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  1. #1

    Permanent Portfolios

    Hi All,

    I have been looking at this simple way to set up a portfolio'and wondered if anyone follows the system? It sounds too simplistic, and I suspect I would be unable to sit on my hands until rebalancing day.

    It would be interesting to read how people have run this and what are their experiences - and results. I'm particularly worried about gold because it doesn't do anything useful (for me!). Could this be substituted for Cobalt etc., as that has a use in a growing industry - or is 'use' unimportant?

  2. #2
    Some versions use 12.5% gold, 12.5% commodities ETF.

    Weightings would depend on what you were trying to achieve.

    The likes of Yale use similar portfolios, but with 25% each: Private Equity, Stocks, Absolute Return, Real Assets .. Meb Faber's book, The Ivy League Portfolio, shows different variations on that concept that are easier to implement .. You can make it more fun by using active funds and rebalancing often or strategically – Yale treat each allocation as a mini portfolio they run very actively (but of course most people lose money doing that).

  3. #3
    ...although a read of the whole of that thread might be in order just to see alternative views. My conclusion was that sometimes re-balancing works and sometimes it doesn't - it depends upon which timescale is chosen.

    I wouldn't bother looking for substitutes for gold - the likes of cobalt will have industrial purposes and will be subject to speculation and demand in a different context to gold

  4. #4
    Weightings would depend on what you were trying to achieve."

  5. #5
    Well rebalancing's effectiveness is mostly to do with probabilities (range of outcomes).

    A rebalanced Permanent Portfolio produces very similar returns most decades, with very similar volatility – plus you're constantly profiting from inefficiencies in market movements.

    A non-rebalanced equivalent would become more chaotic over time as allocations drifted .. Of course it may do better in backtests, but not because the portfolio's working – rather because your allocation to equities is getting higher and the portfolio's becoming riskier .. If that's your desired outcome after 20 years, you might as well just invest 100% in equities now .. Neither of these gives you a higher risk-adjusted return .. For that, you'd rebalance a Permanent Portfolio, and leverage it up to the risk of equities (theoretically close to the highest return possible per unit risk).


 

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