Last updated: April 2026
The Permanent Portfolio, developed by Harry Browne in the 1980s, proposes a unique asset allocation: 25% stocks, 25% long-term bonds, 25% gold and 25% cash. This defensive strategy aims to protect your capital across all economic cycles — growth, recession, inflation and deflation — with annual rebalancing. Our 1978-2024 backtests compare its performance against the S&P 500 and the 60/40 portfolio, analysing CAGR, volatility and maximum drawdown.
The Permanent Portfolio: core principles
The philosophy of the Permanent Portfolio (PP) rests on a simple premise: no investor can reliably predict how financial markets will evolve. The strategy recognises four distinct economic environments — growth, recession, inflation and deflation — and builds a portfolio resilient enough to navigate all of them.
Harry Browne designed this strategy on the principle that each asset class reacts differently depending on the economic context. The objective is to construct a sufficiently diversified portfolio to prosper in any situation. This means strategic rather than tactical diversification — no market timing, no frequent arbitrage, just a constant long-term allocation.
The approach prioritises capital preservation while targeting modest but consistent growth. It is particularly suited to investors seeking stability and wishing to minimise the risk of significant losses.
The four pillars and their corresponding ETFs
The first pillar is equities, which excel during periods of economic prosperity. Stocks represent growth and allow investors to capture value creation from companies. As demonstrated in our previous backtests, SPY is the optimal choice here.
The second pillar consists of long-term bonds, which perform particularly well during deflation. They provide regular income and protection against falling interest rates. TLT (US government bonds with 20+ year maturity) best matches Browne's criteria. We will also test a variant using CSBGC0 (Swiss government bonds with medium maturity).
The third pillar is gold, serving as protection against inflation and geopolitical crises. This precious metal has historically acted as a safe haven during periods of uncertainty. GLD and IAU are the best choices — our backtests use GLD, though results would be identical with IAU.
The fourth pillar is cash (or equivalents), providing stability during recessions and enabling investors to seize opportunities as they arise. Options range from holding cash directly in your chosen currency to short-duration ETFs such as Treasury Bills. Our backtests use FXF (CHF cash) and BIL (1-3 month Treasury Bills), as well as a SHY (1-3 year Treasury Bonds) variant.
Asset correlations
These four assets were selected with great care by Harry Browne. They display low or even negative correlations with one another, which gives the portfolio its resilience during crisis periods.
Equal allocation: 25% per asset class
The equal allocation across four asset classes is a defining characteristic of the Permanent Portfolio. Each component receives exactly 25% of the total allocation. This equal distribution reflects humility in the face of markets and the impossibility of predicting which economic environment will dominate in the future. It also avoids behavioural biases linked to overweighting any particular asset class.
The simplicity of this allocation makes the portfolio easy to manage and reduces transaction costs. The balance between components creates an optimal diversification effect, where positive performance from one asset class can offset negative performance from another.
Annual rebalancing: maintaining proportions
Rebalancing is an essential component of the Permanent Portfolio. It consists of regularly returning each asset class to its 25% target weighting — typically once per year. This process maintains the desired risk level, forces a disciplined sell-high/buy-low behaviour, and prevents emotional decision-making. It also allows the portfolio to capitalise on market volatility while maintaining constant exposure to each asset class.
Advantages and limitations of the Permanent Portfolio
The key advantages include simplicity of implementation, minimal maintenance and reduced stress from investment decisions — which in turn limits the impact of behavioural biases. The strategy demonstrates remarkable stability and offers excellent protection against various economic risks. Its crisis resilience is particularly striking:
| Market crisis period | Start | End | PP (USD) | S&P 500 (USD) |
|---|---|---|---|---|
| Black Monday | September 1987 | November 1987 | -6.06% | -29.78% |
| Dot-com bubble burst | March 2000 | October 2002 | -4.94% | -44.82% |
| Subprime crisis | November 2007 | March 2009 | -13.49% | -50.97% |
| COVID crash | January 2020 | March 2020 | -1.63% | -19.63% |
However, the Permanent Portfolio has real limitations. The significant allocation to low-yielding assets — particularly cash — can weigh on overall performance during periods of strong economic growth. The strategy may also appear too conservative for younger investors or those with a very long investment horizon and higher risk tolerance.
Portfolio evaluation metrics
For our backtests, we use five indicators. The CAGR (Compound Annual Growth Rate) measures annualised return. The Sharpe ratio measures risk-adjusted return. The SD (standard deviation) measures volatility — a high SD indicates greater variability in returns and therefore higher risk. The MDD (Maximum Drawdown) represents the largest loss from peak to trough expressed as a percentage. Finally, the YLR (Years Lost Ratio) measures the percentage of years showing negative returns — a key indicator for a strategy whose primary goal is to perform across all economic conditions.
Backtests
1978-2024 (asset classes, USD)
Since the first ETF (SPY) only launched in 1993, this first batch uses asset classes directly to extend the backtest to 47 years. We compare the PP against the S&P 500 and the 60/40, which shares the PP's defensive vocation.
| Backtest 1978-2024 (USD) | CAGR | Sharpe | SD | MDD | YLR |
|---|---|---|---|---|---|
| 25% US Large Caps + 25% Gold + 25% Long-Term Treasuries + 25% Cash | 8.04% | 0.52 | 7.21% | -15.33% | 17% |
| S&P 500 | 11.90% | 0.54 | 15.16% | -50.97% | 17% |
| 60% US Large Caps + 40% Long-Term Treasuries | 10.41% | 0.59 | 10.60% | -26.96% | 15% |
Key findings:
- The PP shows a lower CAGR than both the S&P 500 and the 60/40 — the latter gap is notably significant.
- The relatively low CAGR directly impacts the Sharpe ratio, which lags both benchmarks.
- The PP is by far the least volatile portfolio — volatility is more than twice lower than the S&P 500.
- The maximum drawdown results are even more striking: the PP's worst loss is more than three times smaller than the S&P 500's and nearly twice smaller than the 60/40's.
- Over the period, 17% of years were negative for the PP — the same as the S&P 500, and worse than the 60/40 (15%). For a strategy designed to perform across all economic cycles, this is somewhat disappointing.
The PP's strength lies primarily in its shock-absorption capacity, evidenced by its volatility and MDD figures. The price paid in terms of profitability is substantial. Another illustration: the PP outperforms the S&P 500 91% of the time in bear markets, but only 17% of the time in bull markets. Since bull markets are (fortunately) more frequent, this directly impacts the CAGR.
1995-2024 (ETFs: SPY, GLD, TLT, SHY — CHF)
This batch uses ETFs: SPY (S&P 500), GLD (gold), TLT (long-term US bonds) and SHY (US government bonds, 1-3 year maturity) as a cash substitute. SHY does not perfectly match Browne's original criteria — which favour cash or very short-duration bonds (under 1 year) — but as shown below, results are similar or even slightly favourable to SHY. We now use CHF as the reference currency.
| Backtest 1995-2024 (CHF) | CAGR | Sharpe | SD | MDD | YLR |
|---|---|---|---|---|---|
| 25%SPY + 25%GLD + 25%TLT + 25%SHY | 5.70% | 0.40 | 9.64% | -26.00% | 24% |
| 100% SPY | 9.49% | 0.59 | 17.25% | -65.84% | 24% |
| 60%SPY + 40%TLT | 7.88% | 0.50 | 12.75% | -39.33% | 20% |
Key findings: Results broadly mirror the previous backtest — the PP absorbs shocks effectively (SD and MDD), but at the cost of CAGR and Sharpe ratio. Nearly one year in four is negative, matching the S&P 500 and worse than the 60/40. The switch to CHF as reference currency makes the MDD meaningfully worse versus the USD results, due to the long-term weakness of the dollar against the franc.
2007-2024 (ETFs: SPY, GLD, TLT, BIL, FXF, SHY, CSBGC0 — CHF)
This final batch introduces additional ETFs — for bonds: CSBGC0 (Swiss Confederation bonds, 7-15 year maturity); for cash equivalents: BIL (1-3 month Treasury Bills) and FXF (CHF cash position ETF).
| Backtest 2007-2024 (CHF) | CAGR | Sharpe | SD | MDD | YLR |
|---|---|---|---|---|---|
| 25%SPY + 25%GLD + 25%TLT + 25%BIL | 4.44% | 0.41 | 8.90% | -25.92% | 28% |
| 25%SPY + 25%GLD + 25%TLT + 25%FXF | 4.48% | 0.48 | 7.44% | -16.84% | 28% |
| 25%SPY + 25%GLD + 25%TLT + 25%SHY | 4.55% | 0.42 | 8.91% | -25.56% | 28% |
| 25%SPY + 25%GLD + 25%CSBGC0 + 25%BIL | 4.52% | 0.50 | 7.20% | -19.17% | 28% |
| 25%SPY + 25%GLD + 25%CSBGC0 + 25%FXF | 4.50% | 0.58 | 6.04% | -12.45% | 28% |
| 25%SPY + 25%GLD + 25%CSBGC0 + 25%SHY | 4.65% | 0.52 | 7.18% | -18.76% | 28% |
| 100% SPY | 8.31% | 0.51 | 15.99% | -57.06% | 22% |
| 60%SPY + 40%TLT | 6.23% | 0.49 | 11.59% | -35.77% | 28% |
Key findings:
- All PP variants remain below the S&P 500 CAGR — and below the 60/40.
- The original PP (SPY/GLD/TLT/BIL) and the SHY variant produce very similar results; SHY is even marginally better over this period.
- Replacing TLT with CSBGC0 (Swiss bonds) improves the CAGR, confirming results already observed with the 60/40.
- The CHF cash position (FXF) delivers a better Sharpe ratio than BIL or SHY.
- Combining Swiss bonds (CSBGC0) and Swiss franc cash (FXF) produces the best Sharpe ratio — including versus both benchmarks — along with the lowest volatility (6.04%) and smallest MDD (-12.45%).
- All PP variants lost money in more than one year out of four, versus barely more than one in five for the S&P 500.
The 50% Swiss PP (CSBGC0 + FXF) is therefore the best Permanent Portfolio tested. With minimal volatility (6.04%) and an entirely acceptable MDD (-12.45%), it suits investors with a very low risk tolerance. As with all Permanent Portfolios, however, this comes at the price of significantly reduced returns versus the market.
Conclusion
Harry Browne's Permanent Portfolio represents a cautious and balanced approach to long-term investing. While its performance may lag more aggressive strategies during certain market conditions, its ability to preserve capital — particularly during crisis periods — makes it an attractive option for investors prioritising peace of mind over maximum return.
In our next article, we explore several ways to go beyond Browne's original design using additional asset classes — and show whether it is possible to increase the CAGR while keeping risks under control.
Frequently asked questions
What is Harry Browne's Permanent Portfolio?
The Permanent Portfolio is an asset allocation strategy created by Harry Browne in the 1980s. It rests on an equal 25% split across four asset classes: stocks, long-term bonds, gold and cash. This diversification aims to protect capital across all economic environments (growth, recession, inflation, deflation) with simple annual rebalancing.
Why 25% in each asset in the Permanent Portfolio?
Harry Browne chose equal 25% allocations because each asset performs well in a specific economic environment: stocks in growth, bonds in deflation, gold in inflation and cash in recession. This allocation reflects humility about the impossibility of predicting which economic cycle will dominate, and avoids behavioural biases from overweighting any single asset class.
How often should you rebalance a Permanent Portfolio?
Annual rebalancing is entirely sufficient. This frequency maintains the 25/25/25/25 allocation while limiting transaction costs and tax impact. Rebalancing mechanically forces you to sell outperforming assets and buy underperforming ones, contributing to investment discipline and capitalising on market volatility.
Is the Permanent Portfolio suitable for young investors?
The Permanent Portfolio is generally considered too conservative for young investors with a long time horizon (30+ years). With 50% allocated to defensive assets (bonds + cash), the return potential is limited. Young investors can tolerate more volatility and may prefer a more aggressive allocation (80-100% equities) to maximise growth. The PP is better suited to investors approaching retirement or those with very low risk tolerance.
Can Harry Browne's Permanent Portfolio be improved?
Yes — our backtests show that replacing US bonds with Swiss bonds (CSBGC0) and US cash with CHF cash (FXF) produces the best Sharpe ratio, lowest volatility and smallest maximum drawdown of all variants tested. More broadly, the PP 2.x goes further by integrating an equity triad and Swiss real estate, delivering +3.6% additional annualised return with comparable stability.
Sources and data
- PortfolioVisualizer — backtests and performance data
- Portfolio123 — CHF backtests
- Harry Browne, Fail-Safe Investing (2001) — original Permanent Portfolio methodology
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