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.'

Using this definition on our asset we see for example:
  • Looking at the total return of 46.8% in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively lower, thus worse in comparison to the benchmark SPY (67.8%)
  • During the last 3 years, the total return, or increase in value is 24.7%, which is lower, thus worse than the value of 47.2% 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.'

Using this definition on our asset we see for example:
  • The annual return (CAGR) over 5 years of Enhanced Permanent Portfolio Strategy is 8%, which is lower, thus worse compared to the benchmark SPY (10.9%) in the same period.
  • During the last 3 years, the annual return (CAGR) is 7.6%, which is lower, thus worse than the value of 13.8% from the benchmark.

Volatility:

'Volatility is a statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security. In the securities markets, volatility is often associated with big swings in either direction. For example, when the stock market rises and falls more than one percent over a sustained period of time, it is called a 'volatile' market.'

Which means for our asset as example:
  • Looking at the 30 days standard deviation of 6.8% in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively lower, thus better in comparison to the benchmark SPY (13.4%)
  • Compared with SPY (12.3%) in the period of the last 3 years, the historical 30 days volatility of 6.4% is smaller, thus better.

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 7.5%, which is lower, thus better compared to the benchmark SPY (14.7%) in the same period.
  • Compared with SPY (13.9%) in the period of the last 3 years, the downside volatility of 7.4% is lower, thus better.

Sharpe:

'The Sharpe ratio is the measure of risk-adjusted return of a financial portfolio. Sharpe ratio is a measure of excess portfolio return over the risk-free rate relative to its standard deviation. Normally, the 90-day Treasury bill rate is taken as the proxy for risk-free rate. A portfolio with a higher Sharpe ratio is considered superior relative to its peers. The measure was named after William F Sharpe, a Nobel laureate and professor of finance, emeritus at Stanford University.'

Using this definition on our asset we see for example:
  • Looking at the Sharpe Ratio of 0.81 in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively larger, thus better in comparison to the benchmark SPY (0.63)
  • Looking at Sharpe Ratio in of 0.81 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.92).

Sortino:

'The Sortino ratio, a variation of the Sharpe ratio only factors in the downside, or negative volatility, rather than the total volatility used in calculating the Sharpe ratio. The theory behind the Sortino variation is that upside volatility is a plus for the investment, and it, therefore, should not be included in the risk calculation. Therefore, the Sortino ratio takes upside volatility out of the equation and uses only the downside standard deviation in its calculation instead of the total standard deviation that is used in calculating the Sharpe ratio.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (0.57) in the period of the last 5 years, the downside risk / excess return profile of 0.73 of Enhanced Permanent Portfolio Strategy is higher, thus better.
  • Looking at ratio of annual return and downside deviation in of 0.69 in the period of the last 3 years, we see it is relatively lower, thus worse in comparison to SPY (0.81).

Ulcer:

'Ulcer Index is a method for measuring investment risk that addresses the real concerns of investors, unlike the widely used standard deviation of return. UI is a measure of the depth and duration of drawdowns in prices from earlier highs. Using Ulcer Index instead of standard deviation can lead to very different conclusions about investment risk and risk-adjusted return, especially when evaluating strategies that seek to avoid major declines in portfolio value (market timing, dynamic asset allocation, hedge funds, etc.). The Ulcer Index was originally developed in 1987. Since then, it has been widely recognized and adopted by the investment community. According to Nelson Freeburg, editor of Formula Research, Ulcer Index is “perhaps the most fully realized statistical portrait of risk there is.'

Applying this definition to our asset in some examples:
  • The Downside risk index over 5 years of Enhanced Permanent Portfolio Strategy is 3.26 , which is lower, thus better compared to the benchmark SPY (3.99 ) in the same period.
  • Looking at Ulcer Ratio in of 3.28 in the period of the last 3 years, we see it is relatively smaller, thus better in comparison to SPY (4.04 ).

MaxDD:

'Maximum drawdown is defined as the peak-to-trough decline of an investment during a specific period. It is usually quoted as a percentage of the peak value. The maximum drawdown can be calculated based on absolute returns, in order to identify strategies that suffer less during market downturns, such as low-volatility strategies. However, the maximum drawdown can also be calculated based on returns relative to a benchmark index, for identifying strategies that show steady outperformance over time.'

Applying this definition to our asset in some examples:
  • Looking at the maximum DrawDown of -9.1 days in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively greater, thus better in comparison to the benchmark SPY (-19.3 days)
  • Looking at maximum drop from peak to valley in of -9.1 days in the period of the last 3 years, we see it is relatively larger, thus better in comparison to SPY (-19.3 days).

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.'

Using this definition on our asset we see for example:
  • Compared with the benchmark SPY (187 days) in the period of the last 5 years, the maximum time in days below previous high water mark of 289 days of Enhanced Permanent Portfolio Strategy is greater, thus worse.
  • Looking at maximum time in days below previous high water mark in of 289 days in the period of the last 3 years, we see it is relatively greater, 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.'

Which means for our asset as example:
  • Looking at the average days under water of 75 days in the last 5 years of Enhanced Permanent Portfolio Strategy, we see it is relatively higher, thus worse in comparison to the benchmark SPY (41 days)
  • During the last 3 years, the average days under water is 77 days, which is larger, thus worse than the value of 36 days from the benchmark.

Performance of Enhanced Permanent Portfolio Strategy (YTD)

Historical returns have been extended using synthetic data.

Allocations of Enhanced Permanent Portfolio Strategy
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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.