What if five ETFs were enough to build a portfolio able to weather every economic storm while beating the market? That's the promise of the Permanent Portfolio 2.0, a modernized evolution of Harry Browne's strategy, designed to combine profitability, resilience, and simplicity.
📊 February 2026 update: since its original publication in May 2023, the Permanent Portfolio 2.0 has continued to prove its strength, with a 10.32% CAGR and a 0.75 Sharpe ratio over the May 2023 - October 2025 period. It clearly outperforms the MSCI Switzerland (+3.82%) and remains more than competitive against the classic Boglehead 60/40. To go even further, discover the Permanent Portfolio 2.x, which delivers even stronger performance (13.2% CAGR).
| Strategy | CAGR (%) | Sharpe ratio |
|---|---|---|
| PP 2.0 | 10.32 | 0.75 |
| Original PP | 10.13 | 0.67 |
| PP 2.x | 13.2 | 0.82 |
| Boglehead 60/40 | 8.58 | 0.55 |
| MSCI Switzerland | 3.82 | 0.16 |
Period: 05.21.2023 - 10.30.2025
Table of Contents
- Why the PP 2.0 still holds up in 2026
- The original Permanent Portfolio
- Does the Permanent Portfolio deliver on its promises?
- Alternatives to Harry Browne's portfolio?
- What to replace cash with?
- Permanent Portfolio 2.0: composition and allocation
- Permanent Portfolio 2.1: for volatility-averse investors
- Comparing the permanent portfolios
- The real estate case
- Goal achieved?
- Comparison with the determinant portfolio
- FAQ
- Sources
Why the PP 2.0 still holds up in 2026
The 2023-2025 period was marked by a heavy concentration of stock market performance in a handful of tech megacaps, fueled by AI enthusiasm. This dynamic could tempt some investors to abandon diversified approaches in favor of maximum exposure to growth stocks.
Yet it's precisely in these moments of euphoria that permanent portfolios prove their worth. History teaches us that periods of extreme market concentration often precede sharp corrections. The PP 2.0, with 40% in stocks spread across two defensive sectors (consumer staples & healthcare) and 40% in uncorrelated assets (gold, long-term bonds), offers structural protection against these reversals.
The five ETFs making up the PP 2.0 (VDC, XLV, QQQ, GLD, TLT) remain just as relevant. VDC and XLV continue to offer remarkable stability. QQQ captures tech innovation without the excessive concentration of the megacaps. GLD remains the best insurance against rising geopolitical instability. TLT benefits from a historical, natural decorrelation from stocks, particularly valuable during crashes, even though bonds have taken a beating recently.
The current environment, persistent geopolitical tension, stretched stock valuations, makes diversification more important than ever. The PP 2.0 isn't designed to outperform during euphoric phases, but to weather every economic cycle calmly. With rigorous annual rebalancing, this approach lets you stay the course toward financial independence without the emotional rollercoaster of concentrated markets.
The original Permanent Portfolio
Harry Browne's original Permanent Portfolio is to the stock market what an all-season tire is to a car: it aims to deliver gains in any environment, with almost always positive returns and low volatility. Its creator's idea is that each type of economic cycle has an asset that can shine.
According to Browne, asset class performance varies based on the economic cycle and consumer price trends. Stocks love growth, cash loves recession, gold likes inflation, and bonds thrive on deflation.
| Inflation | Deflation | |
|---|---|---|
| Growth | Stocks & Gold | Stocks & Bonds |
| Recession | Gold & Cash | Bonds & Cash |
Since anticipating these periods is difficult, Harry Browne recommends putting 1/4 of your wealth in each of these assets and rebalancing once a year.
Does the Permanent Portfolio deliver on its promises?
To get a clear answer, I compared, in my book, the results of the PP against a simple approach of putting everything into real estate. Over the very long term, real estate does in fact show performance close to that of stocks (7% net of inflation), with volatility close to that of long-term treasury bonds.
My backtests showed that the PP added no value over the 100% real estate approach. What's more, despite its "all-weather" reputation, it went through four negative years since 2013, which is worse than real estate and even worse than a stocks-only portfolio.
So why bother with the permanent portfolio at all, when a single real estate ETF like VNQ would do? Over the very long term, this strategy does work better. However, since the subprime crisis, US real estate has lost some of its shine: its returns have dropped even as its volatility increased. We'll look at the exact numbers further down.
Alternatives to Harry Browne's portfolio?
As a result, I looked for a new permanent-type portfolio, aiming to achieve performance as good as the stock market, with much more acceptable volatility, close to that of treasury bonds, and with as few ETFs as possible.
In Browne's original portfolio, one asset is particularly problematic: cash. In times of runaway inflation, keeping a quarter of your assets in cash is financial heresy.
Marc Faber ("Dr. Doom"), a Swiss investment analyst, proposed replacing the cash allocation with real estate, which slightly increases returns without hurting volatility. However, as we've seen, real estate has also lagged for some time.
What to replace cash with?
I worked around this problem by increasing the stock allocation and replacing it with sector ETFs, rather than targeting the whole market. The chosen sectors needed to be profitable over the long term, but also low-volatility and/or weakly correlated with other assets, in order to reduce the portfolio's overall volatility.
Drawing on the research from my book and for the determinant portfolio, I settled on:
- consumer staples (VDC ETF)
- healthcare (XLV ETF)
This duo is completed by the Nasdaq 100 (QQQ ETF), primarily tech-focused, but also covering consumer services, public health, consumer goods, and a bit of industry.
Permanent Portfolio 2.0: composition and allocation
To these 3 ETFs, we add gold (GLD) and US treasury bonds (TLT), already present in Browne's portfolio. Everything is split evenly, 20% per position, with annual rebalancing:
I tested various weightings trying to optimize the portfolio. However, it's hard to really do better than the simple equal-weighted allocation without sacrificing return for volatility (or vice versa). The Sharpe ratio is thus nearly maximal with an equal-weighted allocation.
With the PP 2.0, you get a return very slightly above the market, with volatility barely higher than the original permanent portfolio (detailed statistics are shown further below).
The PP 2.0 is a heavily simplified version of the determinant portfolio without Trading Auto Signal.
Permanent Portfolio 2.1: for volatility-averse investors
For investors who are particularly averse to volatility, it's possible to further reduce the PP 2.0's volatility while preserving as much return as possible. To do this, we add one more ETF, or rather, subtract one by short-selling the EFA ETF. This ETF tracks the MSCI EAFE index, i.e. developed-market stocks outside North America.
We short EFA to the tune of 50% of the portfolio's value. The proceeds of the sale stay in cash. All other positions remain identical to the PP 2.0.
Almost the entire stock position (60%) is thus hedged by the short position. Let's look below at the concrete implications for performance and volatility.
I also tested the variant that reinvests the short-sale proceeds into the other ETFs rather than leaving it in cash. This slightly increases returns, but disproportionately relative to the added risk (the Sharpe ratio collapses).
The PP 2.1 is a very stripped-down version of the determinant portfolio with Trading Auto Signal.
Comparing the permanent portfolios
In a backtest covering January 2005 to April 2023, I compared the three permanent portfolios against real estate and the stock market. Here are the results:
| S&P 500 | Real estate | Original PP | PP 2.0 | PP 2.1 | |
|---|---|---|---|---|---|
| Annual return, net of inflation | 6.34% | 3.95% | 3.78% | 7.26% | 5.05% |
| Volatility | 15.15% | 22.33% | 7.07% | 9.29% | 6.66% |
| Sharpe ratio | 0.42 | 0.18 | 0.53 | 0.78 | 0.76 |
| Correlation with the market | 1 | 0.75 | 0.47 | 0.76 | 0.01 |
| Negative years | 3 | 5 | 4 | 3 | 1 |
| Worst year | -36.81% | -37% | -12.09% | -13.70% | -5.64% |
| Max drawdown | -50.80% | -68.30% | -15.63% | -19.52% | -8.15% |
The PP 2.0 is the best performer. It even beats the stock market (S&P 500), despite holding only 60% in stocks. It also has the best Sharpe ratio, thanks to volatility kept under control relative to its returns.
The PP 2.1 is the least volatile. Its Sharpe ratio is also excellent, thanks to a very decent return relative to its volatility. The most remarkable thing about this portfolio is its near-zero correlation with the market, thanks to the hedge (EFA short). It thus perfectly fills its role as an "all-weather" portfolio: over the 18 years observed, only one was negative, with a limited loss of -5.64%. However, its return, while higher than the original PP and real estate, remains below the market. Just over 5% net of inflation, which isn't enough to reach financial independence, I explain why in Les Déterminants de la Richesse (French-language book).
The original PP is clearly the weakest performer. And it doesn't make up for that weakness with the robustness one might expect: it suffered four negative years since 2005.
The real estate case
Real estate was disastrous over the backtest period. Note, however: we're talking here about the US index via the VNQ ETF, which suffered particularly badly between 2007 and 2009 (a peak-to-trough loss of 68%). Swiss real estate, on the other hand, via the SRFCHA ETF, shows a slightly higher return net of inflation, around 5% over the same period. Above all, its volatility stayed around 8%, nearly 3 times lower than the US index, in line with the other permanent portfolios.
SRFCHA is therefore a very good alternative for investors wanting a buy-and-hold strategy on a single ETF, which I recommend for beginners and investors with capital under CHF 25,000. Note: if you adopt a tactical asset allocation strategy (rather than buy-and-hold), as in the determinant portfolio, results are paradoxically better with VNQ than with SRFCHA.
Goal achieved?
The PP 2.0 meets the goals set: a return at least equal to the market with much more acceptable volatility (close to treasury bonds). The PP 2.1's performance is slightly lower, but offset by particularly defensive behavior and a lack of correlation with the market.
What reduces the PP 2.1's return relative to the PP 2.0 is precisely what gives it its resilient qualities: its hedge. The EFA short position behaves like insurance: you pay a premium when everything's going well and benefit from it when everything's going badly. Since indices only ever go up over the long run, the EFA short position is structurally a loser in the end. That's the price of peace of mind.
Comparison with the determinant portfolio
We've seen that these two portfolios are a simplified version of the determinant portfolio. Here are the main differences.
The stock ETFs (VDC, XLV, QQQ) of the PP 2.0 and PP 2.1 are replaced with individual stocks, through the QVM and Blue Chips strategies. These combine Quality, Value, and Momentum characteristics with companies holding a dominant position and a durable competitive advantage. These stocks complement each other based on their return, volatility, and low-correlation characteristics, to optimize the portfolio's overall result.
Hedging is used only when necessary, thanks to Trading Auto Signal. This lets you win on both fronts, on the way down as on the way up, avoiding having to hold a structurally losing position just to reduce volatility.
Gold and bonds are supplemented by other alternative assets, such as real estate and cryptocurrencies. Tactical asset allocation, via technical and economic indicators, is used to take positions in these.
According to the backtests, the determinant portfolio (with Trading Auto Signal) shows:
- an annual return, net of inflation, between 13% and 17%
- a volatility between 7% and 12%
- a Sharpe ratio between 1.4 and 1.7
The determinant portfolio holds more positions, implying more transactions and monitoring. But the payoff is worth it: it leaves every other approach far behind in terms of performance.
FAQ
Is the Permanent Portfolio 2.0 suitable for beginners?
Yes, to some extent. With just 5 ETFs and annual rebalancing, the PP 2.0 is relatively simple to set up. It's an excellent introduction to multi-asset diversification. That said, some of its components (notably TLT, long-term US bonds) can see significant volatility during periods of rising rates. For beginners or those with capital under CHF 25,000, a single ETF like SRFCHA can be a more suitable entry point.
Do you really need to rebalance every year?
Annual rebalancing is a key part of the strategy. Without it, some assets end up dominating the portfolio and diversification gradually disappears. In practice, rebalancing once a year is more than enough. Some investors opt for threshold-based rebalancing (when a position drifts more than 5% from its target allocation), but the simplicity of fixed-date annual rebalancing is often preferable, to avoid emotional decisions.
What's the difference between the PP 2.0 and the PP 2.x?
The PP 2.0 is a passive, equal-weighted 5-ETF strategy, accessible and simple to manage. The PP 2.x pushes optimization further, with additional adjustments that let it post a 13.2% CAGR and a 0.82 Sharpe ratio over the same period. It involves more monitoring, but rewards the investor with significantly better performance.
How do you fit the PP 2.0 into a FIRE strategy?
The PP 2.0 can form the core of a FIRE portfolio thanks to its robustness and low correlation to market shocks. During the accumulation phase, its ~10% CAGR lets you build capital progressively. During the withdrawal phase, its low volatility is a considerable asset: it reduces the risk of ruin tied to bad early-retirement years. Rather than mechanically applying the 4% rule, an adaptive approach like the VPW (Variable Percentage Withdrawal) method is better suited: it adjusts the withdrawal rate each year based on age, allocation, and the portfolio's actual results.
Sources
Browne, Harry. Fail-Safe Investing, St. Martin's Griffin, 2001.
Portfolio Visualizer, multi-asset backtesting tool: portfoliovisualizer.com
Invesco, QQQ ETF product page: invesco.com
SPDR Gold Shares (GLD): spdrgoldshares.com
SIX Swiss Exchange, SRFCHA ETF (Swiss real estate): six-group.com
Performance data: FactSet
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