01 May How did the drop in Gold price affected the Permanent Portfolio?
I have received concerns about the recent drop in gold price from a few readers who had implemented the Permanent Portfolio. This is what fear can do to an investor. If they had the right perspective, the drop in gold price would have a lesser impact on their psychology. What is the right perspective? It is to look at how did the overall portfolio perform, and not how gold performed. The answer is all in this chart:
The simulated Permanent Portfolio was started in Jan 12 and despite the drop in gold price during the course of the year, the Permanent Portfolio had held up its value. Most importantly, while Gold price tanked in Apr 13, the impact was a slight dent to the overall portfolio even though it held 25% in gold. If a Permanent Portfolio investor looks at the gold price, he or she will definitely be fearful. But if he or she looks at the overall portfolio value, it was just another day in his or her life. Nothing interesting. This is why I keep emphasizing that most investors CANNOT take drawdowns. The stability in Permanent Portfolio is to help most investors who are easily affected by price drops to stay invested. In fact, the more volatile the individual asset class, the better. This gives more opportunities for Permanent Portfolio investors to re-balance the portfolio and when they do that, they are buying low and selling high to reap the capital gains. Have the right perspective.