This blog covers the general topic of financial markets.

Permanent Portfolio Allocation

first posted: 2022-01-15 13:39:05.477812

As inflation narrative are fashionable since the GFC and ramping up with the pandemic, we review some steady state allocations.


Four Quadrants from Gavekal

60/40 Portfolio

This portfolio is 60% US equity, 40% UST 10Y bonds. I did a backtest some years ago using Shiller data and this portfolio showed as optimal over 100Y. The UST is one of the most anticorrelated asset to equity recently, so it probably the best second asset to put in a portfolio.

However, this portfolio does not provide protection against inflationary crisis, as theorised by Harry Browne in the 70s, the investing environment can be analysed in 4 quadrants, with an inflation vs deflation axis and a growth vs recession axis.

These quadrant are frequently mentioned as Gavekal or ReSolve quadrants, although it seems that Harry Browne had prior art.

Permanent Portfolio

This is the oldest portfolio that attempts to target the inflation blindspot it dates from the 80s, fresh with the memory of Nixon's facetious "dollar going its own way" tantrum.

The permanent portfolio is a solution proposed by Harry Browne in 1980, it is detailed in his book: Fail Safe Investing. It advocates equal weights in Stocks, Bonds, Gold and Cash with yearly rebalancing.

The Gold provides some relief in inflationary periods whereas the case for cash seems more tenuous: it performs when rates increase while inflation stays low.

All Weather Portfolio

The all-weather is a signature product for Bridgewater Associate. The allocation was perfectly aligned since the fund creation with the macro environment of lowering rates and equity strong performance.

  • 7% gold
  • 7% common
  • 15% interm bonds
  • 40% long term bonds
  • 30% stocks

The good diversification allowed the fund to leverage.

Cockroach Portfolio

In a 2012 research note, Dylan Grice reviewed the permanent portfolio and dubbed it "cockroach portfolio". Cockroaches may not get to build nuclear bombs, but they can survive one. The money will grow much slower than invested in SP500 but it will be safer.

Modern Cockroach

The above portfolio is a nice improvement on theory due to risk parity, but would you expect the same return from European and Japanese bonds in the next 30 years as in the previous 30?

Mutiny funds has been looking at the following categories:

  • equities
  • income producing assets (real estate, reits)
  • long vol
  • inflation hedges (gold, but also other precious metals, commo producers stocks, scarce crypto


Permanent portfolios with large allocation to bonds underperform a 100% equity allocation over the long term in the US. Adding gold makes the picture even worse.

The most important questions that this asks is that of investable universe (do you allow an allocation to bitcoin or trend following) and of political situation one subjects himself to. The 20th century is full of examples of partial or total confiscation ordered by States, therefore some jurisdictional diversification makes sense.

Russian stocks owners were expropriated in 1917. Even in the US, an executive order required US persons to deliver their gold to the government.