Permanent Portfolio, 1-Year Rebalancing vs. Halloween Strategy: Who is the winner?

[In-depth Analysis of the Permanent Portfolio Strategy]

The Permanent Portfolio, a classic asset allocation strategy, is a powerful tool that enables stable investing without market forecasting. In the last post, we analyzed the effects of applying regular rebalancing to the Permanent Portfolio.

In this article, we will examine the performance of the Permanent Portfolio when combined with the Halloween Strategy (Sell in May), which uses market seasonality. We will also compare it to the rebalancing strategy to discuss in-depth which method can be a better investment shield.

What is the Strongest Shield for the Permanent Portfolio? | Backtest Comparison of Rebalancing vs. Halloween Strategy

1. What is the Permanent Portfolio?

The Permanent Portfolio is an investment strategy devised by investment genius Harry Browne. He proposed dividing all market conditions into four categories and investing 25% equally in the asset that would perform best in each situation.

• Prosperity: Stocks (25%)
• Recession: Long-term bonds (25%)
• Inflation: Gold (25%)
• Deflation: Cash-like assets (25%)

The core of this strategy is that it is designed to maintain a stable return for the entire portfolio, no matter what economic conditions arise. It aims to overcome market unpredictability by having other assets compensate for losses when one asset underperforms.

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2. Overview of Backtest Strategies and Period

Both strategies follow the basic principles of the Permanent Portfolio. However, they differ in their specific investment rules and backtest periods.

• Permanent Portfolio (1-Year Rebalancing)
  • Period: August 2015 ~ July 2025 (approx. 10 years)
  • Strategy: Invest 25% each in stocks, bonds, gold, and cash, and regularly restore the initial proportions once a year.
• Permanent Portfolio (Halloween Strategy)
  • Period: November 2015 ~ April 2025 (approx. 9.5 years)
  • Strategy: Distribute assets the same as the basic Permanent Portfolio, but convert the stock portion to cash from May to October each year.

Since the backtest results of these two strategies have different investment periods and detailed strategies, it is important to approach them from the perspective of risk-adjusted returns rather than a direct comparison of absolute figures.

▶Go to Permanent Portfolio Rebalancing article

▶Go to Permanent Portfolio article

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3. Backtest Results Comparison and Analysis of the Two Strategies

The table below summarizes the final performance indicators of each strategy for an at-a-glance comparison.

Category	Permanent Portfolio (1-Year Rebalancing)	Permanent Portfolio (Halloween Strategy)
Investment Period	Approx. 10 years	Approx. 9.5 years
Final Amount	17,162,218 KRW	15,690,053 KRW
CAGR	5.55%	4.86%
Maximum Drawdown (MDD)	-16.67%	-10.98%

▲ Comparison graph of Permanent Portfolio Halloween strategy returns and volatility

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4. Conclusion: The Value of 'Volatility Management' is More Important than 'Returns'

This comparative analysis confirms the clear characteristics of the two strategies. The 1-year rebalancing strategy pursues a steady and stable compounding effect by maintaining a long-term asset balance. Because of this, it recorded a slightly higher return than the Halloween strategy.

On the other hand, the Halloween strategy places a greater emphasis on risk management. By using market seasonality to avoid risk during periods when stock market returns are statistically low (May to October), it showed a dramatic effect in reducing the overall volatility of the portfolio. While the returns were lower than the rebalancing strategy, the psychological pressure (MDD) the investor had to endure was much less.

In conclusion, both strategies enable defensive investing on the solid foundation of the Permanent Portfolio, each in its own way.

Final Summary:
* Prioritize Returns: Regular rebalancing is more favorable for long-term compounding effects.
* Prioritize Minimizing Volatility: The Halloween strategy effectively defends against downside risk, increasing psychological stability.

The content of this blog is for reference for investment decisions only, and investment decisions should be made under individual judgment and responsibility. In no case can the information on this blog be used as legal evidence for investment outcomes.