Pravda Analytics

Self-Directed Asset Allocation

Permanent Portfolio Strategy

The Pravda Analytics Permanent Portfolio Strategy is a simple, straightforward portfolio consisting of three equally-weighted assets. Here we’ll look at its components, historical performance, and the best ETFs to use in its implementation.

Do you worry that you’re not paying enough attention to your investments? Do you feel left out when you hear about the clever things other investors seem to be doing? Relax. You don’t have to become an investment genius to protect your savings. Distilling the wisdom of markets and experience into lessons that can be applied in ten minutes, Pravda Analytics shows you what you need to know to make your savings and investments safe and profitable, no matter what the economy and the investment markets do. There are no secret trading systems here, no jargon to learn.

The quickie

  • The objective of a permanent portfolio is to perform well in any economic condition through diversity.
  • A permanent portfolio is composed of equal parts stocks, bonds, gold, and cash.
  • Historical performance has shown a permanent portfolio to perform well in the long-term but not as well as a traditional 60/40 stock-bond portfolio.
  • The advantage is that a permanent portfolio reduces losses in market downturns, which may be beneficial for certain investors.

What is the Permanent Portfolio?

The portfolio consists of three equally weighted asset classes: Equities, Bonds, and Gold.

Why

Not unlike the All-Weather Portfolio from Dalie, the Permanent Portfolio was designed to be a simple, diversified portfolio that could perform well in all economic conditions. Once you set it up, you never need to change the investment mix— even if your outlook for the future changes.

Having only three assets at equal weights, it is easily accessible and understandable. Those three assets’ expected behaviors correspond to economic conditions as follows:

  • Stocks – economic expansion
  • Bonds – deflation
  • Gold – inflation

Once you set it up, you never need to change the investment mix— even if your outlook for the future changes.

Permanent Portfolio ETFs

  • Stocks – SPY
  • Bonds – TLT
  • Gold – GLD

Performance

Since 2009, Pravda Analytics Permanent Portfolio Strategy has outperformed the S&P500 as well as the 60/40 split. More impressively, the strategy experiences a maximum drawdown of 18% as compared to the equity market correcting over 51%.

The Sortino Ratio is over 1.40 and outperforms the benchmarks. Most professional portfolio managers pay more attention to the Sortino Ratio as opposed to the Sharpe ratio. The Sortino ratio is a more accurate representation of risk and performance. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset’s standard deviation of negative portfolio returns—downside deviation—instead of the total standard deviation of portfolio returns.