But that doesn't always happen. Sometimes the correlations flip, and everything becomes positively correlated, and everything crashes at the same time.
Today, there's about $20 trillion in the global government bond market that actually has a negative yield, which means the borrower gets paid to borrow.
And in the remainder of the government bond market where rates are still positive, rates are the lowest they've been for 1000 years.
When interest rates are near zero or even negative, it's unclear whether historic correlations will continue, so the concept behind the "permanent portfolio" may not continue to work in this environment.
Not really. The yields are negative, but the coupon rates are positive. Most of those were initially sold with a positive rate, then went negative as buyers bid up the prices. The issuing governments don't get that appreciation, and are still obligated to pay the coupon rate. If the yield is positive at auction, the borrower is still paying to borrow the money.
The only way the "borrower gets paid to borrow" is if the initial auction sees bonds sell at negative yields. That's quite possible when coupon yields are 0.100% or less (which has been common in Europe and Japan lately).
Bonds doing terribly means interest rates spiking, and potentially defaults, or massive inflation. Which are all possibilities.
In those cases, you’re probably going to be very happy for the gold portion of the permanent portfolio. And it has been on a bit of a tear, recently, rising ~15% vs USD.
- 25% in cash (short term treasuries actually): currently returning ~2%, approximately the returns of a higher yielding savings account.
- 25% in gold: historically does only very slightly better than inflation. Currently price of gold is inflation adjusted the same as it was in 1979, which was followed by a ~50% loss that took 30 years to recover [0]. TIPS are probably a better choice for people extremely worried about inflation.
- 25% in long term bonds: a sensible allocation to bonds, though I'd prefer intermediate term, personally.
- 25% in stocks: extremely low allocation. Generally 60% allocation to stocks is considered fairly conservative - it gives you some of the increased return of equities while reducing the volatility of exposure to the stock market. Lower allocations definitely make sense for some folks, though I've yet to see a compelling case made for anyone still in their earning years doing less than 40%.
[0] https://www.macrotrends.net/1333/historical-gold-prices-100-...
If you're interested in further study: the Gyroscopic Investing community [0] is a great forum supporting the late Harry Browne's investment/asset allocation philosophy, as are Harry Browne's original (short) book [1] and the modern treatment [2] by Craig Rowland and J. M. Lawson.
[0] https://www.gyroscopicinvesting.com
[1] https://www.goodreads.com/book/show/82103.Fail_Safe_Investin...
[2] https://www.goodreads.com/book/show/13838783-the-permanent-p...
The permanent portfolio was constructed by Harry Browne to be what he believed would be a safe and profitable portfolio in any economic climate. Using a variation of efficient market indexing, Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds and Treasury bills would be an ideal investment mixture for investors seeking safety and growth.