Joe S. wrote:...or maybe
25/25/25/25 TSM/Long Bonds/Cash/GOLD (~The permanent portfolio)
I may also point out that I allege that the period 1971-2011 was a period where the return of gold was aberrantly high.
Calculate the yearly average of each of the four Permanent Portfolio assets since 1972, and then calculate the average of those four averages .... and you'll have a result that is close to what the Permanent Portfolio averaged over those years. i.e. the Permanent Portfolio provides the weighted average reward of the four assets.
Since 1972 both gold and Long Bonds have provided above average returns. Stocks and cash were more in alignment with longer term averages. The choice of rebalance bands (40%) was also favourable. Potentially that might reverse going forward, with long bonds and gold perhaps providing below average returns (mean reversion), and/or the choice of rebalance bands might work more unfavourably (after rebalancing if the prior trend subsequently continues it would have been better to have deferred rebalancing, if the trend subsequently reverses then it was better to have rebalanced).
Assuming longer term averages of stocks 5% real, long bonds 2% real, cash and gold 0% real, a fair expectancy for the Permanent Portfolio is 1.75% real. Given a 5% real reward from the Permanent Portfolio since 1972, a mean reversion could involve enduring a phase of -3.25% real. Add 2% to 4% withdrawals for a retired investor on top of that and a decade into retirement might see less than 50% of the original investment amount remaining - and perhaps having to draw a 8% yearly amount to maintain prior income/spending power.
As ever, when an asset or combination of assets has performed well there are those investors who will be attracted to buy that asset/portfolio in expectation that they'll achieve similar historic rewards going forward. Sooner or later they'll be disappointed and typically will sell at a loss to hunt out the next in-vogue.
It would perhaps be easier for you to simply evaluate the weighted average expectancy of each asset allocation. Three fund 33% domestic stocks, 33% foreign stocks, 34% bonds for instance might be assessed as the average of 5, 5, 2 (=4%) real reward expectancy.