Fail-safe investing – Building a Permanent Portfolio

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In my previous blog entry related to investing in gold, one of my readers and fellow financial blogger, Warriortan, introduced me to the Permanent Portfolio, which is sometimes also known as a fail-safe investment strategy. He has been developing this strategy in his personal portfolio and you can read his progress by clicking here and here.

I must admit that I was initially intimidated by the words “fail-safe” because those two words just sounded too good to be true in the world of investing. It made me feel like this investment strategy was going to be almost risk-free because you would be safe from failing. Naturally, I did more Googling and I found out that this portfolio is actually very popular. In fact, information about it is so easily found that there is no excuse that you can provide for not being able to learn about it.

The set-up of the Permanent Portfolio is simple. The economic cycle is composed mainly of four basic categories, namely Prosperity, Deflation, Inflation and Recession. The idea is to diversify your investment portfolio into four asset classes in order to protect yourself against any downturns of the economic cycles, as the negative effects of a particular asset class could be overcome by another asset class. These four asset classes are:

  1. Stocks (during prosperous times)
  2. Long term Bonds (when faced with deflation)
  3. Gold (when faced with inflation)
  4. Cash (during recession)

To make it even more foolproof, the portfolio recommends you to take a lower risk approach, e.g. buying into low-cost index mutual funds/ETFs for the “stocks” asset class and long term Government treasury bonds. Interestingly, this portfolio has pretty decent returns too with a CAGR of 7.48% over a 15-year period with the ability to offset volatility and risk that a single asset class may hold. It is a good approach for passive investors as you only need to re-balance the portfolio once a year, and this may be beneficial to people who wants to get invested into multiple areas of investment.

I should get on to whether this portfolio is something that I can adopt for myself. I can’t comment too much on all the different asset classes as I’ve only exposed myself to equities just recently, read a little about bonds and hold some emergency funds. For this blog post, I will only compare it to a stock market performance (e.g. S&P 500, STI) as firstly, it is what I am most familiar with at the moment and secondly, to see if would beat the returns of my original portfolio plans.

Considering the performance of the portfolio over the long run, I have observed that the Permanent portfolio mainly has two benefits.

1) Less volatility

As compared to a full equities portfolio, the Permanent portfolio has way lesser volatility. Higher fluctuations of the stock market might cause those with less temperament to make mistakes and having a Permanent portfolio might have you exclaiming “Heng ah!” (or “Lucky me!”) when shit happens. The drawbacks of the portfolio is considerable much lesser than pure equities during the GFC.

2) Less time and effort

Mentioned above, there is very little need for you to monitor your portfolio except for the re-balancing of the portfolio every once a year, which is recommended so as to achieve better results. This would be perfect for investors who have a busy schedule and yet want to invest with something that offers them decent returns.

Why then, would I not want to make a Permanent portfolio for myself?

1) Equities still win

I say this with caution as I am basing this point on past results – It is proven that in the long run, the stock market still outperforms the typical performance of a Permanent portfolio. If I were to be as passive about my investment in the stock market, e.g. to Dollar Cost Average into the low cost STI ETF, I can also be of bad temperament and still reap better returns.

2) Preference of Income-Generating Assets

By allocating 10% to 25% of your investment to gold, it could be a good way to tackle the problems of inflation. However, I am looking for assets that would generate income for me whether times are good or bad. Gold on the other hand, would not be able to do that because it is non-living. Perhaps my perception towards this might change in future, but it would not fit my financial goals of getting a monthly passive income of $3000.

I would like to point out though, that if I observe how my funds are allocated, I am actually having 3 asset classes at the moment. If I were to consider my CPF money being part of the “bonds” asset class and my emergency funds and other spare cash in preparation for a market crash, then gold is the only one left out of the equation. However, the percentage allocation is very different and would lean more towards a 60/40 portfolio instead.

Some may also argue that it isn’t fair to compare the performance of the Permanent portfolio to just the stock market as all the asset classes are lowly correlated to one another. It is essential for you to take note that I am comparing this it to my personal goals and what I intend to achieve in the long run. Your goals may be different and thus you should be the best person to decide if this would be suitable for you. I have decided that it would not be for me at this moment in time, but I am still keeping an open mind as I take different paths on my journey to financial freedom.

If you happen to be an advocate for the Permanent portfolio, feel free to comment below! I would love to hear your views and how it has worked for you. 🙂

Here are some links that you may also be interested in:

  1. The irrelevant investor – The Permanent Portfolio – Great comparison between the performances of both the S&P 500 index and the Permanent Portfolio
  2. Economic Times – Why a permanent portfolio is a good option for passive investors – Crash course, comprehensive analysis and the benefits of rebalancing of the portfolio
  3. Investment Moats – The Permanent Portfolio– The holy grail for investing? – Crash course and other useful related posts
  4. Singapore Permanent Portfolio – Permanent Portfolio Investing in Singapore – Very detailed blog about his/her portfolio. Unfortunately, he/she has stopped blogging since 2013.
  5. DrWealth – Singapore Permanent Portfolio Performance – Real price up-to-date simulation of a Permanent Portfolio in Singapore.

Thanks for reading!

Miss Niao xoxo


Author: missniao

Hello! I blog about financial matters and things that average people can do to have a better retirement. I want to inspire people to take control of their money and have a better understanding about it. If you are interested to know more, follow me @! :)

7 thoughts on “Fail-safe investing – Building a Permanent Portfolio”

  1. Great job writing this post! I like that you thought about whether this portfolio is suited to your current needs. I also came across the concept of a permanent portfolio awhile back, but I am not very sure about investing in Gold too. Furthermore I don’t have that much capital to invest (Gold ETFs are pretty expensive per unit as compared to STI ETF and can make rebalancing the portfolio a bit challenging). Like you, I prefer assets that generate cash flows, and so I would prefer a 3-fund portfolio instead. Currently I just invest in STI ETF and a bond ETF. When I save up more money, I intend to buy a global ETF to complete my 3-fund portfolio.

    Liked by 1 person

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