Staying the course — Performance of the permanent portfolio since the launch of Money for Something

My book Money for Something, was released in August of 2012. While the intention of the book was to teach the simple fundamentals of investing, I decided to go one step further, and describe the specific asset allocation in which I personally invest—known as the Permanent Portfolio, that includes stocks, bonds, gold and cash.

As it happened, many of the book’s readers who subsequently got started in investing chose to invest in the Permanent Portfolio, rather than one of the alternative asset allocations such as the common “60/40” portfolio of stocks and bonds.While I think that’s a perfectly sensible choice (it’s what I would have done myself, and would choose today), it is a choice that has since tested one of the fundamental tenets of successful investing—the ability to stay the course.

Since the release of my book, here’s how the Permanent Portfolio has done compared to a typical 60/40 Stocks/Bonds portfolio:

  • August 1, 2012 through April 1, 2014 (1.5 years)
  • Permanent Portfolio → -1.3%
  • 60/40 Stocks/Bonds → +17.1%

That doesn’t look too inspiring! Imagine having invested on August 1, 2012, and over the next 1.5 years, watched your money first drop in value and only then slowly recover to just about break-even today.

But let’s now slide that 1.5 year window of time back a few years, beginning in 2007, and see what would have happened:

  • August 1, 2007 through April 1, 2009 (1.5 years)
  • Permanent Portfolio → +5.4%
  • 60/40 Stocks/Bonds → -24.6%

In this case, we see the opposite: the permanent portfolio performed well, while the 60/40 lost a quarter of its value! Ouch!

And now, let’s widen the window of time to 6.5 years, beginning in 2007, and see what happened:

  • August 1, 2007 through April 1, 2014 (6.5 years)
  • Permanent Portfolio → +33.6%
  • 60/40 Stocks/Bonds → +14.4%

Over a longer period of time, both portfolios grew positively (with the permanent portfolio doing twice as good). And this illustrates some critically important points:

  • In the short-term, all portfolio allocations can vary dramatically.
  • Successful investing happens over the long-term.
  • In the long-term, most (reasonable) portfolios will do fine.
  • What kills long-term performance, however, is constantly making changes, chasing last year’s winners.

As often stated by investing expert, William Bernstein,

Stay the course. It’s far more important in the long-term to stick with your allocation than to have picked the optimal one up front.

Agree? Disagree? What do you think?