US market analyst Harry Browne developed a simple portfolio strategy in the 1980s that he believed would generate returns in all market conditions. The strategy – which he called the Permanent Portfolio – allocates equal portions to stocks, long-dated bonds, gold and cash. Holdings are rebalanced back to their target weights annually.
Browne developed this idea at a time when inflation was running hot and yields on Treasuries were hitting all-time highs. Gold was hovering near record levels and US stocks were also setting records. There are obviously some similarities to the world we're in today.
The assets were designed to add protection in all possible economic scenarios. Cash provides the liquidity buffer for the portfolio and reacts quickly to rising interest rates. Long bonds will underperform when rates rise, but should provide a hedge against recession scenarios, deflation and falling rates. Gold is the traditional chaos hedge, while equities provide exposure to economic growth and, alongside gold, act as an inflation hedge.
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Browne's thesis for his portfolio was relatively simple. By combining four uncorrelated assets into a simple portfolio structure, everyday investors should find it easy to manage without paying for outside help or racking up additional fees. Automatic rebalancing also means investors buy more exposure to assets when they become cheaper and then benefit from the recovery. At the same time, expensive assets are sold, top-slicing to remove exposure and take profit.
Does the Permanent Portfolio strategy work?
Exchange-traded fund (ETF) research firm JustETF has a back-test of Browne's strategy on its website, with some tweaks to the holdings to adapt it for European investors. The stock component is any MSCI World ETF (the index is over 70% US stocks these days anyway). The long bond component is in the iShares Euro Government Bond 15-30yr ETF (Amsterdam: IBGL). Cash is the short-term euro cash rate, via the Xtrackers II EUR Overnight Rate Swap ETF (Frankfurt: XEON), while gold is the Gold Bullion Securities (LSE: GBSS).
From January 2007 to June 2026, the portfolio produced a cumulative return of 234% compared with 434% for a 100% equity portfolio and 279% for a traditional 60% stocks and 40% bonds portfolio. That's around 6.4% annualised versus 9% and 7.1% respectively. However, the Permanent Portfolio achieved this return with volatility of just 6.3% compared to 8.6% for the 60/40 portfolio and 13.5% for the equity portfolio.
In 2008, when equity markets lost nearly 50%, the portfolio's drawdown barely touched 5%. The worst performance came in 2022, as inflation rocketed. During the year, the portfolio had its worst drawdown in two decades, falling just over 10% as central banks belatedly began to raise interest rates and long bonds sold off. In short, the portfolio has protected holders from short-term losses quite well, although with lower long-term returns than from stocks (as financial theory would dictate).
A UK spin on the Permanent Portfolio strategy
A UK version of the portfolio has also fairly well, particularly during the market- regime shift we've seen over the past five years. Using the Royal London Short-Term Money Market Fund as a proxy for cash, the Vanguard UK Long Duration Gilt Index Fund for long bonds, Vanguard FTSE All Share Index for shares and GBSS for gold, the portfolio has returned a compound annual growth rate of 5.8% over the period. Long gilts have declined around 48%, but a 132% jump in gold prices has offset that. Cash has added a nice buffer due to rising interest rates and the FTSE All Share has added around 70% including dividends. The portfolio's weighted average cost is 0.17%. Both those returns and fees compare quite favourably to many ready-made and actively-managed wealth-preservation funds on the market.
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