Performance & Risk Metrics (2016-2026)
| Metric | Dual Momentum | Permanent Portfolio |
|---|---|---|
| CAGR (10-Year Annualized Return) | 10.9% | 6.8% |
| Max Drawdown | -18.2% | -8.2% |
| Sharpe Ratio (Risk-Adjusted Return) | 0.62 | 0.65 |
| Strategy Type | Tactical Asset Allocation (Trend following) | Passive Portfolio (Strategic Buy & Hold) |
| Rebalancing Frequency | Monthly (on momentum signals) | Annually (fixed target weights) |
DM Philosophy
Dual Momentum simplifies trend following to a single binary signal: is the S&P 500's trailing 12-month return greater than T-Bills? If yes, invest 100% in US stocks. If no, rotate entirely to bonds. This removes the international equity component, sacrificing diversification for maximum execution simplicity.
Permanent Portfolio Philosophy
Harry Browne's Permanent Portfolio splits capital equally (25% each) among stocks, long-term government bonds, gold, and cash (T-Bills). Each asset class is designed to thrive in one of four economic states: prosperity, deflation, inflation, and recession. The quarterly rebalancing to equal weights captures mean-reversion gains across these structural allocations.
Key Differences Explained
DM delivers nearly 60% more annual returns than the Permanent Portfolio (10.9% vs 6.8%) but with almost double the drawdown (-18.2% vs -10.5%). This perfectly illustrates the risk-return tradeoff: DM aggressively pursues equity momentum, while the PP prioritizes capital preservation through structural diversification across four economic regimes.
- Strategy Type: DM is a tactical, actively-managed approach. Permanent Portfolio is a passive, buy-and-hold approach.
- Return vs Risk: DM delivered 10.9% CAGR with -18.2% max drawdown (Sharpe: 0.62). Permanent Portfolio delivered 6.8% CAGR with -10.5% max drawdown (Sharpe: 0.58).
- Maintenance: DM requires monthly signal monitoring. Permanent Portfolio needs only annual rebalancing.
Side-by-Side Pros and Cons
DM Strengths & Limits
- Simplest possible momentum system — single binary signal
- Only requires two ETFs to implement
- Easiest to automate and follow consistently
- Misses international equity rallies entirely
- No global diversification
- Same whipsaw vulnerability as GEM
Permanent Portfolio Strengths & Limits
- Ultra-defensive — very low maximum drawdowns
- Gold provides inflation hedge and crisis alpha
- Simple to implement with only 4 ETFs
- 25% cash drag significantly reduces long-term returns
- Underperforms badly in strong equity bull markets
- Long-term bonds can lose heavily in rising rate environments
Which Strategy is Right For You?
Choose DM if: You're in the wealth accumulation phase and want growth. DM's higher returns compound dramatically over decades, making it ideal for younger investors with long horizons.
Choose Permanent Portfolio if: You're approaching or in retirement and can't afford deep drawdowns. The Permanent Portfolio's ultra-low volatility preserves capital when it matters most.
Deep Dive
Want to master this strategy? Read our definitive Guide to Momentum Investing to understand the core rules, historical performance, and exact ETF implementations.