Introduction
Permanent Portfolio is a self-directed long-term passive investment strategy, introduced in 1981 by Harry Browne and Terry Coxon and simplified into 4 asset class in 1987. It aims to provide consistent market returns and protections in different economic cycles of growth, inflation, recession and deflation. The strategy does not rely on market timing, and requires yearly management and minimal monitoring. This site is to provides educational information for learning about my research and implementation of Singapore version of Permanent Portfolio. Readers can also use the Permanent Portfolio knowledge to diversify their stock heavy portfolio into long term government bonds and gold for better portfolio protections in recession, deflation and inflation. Disclaimer: Use of information on this site represents acceptance of the disclaimer at bottom of this page and Disclaimer page.

Sunday 29 July 2012

How has Singapore Permanent Portfolio performed in past 9 years

How has Singapore Permanent Portfolio performed in past 9 years?


Here is a table of the annual returns from a Singapore Permanent Portfolio for the last 9 years. This table shows average returns of 7.4% per annum excluding interest and dividends. All returns are in terms of Singapore dollars. The portfolio was rebalanced back to 25% for each asset at the start of each year. Data is taken on first trading day of each year.

S’pore
Stock
Annual
Return %
TLT in
SGD
Annual
Return %
Gold in
SGD
Annual
Return %
Annual
Return %
Annual
Return %
Date
STI
Index
STI
Index
TLT
(SGD)
TLT
(SGD)
XAUSGD
XAUSGD
CASH
Permanent
Portfolio
A
B
C
D
(A+B+C+D)/4
Jan-12
2,646.4
 
153.17
 
2,057.1
 
 
 
Jan-11
3,190.0
-17.0%
119.70
28.0%
1,821.2
13.0%
0.5%
6.1%
Jan-10
2,897.6
10.1%
125.52
-4.6%
1,563.6
16.5%
0.5%
5.6%
Jan-09
1,761.6
64.5%
174.21
-27.9%
1,271.2
23.0%
0.5%
15.0%
Jan-08
3,462.7
-49.1%
134.07
29.9%
1,233.4
3.1%
0.5%
-3.9%
Jan-07
3,015.7
14.8%
136.84
-2.0%
965.0
27.8%
0.5%
10.3%
Jan-06
2,354.6
28.1%
151.31
-9.6%
874.5
10.4%
0.5%
7.3%
Jan-05
2,065.2
14.0%
144.57
4.7%
701.8
24.6%
0.5%
10.9%
Jan-04
1,768.8
16.8%
144.80
-0.2%
707.0
-0.7%
0.5%
4.1%
Jan-03
1,338.0
32.2%
152.96
-5.3%
599.7
17.9% 0.5% 11.3%
Average
7.4%


(Update 8/12/2012: Table updated to make it easier to read annual returns)

This theoretical Singapore Permanent Portfolio returns is based on:
25% stocks: Singapore Straits Times Index (STI),
25% long term government bond: iShares Barclays 20+ Yr Bond ETF (TLT), price converted to Singapore dollars according to prevailing exchange rate. TLT was used because there was no 30-year Singapore Government Bond prior to 1 April 2012,
25% gold: gold price calculated in Singapore dollars using Yahoo! Finance ticker XAUSGD=X,
25% cash: assuming cash returns are at 0.5% per annum due to lack of interest rate data.

Conclusion: This portfolio would have a positive average annual returns of at least 7.4% (exclude dividends and interests) at the end of last 10 years and avoided big losses in 2008. The compounded annualised returns is at least 7.3%.

My current Singapore Permanent Portfolio consists of:
25% Stocks: STI ETF (ES3). Alternatively use Nikko AM STI ETF100 (G3B)
25% Bond: Singapore Government 30-years Bond (PH1S). Alternatively use TLT.
25% Gold: UOB Gold Savings Account. Alternatively buy physical gold bullion or coins after 1 Oct 2012, when the 7% GST will be removed for investment grade gold. Another alternative is SPDR Gold ETF (O87).
25% Cash: Singapore Government 3 to 12 months Treasury Bills. Alternatively, use money market funds or bank fixed deposits.


Note 1: the average annual returns of 7.4% beats inflation. This achieve the aim of "consistent growth".
Note 2: the Permanent Portfolio maximum loss in 2008 was -3.9%, compared to stock heavy portfolio which could have suffered up to 49% loss in 2008. Permanent Portfolio achieved the aim of "avoiding big loss".
Note 3: in 2009 stock heavy portfolio could have boasted returns of 64%, compared to Permanent Portfolio's 15% gain. Examining 2008 and 2009 data again, we see stock heavy portfolio losing up to 49% in 2008 and gaining 64% in 2009 - the 64% gain is not sufficient to recover the initial loss of 49% (stocks would have to grow almost 96% in 2009 in order to bring the value of stock assets back to 100%) and gives a total negative return of up to (-16.4%) in 2008 to 2009 for a stock heavy portfolio. Comparatively, Permanent Portfolio has a loss of -3.9% in 2008 and a gain of 15% in 2009, giving a total positive returns from 2008 to 2009 of 10.5% instead. This extreme case highlights the advantage of avoiding big losses when designing an investment portfolio.
Note 4: the returns of TLT and gold have been converted to Singapore dollars before calculating the profits, using the day's prevailing USDSGD currency exchange rate. This portfolio should be tracked in investor's own country currency.
Note 5: the annual returns excludes stock dividends and bond interest due to lack of data. If actual dividends and interest were included, the average annual returns would probably have risen by about 1% or more.
Note 6: the returns of TLT has been negatively impacted by the falling USDSGD currency exchange rate over the years. If currency hedging was performed, then the portfolio could have risen by about another 1%.
Note 7: to simplify calculations, cash has been assumed to grow by 0.5% per year only. If cash had been placed in higher yielding 1-2 years bond or treasury bill, then the total returns would have been higher.
Note 8: Some may find that Permanent Portfolio asset allocation sounds very different from what they have seen elsewhere. Remember that one has to see the total portfolio results, and not just focus on individual asset performance. For your questions about this choice of assets and allocation, you can first have a look at some common questions about Permanent Portfolio here: http://singapore-permanent-portfolio.blogspot.sg/2012/07/what-are-some-common-questions-about.html

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7 comments:

  1. Hi, for the gold component, why did you not select SPDR Gold ETF instead ? Would like to understand your considerations on this. Thanks

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  2. The Gold Savings Account has no commission fees and tracks live gold price better than SPDR Gold Shares. Plus the amount of gold i am saving makes the account yearly fees equal or smaller than the yearly fees in gold etf. Gold ETF is a viable option also. Read article "What to invest in to start Singapore Permanent Portfolio" for more explanation.

    ReplyDelete
  3. Now that STI and gold had fallen, could you share how is your portfolio fairing ?

    ReplyDelete
    Replies
    1. As of 12 June 2013, my 1 year 2 months old Singapore Permanent Portfolio has a return of -3.8%, all fees and dividends, interests included.
      The breakdown of individual asset returns are: stocks +10.7%, long bond -1.2%, gold in SGD -20.9%, assume cash 0%.

      Some further notes:
      1. In recent weeks, besides STI and gold falling, bonds has been falling too.
      2. It's more important to look at the overall portfolio performance than individual asset performances.
      3. The overall portfolio volatility has still been quite low - given gold in SGD having dropped by -20.9%, entire portfolio has drops of only -3.8% so far.
      4. Even as a conservative investor, a -3.8% paper loss is still well within my tolerance level. Also i keep in mind that I am investing for the long term.
      5. All investment carries risk.
      6. Given that stocks, gold and bonds are all dropping... where do investor's money go...? I think sooner or later, the cash will flow back into some of the assets, most likely stocks and bonds first, because inflations is not expected in near future given the excess capacity and seemingly lower demands in U.S.
      7. There is still 6 months till year end and hence plenty of time for global economic conditions to change.

      Delete
    2. Thanks for your open sharing.

      Delete
  4. I just found out that CIMB StarSaver is offering 0.8% p.a. Terms & Conditions apply. (http://www.cimbbank.com.sg/index.php?ch=sg_per_st&pg=sg_per_st_cur&ac=12). Can this be used for the cash component ?

    ReplyDelete
    Replies
    1. Yes this can be used for the cash component.

      Delete