Investing is a lot like cooking. Following an investment strategy is like having a recipe in your hand. It is just a guide. Adhering 100% to either might not always work for you. At the end of the day, whose money is it in the bank? Yours. Who’s the one that’s gonna eat the food? You are.
What’s So Permanent About Permanent Portfolio
Designed to do well in all circumstances, Permanent Portfolio first drew my curiosity back in 2013. Dividing asset allocation equally into equities, bonds, gold and cash, by design the Permanent Portfolio is meant to do well regardless of whether the economy is in expansion, recession, inflation or deflation. Rebalance annually. Repeat.
Andrew Hallam wrote about the Permanent Portfolio – he hasn’t released his second book yet at that point in time.
Teh Hooi Ling wrote articles on it, too. You can read her Business Times articles on Index Investing Singapore. They were fascinating reads.
Overall, between 2003 and 2012, the strategy grew that initial $1 million to $2.04 million. That is a compounded annual return of 8 per cent a year. Few mutual funds actually managed this kind of return!
However, I am not that keen on holding to gold personally, even though I can see the rationale of doing so in the portfolio.
How To Build A Permanent Portfolio In Singapore
If you are interested in building a Permanent Portfolio, this is how I would do it. Again, as I always emphasise, what I post is not necessarily the “best returns” way or the cheapest method. This is a simple approach that works for me, and I value simplicity very highly. Simplicity means things get executed means money in the bank. Nothing done equals no returns.
Based on the experience we’ve had when we created the 3-Fund Bogleheads Portfolio, Permanent Portfolio isn’t that difficult to do at all. Even if you have no experience in investing, take a deep breath and believe in yourself. Trust me, it is easy.
Let’s get started.
First, I open a brokerage account, making sure that I have a USD settlement account in addition to a SGD settlement account. This is because I want diversification not just in terms of companies or industries in Singapore. I want geographical diversification, which means I need a global index ETF. My experience opening a Standard Chartered brokerage account is documented in an earlier post.
In light of the recent developments of StandChart shutting most of its global equities businesses (retails investors remain unaffected for now), you might want to re-think whether to use them or now. Of course, they are still the one and only discount broker in Singapore with no minimum commission. In addition to StandChart, I have accounts with DBS Vickers and POEMs. However, StandChart remains my primary broker for now, and I will be keeping a close watch on Temasek’s 18% shareholding for any “sudden events”.
Then, you can proceed to buy the ETFs (feel free to use my sample guide on using StandChart online trading platform for reference) which corresponds to your diversification in terms of asset class – Equities, Bonds and Gold. For the Cash portion, for annual re-balancing purposes I will probably chuck them in a fixed deposit. For example, I have used MayBank’s 1-year fixed deposit previously with a 0.7% interest rate.
Millionaire Teacher Andrew Hallam has posted a sample Permanent Portfolio for Singaporeans which you can refer to on his website. I would have probably constructed the exact same portfolio if I were to build a permanent portfolio, so we shall use that as a reference.
Andrew Hallam’s Sample Portfolio
- SPDR Gold Shares (O87) [SGX] <25%>
2. ABF Singapore Bond Index (A35) [SGX] <25%>
3a. Vanguard FTSE All World UCITS (VWRD) [LSE] <12.5%>
3b. SPDR Straits Times Index (E3S) [SGX] <12.5%>
4. Cash <25%>
Make your purchase according to the chosen funds and you’re done. Equities are split 50/50 between local index and global index for local bias, as I am going to live and probably retire in Singapore eventually. The smaller lot size of 100 come 19th January 2015 will benefit you greatly in terms of a more accurate asset allocation.
I had a tiny part to play in the sample portfolio, by suggesting a lower expense SG-based gold ETF compared to his original selection. Tiny lesson to learn here – even a millionaire bestselling author can make overlook tiny details. Question everything. Don’t believe everything you read online, especially finance-related blogs like the one you are reading now.
Turtle Investor 2014 Giveaway Winner
An email has already been sent to the lucky winner – a certain char siew reader of my humble blog. Congratulations!