If The Stock Market Scares You, Here’s The Answer

I don’t mind taking stock market risk for the promise of decent rewards.

That’s why I’m comfortable owning 60 percent stocks, 40 percent bonds.

Such a portfolio won’t likely grow as much as an investment allocated 100 percent to stocks.

But it’s a lot more stable and it helps investors sleep at night when the stock market plummets.

But what if the stock market scares you?

What if a stock market portfolio drop exceeding 6 percent would drive you to drink?

In such cases, you might consider stuffing your portfolio with bonds or CDs. But that would be foolish.

Image by Pixabay

Here’s a much better option

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Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I'm happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

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6 Responses

  1. Joel says:

    Thanks for that article, what would the Canadian etf’s equivalent be for the portfolio?

  2. Jane says:

    The graphs in the article are great for illustrating how the Permanent Portfolio has done when compared to a balanced portfolio or a US stock market. However you hinted that the article was going to show how the Permanent Portfolio might be a better option than bonds or CDs. So where are the graphs to illustrate how it compares to CDs or an all bond portfolio?

    • Thanks Jane,

      You’re right. I should have included a comparison with bonds and CDs too. It would have made the Permanent Portfolio look utterly amazing, by comparison.

      • Jane says:

        I was wondering if it would be possible to construct a portfolio that has the low volatility of the Permanent Portfolio without giving up so much growth. I figured that the portfolio would have to have more equity than the Permanent Portfolio but less than a Balanced Portfolio. On the Portfolio Charts website I found one combination that does just that. I was able to compare the Permanent Portfolio that has 25% equity and 25% gold


        to the “Golden Butterfly” portfolio that has 40% equity and 20% gold. ( It is basically the three fund portfolio but instead of allocating 20% to international equity it allocates 20% to gold.)


        and a basic 60% equity Three Fund Portfolio


        According to the charts since 1970 the real average returns were:

        Permanent Portfolio: 5%
        Golden Butterfly: 6.4%
        3 Fund Portfolio: 5.8%

        The standard deviations were:

        Permanent Portfolio: 7%
        Golden Butterfly: 7.9%
        3 Fund Portfolio: 10.7%

        The worst drawdowns were:

        Permanent Portfolio: 14% and 5 years to permanently recover
        Golden Butterfly: 11% and 2 years to permanently recover
        3 Fund Portfolio: 32% and 10 years to permanently recover

        Of course there are the usual caveats that history can’t predict the future and that investors can pay a price if they change horses every time they notice that a different strategy is having better results. After all an investment strategy should be a lifetime commitment and perhaps three, four or five decades from now people won’t flee to gold when stock and bond markets are falling.

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