Do you have the strength of character to run a Permanent Portfolio?

[Clive]

?

[Indices]

I think it takes less strength of character to follow the PP than to follow say a Bogleheads portfolio because you never have to put up with horrific losses and meltdowns. The worst that can happen with the PP is that the Federal Reserve (or Bank of England in your case) raises rates dramatically. That happens about once every 20 years and PP declines only slightly. A Bogleheads portfolio can have negative returns over a decade.  The true test of character for following PP is watching others for long periods do better than you, but even then, the PP will grow just not as fast. As long as you don't get greedy and try to time the market, you'll be ok!

[craigr]

1995 was the beginning of a the massive stock run up. It would make sense that a portfolio with 25% in stocks like the Permanent Portfolio would lag stock-heavy allocations. But the permanent portfolio is not designed to swing for the fences. It's designed to provide stable growth which it does. I think most investors the past 15 years would have been ecstatic to get the growth of the Permanent Portfolio vs. what they probably ended up getting in the general markets.

As for this newsletter. As you know, I don't think market timing works. If he really could consistently get 14% p.a. growth he could be hired by the top firms anywhere.  He'd pull down millions in salary alone along with bonuses, etc. Why write a newsletter then?

But, I'm happy with the Permanent Portfolio and intend to keep it. It's done a heck of a good job by me protecting and growing my assets.

[brick-house]

I think the PP is a good test of character and certainly is not for everyone.  The first step is to accept that you have no clue what the economic future holds and therefore choose an allocation that focuses on future potential economic conditions (recession/depression, prosperity, inflation, deflation).  The second step is to realize the importance of your human capital and savings rate.  The third step is to reaffirm your belief that you have no clue by re-balancing no matter what your brain is telling you (having a small variable portfolio helps with this) about the short term market outlook.

Thus, a commitment to the PP demonstrates humility (not knowing the future and acceptance of lower returns in prosperity), preparation (work hard to improve human capital and save), and vigilance (demonstrated by the repeatable process of re-balancing).  The side benefit is that the time spent trying to find the "northwest passage" via the conventional stock/bond allocations is freed up to spend on other interests and pursuits. 

[craigr]

The side benefit is that the time spent trying to find the "northwest passage" via the conventional stock/bond allocations is freed up to spend on other interests and pursuits.

Great comparison.

[MadMoneyMachine]

The other thing is that you CANNOT simply compare portfolios based upon past returns or even expected returns. You MUST also include the RISK of the portfolio. Risk is in fact the source of returns.

The chart is not the perfect one to show as an example, but it is the closest one I have lying around at the moment. It shows the returns for 10 years on the Y-axis but also shows the Risk (Standard Deviation) on the X-axis. This measures the size of the ups and downs of the portfolio over the period.
Look at the difference between VGSIX and the PP, for example. VGSIX had higher returns over the 10 years, but would you have made it through the risk? Can you afford to take the risk into the future, especially considering you may wish to take out the money at some point and will it be there at that point? VEIEX had great returns. Would you want to put all your money in it?

It should be possible to measure the risk of the PI portfolio, and I bet it was probably 25% or more for the 10 years.