[Analyzing the Effect of Permanent Portfolio Rebalancing]
In the previous post, we looked at the 10-year performance of a Permanent Portfolio without rebalancing. In this post, we will compare it to the performance of a Permanent Portfolio with regular rebalancing applied on a 1-year cycle. How much does rebalancing improve the stability and returns of the Permanent Portfolio? We will conduct an in-depth analysis of the results, focusing on the returns (CAGR) and maximum drawdown (MDD) metrics.
Permanent Portfolio: A 10-Year Backtest Result Comparison of Rebalanced vs. Non-Rebalanced
1. What is the Permanent Portfolio?
The Permanent Portfolio is an investment strategy devised by the investment genius Harry Browne. He divided all market situations into four categories and proposed investing with an equal 25% allocation to the asset that would perform best in each situation.
- Prosperity: Stocks (25%)
- Recession: Long-term bonds (25%)
- Inflation: Gold (25%)
- Deflation: Cash equivalents (25%)
The core of this strategy is its design to maintain stable returns for the entire portfolio, no matter what economic situation arises. By having one asset compensate for the losses of another during its downturn, the goal is to overcome the unpredictability of the market.
2. Backtest Overview and Data
This comparative analysis uses 10 years of data from August 3, 2015, to July 31, 2025. The initial investment for all portfolios was set identically at 10 million KRW. The Permanent Portfolio and rebalancing conditions used in the backtest are as follows:
- Non-Rebalanced Permanent Portfolio: Initial 25% allocation to KODEX Gold Futures (H), KODEX 200, KODEX 10-Year Treasury Futures, and a bank deposit, respectively (no rebalancing).
- Rebalanced Permanent Portfolio: Initial 25% allocation to the four assets above, followed by rebalancing on a 1-year cycle.
Backtest Data Source and References
- ETF Data: Daily data from Yahoo Finance.
- Bank Deposit Interest Rate: Used the base rate from the Bank of Korea's Economic Statistics System (for calculation convenience, the deposit was calculated with a daily application of the base rate, assuming a value of 1,000 KRW per share).
▶ Reference: How to Find Historical Data on Yahoo Finance
▶ Reference: How to Download Yahoo Finance Data
▶ Reference: Go to Bank of Korea's Economic Statistics System
3. Backtest Result Comparison: The Surprising Effect of Rebalancing
The table below summarizes the 10-year backtest results. Through metrics such as total return, Compound Annual Growth Rate (CAGR), and Maximum Drawdown (MDD), you can see the performance difference between the Permanent Portfolios with and without rebalancing at a glance.
| Category | Rebalanced (1 Year) | Non-Rebalanced |
|---|---|---|
| Final Amount | 17,162,218 KRW | 17,001,697 KRW |
| Total Return | 71.62% | 70.02% |
| CAGR | 5.55% | 5.45% |
| Maximum Drawdown (MDD) | -16.67% | -18.91% |
▲ Comparison graph of returns for rebalanced and non-rebalanced Permanent Portfolios
4. Result Interpretation and Insights
Through the backtest results, we can clearly see how important rebalancing is in the Permanent Portfolio strategy. The rebalanced portfolio showed a slight increase in returns compared to the non-rebalanced portfolio, while the maximum drawdown (MDD) improved by approximately 2.24%p. This indicates that rebalancing more effectively managed the portfolio's downside risk during periods of high market volatility. Rebalancing periodically restores the portfolio's original asset allocation ratio (25% each), helping to maintain a balanced asset composition regardless of market conditions. As a result, rebalancing plays a crucial role in enhancing the stability of the portfolio, providing not only long-term wealth growth but also psychological comfort during the investment process.
The content of this blog is for reference in investment decisions only, and all investment decisions should be made based on individual judgment and responsibility. Under no circumstances can the information in this blog be used as legal proof for investment outcomes.
▶Read the post: Permanent Portfolio vs. Single-Asset Investing
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