I recently read a book called
The Permanent Portfolio: Harry Browne's Long-Term Investment Strategy by Craig Rowland and JM Lawson.
The Permanent Portfolio advocates the following allocation:
25% Total Stock Market Index
25% Long-Term Treasury Bonds
25% Gold
25% Cash/Cash Equivalents
The theory behind this portfolio is that future economic conditions are uncertain and that each asset in the allocation above has good performance characteristics in one of 4 possible economic climates: prosperity, recession, inflationary, deflationary.
In prosperity, company earnings are strong and you want to own stocks.
In recession, you want to own long-term bonds, since investors become more conservative and purchase 'secure' fixed income instruments. Interest rates fall thereby increasing the capital value of the bonds.
In an inflationary economy, investors are looking for a store of value and you want to own gold.
In a deflationary economy, cash is strong, and the other prices of the other assets are depressed. You will want to have cash to allocate for buying other assets at lower values.
All in all, in any given economic environment, the losses in one category are offset by the gains in another, allowing for consistent returns and low volatility.
On the whole, I'd say it measures more favorably to a traditional 3-fund portfolio (60% U.S. stocks, 30% international stocks, and 10% total bond market). From 1987 - 2017, the 3-fund has trounced the Permanent Portfolio, while from 2001 - 2017, Permanent Portfolio has significantly outgained the 3-fund. In my mind, where the Permanent Portfolio really proves superior is it's lower volatility.
https://www.wallstreetphysician.com/harr...portfolio/
The Permanent Portfolio volatility has been remarkably lower, and I find it worth highlighting that it really showed resilience in the crash years of 2001 and 2009. In those years, the Permanent Portfolio had returns of +0.6% and -0.7% respectively, while the 3-fund portfolio would have netted fairly huge losses of -11.8% and -34.9%. Also worth noting is that from 2001 - 2017, that the Permanent Portfolio's max loss was -2.9% and the max loss for the 3-fund was the aforementioned -34.9%. Finally, from 2001 - 2017, the Permanent Portfolio had 3 loss years while the 3-fund had 5 loss years.
Seeing that we are in the midst of the longest secular bull run in history, this portfolio strategy looks very appealing. There is a lot to be said for a sensible strategy that has proven itself to offer stable and steady growth over a long period of time with limited downswing. I will be doing some more reading, but I'm likely to switch to this strategy or a similar variant.