[Epps is a BigFatPurse contributor on the topic of Permanent Portfolio. This is his maiden post. In future posts, he will share his experience on how the portfolio has served him!]
Here is a table of the annual returns from a Singapore Permanent Portfolio for the last 9 years. This table shows average returns of 7.4% per annum excluding interest and dividends. All returns are in terms of Singapore dollars. Data is taken on first trading day of each year. (Click to enlarge)
25% stocks: Singapore Straits Times Index (STI),
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25% long term government bond: iShares Barclays 20+ Yr Bond ETF (TLT), price converted to Singapore dollars according to prevailing exchange rate. TLT was used because there was no 30-year Singapore Government Bond prior to 1 April 2012,
25% gold: gold price calculated in Singapore dollars using Yahoo! Finance ticker XAUSGD=X,
25% cash: assuming cash returns are at 0.5% per annum due to lack of interest rate data.
Conclusion: This portfolio would have a positive average annual returns of at least 7.4% (exclude dividends and interests) at the end of last 10 years and avoided big losses in 2008. The compounded annualised return is at least 7.3%.
My current Singapore Permanent Portfolio consists of:
- 25% Stocks: STI ETF (ES3). Alternatively use Nikko AM STI ETF100 (G3B)
- 25% Bond: Singapore Government 30-years Bond (PH1S). Alternatively use TLT.
- 25% Gold: UOB Gold Savings Account. Alternatively buy physical gold bullion or coins after 1 Oct 2012, when 7% GST will be removed from investment grade gold.
- 25% Cash: Singapore Government 3-months Treasury Bills. Alternatively, use bank fixed deposit.
Note 1: the average annual returns of 7.4% beats inflation. This achieve the aim of “consistent growth”.
Note 2: the Permanent Portfolio maximum loss in 2008 was -3.9%, compared to stock heavy portfolio which could have suffered up to 49% loss in 2008. Permanent Portfolio achieved the aim of “avoiding big loss”.
Note 3: in 2009 stock heavy portfolio could have boasted returns of 64%, compared to Permanent Portfolio’s 15% gain. Examining 2008 and 2009 data again, we see stock heavy portfolio losing up to 49% in 2008 and gaining 64% in 2009 – the 64% gain is not sufficient to recover the initial loss of 49% (stocks would have to grow almost 96% in 2009 in order to bring the value of stock assets back to 100%) and gives a total negative return of up to (-16.4%) in 2008 to 2009 for a stock heavy portfolio. Comparatively, Permanent Portfolio has a loss of -3.9% in 2008 and a gain of 15% in 2009, giving total positive returns from 2008 to 2009 of 10.5% instead. This extreme case highlights the advantage of avoiding big losses when designing an investment portfolio.
Note 4: the returns of TLT and gold have been converted to Singapore dollars before calculating the profits, using the day’s prevailing USDSGD currency exchange rate. This portfolio should be tracked in investor’s own country currency.
Note 5: the annual returns excludes stock dividends and bond interest due to lack of data. If actual dividends and interest were included, the average annual returns would probably have risen by about 1% or more.
Note 6: the returns of TLT has been negatively impacted by the falling USDSGD currency exchange rate over the years. If currency hedging was performed, then the portfolio could have risen by about another 1%.
Note 7: to simplify calculations, cash has been assumed to grow by 0.5% per year only. If cash had been placed in higher yielding 1-2 years bond or Treasury bill, then the total returns would have been higher.
Note 8: Some may find that Permanent Portfolio asset allocation sounds very different from what they have seen elsewhere. Remember that one has to see the total portfolio results, and not just focus on individual asset performance. For your questions about this choice of assets and allocation, you can first have a look at some common questions about Permanent Portfolio here.