Tactical Permanent Portfolio (TPP)
Developed by Adam Butler · Passive + Tactical Hybrid · Low Risk
The Tactical Permanent Portfolio was developed by Adam Butler at ReSolve Asset Management, published as part of his broader Adaptive Asset Allocation research (SSRN #2328254). TPP takes Harry Browne's classic Permanent Portfolio — a static equal-weight allocation across stocks, bonds, gold, and cash designed to perform adequately across all economic regimes — and adds a single tactical modification: a moving average trend filter on the equity component that shifts to cash when stocks enter a sustained downtrend.
Browne's original Permanent Portfolio holds twenty-five percent each in equities, long-term bonds, gold, and cash (or short-term Treasuries). The theoretical foundation is that these four asset classes respond differently to the four possible macroeconomic states: prosperity (equities lead), deflation (long bonds lead), inflation (gold leads), and recession (cash preserves capital). By holding all four at all times, the portfolio maintains exposure to whichever economic regime materializes, without requiring the investor to predict which state is coming. This all-weather design has delivered remarkably consistent returns with low volatility over decades of diverse market conditions.
Butler's tactical modification addresses the one scenario where the original Permanent Portfolio suffers meaningful drawdowns: severe equity bear markets that are not accompanied by sufficient offsetting gains in bonds or gold. During the 2008 financial crisis, for example, the equity component lost roughly half its value — and while long-term bonds and gold partially offset these losses, the portfolio still experienced a drawdown that many investors found uncomfortable. By applying a ten-month moving average filter specifically to the equity position, TPP reduces this tail risk while preserving the multi-regime balance of the other three positions.
The tactical element is deliberately limited in scope. Only the equity allocation is subject to the trend filter — bonds, gold, and cash remain permanently invested at their twenty-five percent targets regardless of market conditions. This targeted approach recognizes that equities are the primary source of large drawdowns in the Permanent Portfolio and that applying trend filters to the other assets would likely degrade their ability to serve as counterweights during the specific economic regimes they are designed to address.
How It Works
The Permanent Portfolio Foundation
The portfolio maintains four positions at twenty-five percent each: US equities (SPY), long-term Treasuries (TLT), gold (GLD), and short-term Treasuries (SHY). Three of these positions — bonds, gold, and cash — are permanent allocations that are held continuously regardless of market conditions, trends, or economic indicators. They provide the all-weather foundation that the strategy inherits from Browne's original design.
The permanent allocation to long-term bonds provides both income and powerful protection during deflationary scares and flight-to-quality events. Gold provides inflation protection and tends to appreciate during periods of currency stress or geopolitical uncertainty. Cash provides capital preservation and serves as the ultimate safe haven during severe economic stress. Together, these three positions ensure the portfolio always has meaningful exposure to assets that benefit from each of the non-prosperity economic regimes.
Tactical Equity Filter
The equity position is the sole tactical element. Each month, SPY's price is compared against its ten-month simple moving average. When the price is above the moving average, the full twenty-five percent equity allocation is maintained. When the price falls below, the equity allocation shifts to short-term Treasuries (SHY), temporarily increasing the cash component to fifty percent while maintaining the bonds and gold positions unchanged.
This simple binary filter reduces the portfolio's exposure to extended equity bear markets — periods that represent the primary risk to the Permanent Portfolio's otherwise consistent performance. The ten-month lookback provides sufficient lag to avoid reacting to normal market volatility while being responsive enough to identify genuine trend changes within a few months of a major turning point.
The Minimal Intervention Philosophy
The decision to apply the trend filter only to equities — leaving bonds, gold, and cash unmanaged — reflects a specific philosophy about where tactical intervention adds value and where it creates risk. Bonds in the Permanent Portfolio serve as a deflation hedge; filtering them based on trend could remove this protection precisely when deflation arrives. Gold serves as an inflation and crisis hedge; filtering it could eliminate the allocation just before an inflationary or geopolitical event. Cash by definition requires no trend management.
By limiting tactical intervention to equities, TPP accepts the drawdowns in its three static positions as the necessary cost of maintaining their hedging functions, while addressing the single largest source of Permanent Portfolio drawdowns through a well-validated trend-following mechanism. This focused approach keeps the strategy's total turnover near zero in most years while providing meaningful improvement in the risk-return profile relative to the static original.
Explore Tactical Permanent Portfolio (TPP)
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