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.

Tuesday, 28 August 2012

What to invest in to start Singapore Permanent Portfolio

What to invest in to start Singapore Permanent Portfolio?

(updated 2/3/2013)
Following is an example plan to show how an investor can start a Singapore Permanent Portfolio. The figures here are for readers to double check against the figures in their own plans to start a Singapore Permanent Portfolio, and are not advices nor recommendations that readers should invest in these particular assets. In the example, an investor starts with minimum sum S$12,000. The investor strives to get as close to 25% initial allocation for each asset as possible. Below figures exclude brokerage fees and annual fees.

Example: Using data from 2 April 2012, to start a Singapore Permanent Portfolio, an investor can invest about S$12,000 all at once in:

25% Stocks: (updated 2/3/2013)

i.1 lot (1000 shares) of SPDR STI ETF (SGX symbol ES3) at S$3.04 per share - total investment S$3040. ES3 is traded in individual board lot of 1000 shares each.
ii. Alternatively, invest 10 lots (1000 shares) of Nikko AM STI ETF100 (SGX symbol G3B) at S$3.04 per share - total investment S$3040. G3B is traded in individual board lot of 100 shares each.

25% Bonds: (updated 30/8/2013)

i. 3 lots (30 units) of Singapore Government 30-year Bond (SGX symbol PH1S) at S$100.0 per unit - total investment S$3000. PH1S is traded in individual board lot of 10 units each.
Note: 30 years bonds are to be held till they are left with near 20 years left till maturity, then the bonds are all sold and newer 30 years bonds, or near 30 years bonds, are bought in replacement. This is to ensure the bonds will always have a "long" time till maturity in order to keep the volatility of the bonds prices high. This also mean that the 30 years bond will never be held till 'maturity'. 
(With effect from 1 April 2013, CDP will remove the administrative fees of 0.08% (8 basis points) of the face value of the SGS per annum.)

25% Gold:

i. Invest 1 lot (10 share) of SPDR Gold Shares GLD ETF 10US$ (SGX symbol O87) at US$161.48 per share - total investment US$1614.80 or S$2023 (USDSGD 1.25293). O87 is traded in individual board lot of 10 units each.
ii. Alternatively, invest 45 grams of gold in UOB Gold Savings Account at S$67.45 per gram (S$2098 per ounce) – total investment S$3035.25 - note that that will incur 1.54 grams (include GST 7%) per year or 3% annual fees, so Gold Savings Account is not advisable for S$3000 investment. At gold price of S$67.45 per gram, investing S$20,000~S$25,000 will incur annual fees of 0.49%~0.39% which is about equivalent to annual fees of GLD ETF. To achieve minimal annual fees of 0.25% from Gold Savings Account, S$38,850 of investment is needed.
iii. For gold investments, there is no need to hedge the gold value back to SGD, irregardless of which currency the gold is bought in - this allows gold to do its job as an inflation protection hard asset against core inflation and SGD devaluation.
iv. Calculate your latest returns on gold in SGD here:

25% Cash: (updated 5/2/2017)

i. Deposit about S$3000 in Philip Money Market Fund. This can be done by depositing the cash into Phillip Cash Management Account by ATMs or internet banking, using Electronic Payment of Shares (EPS) Lump Sum Payment option, or by Online Bill Payment option. Any cash left in the Phillip Cash Management Account will be automatically invested into the Phillip Money Market Fund at no extra charge. Cash can be deposited and withdrawn from Phillip Cash Management Account within one working day.
ii. Alternatively, invest into 2 lots (200 shares) of iShares Barclays Asia Local Currency 1-3 Year Bond Index ETF (SGD) (This ETF holds sovereign bonds only, SGX symbol QL0 "zero") at S$12.62 per share - total investment is S$2524, while remainin S$476 goes into Money Market Fund if possible. QL0 is traded at individual board lots of 100 shares each. Investing in short term bonds is still subjected to some forex and interest rate risk, so make sure investor has sufficient cash for living or emergency use to minimise the need to sell this short term bond ETF for liquid cash. (Investing in short term bond fund is not proven replacement for cash component... invest at own discretion.)
iii. Alternatively, invest S$3000 in 1-year Singapore Treasury Bill – total investment S$3000. Singapore T-bill is a fully 'insured' asset as the Singapore government fully backs the Singapore Treasury Bill. For Singapore Treasury Bill, there is a CDP administrative fees of 0.04% or minimum S$1.50 to be deducted every half yearly during interest payment.
(With effect from 1 April 2013, CDP will remove the administrative fees of 0.08% (8 basis points) of the face value of the SGS per annum.)

iv. (Best Option) Alternatively, invest S$3000 in Singapore Savings Bond (SSB). Unique features: Maximum 10 years term - able to do early redemption in any month before the bond matures, with no penalty for exiting the investment early. Meaning, accumulated interest on the redemption amount shall be paid, together with 100% of your initial investment. Interest rate increases every year, so the longer you hold the Savings Bond, the more annual interest you receive. Criteria to invest this Savings Bond: a. A bank account with DBS/POSB, OCBC or UOB; b. An individual CDP Securities account linked to any of your bank accounts; c. Apply through ATMs or Internet Banking. Savings Bond is issued every month, and total amount of Savings Bonds held across all issues cannot be more than $100,000.

Rebalancing - Managing Portfolio: After starting the Permanent Portfolio fund, the investor does not need to monitor the portfolio frequently. The only time to manage the portfolio is during rebalancing event. Rebalancing can happen in 3 ways.
  • In first method, the investor will leave the portfolio alone untouched, until one of the asset reaches 35% or 15% of portfolio, in which case the portfolio will be rebalanced back to 25% equal spilt among the 4 assets - this rebalancing band method is to be used when there will be no fresh fund entering portfolio, and aims to follow momentum of portfolio and let profits run.

  • For second method, if there is fresh fund to put into portfolio, the fresh fund will usually buy into the worst performing asset at every year end, or at regular monthly or quarterly interval, so that each asset becomes 25% of portfolio again - this is to reset the risk/reward ratio of the portfolio and buy assets when they are cheap. 

  • The third method of rebalancing is to use fresh fund to buy into different assets, while keeping the asset ratio unchanged - this aim to let profits run and to only rebalance when one of the asset reaches 35% or 15% of portfolio.
All the 3 rebalancing methods have very similar long term returns, so choice of rebalancing method can be based on whichever method is the lowest cost and suits the investor more conveniently.

An investor should understand and plan their investment strategy well, including reasons for asset allocations, how and when to rebalancing portfolio, and the benefits and disadvantages of a particular portfolio strategy. An example of a well designed investment portfolio strategy is the Permanent Portfolio strategy, and detailed description of Singapore Permanent Portfolio investment strategy can be found on this website.