I was curious and I went to Portfolio Visualizer. I compared the Harry Browne Permanent Portfolio with 25% US Stocks, 25% Cash, 25% Long Treasuries, and 25% gold to a modified portfolio adding REITs. Same portfolio except I split the stock portion into two: 12.5% for US Stocks and 12.5% for REITs. The time period was from January 1994 to October 2018. REITs didn't help.azanon wrote: ↑Mon Oct 23, 2017 8:52 pmWithout re-reading the thread, a REITs question similar to that did come up. But in short and summary, I tried to reconstruct/estimate a static "all-weather" portfolio based upon the actual paper that's publicly available at Bridgewater, linked in the original post of this thread which I believe is more accurate than the Robbins one. That paper was very revealing as to what asset classes to use and gave strong clues as to how to balance those. Discussion of REITs simply doesn't come up in that paper so I wouldn't have had any basis for their inclusion in my portfolio.thejimmysmith wrote: ↑Mon Oct 23, 2017 7:32 amGreat post. I really came into investing after I read Robbins first book and learned about All Seasons then started doing an investing deep dive. I'm taking my time going through this thread and I apologize if this has already been answered but why no real estate investment trusts in this portfolio?
Harry Browne had Compound Annual Rate of Return of 6.28% compared to the modified portfolio with a CAGR of 6.25%. Harry Browne had a standard deviation of 6.02% compared to 6.36% for the modified portfolio. Best year up 18.11% for Harry Browne and 15.25% for the modified portfolio. Worst year down -2.98% for Harry Browne and -5.88% for modified portfolio. REITs not only didn't help but they hurt.
Here is an article where Harry Browne is compared to a 60% US Stocks/40% US Bonds portfolio. Time period was 1972-2014. Balanced portfolio had better performance but with more volatility.
CAGR was 9.56% for Balanced vs. 8.87% for Harry Brown. Standard deviation was 11.66% for Balanced and 7.74% for Harry Browne. Best year was 38.14% for Harry Browne and 28.75% for Balanced. Worst year was -5.43% for Harry Browne and -20.20% for Balanced. That is impressive. The article did say that adding Gold to a portfolio had better risk adjusted returns than adding commodities. The article is 6 pages.
https://seekingalpha.com/article/320632 ... -portfolio
There also gets to be a point where adding more asset classes has diminishing returns. I have made the comment many times that the pizza tastes the same no matter how many slices you cut it into. Yogi Berra once said, "Cut the pizza into 4 slices because I am not hungry enough to eat 6."
So I got even more curious. I split the pie even further. Compared the Harry Browne Portfolio, the Modified Portfolio adding REITS, and a New Improved Portfolio adding both REITs and Commodities, the results got to be really interesting. This time period is from January 2007 to October 2018. The New Improved Portfolio has 12.5% US Stocks, 12.5% REITS, 25% Cash, 25% Long Treasuries, 12.5% Gold, and 12.5% Commodities.
Harry Browne. . . . . . . . . . . . . . . . . . . . . .CAGR 5.59%. .Std Dev 6.76%. .Worst year. .-2.98%
Improved with REITs. . . . . . . . . . . . . . . . . .CAGR 5.15%. .Std Dev 7.54%. .Worst year. .-5.88%
New Improved with REITs and Commodities. . CAGR 3.81%. .Std Dev 7.18%. .Worst Year. .-8.34%
The problem here is that I could only go back here to January 2007 which was close to the end of the commodities boom. If I could have gone back further, the results would have been different.
So adding REITs did not add anything to an All-Weather portfolio. Adding Commodities is a maybe since I could not include the commodities boom from 2000-2007.
The point is, the Harry Browne Permanent Portfolio is remarkably stable and the returns are very acceptable. Pretty darned hard to improve upon. Why it works, I just don't know. Probably part of it is the rebalancing. All my examples were rebalanced once a year.