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.

Monday, 30 July 2012

Should leverage be used to increase potential profits in Permanent Portfolio

Should leverage be used to increase potential profits in Permanent Portfolio?
In short, do not use leverage for this portfolio. If you use leverage, depending on situation, you can lose all your investments, and even owe money - this is not something you wish for money you cannot afford to lose! To recap, invest money that you cannot afford to lose, speculate with money you can afford to lose. If you use only cash and own only actual assets, there is almost no chance to lose your entire investment fortune. I believe most retail investors are rookie investors, as opposed to experienced or professional investors. Rookie investors should use a grounded approach and only invest using cash. For this portfolio investment, invest in the actual assets such as STI ETF shares, government bonds or government bond ETFs, physical gold or ETF backed by physical gold. Do not invest in their derivative leveraged instruments such as CFD, futures and options. Actual assets can provide dividends and interests, give you a more grounded feeling that you are owning something, and reduce or eliminate counterparty risk that your asset will become worthless if the counterparty defaults on the derivative instruments. If you think you are savvy enough to invest with leveraged instrument, you can start another portfolio with money you can lose to invest with leveraged instruments, and see for yourself how you would perform. Leveraged instruments comes with potentially higher operating costs, and may need more monitoring. In addition, leveraged instruments normally do not pay out interests and dividends.

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