No surprise here...for the 35th time in the last 38 years, the Permanent Portfolio (PP) finished the year with a gain.  The PP returned investors 7.1% in 2011, which was about half of last year's 13.8% return.  The PP easily outperformed the S&P 500's 2.1% return (including dividends).   

The returns for each asset category in 2011 were:
  • Stocks  +2.1%
  • Long-term bonds +17.2%
  • Gold +8.9%
  • Cash +.05%

If you're unfamiliar with the Permanent Portfolio, it's an investment strategy created by the late Harry Browne.  The portfolio is simple, it holds gold, bonds, cash and stocks in equal amounts.  Why does something this simple work so well?  Two reasons:  1)No matter the economic environment, whether we have inflation, deflation, recession, stagflation, growth etc. at least one investment is going to do well; and 2)The assets that do well more than compensate for the laggards. 

Over the last 38 years, the PP has averaged a 9.0% annual return, with only three down years, the worst being -7.1% in 2008 when the S&P 500 lost -37%.  I defy anyone to present a better investment strategy over the last four decades.  Yes, stocks have returned slightly more over that period but with much, much more volatile returns.  And that's the biggest benefit of the PP.  By removing the wild swings from your portfolio you reduce the chances that you or your advisor will make an emotional mistake and sell at the bottom or buy at the top of a market cycle.  Instead, the PP allows you to watch the value of your portfolio grow steadily without having to deal with the massive volatility that comes with investing exclusively in stocks. 

Some investors point to the long bull market in bonds and wonder how the PP will perform when bonds begin their inevitable bear market.  That's a fair question but it misses the point.  The past 38 years have proven that no matter what asset class is in a bull or bear market, the PP has a great chance of grinding out a positive return.  While past performance is not a guarantee of future results, it's hard to argue with the amazing results of the PP.

If you would like to learn whether the PP is right for you, please contact us for a free portfolio review.  There's zero pressure, no cost and we enjoy helping investors.

*Past market performance is not a guarantee of future results