition and performance here https://ace-your-retirement.blogspot.com/search/label/PERMANENT%20PORTFOLIO. Have a look at the Golden Butterfly – a little more volatile but greater potential for growth as it contains 40% equities rather than 25% in the Permanent Portfolio
I switched to PP in 2012. Just added £20k to my ISA in April. Most of the top up went into equities this time around. It’s simple and chugs along quite nicely.
Interesting article thanks.
If your time horizon is real, and you have no need to withdraw anything, I wonder how a straight three way split between gold, long bonds and equities would have faired.
“While it’s too straightforward for an investing stamp collector like myself…”
An interesting admission. We need to know more!
An informed look into a diversionary investment in philately (a ‘side-investor-hustle’?) would be most welcome.
An excellent article and update (with thanks to @TI for the same), and one which nicely compliments @ermine’s take on the PP (on SLIS).
There’s also a quite recent (Oct 2025), although nowhere near as good as this one here on MV, review of the PP on opitimizedportflio.com (given from a US perspective). For those with nerves of steel (or, depending upon ones PoV, a head full of sawdust) there’s a section in there on leveraging up the PP (to match the S&P volatility).
Great article thanks. I have often thought of going the PP route but just find it difficult to imagine 25% in Gold.
But examining it is a worthwhile exercise to draw some useful conclusions from. You don’t have to go all in on it but can tilt in the PP direction maybe…
NFA of course!
Browne wrote after FDR had defaulted on the approximate inflation-protection that US Treasuries had until his action but before Index-Linked Gilts or TIPS existed.
So what would he say about those new options? I ask partly because long fixed interest gilts scare me. Also, what about property? Would it give any useful diversification compared to equities?
I’ll repeat myself. I don’t feel too bad about it, since this is actually a post on the PP.
I run a version of what is referred to as the MF-PP (Managed Futures PP).
Managed Futures (mostly Trend Following) replaces the bonds.
Chat GPT is illustrating to me that returns are ~ 1% higher than for the PP, with ~ 1% high vol.
For my version of the MF-PP, I up the Equity portion of it (~42.5%), and reduce the Gold and Cash to 20% & 12.5% (with MF at 25%).
This version (again according to Chat GPT) gives 2% increase in returns compared to the PP, with 2-3% higher vol. (still lower vol. than the 60/40, and ~10% lower max. drawdown).
And adding in some return stacking gives an extra boost of course…
Would be good to see some more extensive portfolio illustrations in a Monevator post or two with MF/TF as an asset class….
(I know we have the one excellent post from @Finumus on it)
Great article, thank you for it as it challlenged my thinking. However, I can’t help but think the graphs and performance would be very different if they didn’t start at 1970. How about some examples with different start years. The chosen year is clearly favouring the permanent portfolio yet isn’t mentioned in the article.
@algernond – this is really interesting, are you able to share details of the products that form this portfolio? (Apologies if you have already done so in a previous comment). Tbh, probably warrants an additional guest article all of its own, on that note, do you have the link to the Finimus article?
Can also imagine a light hearted article on getting copilot/chatgpt to be your personal financial analyst! We’re there any obvious hallucinations in the output?
I wonder what the correlation between equities and gold is this year?
There are clearly reasons behind the stellar rise of gold, not least purchases by central banks and stablecoin vendors plus a load of FOMO retail investor trades.
Still, given the current price, it doesn’t feel like the best time to start moving to 25% gold at the moment.
Surely the unsaid thing here is the PP is “saved” by the _enormous_ run up of Gold recently, which had it been even half as great a rise would have had much poorer results – and whilst I certainly can’t claim to predict the future, it seems likely that “what goes up can come down” so it may be that this is the perfect time to write this article, but it may not look so smart in a couple of years’ time if you were to put some money into this strategy today?
@Anon12345 and others — Yes, very fair comment about the correlations re: gold this year and the 1970 data cut-off. It was my co-blogger @TA who kindly updated all the data for this article, and there’s usually two data sets for all this stuff, one from 1970 and one (more janky) one going back much further. I think it’s to do with when the better UK data becomes available but I can’t recall. Perhaps he’ll pop in and remind us!
Anyway the 1970 date isn’t deliberately chosen to boost the showing of the PP although I agree it possibly does do that.
We’ve talked more about this timing issue on Monevator in other articles on gold, including in this one below IIRC:
https://monevator.com/is-gold-a-good-investment/
@Algernond — I’ve been suggesting to @TA that he looks at trend following or managed futures at some point with respect to his defensive allocations, but the issue from his POV is that the asset class is very heterogenous and consists of ‘constructed’ products that are always potentially liable to blowing up (because of some corporate / structural / management issue, versus just an equity crash or whatnot). He’s suggested he will try to tuck into the area properly at some point.
@Nick — Hah, stamp collecting was only an analogy / bit of colour! Though I did have a small collection as a kid… actually I wonder where that is now? Perhaps there’s something rare in there?!
@ tedious pseudonym – great name by the way, although tedious in its own way!
The PP has proved itself in all sorts of market environments going back about 155 years. I don’t think you can question its consistency and performance through all kinds of market environments.
https://www.lazyportfolioetf.com/allocation/harry-browne-permanent/
@Anon12345 – The chosen year isn’t favouring the PP from what I can see, though I think I can understand why you would think that and I agree it’s worth a discussion. I’m guessing you’re referring to the price surge in gold once the free market era starts – which is a slowly unfolding process from 1968 to 1975?
The starting point for this article is 31 Dec 1969: that’s the first date from which MSCI World data is available. Monthly data exists for gold from 1968, and we can go back further for the other assets.
From my perspective, I chose the date because it provides the longest comparison of the constituent assets. It’s worth mentioning I don’t invest in the PP, I’m not a gold bug, I’m neutral about the portfolio.
OK, so let’s start the comparison from 31 Dec 1975: which is a decent place to start if you want to screen out the post-Bretton Woods gold boom.
Permanent Portfolio is now (up to 31 Oct 2025):
4.6% annualised return
6.64% volatility
Sharpe ratio is 0.69
It’s actually better relative to the 1970 start point.
Alright, let’s really crock gold. That start point is 31 Jan 1980: gold’s peak on the eve of a 19-year bear market. Gold will lose 78% from this point.
4.4% annualised return
6.35% volatility
Sharpe ratio is 0.69
(All figures are inflation-adjusted)
The PP is still better than the 1970 baseline. Because gold is only 25% of the asset allocation. Meanwhile, you’ve got equities and long gilts putting in sterling shifts while gold is on its knees.
All three of those assets have experienced historical booms and busts during the period. But the PP isn’t driven by any single one of them. Gold isn’t the secret sauce. The secret sauce is this incredibly stable four pillar asset allocation.
I can do a longer annual returns comparison using a government controlled gold price going back to 1900 or earlier. Thing is the gold price is fixed for the vast majority of the pre-1971 period. It wouldn’t tell you much about the PP because you wouldn’t have invested in gold during this period. I’d probably switch gold out for commodities which would provide an anti-inflation pillar that’s negatively correlated with equities and bonds.
I’d be happy to write this up if people wanted to see? (Sorry for the long reply, btw. I think it’s a complicated situation, so glad to have the opportunity to address in the comments.)
@Paul_a38 – three way split: world equites / long gilts / gold:
5.05% annualised return
8.84% volatility
Sharpe ratio is 0.57
So it’s slightly worse than the PP on a risk-adjusted basis. But returns are essentially the same as 100% equities and it’s much less volatile.
Deepest drawdown: -24.8%
Longest drawdown: 6 years, 2 months
@dearieme – private property does seem to have a diversifying effect but not publicly listed REITs. Every serious source I come across thinks inflation-linked bonds are a winner for wealth preservation / retirement income
@Tedious P – the history of the PP is that it’s always saved by something. Gold is on a tear while long gilts are being massacred. Long gilts are now well priced. If the AI bubble bursts and equities tumble, well, long gilts are a good countermeasure. They’re much more reasonably priced now.
Gold could do anything. There’s no good valuation or mean reversion criteria you can reasonably apply to it.
@Quorum – Absolutely, but the underlying dynamics could persist for years / decades or end tomorrow. The portfolio isn’t pinning all its hopes on gold.
@tom #11
Seb Lyon (of Troy, who manage PNL) has spoken of being influenced by Jean-Marie Eveillard; see here for details of M. Eveillard’s approach:
https://novelinvestor.com/notes/value-investing-makes-sense-by-jean-marie-eveillard/
…and note the summary regarding Gold:
“Gold
– “What matters is the investment demand for gold.”
– Views gold as a substitute for money.
– Protection against extreme outcomes.
– Position size: 10% is good. Less than 10% is irrelevant, more than 10% becomes speculation.
– Prefers bullion. Mining stocks bring the risk that the ore can’t be mined. “Gold mining stocks are call options on future ounces.””
…Troy’s (inc PNL) approach to Gold within its multi-asset strategy follows the above almost exactly.
@TI #46 – Thanks, and yes. I too have some nagging thoughts about the ‘structural’ risk to these products, and I haven’t fully satisfied myself how using futures (& options) within these products adds to the risk total blow-up. And I’m ~25% invested in these…
@Rhino #43.
To find @Finumus’ article, just type ‘Trend Following’ (TF) into the Monevator search bar, and it will be the first post to come up.
There are some good comments to look at also under the post.
My personal favorites are (for SIPP & ISA):
* Winton Trend UCITS (although replaced this now with the one below)
* Winton Trend Equity Enhanced UCITS (think this is available on most platforms apart from the Lloyds group ones). It’s a capital efficient product using leverage to invest you in 100% TF / 100% Equities
* AQR Alternative Trends UCITS (mixes a few other strategies with TF, e.g. Equity market Neutral). Can access this on the Lloyds group platforms + IBKR
* AQR managed Futures UCITS (seems difficult to access now on most platforms except IBKR)
At the moment, Chat GPT & Grok seem to be agreeing on my portfolio construction queries….
I’m very interested in this, I’m just about to enter CoastFIRE at age 45 with a roughly 60/40% plus some BTL income after some recent de-risking. I’m not sure whether it may be more prudent just to stick with that for the next 12 years and revisit PP for when I plan to fully FIRE around age 50 or start drawdown from my pensions at 57, will need to give it some more thought. I did also read about the Golden Butterfly portfolio which is more prosperity based but I’d like want to make some minor changes to make it more global…. although this may defeat the purpose???
20% Total US Stock Market
20% US Small Cap Value
20% Long-Term Treasury Bonds
20% Short-Term Treasury Bonds
20% Gold
Hiya,
I’m guessing the US only aspect is due to copying over from Portfolio Charts? Or you’re retiring in the States?
20% small cap value will likely make the portfolio more volatile. I haven’t run the numbers but let’s say it makes it behave more like a portfolio with 50% equities. I’m just plucking 50% out of thin air as an example – directionally that’s what adding small cap value is doing.
In theory, if you believe that small cap value will outperform the market long-term, then your small cap value quotient allows you to reduce equities exposure for no loss of overall portfolio return.
I haven’t read about the Golden Butterfly in ages but I’d guess Tyler makes that trade-off explicit in his accompanying commentary?
Alternatively, if you want equity-like returns with lower risk then look at a low volatility ETF.
I’ve recently split my risk factor allocation between small value and momentum which are a complementary pair with relatively low correlations for equity sub-asset classes: https://monevator.com/do-the-risk-factors-beat-the-market/
Short-term govies act like cash.
Overall, the Golden Butterfly is a diluted Permanent Portfolio. It increases equities and reduces the diversifiers – knocking 5% a piece from long bonds, gold and cash / money market / short bonds.
Expected returns and volatility should be higher than the PP.
Thanks TA. Yes just copied right over from portfolio charts, or similar, I’m UK based.
With PP I don’t think I could stomach up to 25% in each asset class (gold and 2 x bonds), and at this moment I’m more comfortable with the higher allocation to equities, I guess it just depends on my duration.
I like to think of my ISA pots & BTL income taking me from CoastFIRE at 45 to retirement at 57 at which point they will be exhausted.
Then my pension pot kicking in hopefully for at least another 20 years. It’s this pension pot where I think PP or GB appeals to me instead of buying an annuity with the potential to leave some inheritance.
I did read an article that indicated that GB provided superior risk adjusted returns, due to the slant to equities and low correlation between all asset classes.
Not an expert by any means though of course, which is why I’ve mostly been 100% equities for 8 years before moving to 60/40% to enter CoastFIRE.
Could you really build this portfolio at today’s gold prices? Surely the price at which you buy has a big bearing on future returns.
Or is the painful truth that one might have to build a PP over time (if one has that). what would you do if you were starting now?
Also, would you really keep the cash as cash or would you MMF? Slightly higher return but slightly higher risk? Were MMF’s around when PP was devised?
Tory/PNL at 11% gold now I believe.
@Brod you made me laugh.
I do really like the Monevator site.
“it doesn’t feel like the best time to start moving to 25% gold at the moment.”
Oh, I dunno – those of us currently at 33% gold must surely be considering it.
@dearieme ha ha but well done you.
Does anyone sell a rebalanced PP product?
Something you could buy in a SIPP or ISA and just forget about it?
The return / volatility sound great, I find I’m mostly needing money to cover off the tail risk so reduced volatility does the trick.
@Firestarter – makes sense to me. I agree that the PP and Golden Butterfly seem best suited to near retirement or actual decumulation. I need to write a post on the GB – thank you for the inspiration.
@Kim – It’s an enduring conundrum yet you can apply similar logic to any asset:
Would you buy equities when US market valuations are nearing all-time highs?
Would you buy bonds after their worst crash in history?
What does that leave?
– US equities do look expensive
– Bonds look relatively cheap but people aren’t queuing up to buy them
– Gold – there’s no rationale to judge it buy other than what it was worth last week
Don’t get me wrong. I understand where you’re coming from. But we can’t predict what prices will do next. They can and do defy predictions for years and decades. The only thing that keeps me sane is taking the long-term view, pound-cost averaging and making gradual shifts when I’m uncomfortable.
I did this with my first gold purchases. Made an immediate shift into half my intended long-term allocation. It could have been a quarter or a tenth but I was OK with 50%. The background is I’d held off investing in gold for years, waiting for the price to come down significantly. It didn’t.
Apparently the first money market fund was created in 1971 – according to Wikipedia. Before that, there was cash in the bank and treasury bills. In the UK, my grandparents would have saved money in the Post Office. I used to get a postal order on my birthday. (Don’t think they got up to 25% in gold though. They shoulda listened to me!)
@dearieme – LOL
@Dazzle – it would be good if someone sold that as a ready made portfolio. I did read about such a fund years ago IIRC but I can’t see it now. A quick google just brings up wealth management firms.
InvestEngine will invest new cash to your target weights (AutoInvest feature) but doesn’t look like they auto-rebalance.
Interactive Brokers do – but this could be a US only feature and it’s a complicated platform: https://www.interactivebrokers.com/en/trading/rebalance-portfolio.php
Re: a Permanent Portfolio ETF, there was one available for a few years in the US. From memory it was launched around the time of the GFC, or certainly that’s when I remember hearing about it. IIRC it diversified across a basket of precious metals. Gemini AI suggests it was closed in 2018.
@dearieme #55 – I hate selling gold, so I’ve been doing something rather clever.
When it goes over my allocation target (which it has been doing without me buying any for the last few years), I just increase my allocation target.
@TA cheers. 6 years recovery is still a long time (especially at 72 years of age).
@TA I would love to see an article on it, it’s really peaked my interest. I’m now questioning myself whether my approach to Coast and FIRE for the next 12 years is sufficient with a 60/40 portfolio (40% being Cash ISA & Cash savings). More pondering needed perhaps. I definitely see huge value for retirement and drawdown though.
Considering the longest recovery period of the GB is 24m (with GBP Bond Hedged), I wonder if always holding 2y cash in addition to the suggested portfolio would be logical. It creates 6 asset classes but surely that would really give you options in every eventuality?
https://www.lazyportfolioetf.com/allocation/golden-butterfly-tocurrency-gbp-bondhedged/
@TA #59
InvestEngine also offer one-click rebalancing so that’s probably easiest. Apparently they can’t offer an automated service because the regulatory risk is too high.
Interactive Brokers rebalance function you linked to is for advisors only. Individual users have to link their account to Passiv which will monitor the portfolio for free (e.g. email when [x]% drift) but charges $99/year for one-click rebalancing. Interestingly it looks like it also works with Trading212.
https://passiv.com/
Also I can’t help but mention that the 33% land, 33% cash, 33% business investment advice is not from the Old Testament but from the Talmud (which is not part of the Bible).
I remembered reading somewhere that Dalio’s Bridgewater was effectively a heavily leveraged Permanent Portfolio. I wonder how true that is.
@Algernond: Ha!
I like the idea of the pp and I think the data speaks for itself. However, I think I’d struggle to implement it in it’s purest form with 25% in UK equities, especially with these clowns in charge.
@FullyCosted – I agree, I could never be all in on any single country, not least the UK or US, therefore I would switch these out for global versions.
@FullyCosted @FIREstarter — I’d be inclined to use a global ETF too *but* there may be something going on in the original asset allocation of the PP / its track record to do with local currency and inflation/rates. I haven’t really thought this through and it’d probably come out in the wash over time, but might change how it responds short-term? Would probably be easy enough to backtest though.
@Firestarter – longest Golden Butterfly recovery period was 5 years 2 months according to the link – click the inflation-adjusted switch in the drawdowns section. 24 months is nominal returns only.
It’s not clear to me what data that site is using:
https://www.lazyportfolioetf.com/data-sources/
Let me know if they make it more obvious elsewhere on site.
@Platformer – super helpful. Much obliged!
@FullyCosted – Equity returns used in the article are for World equities. My apologies if you were referring to the original Harry Browne asset allocation. I have a feeling you probably were. More generally, I agree that we Brits should convert US equities into World / global equivalents. Interesting thought from @TI though.
@TA (#48)
“The starting point for this article is 31 Dec 1969: that’s the first date from which MSCI World data is available. Monthly data exists for gold from 1968, and we can go back further for the other assets.”
Monthly gold prices (in $) going back to 1916 can be downloaded from https://www.macrotrends.net/1333/historical-gold-prices-100-year-chart. As you say, government controlled prices before 1970 are somewhat dull (although the jump from $20 to $35 between Dec 1932 and Jan 1934 would have provided a nice one off boost that would have been severely eroded by inflation over the following 40 years) and, in the absence of a return to the gold standard, unlikely to be reproduced in the future.
As for the MSCI World index, IIRC, you have your own serviceable annual returns(?) version (e.g., see https://monevator.com/world-index/).
While I prefer an alternative way to reduce income volatility in retirement (i.e., floor and upside, although not really available in an inflation protected form before the early 1980s), for a retiree relying on the variable withdrawals from their portfolio, since 1970, the real benefit of the PP was the reduced volatility.
@Alan S – Thank you so much for the pointer to the earlier monthly gold returns. I didn’t know about those.
I’ve previously used annual figures from Measuring Worth.
I was thinking of using the various annual return sources to show the PP before 1970. But I agree with you, gold returns from that era are essentially irrelevant i.e. they represent a different type of asset.
I also agree that the real benefit of the PP is low volatility. Which creates space for the Golden Butterfly as flagged by @Firestarter as a higher risk alternative.
@Kim Shillinglaw: it’s not that I had brilliant foresight but rather that I am a firm believer in not fretting about your investments – and therefore only check values roughly annually. And lo and behold!
Mind you I am exaggerating a bit: part of the 33% is actually silver. Which I gather is currently lo-and-beholder.
As a 57 year-old planning to retire at 60 (yeah, the FIRE ship has sailed for me) I find the idea of the Permanent Portfolio very interesting. My biggest fear is retiring as the market crashes and stays in bear territory for a significant amount of time.
However, I wouldn’t want to bet big on US treasuries and stocks (or UK ones either for that matter). So, I could replace the US bond/cash components with a basket of global alternatives and the US stocks with a global tracker. But would it still work? Is the PP’s performance dependent on the dominance of the US stock market and financial system? Is the mighty petrodollar what makes this all work?
The PP feels somewhat contrarian – and a globalised alternative even more so. Have I got the guts to not follow the crowd?
> presumptuously named Permanent Portfolio
I think you’re skipping a whole chunk of the story here. IIRC* It’s the ‘Permanent’ (passive) part of your overall portfolio, with a fixed asset allocation, for the money you “can’t afford to lose” . The money you can afford to lose is in your “Variable Portfolio” where you do the active, speculative part of your investing. Profit from your VP goes into your PP, but you never withdraw from your PP to your VP. Ratio of PP/VP is down to you.
*Why the best laid investment plans usually go wrong. Harry Browne.
@TA I’ve been doing a lot of thinking, researching and Chatgpt’ing and I’m very taken with Golden Butterfly now. I had derisked to a 60/40 as I plan to CoastFIRE in the next few months for 12 years (well maybe CoastFIRE 5y then fully FIRE 7y, who knows) but I’m now fairly certain even a 60/40 may be too spicy for my plans. Chatgpt came to the same conclusion as I did that 2y cash savings outside of the portfolio would be optimal to ride out any crash. My primary concern now is how on earth can you buy a pretty big slug of gold after a massive surge the last couple of years, it may provide the protection needed but not a fan of buying something at massive ATH, narrowly avoided doing similar with Scottish Mortgage.