How did Permanent Portfolio perform during the bad month of Jun 13, when stocks, bonds, and gold prices took a beating?
For those who had implemented the Permanent Portfolio within the past 1 year, you must be having some doubts about it because it is likely you are suffering from paper losses. I want to write this post to give you some motivation and tide you through the ‘tough times’. 1 year is a short time. As long as you are committed to invest in Permanent Portfolio, you will do fine in many years to come if you follow the rules diligently. Re-balance once you hit the 15% or 35%. Right now, we are not there yet, at least for the model portfolio that we are discussing here. If you are still having problems, email me and let me help you.
Yes, our model Singapore Permanent Portfolio had a negative return of -1.28% since the start of 2012 or -7.67% since the start of 2013.
The good news is that the volatility is still manageable and that is the beauty of Permanent Portfolio – investors are not easily scared off by the volatility. How low is this volatility?
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
The maximum drawdown in 2013 was -9.32% . This means that you are looking at your portfolio bottomed out at -9.32% before recovering slowly to -7.67%. If we look longer, the model portfolio has only lost 1% since the inception in 2012. If you cannot even stomach Permanent Portfolio’s volatility, you should not be in stocks, gold or long term bonds at all (looking at the chart below will tell you the volatility of any asset class alone is much higher than Permanent Portfolio). You should just keep the money in the bank or buy short term bonds. Volatility is necessary for the returns you desire.
Gold price is volatile and considering it has 12 years of bull run, it is definitely time for some price pull back. Does it mean there is a chance to re-balance the Permanent Portfolio? Can you buy gold now?
To answer this question, we need to look at the overall portfolio weightage.
- STI ETF: 29.26%
- SGS Bonds: 24.22%
- SPDR Gold Trust: 17.94%
- Cash: 28.58%
Indeed gold is about 18% of the portfolio value and it is near to the re-balancing point of 15%. If gold price continues to drop, we can see an opportunity to use some of the cash to buy gold and also reduce the exposure in stocks.
Permanent Portfolio is a long term investment plan. It is designed to help investors go through good times and bad times with minimal volatility so that they can stick around long enough to reap the long term average returns – You have to understand why most investors lose money to truly understand the value of Permanent Portfolio. We should see “crashes” as good news because they provide opportunities to re-balance the portfolio and allow investors to buy low and sell high.
Do visit the Singapore Permanent Portfolio Performance page for future updates.