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

What is the Permanent Portfolio investment strategy

What is the Permanent Portfolio investment strategy?

The Permanent Portfolio is a long term portfolio investment strategy with following asset allocation:
25% – Stocks (broad based stock index fund like the STI STF)
25% – Long Term Government Treasury Bonds (25-30 years)
25% – Gold (physical bullions or equivalent)
25% – Cash (in a Treasury Money Market Fund)

This allocation aims to provide protection and growth to the investment account when the economy shifts through the cycles of prosperity, inflation, deflation and recession.

What is in my Singapore Permanent Portfolio?

25% Stocks: Singapore STI ETF (SGX symbol: ES3). Can use online DBS Vickers Cash-upfront brokerage account to buy in SGX due to lowest commission. No foreign currency exposure. Bi-annual dividends payout. Alternative way is to purchase Nikko AM STI ETF100 (SGX symbol: G3B). G3B can be purchased with smaller individual lots of 100 shares which may be more convenient for those with smaller investment accounts. G3B is generally less liquid than ES3.

25% Long-term Government Bonds: Singapore Government 30 Year Bond (SGX symbol: PH1S). Can use online UOB Kay Hian brokerage to buy PH1S due to more reasonable bidding range and ease of buying bonds. DBSV's online bond bidding range is too restrictive! Try bargain for a good price as this bond is not so liquid, although by local law the market makers will always have to quote bid/ask price for SGS bonds so you should always have someone to buy/sell from. So far after 3 months Singapore Government 30 year bond works as intended in this portfolio - it has risen at least 10 percent and overtakes loss in other assets, showing it has enough volatility to serve its function well. No foreign currency exposure. Coupon Payment Dates 01 April and 01 October. Alternative way is to own iShares Barclays 20+ Yr Bond ETF (TLT) denominated in US dollars, which is subjected to foreign currency risk.

25% Gold: UOB Gold Savings Account. No commission, with annual fees of 0.12 gram per month or 0.25% per annum, whichever is higher. Personally visit any UOB bank branch counter to deposit and withdraw gold into the account (Monday to Friday only). Not a big issue since the bank visit is at most once a year only. No storage issues. Alternative way to own gold is to buy physical gold bullion or gold coins and store them safely. You can alternatively buy gold certificate or gold ETF in any currency. Whatever currency you buy gold in, you should track gold price in Singapore dollars such as using Yahoo! Finance ticker XAUSGD=X . It does not really matter which currency you use to buy gold since they come back to the same price in Singapore dollars, so there is no need to do currency hedge on gold either.

25% Cash: Currently I hold cash in bank savings account. Current interest rates for short term bonds and treasuries are so low that I do not trouble myself to move my cash there! The preferred way is to hold cash for some interest yield in fixed deposit, Singapore government 3-Month Treasury Bill, or Singapore government 1 to 2 years bond. In case you have lots of cash and worry about SDIC insurance limits on your bank savings accounts, you can opt to exchange your cash for Singapore government Treasury Bills which have unlimited insurance – because the government can always print more money to pay you back if necessary!

Next article:
Singapore Permanent Portfolio 10 year backtest

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