There is no need to modify the 25% 4 way split of asset allocation.
I simulated various way of improving Permanent Portfolio - leveraging, hedging,
adding other asset classes, market timing, optimising asset allocation etc.,
and I finally decided to stick with the original Permanent Portfolio system. I
do not consider myself a very experienced or professional investor, hence I
conclude I am rookie investor. As a rookie, my best chance to achieve my minimum
6%-10% annualised returns target is to let the original Permanent Portfolio's
simplicity, ease of use and reliability work in my favour. If I wish to
speculate and increase my stock, bond or gold holdings, I will start a variable
portfolio to hold these speculative purchases, while not making changes to my
Permanent Portfolio.
Hi Alvin,
ReplyDeleteIf cash is giving 0% return, do you think that the portfolio would give a higher dollar value returns if the investment is split among the 3 asset classes consisting of Stock, Bond & Gold? Please comment. Thank you.
Richard
Hi Formula1. In the short term, splitting cash into stock, gold and bonds can increase the dollar value returns, yet this comes with several drawbacks. In the longer term, if sudden major market corrections occurs, there is no cash component to buffer the drop in portfolio value. Near bottom of major corrections, there is also no cash to buy cheap stocks and gold at 20% discount or more. Part of the portfolio's cash component can also be your personal emergency fund, so having some cash on hand is good to protect oneself and be prepared for opportunities. This way there is also no need to market time when to have cash on hand and when to put cash into other assets. In future, interest rates may also rise and money market funds or fixed deposit will have higher interest returns. It is better to be consistent now to always have the 25% cash component.
ReplyDeleteEpps
P.S. I run this blog.