This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Is the 'Permanent Portfolio' Permanently Broken?

NEW YORK (TheStreet) -- During the depths of the bear market that followed the financial crisis, some investors desperately sought alternatives to the typical equity portfolio. 

One solution, which dates back to the 1980s, is called the "permanent portfolio." In its purest form, this means allocating equal 25% portions to equities (via a broad-based index fund), gold, long-dated bonds and cash. The portfolio is rebalanced once a year.

The basic premise is that one of the four asset classes will always perform well.

The Permanent Portfolio (PRPFX) is a traditional mutual fund based on the permanent portfolio that started trading 30 years ago. More recently the Global X Permanent ETF (PERM) brought the concept to the market in an ETF wrapper.

Both funds are allowed to deviate slightly from the fixed allocation. PRPFX is an actively managed fund. The most recent information from Morningstar shows a bit more than 30% in equities while and the fixed-income exposure currently is invested in shorter maturities as opposed to long-dated bonds.

PERM stays pretty true to the original idea. It holds long-term bonds and uses short-term Treasuries as a proxy for cash, but it includes silver in the precious metals allocation. It also has a globally diversified portfolio of individual stocks that include REITs, instead of a simple index fund.

PERM has only been trading for two years. That isn't very long, of course, but PRPFX has a very long track record, and the long-term performance has been outstanding. For the last 10 years it has slightly outperformed the S&P 500, but with much lower volatility, and for 20 years it has lagged behind the S&P 500. Because of its very low volatility, however, it didn't go down from 2000-2002.

Contributing to PRPFX's success has been the long bull market for bonds and the 10-year rally in gold that ended in 2011.

Things have not worked out well for the permanent portfolio in 2013 regardless of how it was implemented. According to Google Finance, PRPFX is down 1.8% this year while PERM is down 7.5%. PERM's relative underperformance is probably a result of it's holdings of REITs, silver and longer-dated bonds.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
PERM $24.70 -0.10%
AAPL $124.43 -1.54%
FB $82.22 -1.18%
GOOG $548.00 -0.73%
TSLA $188.77 -0.94%


DOW 17,776.12 -200.19 -1.11%
S&P 500 2,067.89 -18.35 -0.88%
NASDAQ 4,900.8850 -46.5560 -0.94%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs