It’s no secret investors have been disappointed lately with the classic 60/40 investment strategy. Can the so-called “permanent” portfolio provide an alternative? Recent returns look good, but there are risks.
The permanent portfolio is a nickname some investors give to a strategy of splitting your holdings equally among four major asset classes: stocks, bonds, gold, and cash. (It isn’t to be confused with Permanent Portfolio mutual fund, but more on that later.)
The permanent portfolio, also sometimes referred to as the 25/25/25/25 strategy, has performed well in recent years, more or less matching the returns of the more traditional 60% stocks/40% bonds strategy. And some investors think the future looks bright.
“Commodities are in [an] early-stage structural bull market, led by gold, and U.S. stocks in [a] late-stage structural bear market relative to international stocks,” wrote BofA Securities investment strategist Michael Hartnett in a note Thursday. “The most diversified of portfolios, e.g. 25/25/25/25 cash/gold, stocks/bonds likely to remain competitive vs 60-40.”
Hartnett goes on to outline potential headwinds for U.S. stocks, including more restrained U.S. government spending, tariffs, and declining productivity. Indeed, on Thursday, the Bureau of Labor Statistics noted that U.S. productivity declined for the first time in three years during the first quarter.
What’s more, writes Hartnett, gold has tended to turn in its best performance relative to stocks in historical periods when markets have experienced similar dynamics, and the U.S. appeared to be on its back foot: in the 1930s following the Smoot-Hawley Tariff Act, during the stagflation of the 1970s, and following turmoil of 9/11.
Recent returns for the permanent portfolio strategy certainly look attractive. To gauge performance, Barron’s asked Morningstar to calculate trailing returns for a portfolio split equally between the Vanguard Total World Stock ETF, iShares Core U.S. Aggregate Bond ETF, SPDR Gold Shares, and cash. We also asked for returns for a portfolio with 60% invested in the Vanguard stock fund and 40% in the iShares bond fund as a point of comparison.
Over the past year, the permanent portfolio was the winner hands down, returning nearly 17%, compared with 10% for the traditional 60/40 strategy. What was more surprising: The strategies were essentially neck-and-neck at the five- and 10-year marks. Only over the past 15 years has the classic 60/40 strategy prevailed, with an average annual return of 6.5%, compared with 5.2% for the permanent portfolio.
It’s also worth taking a look at the returns of the popular Permanent Portfolio mutual fund, a $4.3 billion mutual fund run by longtime portfolio manager Michael Cuggino. Cuggino’s take on the strategy involves investing roughly one-third in bonds, one-third in gold, and one-third in stocks that he favors, such as Palantir, Nvidia, and Costco Wholesale. The fund has returned 22% in the past year and 6.9% over the past 15 years. However, it’s worth noting that its returns have historically been volatile, with the portfolio sometimes leading its fund category and sometimes lagging dramatically.
Can the strategy of ditching the classic 60/40 portfolio—while adding big helpings of cash and gold—continue to outperform in coming years?
It’s true stock the market looks iffy. Despite a difficult start to 2025, U.S. stocks are still trading at about 35 times their long-term cyclically-adjusted earnings—about where they were in 1929—and higher than at any time since the dot-com bubble. Market watchers, including Goldman Sachs and Vanguard, have warned the U.S. stock market could be on the verge of a “Lost Decade,” of sluggish returns.
On the other hand, history shows few assets have matched stocks’ long-term historical returns, and that is true of bonds, gold, and cash. It’s worth noting that gold prices are also at historic highs, having jumped 40% in the past year. Investors who add a big slug of gold to their portfolios today are hardly getting in on the ground floor.
Write to Ian Salisbury at ian.salisbury@barrons.com