The Singapore Government 30-year bonds currently traded over SGX has a yield-to-maturity of 2.8% at this moment. This is the risk free rate that an investor could earn. In other words, if you buy the bonds today and held it till maturity you will receive the face value of the bond. The Singapore Government promised and is obligated to pay it back to her bond holders at maturity.
Most investors are not satisfied with a 2.8% return and it is reasonable to demand for higher returns. In fact, it is quite easy to do so. However, higher returns will entail higher volatility (fluctuations in the value of your investment account) and most investors aren’t able to stay invested as a result. The stock market can decline 20% during a correction and 50% during a market crash. Most investors would turn from long term investors to short term traders, desperately selling their holdings to get out of the stock market in fear. In short, investors want higher returns without the risks. This is an unreasonable demand.
That said, the Permanent Portfolio is the closest thing to meet this ‘unreasonable’ demand. It was mooted by Harry Browne, an ex-U.S. Presidential Elect, with his team of financial advisors. It was post hyper-inflation period in the 1970s U.S. and many U.S. citizens had their purchasing power reduced as their investments could not keep up with inflation. Most investors put their money in traditional asset classes like stocks, bonds and fixed deposits which are not great inflationary hedges.
Harry Browne constructed the Permanent Portfolio that consists of stocks, bonds, gold and cash, so that there will always be one asset class that will do well in any of the economic conditions.
- Growth: Stocks
- Deflation: Bonds
- Inflation: Gold
- Recession: Cash
The Permanent Portfolio’s volatility was much lower compared to many other asset allocations. Historically, the Permanent Portfolio’s worst decline was less than 10% in various countries. Most investors would be able to stay invested with such low volatility.
I started sharing about the concept of Permanent Portfolio three years ago through articles and talks to public. I have received similar questions from the audience and I thought it would be good to have a guide book for them. Hence, I wrote the manuscript and submitted to Aktive, who was kind to publish the book for me.
Craig Rowland had comprehensively explained the concept in his book, The Permanent Portfolio. He has done a great job and I am not required to repeat what he has written. Hence, the intent of The Singapore Permanent Portfolio book was to focus on the implementation aspects in Singapore. It is a localised guide tailored for Singaporeans.
just bought. hope to receive it soon. 🙂
I bought the Craig Rowland text after reading about it on your site a few years back.
How does your text complement his ?
This book focuses on the implementation of Permanent Portfolio tailored to the Singapore context.
great book! thanks for writing this.
in your book you mentioned to replace the with a new 30 year bond when the current bond is less than 25 years to maturity, i.e. even if it doesnt hit 15% or 35% we still replace with a new 30 year bond at same value?
thanks for your kind advice.
Yes, you would still need to replace with the 30 year bond even if the 15/35% mark was not hit.
hi alvin, just received your book. Just have a query.. How do i maintain a Singapore permanent portfolio using a Blue Chip Investment Plan.? I have contributed a few hundreds dollar monthly on Nikko AM ETF. That means that after 1-2 months, I have to re-balance due to unbalance contribution.
One way is to rebalance the portfolio whenever your stocks component hit 35% of your portfolio value (since your STI ETF will definitely grow over time).
Alternatively, you can stop the regular investment plan and put the cash in savings. Once the cash pile reaches 35% you can rebalance by buying STI ETF / SGS Bonds / Gold.
hi Alvin
thanks so much for your earlier advice.
would appreciate your kind advice for another 2 queries for Gold:
1/
expense ratio for SPDR Gold shares is 0.4%
admin fee for UOB Gold Savings account is 0.25% + 7% GST
in terms of cost, would it then make more sense to hold gold in UOB Gold Savings account than in Gold ETF SPDR Gold shares?
2/
I was also looking at Gold Bullion coins but i noticed the UOB buy/sell spread for gold bullion coins to be rather high.
Based on today’s rates from the UOB website:
GOLD SAVINGS A/C SGD 1 GM sell50.91 buy50.65
whereas for gold bullion coins it’s:
SGD 1/20 OZ (GNC,SLC &GML) sell126.00 buy77.00
1 oz = 28.349g
would it then make sense to buy Gold in the PP in GSA than owning Gold Bullion coins?
appreciate your thoughts as always.
thank you.
Firstly, it is better to buy physical gold than paper gold. Think about this, in bad times when banks and stock exchanges are closed, which one can you bring along with you? Yes, physical gold has higher spread and some premium. But it has advantages that paper securities do not have.
Both ETF and Gold Savings account have institutional risks. Cost indeed is a factor, besides the expense ratio, add in the spread cost too. Another factor to think about is the ease of transaction. Gold savings account can only be transacted at the banks.
Hey Alvin,
Thanks for your earlier advice. I think i will stay put with the BCIP first. One more qns, is is useful if i use Singapore Savings Bonds for my bond portion?
Hi Will, the Singapore Savings Bonds are good for the cash component in the Permanent Portfolio because you can sell it at face value anytime you need the cash to rebalance the portfolio. And moreover you get higher returns on the cash.
For bonds, you need price of the bond to fluctuate. SSB is always bought and sold at par, hence not a good bond replacement.
hi Alvin
re: geographical diversification concerns, i agree and understand that a high negative correlation, synced exposure to economic conditions and similar weightage in the mix of countries are needed for both the bonds & equity portions for the permanent portfolio to work at its best.
upon re-reading your book, i have a thought that i’d like to get your input.
for discussion’s sake, what could possibly happen in a freak elections result scenario when a change of government leads to a reduction in confidence in both government bonds as well as stocks index.
country-specific government bonds and stocks index ETFs could possibly both plunge?
since this is a country-specific and if the country is small, ripple effect on global markets may be minimal, gold prices may not rise in tandem as much as let’s say if and when global stocks and/or bonds plunge.
just wondering if there have been any historical case studies on smaller countries/markets that may have experienced this and how did the respective asset classes respond.
Thank you and appreciate your thoughts as always.
Hi Ken, a change in government or even war outbreak are possibilities, despite how remote they may seem at this point in time.
In that case, as you rightly pointed out, there will be no accessibility to sell the bonds and stocks. I would even argue a large devaluation in the currency is very possible and deem worthless to the eyes of many.
In such scenarios, even though gold may not rise in tandem to a localised turmoil, not all is lost. Gold could still hold a part of your wealth and you can carry it with you if you choose to leave the country.
If localised exposure is not something you want to take the risk on, you may choose to implement a global permanent portfolio. But you must diversify your stock, bonds and cash holdings in various countries. Custodising the securities in local brokerages would diversify the risk away.
Hi Alvin,
Great book you have here. Easy to read and clear advice with credible evidence to support them.
Was wondering is there any advice on the size of the portfolio recommended for different age groups?
Hi Teng, thanks for your compliment 🙂
There isn’t a ‘size’ per se. It is a personal preference and comfort level to set up a Permanent Portfolio.
Hi Alvin
I have just read your book. It was indeed informative. I just graduated, and was thinking about starting out on my investment journey since I will have monthly salary soon. Thus passive investing appeals to me. I am looking at both index investing and permanent portfolio. Which would you suggest? Overall, I would say I am risk adverse even though staying invested during market crashes is something I am prepared for if I would to do index investing.
With regard to the gold component, your book suggested SPDR Gold Shares (O87). I see that the price is listed in US$. I don’t think I have an US$ settlement account. Will it be an issue?
With regard to the cash component, the main thing is liquidity, right? As long the cash can be withdrawn any time from the deposits account, then that should be fine?
You can start with a monthly investment plan for a start to build up your capital. Dollar Cost Averaging works well when the market is declining, so you should be happy during a crash. Once you have built up sufficient capital, you can diversify into other asset classes.
Although gold is denominated in USD, you can still use your brokerage to buy and choose to settle in SGD. They will use the prevailing exchange rate for the transaction.
The cash component should be reserved for rebalancing purposes. Yes, it should be easily withdrawn, but it must also be able to deploy into buying stocks, bonds and/or gold for rebalancing. Do not use your emergency funds to do this. Keep your savings and cash for investments separate.
Hi Alvin,
I live in UK but would like to get hold hold of your book, as I am thinking abut a Singapore based portfolio for geographic/currency diversification. Your website says free postage to Singapore addresses. Will you post to UK, and do I use the same Buy link?
Thanks
Nick
Hi Nick, would you consider getting the ebook version instead? You can save on the postage 🙂
You can get the ebook here: http://aktive.com.sg/presenting-the-singapore-permanent-portfolio/
Hi Alvin,
Can I check are there errors for the left pie charts in fig 2.3 and 2.4? The percentages do not correspond to the values for the constituents of the portfolio. Or am I reading it wrongly…
Yes, you are right with the errors.
The publisher issued an errata on their site: http://aktive.com.sg/presenting-the-singapore-permanent-portfolio/
You can scroll to the bottom to see the errata.
Hi,In your book you mentioned : ‘it is also recommended to keep the bond with at least 25 years to maturity. This means you would need to replace the bond when a 30-year bond is issued and your current bond is less than 25 years to maturity.’
What do you mean by when a 30-year bond is issued? Less than 25 years to maturity, does it mean by we should replace a SGS 30-year bond every 5 years? Can you kindly explain with an example?
For e.g., there is a older 30-year bond PH1S, which is 26 years to maturity. There is a newer 30-year bond BJGS launched this year. Hence, you could replace PH1S with BJGS in the following year. In fact, you can even switch the bond now since it is already available.
Hi Alvin,
Sure, thank you! 1. Does that mean it would be good to replace the 30 year bond with new 30 year bond every year?
2. I wish to start my Singapore Permanent Portfolio, how much is really the lowest minimum to start and what should I buy?
3. As there any down sides of buying the gold trust than gold etf?
Thank you very much Alvin.
Best regards,
John
Hi Alvin!
Sorry there are some typo!:)
Sure, thank you! 1. Does that mean it would be good to replace the 30 year bond with new 30 year bond every year?
2. I wish to start my Singapore Permanent Portfolio, how much is really the lowest minimum to start and if you were me what should I buy?
3. Are there any down sides of buying the gold trust than gold ETF, what would you recommend for me?
Thanks a million Alvin! Appreciate your advice!
Best regards,
John
1. We do not have new 30 year bond issued every year. there was a 4 year gap between the current 30-year bonds.
2. the min amount is determined by the bonds because of the lot size. 10 bonds per lot, and about $100 per bond, which equate to $1000 per lot. And you need 2 lots for each asset. So one asset minimally is $2000. Permanent portfolio has 4 assets. 4x$2000 = $8000 minimum to start.
3. Physical gold is preferred but if account is small, stick with Gold ETF is better.
Hi Alvin!
Glad to hear from you!
I am just concerned if will I face any problem rebalancing (for both buying and selling) to reach approximately 25% for each asset if it is 2 lots?
For example if its gold etf, when it reach 35%, i only have 2 units, how do I sell it off to rebalance? If i sell 1 unit, it left 17.5%?
Similarly for bonds and stocks when buying/selling to rebalance.
thank you.
John
Sorry, you there?
Of course, the more lots you have the easier to rebalance.
I am responding to your question of minimum to start, which is at least 2 lots for each asset class.
It is ok if the rebalancing is off the mark. It does not need to be exactly at 25% all the time.
hi Alvin!
noted, thank you very much for the kind advice!
Cheers!
John
looking at the performance it is not pretty.
Over five years an average of 1.3% return.
And twice the portfolio returned to zero gains.
Might as well just buy laddered SGD government bonds.