Do 30-Year Bonds Still Belong in a Permanent Portfolio? 🙀

[frugal]

Hi everyone,

Just wanted to bring up a point that caught my attention recently.

I was chatting with a Spanish investor who’s studied the Permanent Portfolio in depth, and he made a bold claim: that 30-year bonds no longer make sense in today’s environment.

His reasoning? Mainly that the duration risk is just too high for current market conditions. According to him, the structure of the bond market and the broader macroeconomic landscape have changed so much since the original PP was conceived, that sticking with 30-year Treasuries (or equivalent) might not be optimal anymore. Instead, he suggests that something closer to a 10-year bond could make more sense — offering a better balance between protection and flexibility.

As someone based in Europe, I find this idea both interesting and a bit controversial — especially since long-term bonds are meant to be one of the “safe havens” in the PP model.

So I’m curious to hear your opinions:
• Do you think 30-year bonds still serve their purpose in a classic Permanent Portfolio?
• Or is it time to rethink that component, perhaps with a shorter duration approach?
• Are any of you already adjusting this leg of your portfolio?

Looking forward to your thoughts!

[Kevin K.]

No idea if 30 year bonds make sense for a non-U.S. investor since I don't know which country's bonds you'd be using and what they're paying.

Here are current yields in the U.S.L

https://www.bloomberg.com/markets/rates ... t-bonds/us

I think Larry Swedroe's oft-cited rule of thumb - 20 basis points in additional interest for each year of additional bond duration - is still a great place to start in terms of looking at duration and interest rate risk. By that metric you'd want to stick with 0-5 year durations right now. Of course there's also bond convexity to take into account, and there, too, Tyler @ Portfolio Charts is super-helpful:

https://portfoliocharts.com/2019/05/27/ ... convexity/

Harry Browne's recommendation of LTT's was surely colored by the very high rates they were paying when he came up with the PP. Would he have recommended using them during the many years before 2022 when they were offering a negative real return? I doubt it. His other argument for them was that they provide deflation protection. While that is true, deflation has been a rare and short-lived event in U.S. history. IMHO (and in that of William Bernstein - see his excellent book "Deep Risk" which is essentially one long analysis of the PP) it's silly to allocate a full quarter of one's portfolio to address an economic circumstance which is both unlikely to occur and very expensive to insure against. The GB essentially puts Bernstein's analysis into practice by stacking the odds towards prosperity, which is the most likely of the four economic conditions the PP is designed to deal with.

The weighted average duration of the PP barbell of LTT's and cash is around 11-12 years, while a true intermediate term Treasury is 5 years (Vanguard's VGSH hews to this classic standard but many other bond funds have let duration drift towards 7-8 years in an effort to get extra yield). If you backtest the PP with all ITT's, or ITT's and 5-10% in T Bills for liquidity the returns are on par with the classic version but with much lower volatility and drawdowns.

Personally in my Golden Butterfly I've been using a barbell of short-term (~3 year) Treasuries recommended by Jonathan Clements: half VGSH, half VTIP. So half nominal, half inflation-protected.

[foglifter]

The GB essentially puts Bernstein's analysis into practice by stacking the odds towards prosperity, which is the most likely of the four economic conditions the PP is designed to deal with.
...

Personally in my Golden Butterfly I've been using a barbell of short-term (~3 year) Treasuries recommended by Jonathan Clements: half VGSH, half VTIP. So half nominal, half inflation-protected.

I share Kevin's thoughts, and I'm also using GB. I’ve still got some 20+ year LTTs from 2019 (all underwater ), but I’m not buying any new 30-years. I’ve picked up some 7, 10, and 20-year bonds in my HSA over the past few months to lock in those 4%+ rates (and to avoid CA state tax).

[frugal]

Nice answers!

So you recommend GB…

Please let me know more about what should I do to transform EU-PP into GB

I was already thinking on adding Small caps to the stocks portion.

Regards

[mathjak107]

i can’t see the long term bonds anymore but i can see something like

40% equities

20% gold

20% cash instruments

20% laddered 5 year bonds both regular and inflation protected , maybe a mix of iei and ief or something like LDDR the 10 year bonds etf that is actually laddered bonds out to 10 years

[foglifter]

Nice answers!

So you recommend GB…

Please let me know more about what should I do to transform EU-PP into GB

I was already thinking on adding Small caps to the stocks portion.

Regards

Sorry for not responding earlier, you actually responded to your own question in your last sentence - yes, GB is pretty much a PP with an enlarged equity bucket where you add small cap value stocks.

[dualstow]

I loved long bonds when I was 40
Don’t want to stick my wife with them.

[mathjak107]

we don’t even buy green bananas anymore

[dualstow]

[frugal]

I loved long bonds when I was 40
Don’t want to stick my wife with them.

What is your option and solution for LTB?

Hug

[mathjak107]

when you go back thru time frames the last two decades it’s like equities and gold beat equities and bonds over most time frames .

i am retired and really have no use for bonds at this stage . i keep a minimal amount but i can’t really say why . call me old school .

equities gold and cash instruments seem to do very well , even thru the tough spots we had.

after a fabulous year last year booking over 600k in gains i am a mere 20% equities right now with what is going on and the bulk in tbills with a full 10% of assets position in gold . my top fund i had fidelity blue chip growth doubled over 2023 and 2024 so it was an exceptional year so now i can kind of stop running for now and just kind of coast until things get sorted out

my bonds are down below a 5% allocation and are under 5 years in duration