How the "Permanent Portfolio" strategy may help protect your wealth

The strategy is designed to reduce the impact of market swings. It is also simple to put into practice using low-cost ETFs.

In the 1980s, U.S. market analyst Harry Browne devised a straightforward portfolio strategy designed to earn returns regardless of market conditions. He named it the Permanent Portfolio: 25% stocks, 25% long-dated bonds, 25% gold, and 25% cash, with the holdings returned to those target weights each year.

Browne developed the idea while inflation was surging and Treasury yields had reached record highs. Gold hovered near its own peak, and US stocks were setting records as well. The resemblance to today's market is hard to miss.

The assets were chosen to protect the portfolio across different economic conditions. Cash supplies liquidity and responds quickly when interest rates rise. Long-term bonds may lose value in that environment, but they can help during recessions, deflation, or falling rates. Gold offers protection in periods of disorder, while equities capture economic growth and, together with gold, provide a hedge against inflation.

Browne's portfolio thesis was straightforward: combine four uncorrelated assets in a structure that ordinary investors can manage themselves, without outside advice or extra fees. Automatic rebalancing shifts more money into assets after their prices fall, allowing investors to benefit when they recover. It also trims positions that have become expensive, locking in some gains and reducing exposure.

Does the Permanent Portfolio strategy work?

JustETF, an exchange-traded fund (ETF) research firm, has back-tested Browne's strategy and published the results on its website. Its version makes a few changes for European investors: the stock allocation uses an MSCI World ETF, whose index is now more than 70% US stocks; long-term bonds use the iShares Euro Government Bond 15-30yr ETF (Amsterdam: IBGL); and cash tracks the short-term euro cash rate through the Xtrackers II EUR Overnight Rate Swap ETF (Frankfurt: XEON). Gold is held through Gold Bullion Securities (LSE: GBSS).

From January 2007 through June 2026, the portfolio returned 234% in total. A portfolio invested entirely in equities returned 434%, while a traditional mix of 60% stocks and 40% bonds gained 279%. Annualised, those figures come to roughly 6.4%, 9%, and 7.1%, respectively. The lower return came with much less volatility: 6.3% for the Permanent Portfolio, versus 8.6% for the 60/40 mix and 13.5% for equities.

In 2008, equity markets fell nearly 50%, yet the portfolio declined by less than 5%. Its poorest showing came in 2022, when inflation surged: central banks finally started raising rates, long bonds dropped, and the portfolio's drawdown exceeded 10% - its deepest in two decades. Even so, it has generally shielded investors from short-term losses, though its long-term returns have lagged stocks, just as financial theory would suggest.

A UK spin on the Permanent Portfolio strategy

The UK version has held up fairly well, especially through the market-regime shift of the past five years. Using the Royal London Short-Term Money Market Fund for cash, the Vanguard UK Long Duration Gilt Index Fund for long bonds, the Vanguard FTSE All Share Index for shares, and GBSS for gold, it produced a compound annual growth rate of 5.8% over the period. Long gilts fell by about 48%, but gold rose 132%, more than making up for that loss. Rising interest rates helped cash provide a useful cushion, while the FTSE All Share gained around 70% including dividends. The portfolio's weighted average cost is 0.17%. Those figures compare well with the returns and fees charged by many ready-made, actively managed wealth-preservation funds.