The problem with the classic Permanent Portfolio is that it has too little in stocks and too much in intermediate duration bonds. This results in a portfolio with very low volatility, but also mediocre returns. Gold has low or negative correlation to both stocks and bonds and represents a good diversifier during periods in which both stocks and bonds have poor returns, as happened in the inflationary period of the 1970s.
I compared the returns of investing $10,000 in the classic PP (25% stocks, 50% intermediate treasuries, 25% gold) to a portfolio with 50% stocks, 25% long treasuries, and 25% gold for the period 1972-2014.
Portfolio #1 is the classic PP with 25% stocks, 50% intermediate treasuries, 25% gold.
Portfolio #2 is the "modified" PP with 50% stocks, 25% long treasuries, 25% gold.
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# Initial Balance Final Balance CAGR StdDev Best Year Worst Year Max. Drawdown Sharpe Ratio 1 $10,000 $445,485 9.23% 7.85% 39.02% -4.63% -4.63% 0.56 2 $10,000 $713,478 10.43% 10.17% 42.43% -11.65% -11.65% 0.55
For my money, the modified PP with a higher stock allocation and a smaller bond allocation to long duration treasuries is superior. It provides higher long term returns with pretty low volatility, with the same risk-adjusted returns.