The following is part of a sales pitch I received via e-mail:
"How, then, to implement a risk-parity-type portfolio? One of the most popular portfolios of the type is Harry Browne's Permanent Portfolio. It's simple: 25% allocations each to gold, long Treasuries, equities, and cash, roughly balancing one's risk exposures across all four economic configurations. The strategy's performance has been admirably steady for the period 1973-2012. However, it lagged by leagues during the 20-year secular bull market that began in the early 1980s. Its Sharpe ratio, defined as return above cash divided by its standard deviation, was a respectable 0.48, better than the 60/40 portfolio's 0.40. The strategy's Sharpe ratio understates its advantage; it had smaller drawdowns, less fat-tail risk, and held up well when you needed it to.
"We can improve upon Harry Browne's Permanent Portfolio. It doesn't hold broad commodities, ignores foreign bonds and stocks, and doesn't adjust weightings for volatility. I've created a model portfolio diversified across all four economic configurations that goes some way toward rectifying the imbalances. It's not designed to shoot the lights out, but rather ensures no one economic environment devastates your wealth.
"To see our Risk-Balanced Portfolio, subscribe to ...."
The online subscription is $169 per year.
(I'm not interested in subscribing but thought the above might be thought-provoking.)
I think you're onto something. Commodities and some high quality foreign equities would be a good addition.
The thing is, I find it hard to dismiss the need for some tactical control in today's environment. And, I don't like long term U.S. bonds because our government is destroying our currency while buying huge quantities of its own debt.