Permanent Portfolio Performance Page Updated

I finally got around to re-formatting the chart on the Permanent Portfolio Performance page from 2008. It is now updated on one single page from 1972-2011 instead of separate post updates as before. I will use this link to keep a running performance tally for the portfolio going forward:

Permanent Portfolio Performance

The data on that page is using Simba’s spreadsheet because it is easily accessible by anyone where the Morningstar SBBI data I typically use is not.

For reference, from 1972-2011 Simba’s spreadsheet shows 9.7% Compound Annual Growth Rate for the 4×25% split portfolio. Here is a chart showing it graphically for a starting investment of $10,000 from 1972-2011. Note the smooth growth vs. the individual components which can be quite volatile.

As always, the Permanent Portfolio is designed to work as a package so you need to own all the assets all the time to get the growth and protection through any market.

Of course, all of these details and how to implement the portfolio are covered in the new book.

Permanent Portfolio Performance 1972-2011

Permanent Portfolio Performance 1972-2011

 

Craig Rowland

I own the place.

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15 Responses

  1. Vijay says:

    Craig, you posted 6.7% for cash returns in 2008. Is this assuming the use of SHY? There are also returns for cash in 2009, 2010 and 2011 that seem high to me. For instance, the yield on 3 year treasuries is around 0.34% right now (i.e., almost nothing). I find it hard to believe you could get 2+% returns on cash, even with the capital appreciation of the short term treasuries.

    Thanks for all the great commentary on the PP.

  2. The Simba Spreadsheet shows that return for the Vanguard Short Term Treasury fund as their benchmark (VFISX) over that time. Morningstar confirms that was the return for that fund during that year. Interest rates dropped sharply in 2008 so that kind of return on cash is entirely possible if you were average duration of 1-2 years the way the Vanguard fund was.

    Thanks for sanity checking the returns. I acknowledge they will be different than what I normally use, but it is simpler for me to send people to this spreadsheet than to the library to check their own Ibbotson SBBI data.

  3. Vijay says:

    No problem. My own analysis of the PP produced lower returns for the cash component because I assumed the use of 1-year treasuries. So basically all you get is the interest rate, with the assumption you roll the treasury every year. Assuming 2 or 3 year durations, I could see how could get capital appreciation in 2008-2010. But 2011 still looks very fishy to me. Getting 2.3% from cash when the yields are zero seems kinda wrong. At least, if they’re correct, I want to use the same fund they’re using! :) On the other hand, if they are getting 2+% returns, my feeling is they’re not really using a true cash instrument.

  4. Admittedly I tend to prefer to hold mostly ST treasuries for my “cash” and keep the near term reserves in t-bills. If you do this the portfolio performance is more consistent even under high historical inflation. But if you just keep it all in t-bills the performance goes from 9.67% CAGR to 9.24% CAGR over the 1972-2011 time frame. So basically you gave up 0.40% a year to keep the cash even shorter. However the ST treasuries were less volatile and posted smallest losses. Six of one, half dozen of another basically. The returns are good either way vs. risk when compared to alternatives.

  5. Vijay says:

    I guess what I’m trying to get to is where the 2% number came from. Even if you assume slightly longer duration short term bonds, I don’t see how it’s possible. Take SHY for example (I think it’s a mix of durations up to 3 years). On Jan 3, 2011, it opened at 83.94. On Jan 31st 2011 it closed at 84.35. This produced a yearly capital gain of 0.41, This translates to a 0.48% capital appreciation. The yield in 2011 on short term treasuries was near zero. So the overall return was well below 1%.

    This suggests a few possibilities:

    - The 2% number might be wrong
    - The fund which produced the number is amazingly well managed
    - SHY is doing a poor job managing its short term bond portfolio.

    The reason I’m interested is because I’m still trying to figure out the best way to implement the cash component. With yields so low it almost seems pointless to move up the duration to eek out a few more basis points in interest, because almost all the returns are going to be dominated by the other 3 components. And I just don’t think SHY is producing the returns quoted for the cash component.

  6. Vijay says:

    Pardon the mistake, I meant to write “On Dec 31st, 2011 it closed …”

  7. I see in 2008 that SHY returned ~6.6% according to Morningstar as well, pretty close to Vanguard.

    http://performance.morningstar.com/funds/etf/total-returns.action?t=SHY&region=USA

    Are you including all interest and price appreciation in your calculations? Yes yields fell during the year, but the fund was still holding many higher yielding bonds the entire time that did not cycle out due to maturity. So it is quite likely investors got a good dividend and capital appreciation that year.

  8. Vijay Says: “The reason I’m interested is because I’m still trying to figure out the best way to implement the cash component. With yields so low it almost seems pointless to move up the duration to eek out a few more basis points in interest, because almost all the returns are going to be dominated by the other 3 components. And I just don’t think SHY is producing the returns quoted for the cash component.”

    I agree that I do not like to take a lot of risk in my cash. The only solace is that both t-bills and short term treasuries are unlikely to take very big losses if interest rates move up significantly. Worst case is you hold them a little longer and let NAV recover as new higher yielding bills move into the fund.

  9. Also in 2008 SHV (the very short term iShares Treasury fund – similar to T-Bills) was around 2.8% total return:

    http://performance.morningstar.com/funds/etf/total-returns.action?t=SHV&region=USA

    What boosted the ST treasury funds was the slightly longer duration. Also perhaps the yield curve then was favorable to this asset. I see that the curve was flat to inverted through 2007 leading to 2008. That would definitely be powerful for longer maturities once it reset in fall of 2008:

    https://fixedincome.fidelity.com/ftgw/fi/FIHistoricalYield

  10. Vijay says:

    Good question about the yields. Here are the dividends for 2011 from Yahoo finance:

    Dec 27, 2011 0.039 Dividend
    Dec 1, 2011 0.045 Dividend
    Nov 1, 2011 0.048 Dividend
    Oct 3, 2011 0.049 Dividend
    Sep 1, 2011 0.054 Dividend
    Aug 1, 2011 0.061 Dividend
    Jul 1, 2011 0.061 Dividend
    Jun 1, 2011 0.066 Dividend
    May 2, 2011 0.066 Dividend
    Apr 1, 2011 0.067 Dividend
    Mar 1, 2011 0.061 Dividend
    Feb 1, 2011 0.068 Dividend

    This sums to 0.685, or 0.81%. So with capital appreciation that gets us to 1.29% for the year. Closer than I first thought, but still not the quoted 2.3%

  11. SHY in 2011 shows total returns 1.43% and 6.64% in 2008.

    http://us.ishares.com/product_info/fund/performance/SHY.htm

    Vanguard VFISX shows 2011 numbers of 2.26%, but that includes not just income but also capital return (gains internally to the fund I suspect?):

    https://personal.vanguard.com/us/funds/snapshot?FundId=0032&FundIntExt=INT#hist=tab%3A1a

  12. Mark says:

    Cash historically outperforms bonds? Please explain….

  13. Not that I’m aware! Bonds will beat cash except during periods of high inflation or maybe a recession.

  14. Mark says:

    The graph has a green dotted line for cash which is outperforming the purple line (bonds). Must be an error. Thanks for the clarification, I was perplexed.

  15. Mark,

    Good catch! The legend on the chart was not updated correctly by Excel. It should be fixed now. Thanks.