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:

'The total return on a portfolio of investments takes into account not only the capital appreciation on the portfolio, but also the income received on the portfolio. The income typically consists of interest, dividends, and securities lending fees. This contrasts with the price return, which takes into account only the capital gain on an investment.'

Applying this definition to our asset in some examples:
  • Looking at the total return of 51.6% in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively lower, thus worse in comparison to the benchmark SPY (61.9%)
  • During the last 3 years, the total return is 29.7%, which is smaller, thus worse than the value of 41.8% from the benchmark.

CAGR:

'The compound annual growth rate (CAGR) is a useful measure of growth over multiple time periods. It can be thought of as the growth rate that gets you from the initial investment value to the ending investment value if you assume that the investment has been compounding over the time period.'

Which means for our asset as example:
  • Looking at the compounded annual growth rate (CAGR) of 8.7% in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively lower, thus worse in comparison to the benchmark SPY (10.1%)
  • During the last 3 years, the compounded annual growth rate (CAGR) is 9%, which is lower, thus worse than the value of 12.4% from the benchmark.

Volatility:

'In finance, volatility (symbol σ) is the degree of variation of a trading price series over time as measured by the standard deviation of logarithmic returns. Historic volatility measures a time series of past market prices. Implied volatility looks forward in time, being derived from the market price of a market-traded derivative (in particular, an option). Commonly, the higher the volatility, the riskier the security.'

Using this definition on our asset we see for example:
  • Looking at the volatility of 6.8% in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively smaller, thus better in comparison to the benchmark SPY (13.6%)
  • During the last 3 years, the 30 days standard deviation is 6.5%, which is lower, thus better than the value of 12.8% from the benchmark.

DownVol:

'Downside risk is the financial risk associated with losses. That is, it is the risk of the actual return being below the expected return, or the uncertainty about the magnitude of that difference. Risk measures typically quantify the downside risk, whereas the standard deviation (an example of a deviation risk measure) measures both the upside and downside risk. Specifically, downside risk in our definition is the semi-deviation, that is the standard deviation of all negative returns.'

Which means for our asset as example:
  • Compared with the benchmark SPY (14.8%) in the period of the last 5 years, the downside risk of 7.5% of Enhanced Permanent Portfolio Strategy is lower, thus better.
  • During the last 3 years, the downside volatility is 7.5%, which is lower, thus better than the value of 14.4% from the benchmark.

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 (0.56) in the period of the last 5 years, the ratio of return and volatility (Sharpe) of 0.91 of Enhanced Permanent Portfolio Strategy is larger, thus better.
  • During the last 3 years, the Sharpe Ratio is 1.01, which is higher, thus better than the value of 0.77 from the benchmark.

Sortino:

'The Sortino ratio measures the risk-adjusted return of an investment asset, portfolio, or strategy. It is a modification of the Sharpe ratio but penalizes only those returns falling below a user-specified target or required rate of return, while the Sharpe ratio penalizes both upside and downside volatility equally. Though both ratios measure an investment's risk-adjusted return, they do so in significantly different ways that will frequently lead to differing conclusions as to the true nature of the investment's return-generating efficiency. The Sortino ratio is used as a way to compare the risk-adjusted performance of programs with differing risk and return profiles. In general, risk-adjusted returns seek to normalize the risk across programs and then see which has the higher return unit per risk.'

Which means for our asset as example:
  • Looking at the excess return divided by the downside deviation of 0.82 in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (0.51)
  • Looking at ratio of annual return and downside deviation in of 0.87 in the period of the last 3 years, we see it is relatively greater, thus better in comparison to SPY (0.68).

Ulcer:

'The ulcer index is a stock market risk measure or technical analysis indicator devised by Peter Martin in 1987, and published by him and Byron McCann in their 1989 book The Investors Guide to Fidelity Funds. It's designed as a measure of volatility, but only volatility in the downward direction, i.e. the amount of drawdown or retracement occurring over a period. Other volatility measures like standard deviation treat up and down movement equally, but a trader doesn't mind upward movement, it's the downside that causes stress and stomach ulcers that the index's name suggests.'

Using this definition on our asset we see for example:
  • The Ulcer Ratio over 5 years of Enhanced Permanent Portfolio Strategy is 3.26 , which is lower, thus better compared to the benchmark SPY (4.01 ) in the same period.
  • During the last 3 years, the Ulcer Index is 3.28 , which is lower, thus better than the value of 4.08 from the benchmark.

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.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (-19.3 days) in the period of the last 5 years, the maximum reduction from previous high of -9.1 days of Enhanced Permanent Portfolio Strategy is larger, thus better.
  • During the last 3 years, the maximum reduction from previous high is -9.1 days, which is greater, thus better than the value of -19.3 days from the benchmark.

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) in days.'

Applying this definition to our asset in some examples:
  • Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum days under water of 289 days of Enhanced Permanent Portfolio Strategy is larger, thus worse.
  • Looking at maximum days below previous high in of 289 days in the period of the last 3 years, we see it is relatively higher, thus worse in comparison to SPY (139 days).

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.'

Using this definition on our asset we see for example:
  • The average days below previous high over 5 years of Enhanced Permanent Portfolio Strategy is 75 days, which is higher, thus worse compared to the benchmark SPY (41 days) in the same period.
  • Looking at average days below previous high in of 77 days in the period of the last 3 years, we see it is relatively greater, thus worse in comparison to SPY (35 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.