An evergreen strategy for building wealth
A tried-and-tested strategy that outperforms during market chaos.
🛑 Has the current market meltdown gotten you worried?
Been stressed about the US stock market lately? It may be a sign that your investments are over-exposed to risk.
If you are looking for a low-stress investing strategy that works in all market conditions, then read on.
💰️ The humble ‘Permanent Portfolio’
The ‘Permanent Portfolio’ was conceptualized by Harry Browne, an investment advisor in the 1980s. Harry believed that there were 4 key economic cycles.
Growth: Periods of economic prosperity.
Recession: Periods of economic decline.
Inflation: When prices are going up.
Deflation: When prices are going down.
In order to do well in all of these scenarios, he recommended the following mix:
25% Stocks: For profit during periods of growth
25% Cash: For protection during recessions
25% Gold (precious metals): For protection during inflation
25% Bonds: For profit during deflation
Harry theorized that such a portfolio would provide profit and protection in all types of economic conditions.
📈 How does the ‘permanent portfolio’ perform?
Note: Past performance is not a guarantee or indication of future returns. Returns do not account for fees, taxes or other expenses. All performance figures shown are hypothetical and not from an actual trading account.
We back-tested this strategy from Jan 01, 1987 - Apr 11, 2025 (37+ years)1
Permanent Portfolio | Vanguard 500 Index Investor (S&P 500) | |
|---|---|---|
Annual Return (CAGR) | 6.01% | 10.61% |
Worst Year | -7.6% | -37.02% |
The permanent portfolio returned a steady ~6% annually. During its worst year, it returned -7.6%, a stunning performance compared to -37% returned by the S&P 500
📉 Performance During Market Stress Periods
During some of the biggest market stress periods in history, the permanent portfolio provided terrific peace of mind & outperformance.
Stress Period | Permanent Portfolio | Vanguard 500 Index Investor (S&P 500) |
|---|---|---|
Black Monday (Sep 1987 - Nov 1987) | -4.6% | -29.78% |
Asian Crisis (Jul 1997 - Jan 1998) | -2.7% | -5.61% |
Russian Debt Default (Jul 1998 - Oct 1998) | -5.37% | -15.38% |
Dotcom Crash (Mar 2000 - Oct 2002) | -4.96% | -44.82% |
Subprime Crisis (Nov 2007- Mar 2009) | -15.07% | -50.97% |
Covid-19 Start (Jan 2020 - Mar 2020) | -5.04% | -19.63% |
Even during the worst stock market meltdown, it never lost more than ~15%. In contrast, the S&P 500 lost more than 50%.
🚀 Performance this year (Jan 1 - Apr 9)
This year, the permanent portfolio is showing its value during extreme market stress.
Permanent Portfolio: + 5.06%
Vanguard 500 Index Investor (S&P 500): -8.5%
🏗️ So, how can we implement it?
We can construct a version of the ‘Permanent Portfolio’ with just 4 low-cost index funds. And allocate 25% to each fund.
ACWI : Passive global stock ETF (Harry preferred US stocks. We prefer investing globally)
BND: Passive US total bond market ETF
GLD: Passive ETF that tracks the price of Gold
BIL: Passive ETF that invests in T-bills (equivalent to cash).
And that’s it.
The beauty of the permanent portfolio is its simplicity. Anyone can implement this strategy in a brokerage or retirement account.
The only management needed is a yearly re-balance to maintain the 25% target allocation for each fund.
🦄 Why does it work?
It works because it’s deceptively simple. By limiting exposure to each major asset class at 25%, no single asset class can tank the portfolio completely.
All too often, investors spend way too much time obsessing about individual investments. And too little time thinking about their overall strategy.
However, a well thought-out portfolio strategy can have much greater lifetime impact.
🙋 Who should use it?
This simple, no-frills approach is great for investors who want to grow their money while keeping stress low.
Some scenarios where it might be useful are:
You are saving for a large purchase such as a home over the next 3-5 years
Your kids are going to college in the next 3-5 years. You still need to grow their college fund, but cannot risk big losses
You are about to retire or just retired, and want greater peace of mind
If you are looking for steady returns & are able to tolerate moderate fluctuations, you would be hard pressed to find a better strategy.
Sumeet Ganju Sumeet Ganju is the founder of InverseWealth, a fee-only fiduciary RIA, where he helps tech operators and founders turn concentrated equity into lasting wealth. He writes here most Sundays.