The Permanent Portfolio

El_Torro

Sorry if this has been discussed already, but I found an interesting article on Monevator about something called a Permanent Portfolio:


http://monevator.com/the-permanent-portfolio/


I won't reiterate everything in the article as it's worth a read by itself. I'll just highlight some of the points:


A Permanent Portfolio is made up of:


25% in cash
25% in gold
25% in shares
25% in long-term government bonds


The idea is to rebalance the portfolio once a year, to take advantage of when certain parts peak and dip.


What really piqued my interest was that if you had been invested from 1970 in the UK then you would have seen an annual return of 5%. Contrast that with a portfolio that has 60% shares and 40% bonds at 5.9% annual return, though with much higher volatility. So yes, the returns are higher but the ride's a lot rougher too.


Currently in my SIPP I have 80% shares and 20% bonds. I still have a good 20 years or so before I plan to access any money in the SIPP, but maybe adding some gold to the mix would help with the volatility, due to its negative correlation with shares? I can't really see myself holding cash in a SIPP.


What do y'all think of the permanent portfolio?

jamei305

If you can't access the money for 20 years, why would you want to reduce volatility?

dunstonh

25% in cash
25% in gold
25% in shares
25% in long-term government bonds


The idea is to rebalance the portfolio once a year, to take advantage of when certain parts peak and dip.

What shares?
What Government bonds?
Where is the cash? Is that before or after taxation (and the many changes in taxation that have taken place)

What really piqued my interest was that if you had been invested from 1970 in the UK then you would have seen an annual return of 5%. Contrast that with a portfolio that has 60% shares and 40% bonds at 5.9% annual return, though with much higher volatility. So yes, the returns are higher but the ride's a lot rougher too.

How can you work out volatility if you dont know what shares or bonds are held?

What do y'all think of the permanent portfolio?

Too much in Gold. Govt bonds with no corp bonds or high yield bonds seems daft and we dont know what Govt bonds (UK, global, index linked or not etc) and we dont know the spread of equities.

bostonerimus

The Permanent Portfolio is just one of many "lazy portfolios". I don't like it; too much cash; too much gold and would you seriously put 25% of your portfolio in long term government bonds right now? As this was produced for US consumption the shares are usually something like S&P500 or Russell3000 and the bonds are 30 year T-bills.

TBC15

Sounds like a portfolio for someone who can’t tie his own shoe laces.Shame they only gave the chimp 4 darts.

philng

Seems a crazy split to me.

So if you had a £1m portfolio you would have £250k in Cash & only £250k in Equities???? Seems a very poor option to me.

chockydavid1983

http://monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/

Too much cash and gold in the permanent one for my liking in particular.

A_T

El_Torro wrote: »

What do y'all think of the permanent portfolio?

I think it's not going to grow much

redux

El_Torro wrote: »

What really piqued my interest was that if you had been invested from 1970 in the UK then you would have seen an annual return of 5%. Contrast that with a portfolio that has 60% shares and 40% bonds at 5.9% annual return, though with much higher volatility. So yes, the returns are higher but the ride's a lot rougher too.

If someone had cash and bonds since 1970, the interest rates might have spent some of the time at 6% to 9%

Completely irrelevant right at the moment

But that might make 5% overall sound like underperformance.

kidmugsy

Well, El Torro, you certainly provoked some pearl-clutching.

Malthusian

Regurgitating a previous post: Simultaneously a highly speculative portfolio (25% in a single commodity with no yield) and a highly cautious one (50% in cash and gilts, and only 25% in investments which can be expected to provide a long-term real return).

Long-term gilts are inherently (*edit*: in the current economic climate) unsuitable for most UK private investors as they can get higher returns from cash with less risk. Gilts are for institutional investors who don't have access to loss-leader savings accounts.

It makes literally no sense, and is an illustration of why you shouldn't take investment advice from people writing in a different country 40 years ago.