): 8.50%: Volatility (? And to get things more interesting, let’s use leverage up to 2x. I think it is important to understand the difference between Harry Brownes original strategy and the strategies we develop here at Logical-Invest. This decreases annual returns but also limits drawdown to under 9%. It is not meant to offer astonishing returns. The mean for the CarMaxDD is 0.772381 with a standard deviation of 0.216059. You stick with it through every financial crisis and even buy more if an asset goes down. Earlier this year I tweeted out the following (with tongue planted firmly in cheek): Since this facetious tweet was sent: Ripple went from … For the US the probability for such a scenario is much smaller, but by far not impossible. The Ray Dalio All Weather Portfolio is exposed for 30% on the Stock Market and for 15% on Commodities. We will not limit our assets to just the few best. 9.9% Neg. However, the ultimate selling point for the portfolio is not in its simplicity, but rather its safety. Here’s a backtest comparing this 1.82x leveraged Permanent Portfolio to the normal, unleveraged Permanent Portfolio and an S&P 500 index fund: Source: PortfolioVisualizer.com Notice this leveraged Permanent Portfolio achieves the highest risk-adjusted return, with a risk profile lower than that of an S&P 500 index fund. Build your investment portfolio from tactical asset allocation strategies, ETF or stocks. Inflation protection Treasuries also carry some inflation (albeit, limited) protection from interest rate hikes. Lastly, we appreciate you kind words in reference to Mr. Grossmann’s strategies. If the US economy really gets in serious trouble, like we had it with some European countries, then a strategy like the basic PP strategy has the potential to ruin you, because instead of having an exit, you get more and more invested. An excellent modern guide is The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy by Craig Rowland and J. M. Lawson. To illustrate what this might look like for a DIY investor, I backtested a simple implementation of a leveraged permanent portfolio. There’s been a fair amount of talk about momentum. Permanent Portfolio Asset Class Backtest using Portfolio Visualizer As historical REIT data only became available in 1995, here is a test of the original Permanent Portfolio asset classes (just the general assets as opposed to specific ETF’s). Data_Series provides a selection … Tactical Permanent Portfolio from GestaltU and ReSolve Asset Management May 9, 2017 This is a test of the Tactical Permanent Portfolio from the brains at GestaltU and ReSolve Asset Management. It does mean that one has thought about the strategy and detailed it enough as to create rules that keep an investor disciplined and protect him from his own emotions and the daily market noise. Running through a parameter’s test we still come up with Sortino ratios between 1 and 1.8 and drawdowns below 12%. 2. For treasuries one can use TLT. Here is what Harry Browne had to say about that: The diversified benefits of being in uncorrelated assets means that if one area of the marke… Invest in this portfolio Gold, stocks, and bonds are volatile assets but can move independently of one another. Annual return is up to 8.3% while draw-down comes in at a low and very respectable 7%. It's a Medium Risk portfolio and it can be replicated with 5 ETFs. The portfolio is meant to get you through any kind of economic circumstances including economic prosperity, inflation, recession or deflation. If an asset’s price is below its own 200-day simple moving average then we sell it. Since 2007 the expanded strategy gave an annual return of 12% with a maximum drawdown of 6.74%. What about mean reversion. From my own experience, I have to say, that most of the time I really lost money was when I tried to do value investing. Portfolio #1 is a 50/50 allocation to PIMCO StocksPLUS and GLD. Maximum drawdown is less than 12% while compound annual return comes in above 8%. Dear Mike, Thank you for your comment. So let’s go ahead and backtest using these 7 ETFs. Get a one month trial for free now! What we are presenting is not the Permanent Portfolio strategy. While the permanent portfolio did not keep pace with either stocks or a 60/40 portfolio, which is to be expected, the ride was much smoother. The corresponding ETFs are CWB, TIP and PCY. Rest assured that we are here to only creatively challenge Frank and by no means change or tamper with his current and future recommendations. The Permanent Portfolio allocation is competitive with the 100% stock allocation and the 50/50 bond allocation. An analysis of Harry Browne´s Permanent Portfolio and further enhancements towards: A Permanent Portfolio ETF Rotation Strategy employing Momentum, Mean Reversion, and Volatility Targeting. As a stock index proxy one can choose from a wide selection that includes SPY, IVV, VOO as well as VTI, SCHB. Once invested you never go out of the 3 assets. Gyroscopic Investing Desert Portfolio vs. But is there a bias in the look-back of the Timing rule? Backest is a free tool to backtest your portfolio and is built for European index investors. You can analyze and backtest portfolio returns, risk characteristics, style exposures, and drawdowns. I know that commodities like gold can easily go to half its production costs which would be about from a max of 1900$ to 500$ and sometimes you need years until an asset recovers. Source: PortfolioVisualizer. The permanent portfolio is composed of equal allocation of stocks, bonds, gold and cash or Treasury bills. That the portfolio can be invested from 0% all the way to 200%. Analyze_Series investigates annual returns for all selected data series. The import uses a standard Excel or CSV file format with a ticker symbol followed by asset balance or weight on each row, So, except from tax reasons, there is no reason to do less rebalancing if this can increase the return to risk ratio of a strategy. This portfolio backtesting tool allows you to construct one or more portfolios based on the selected asset class level allocations in order to analyze and backtest portfolio returns, risk characteristics, drawdowns, and rolling returns. It is based on the lazy portfolio principle where the investor simply selects a diversified portfolio of diversified assets, and holds on to them “forever”. Overall, risk adjusted returns benefit. The Permanent Portfolio investment strategy is based on the economic cycle, which is composed of four basic categories: 1. Bonds, 1978-2019, Rebalanced Annually Average Ret. Backtest can run an analysis on the past performance of your portfolio and compare it to others. This seems to help. Finally, there is for example a Permanent Portfolio Fund (PRPFX) which is replicating the original type of strategy. The above graph includes the 2008 crash, the S&P 500 bull market (2009 -2019), the Gold Bear market (2012-2016) and the start of rising interest rates (2016-2019). An impressive number, especially the drawdown, for a conservative investor. You can subscribe to the strategy in our rent-a-strategy section. See, Inverse volatility trading – A smart investment strategy for income, The Logical-Invest monthly newsletter for December 2018, Universal Investment Strategy 3x Leverage, https://logical-invest.com/rent-a-strategy/the-bug/, http://seekingalpha.com/article/2742915-why-buy-and-hold-doesnt-work-for-investor-wealth-builders, The Logical-Invest newsletter for January 2021, The Logical-Invest newsletter for December 2020, The Logical-Invest newsletter for November 2020, The Logical-Invest newsletter for October 2020. showing the import data format. Hello Ed. By the way Harry Browne published the PP strategy first in the 1980s and later refined it in the mid 1990s. I still think Harry Browne made an excellent choice by selecting these 3 assets and his investment methods have been the best way to go 30 years ago, but today we have much better possibilities to enhance such a strategy. Thanks for reading this article. The Permanent Portfolio (PP) is a portfolio evenly split between stocks, bonds, gold, and cash. Gold can be traded through GLD or IAU. In other words, momentum and timing are, in some ways, similar in their effect. When an asset fails the timing test it is sold and the proceedings stay in cash. The Fundamental Fund is still under construction so I may add a follow up to this essay with the fund … In this version we re-balance the portfolio every year and bring it back to the original allocations. The Permanent Portfolio offers something better. ): 7.20%: … Since there is a good chance of over-optimizing parameters we will go through a number of parameters to get a sense of robustness: First, let’s look at annual return and drawdowns. Asset Allocation 25% Total Stock Market25% Long Term Bonds25% Cash25% Gold Performance Change the home country to translate the portfolio to local assets, currency,… The Permanent Portfolio consists of: 25% in US stocks, to provide a strong return during times of prosperity. This Portfolio Visualizer (PV) link has three different portfolios included in the backtest, but the strategy I like best is Portfolio #3. If you subtract inflation, then there will not be much left. He died 2006, but I am sure he never thought PP as a strategy which never needs to be adapted or refined to new market conditions. asset class level portfolio modeling tool, Larry Swedroe Minimize FatTails Portfolio. 70% of the overall portfolio was invested in the Permanent Portfolio, with an equal 15% weighting allocated to the Speculative and Fundamental Fund each. It’s always interesting to look to the past for ideas on strategy development. This marginally improves risk adjusted returns by further limiting draw-down to 6.78% while keeping annual returns almost the same. We have provided a detailed explanation of the inner workings and a fair amount of data to support it. The main feature of these portfolios is a price-agnostic view of the markets and basic protection by using simple asset and weight selection. … Most importantly it has behaved well in recent market corrections. Today I can buy a 100’000$ SPY ETFs for a commission of 2.5$. The permanent portfolio is an investment portfolio designed to perform well in all economic conditions. In all of these countries you would have lost a lot of money investing in Gold, local Stocks and local Treasuries. So at times it is far less invested than a static strategy that is always 75% or 100% invested. In the last 10 years, the portfolio obtained a 7.77% compound annual return, with a 5.89% standard deviation. It's like Portfolio Visualizer for Europe! On top of these ‘layers’ we introduce three more assets that provide a slightly larger opportunity for diversification and a slight bias towards increasing rates. Thank you for your comment as it provides ample opportunity to clear up some possible misunderstandings. We have done quite a bit of work in backtesting it and stress testing various scenarios. … Browne believed that the four asset classes would thrive in one of the four possible macroeconomic scenarios that exist. I agree that the original permanent portfolio strategy with yearly rebalancing would probably be the best to do for normal investors, but this is nearly a “buy and hold” strategy and I think with some relatively simple emotionless algorithms behind, you can do much better. Desert Portfolio ETF Pie for M1 Finance. Backtesting is a term used in oceanography, ... Portfolio_Math calculates portfolio returns for all combinations of interest and performs most of the 'under the hood' calculations. The original rules of the All Weather Portfolio: Not bad. First, Harry Browne developed his permanent portfolio (PP) strategy 30 years ago, but already 2500 years ago the Babylonian Thalmud was proposing a similar strategy which was investing similar parts in land, business and silver. If you are interested in getting periodic income, please refer to … My guess is that this is because of the heavy overweigh on stocks and REITS (total 60%) which for the most part move together. To do such a type of value investing, you need to have a 100% conviction that Treasuries, the stock market and gold go always up long term. The results cover both returns and fund fundamentals based portfolio style analysis along with risk and return decomposition by each portfolio asset. A permanent portfolio is a portfolio construction theory devised by free-market investment analyst Harry Browne in the 1980s. If the value of Gold has risen and … We will decrease funds invested in that asset and distribute those funds to the rest. 30 years ago, the market conditions for investors have been very different from now. Each dot is one combination of parameters. In building a core, capital preservation strategy one can go back to such strategies as Harry Browne’s Permanent and Bridgwater’s All-Weather Portfolio. Let’s try it. What we are interested in is the range of results. The biggest appeal for somebody who would choose the … There are also periods where the permanent portfolio will do better. The results include a visualization of the portfolio growth chart and rolling returns, CAGR, standard deviation, Sharpe ratio, Sortino ratio, annual returns … Or distribute to other assets that passed the timing test? It is mainly due to these high costs, that Harry Browne had to minimize trading. And one of many options for cash is using SHY. This is the very first strategy we have introduced since the collaboration started. The second fundamental difference of Harry Brownes permanent portfolio strategy compared to our strategies is that his strategy was a type of value investor strategy. It is a beautifully simple investment strategy. In other words one can see how they performed in life years after they have been proposed. Like the Coffeehouse Portfolio, the Harry Browne Permanent Portfolio is a one of the easiest rules-based portfolios to put together. What about over-fitting parameters. I want to address comments that were asked in my last post, Permanent Portfolio – Simple Tools, about Permanent Portfolio strategy. Nevertheless for an asset allocation, the Permanent Portfolio is about as back-to-basics as diversified gets – the 25% slug of gold giving it a particularly Old World tang. Let’s use the good old simple average rule. 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