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Permanent portfolio

A permanent portfolio is an all-weather asset-allocation strategy created by investor Harry Browne, dividing assets equally (25% each) among four components: equities (stocks), long-term bonds, short-term bonds (cash), and gold. The design hedges against all major economic scenarios: inflation, deflation, growth, and stagnation.

For simpler all-weather approaches, see all-weather portfolio. For index-based approaches, see three-fund portfolio. For asset-allocation context, see asset allocation.

The four components

  1. Equities (25%). Stocks for growth and inflation protection.
  2. Long-term bonds (25%). 20–30 year government bonds for deflation and falling-rate scenarios.
  3. Short-term bonds (25%). Cash and very short-term bonds for liquidity and safety.
  4. Gold (25%). For extreme inflation or currency-debasement scenarios.

Each component performs well in certain economic regimes and poorly in others. The equal weighting ensures no single component dominates, and the portfolio as a whole performs acceptably in all conditions.

Economic hedging

  • Growth + inflation: Stocks and gold rally; bonds weak. Portfolio gains 10–15%.
  • Growth + deflation: Stocks and long bonds rally; gold weak. Portfolio gains 10–15%.
  • Stagnation + inflation: Gold rallies; stocks and bonds weak. Portfolio gains 5–10%.
  • Stagnation + deflation: Long bonds rally; stocks and gold weak. Portfolio gains 5–10%.

In no scenario does the portfolio crash 30–50% like a traditional stock-heavy portfolio.

Advantages

  • Simplicity. Four equal allocations; no complex optimization.
  • Stability. Historical maximum drawdowns ~15–20%, far lower than 50% for diversified stocks.
  • No prediction required. You do not need to forecast which economic scenario will occur.
  • Psychological comfort. Steady, predictable returns with minimal volatility suit risk-averse investors.

Disadvantages

  • Moderate returns. Expected returns historically ~6–7% annually, lower than 100% stocks (9%+).
  • Gold drag. Gold often underperforms, especially during deflationary or low-inflation periods.
  • Opportunity cost. During long bull markets (2010–2020), the permanent portfolio drastically underperformed pure stocks.
  • Complexity relative to three-fund. More components than a three-fund portfolio, though still simple.

Rebalancing discipline

The permanent portfolio requires annual rebalancing to maintain 25% in each component. As allocations drift (stocks up to 35%, gold down to 15%), rebalancing forces selling the outperformer and buying the underperformer — enforcing buy-low-sell-high discipline.

See also

Wider context