1. Using figures from the 9 year chart on my blog post:
I constructed following scenario: Start Permanent Portfolio in Jan 2003, and see what is the result 9 years later on Jan 2012 if portfolio is left untouched throughout 9 years.
The above portfolio is started with following assets in Jan 2003:
25% Singapore STI stock market index (or theoretical STI ETF),
25% TLT (iShares Barclays 20+ Yr Treas.Bond ETF), price converted to SGD,
25% gold - price converted to SGD,
25% cash - assume no bank/FD interest, for simplicity of calculation.
2. The second scenario is when investor picked the height of stock market on Jan 2008 to start a Permanent Portfolio, experienced the major recession from Jan 2008 to Jan 2009, and see how portfolio performs to date on Jan 2012, without any management for the 4 years:
This unmanaged portfolio returns is possible due to effective diversification of portfolio assets. Stock, govt long bond, gold, and cash have low or negative correlations, and together, they react dynamically to the 4 economic cycles of growth, recession, deflation, and inflation to produce overall portfolio growth through time. Each of stock, govt long bond (20~30yrs), and gold have similar high volatility, and would perform well in their preferred cycle to shoulder up the portfolio when the other assets may be dropping. Also, when starting portfolio, if one asset is very expensive, one of the other asset will likely be very cheap - so through time, the rising cheap asset will offset the droppig expensive asset.
Permanent Portfolio is normally rebalanced yearly. The above scenario serves as an interesting exercise to see if Permanent Portfolio would survive for long time if left unmanaged. The simulation results suggests that theoretically and practically, Permanent Portfolio investment strategy can provide returns if left unmanaged for long period of time. This is of course precluding rare extreme events such as hyperinflation and 20 years secular bear market in stocks. That said, even in such extreme events as hyperinflationa and 20 year secular bear market, damage to portfolio will likely be limited and portfolio will still have some remaining value due to diversification.
So, any investor planning to go on a 10-year vacation yet? :)