What Is the Permanent Portfolio (Harry Browne)?
If no one knows whether the economy will boom or bust, or whether prices will rise or fall, then what? Harry Browne proposed 'a four-way split that prepares for every phase.'
The Idea of Splitting Into Four
The Permanent Portfolio is an asset allocation proposed in the 1980s by investment theorist Harry Browne. Its composition is simple.
Stocks 25% · long-term government bonds 25% · gold 25% · cash (short-term government bonds) 25%
Each asset shines in a different economic phase. Stocks in a boom, long-term bonds in deflation or recession, gold in inflation, and cash defends during tightening or crisis. The idea is that 'even if you cannot predict the future, whatever phase comes, at least one will hold up.'
Historical Performance and Drawdowns
Backtest results vary by source and period, but they generally fall in the following ranges.
Compound annual growth rate (CAGR): roughly 6–9% (about 8% over the long run since 1970, though some tallies put it around 6% for the last 30 years).
Maximum drawdown (MDD): roughly the −15% to −19% range. In 2022, surging interest rates pushed bonds and gold down together, producing a drawdown of around −19%.
Standard deviation (volatility) is around 6%, far less shaky than a 100% stock portfolio.
The figures are approximate ranges cross-checked across several backtests such as QuantifiedStrategies, PortfolioDB, and PortfoliosLab. They vary with the indices, period, currency, and cost treatment used, so do not take any specific number as absolute. Past performance does not guarantee the future.
Strengths and Limitations
Strength: drawdowns are shallow and recovery tends to be quick, so it is psychologically easier to hold on. Because it does not bet on a particular phase, no prediction is needed.
Limitation: in a strong bull market, returns lag a 100% stock portfolio. Gold and cash each make up 25%, which lowers the long-term expected return. Also, the design that is 'strong in any phase' still wobbles when bonds and gold are weak at the same time, as in 2022.
It is a structure useful for reference to those who want 'phase stability' rather than 'maximum return.'
Frequently Asked Questions
Q. Does the Permanent Portfolio have almost no losses?
Drawdowns are on the shallow side, but that does not mean there are no losses. Historically it has suffered declines of around −15% to −19%, and in phases like 2022 when bonds and gold fell together, its defense weakened. It is 'less shaky,' not 'never shaky.'
Q. Isn't the return too low with half in gold and cash?
That criticism is accurate. Because the weights of gold and cash are large, returns tend to be lower than stock-heavy portfolios in a bull market. In exchange, the design trades that away for smaller drawdowns in big downturns. It is a choice of what to prioritize.
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📋 Results are based on historical data; past returns do not guarantee future returns.
📋 This service is provided for educational purposes to help you understand investing, not as investment advice.