Permanent Portfolio: the Risk X-Ray
Harry Browne's answer to an unknowable future: four equal quarters, one for each economic condition, prosperity, deflation, recession, inflation, rebalanced and then left alone. It is the most radical diversification statement in the catalog, and the analysis below quantifies what the four-way split actually buys: how much of each quarter's standalone risk the mix cancels, and which quarter drives the portfolio in the current market.
Harry Browne, Fail-Safe Investing (1999; concept dates to 1981)
Analysis as of Friday 2026-08-28 · recomputed weekly from daily market data · methodology
What the Permanent Portfolio holds
The published allocation: 25% stocks, 25% long-term Treasuries, 25% cash or T-bills, 25% gold.
| Fund | Measured role | Weight | Expense ratio |
|---|---|---|---|
| VTI Vanguard Total Stock Market ETF | correlated core | 25% | 0.03% |
| TLT iShares 20+ Year Treasury Bond ETF | correlated core | 25% | 0.15% |
| SHY iShares 1-3 Year Treasury Bond ETF | diversifier | 25% | 0.15% |
| GLD SPDR Gold Shares | risk driver | 25% | – |
Browne's cash quarter is implemented with SHY (1-3 year Treasuries), the standard ETF stand-in for T-bills in PairBook's covered universe.
Where the risk actually sits
Measured through the covariance matrix, GLD dominates the risk budget at 43.2% of total risk for 25.0% of capital; at the other end, SHY accounts for only 2.5%.
| Fund | Share of risk | Risk | Capital | Beta | Role |
|---|---|---|---|---|---|
| GLD | 43.2% | 25.0% | 0.18 | risk driver | |
| VTI | 28.4% | 25.0% | 1.01 | correlated core | |
| TLT | 25.9% | 25.0% | 0.11 | correlated core | |
| SHY | 2.5% | 25.0% | 0.0 | diversifier |
How the pieces move together
TLT + SHY move as one block (average correlation 0.72): together they are 50.0% of the capital and 28.4% of the risk.
| Holding | VTI | TLT | SHY | GLD |
|---|---|---|---|---|
| VTI 25% | 1.00 | |||
| TLT 25% | 0.13 | 1.00 | ||
| SHY 25% | 0.05 | 0.72 | 1.00 | |
| GLD 25% | 0.14 | 0.13 | 0.20 | 1.00 |
Pearson correlation of weekly returns · 156-week common window ending 2026-08-28 · pairbook.io
The worst it would have been
Over the analysis window, this mix would have fallen at worst -6.9% (from the week of 2026-03-06 to 2026-04-03), shallower than the S&P 500's -16.9% over the same weeks; it currently sits -1.5% below its peak.
Worst weeks of the mix: -3.3% (week ending 2026-03-27), -2.4% (week ending 2024-11-22), -2.0% (week ending 2026-06-12).
FAQ
Why hold cash as a permanent 25% position?
In Browne's framework cash is not idle money, it is the recession asset and the dry powder for rebalancing into whichever quarter has fallen. Its risk contribution in the table above is near zero, which is exactly its job.
Gold pays no yield. What does it contribute here?
Its value in this design is correlation, not income: the numbers above show how far gold sits from the stock and bond blocks, which is what lets it carry the portfolio in inflationary stretches.
Run this analysis on your own portfolio
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