Description of Enhanced Permanent Portfolio Strategy

The classic permanent portfolio was created by Harry Browne. The idea was that a portfolio should be diversified enough to get you through a wide variety of economic and market environments and simple enough that even a child could do it. Originally it consisted of the following allocations:

  • 25% in U.S. stocks
  • 25% in long-term bonds
  • 25% in gold
  • 25% in cash

The Logical Invest permanent portfolio is somewhat more sophisticated, rebalances monthly and is not always split evenly across the three main assets. It can adapt to market conditions by putting more weight on gold or treasuries and less on equity depending on market conditions.

Methodology & Assets
  • US Market (SPY: S&P 500 SPDRs)
  • Long Duration Treasuries (TLT: iShares 20+ Year Treasury Bond)
  • Gold (GLD: Gold Shares SPDR)

Statistics of Enhanced Permanent Portfolio Strategy (YTD)

What do these metrics mean? [Read More] [Hide]

TotalReturn:

'Total return is the amount of value an investor earns from a security over a specific period, typically one year, when all distributions are reinvested. Total return is expressed as a percentage of the amount invested. For example, a total return of 20% means the security increased by 20% of its original value due to a price increase, distribution of dividends (if a stock), coupons (if a bond) or capital gains (if a fund). Total return is a strong measure of an investment’s overall performance.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (72.2%) in the period of the last 5 years, the total return, or increase in value of 45.9% of Enhanced Permanent Portfolio Strategy is smaller, thus worse.
  • During the last 3 years, the total return, or performance is 26.4%, which is lower, thus worse than the value of 48.3% from the benchmark.

CAGR:

'Compound annual growth rate (CAGR) is a business and investing specific term for the geometric progression ratio that provides a constant rate of return over the time period. CAGR is not an accounting term, but it is often used to describe some element of the business, for example revenue, units delivered, registered users, etc. CAGR dampens the effect of volatility of periodic returns that can render arithmetic means irrelevant. It is particularly useful to compare growth rates from various data sets of common domain such as revenue growth of companies in the same industry.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (11.5%) in the period of the last 5 years, the compounded annual growth rate (CAGR) of 7.8% of Enhanced Permanent Portfolio Strategy is smaller, thus worse.
  • During the last 3 years, the annual return (CAGR) is 8.1%, which is lower, thus worse than the value of 14.1% from the benchmark.

Volatility:

'Volatility is a rate at which the price of a security increases or decreases for a given set of returns. Volatility is measured by calculating the standard deviation of the annualized returns over a given period of time. It shows the range to which the price of a security may increase or decrease. Volatility measures the risk of a security. It is used in option pricing formula to gauge the fluctuations in the returns of the underlying assets. Volatility indicates the pricing behavior of the security and helps estimate the fluctuations that may happen in a short period of time.'

Applying this definition to our asset in some examples:
  • The volatility over 5 years of Enhanced Permanent Portfolio Strategy is 6.7%, which is lower, thus better compared to the benchmark SPY (13.2%) in the same period.
  • During the last 3 years, the volatility is 6.3%, which is lower, thus better than the value of 12.4% from the benchmark.

DownVol:

'The downside volatility is similar to the volatility, or standard deviation, but only takes losing/negative periods into account.'

Using this definition on our asset we see for example:
  • The downside risk over 5 years of Enhanced Permanent Portfolio Strategy is 7.4%, which is lower, thus better compared to the benchmark SPY (14.5%) in the same period.
  • Looking at downside deviation in of 7.3% in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (14.1%).

Sharpe:

'The Sharpe ratio (also known as the Sharpe index, the Sharpe measure, and the reward-to-variability ratio) is a way to examine the performance of an investment by adjusting for its risk. The ratio measures the excess return (or risk premium) per unit of deviation in an investment asset or a trading strategy, typically referred to as risk, named after William F. Sharpe.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (0.68) in the period of the last 5 years, the risk / return profile (Sharpe) of 0.8 of Enhanced Permanent Portfolio Strategy is greater, thus better.
  • Compared with SPY (0.93) in the period of the last 3 years, the Sharpe Ratio of 0.89 is lower, thus worse.

Sortino:

'The Sortino ratio improves upon the Sharpe ratio by isolating downside volatility from total volatility by dividing excess return by the downside deviation. The Sortino ratio is a variation of the Sharpe ratio that differentiates harmful volatility from total overall volatility by using the asset's standard deviation of negative asset returns, called downside deviation. The Sortino ratio takes the asset's return and subtracts the risk-free rate, and then divides that amount by the asset's downside deviation. The ratio was named after Frank A. Sortino.'

Using this definition on our asset we see for example:
  • Looking at the ratio of annual return and downside deviation of 0.72 in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively higher, thus better in comparison to the benchmark SPY (0.62)
  • Compared with SPY (0.82) in the period of the last 3 years, the downside risk / excess return profile of 0.77 is smaller, thus worse.

Ulcer:

'The Ulcer Index is a technical indicator that measures downside risk, in terms of both the depth and duration of price declines. The index increases in value as the price moves farther away from a recent high and falls as the price rises to new highs. The indicator is usually calculated over a 14-day period, with the Ulcer Index showing the percentage drawdown a trader can expect from the high over that period. The greater the value of the Ulcer Index, the longer it takes for a stock to get back to the former high.'

Which means for our asset as example:
  • Compared with the benchmark SPY (3.95 ) in the period of the last 5 years, the Ulcer Index of 3.26 of Enhanced Permanent Portfolio Strategy is lower, thus worse.
  • Compared with SPY (4 ) in the period of the last 3 years, the Downside risk index of 3.28 is smaller, thus worse.

MaxDD:

'A maximum drawdown is the maximum loss from a peak to a trough of a portfolio, before a new peak is attained. Maximum Drawdown is an indicator of downside risk over a specified time period. It can be used both as a stand-alone measure or as an input into other metrics such as 'Return over Maximum Drawdown' and the Calmar Ratio. Maximum Drawdown is expressed in percentage terms.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum drop from peak to valley of -9.1 days of Enhanced Permanent Portfolio Strategy is larger, thus better.
  • Compared with SPY (-19.3 days) in the period of the last 3 years, the maximum reduction from previous high of -9.1 days is larger, thus better.

MaxDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Max Drawdown Duration is the worst (the maximum/longest) amount of time an investment has seen between peaks (equity highs). Many assume Max DD Duration is the length of time between new highs during which the Max DD (magnitude) occurred. But that isn’t always the case. The Max DD duration is the longest time between peaks, period. So it could be the time when the program also had its biggest peak to valley loss (and usually is, because the program needs a long time to recover from the largest loss), but it doesn’t have to be'

Applying this definition to our asset in some examples:
  • The maximum days under water over 5 years of Enhanced Permanent Portfolio Strategy is 289 days, which is higher, thus worse compared to the benchmark SPY (187 days) in the same period.
  • During the last 3 years, the maximum days below previous high is 289 days, which is higher, thus worse than the value of 139 days from the benchmark.

AveDuration:

'The Drawdown Duration is the length of any peak to peak period, or the time between new equity highs. The Avg Drawdown Duration is the average amount of time an investment has seen between peaks (equity highs), or in other terms the average of time under water of all drawdowns. So in contrast to the Maximum duration it does not measure only one drawdown event but calculates the average of all.'

Which means for our asset as example:
  • The average time in days below previous high water mark over 5 years of Enhanced Permanent Portfolio Strategy is 75 days, which is greater, thus worse compared to the benchmark SPY (41 days) in the same period.
  • Looking at average days under water in of 77 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (36 days).

Performance of Enhanced Permanent Portfolio Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Enhanced Permanent Portfolio Strategy
()

Allocations

Returns of Enhanced Permanent Portfolio Strategy (%)

  • "Year" returns in the table above are not equal to the sum of monthly returns due to compounding.
  • Performance results of Enhanced Permanent Portfolio Strategy are hypothetical, do not account for slippage, fees or taxes, and are based on backtesting, which has many inherent limitations, some of which are described in our Terms of Use.