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How has Singapore Permanent Portfolio performed in past 9 years?

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[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)


This theoretical Singapore Permanent Portfolio returns is based on:

  • 25% Stocks: Singapore Straits Times Index (STI),
  • 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.

9 thoughts on “How has Singapore Permanent Portfolio performed in past 9 years?”

  1. I have just implemented my own sg permanent portfolio. And the recent drop in STI and rise in gold has shown me the smoothening of volatility in a PP 🙂

    In anycase, I was looking at this article and I’m not sure if your calculation is correct.

    Your total annual return for the entire portfolio is calculated as an average of A+B+C+D.
    Is that a correct method?

    shouldn’t the return of the entire portfolio be summed up and divided by the value of the previous year’s portfolio value??

    Please correct me if I’m wrong.

  2. Hi Epps / BigFatPurse,

    First and foremost, thank you for sharing about the wonderful concept of Permanent Portfolio, as a powerful yet simple passive investing approach for most busy Singaporeans to implement. Thank you for putting all your articles and resources together so that readers can access readily. I had benefited tremendously from this sharing, and I wish to share some of my thoughts about PP here. I do have some disagreements so hope you can bear with me as I explain my concerns.

    I had been thinking long and hard about the implementation of Permanent Portfolio in Singapore’s context using STI ETF for the Stock component. My conclusion is that, for the Permanent Portfolio to truly work in the spirit of Harry Browne’s book, one CANNOT use a narrowly diversified, single-country index such as the STI to constitute the Stock component of the portfolio. Even though it is our ‘home ground’ market,

    Yes, the backtest showed great results – but only for the past 9 years. If we really intend to make it a “permanent” portfolio, 9 years is too short. There are many events and factors that are peculiar to the Singapore economy and market in the past 9 years, and these events and factors may NOT be repeatable in the future. I am no economic historian, so many of my reasoning will be based on common sense and hypothesizing, so please correct me if I am wrong.

    For example, we can generally assume that Singapore took part in the Asian boom in the past decade largely due to fund flow from the West which was experiencing low interest rate. If there is an increase in interest rate, the tides may reverse and Singapore might not enjoy the same easy boom we had.

    Secondly, Singapore takes up less than 1% of the MSCI World Index. This is really puny in comparison with US which currently takes up 54% of the index. Harry Browne’s PP uses the S&P 500 as the basis for his backtesting. The small weightage of Singapore in the context of the global stock index also explain the vast difference in performance between the two. For past 10 yrs, STI’s absolute return is around 80%, whereas MSCI world index returned less than 20%. And, more importantly: whether there is continued outperformance for STI for the next 10 yrs, or whether there will be a reversion to the norm, is really besides the point. By setting up Permanent Portfolio using STI as 25% Stock, we are actually assuming huge benchmark risk, which the Permanent Portfolio was meant to avoid! By constructing a portfolio that deviates from the broadest diversification possible, we are in fact betting the market (thinking we know better than the global market), and that is under the category of active investing, not passive investing.

    The idea of using a global stock index instead of a single country one is because when it comes to a concept like Permanent Portfolio, we are looking at Stocks as an asset class, that behaves in a certain way under global economic conditions. Instead of simplifying things, using a single-country index actually complicates the investment. Just as investing in a single company instead of the market’s index involves the additional company-specific risk on top of systematic risk, so investing in a single country index involves country-specific risk on top of global systematic risk.

    My personal conclusion – at this point of time – is that using a globally diversified, passively managed fund or ETF, would be much more in line with what Harry Browne is advocating in his book, rather than using a single-country ETF. Even if that happens to be our home country. If we are Japanese investors implementing the PP 20 years ago using the Nikkei as our 25% Stock component, we would be severely underperforming the PP investors in the rest of the world, And if a lost decade or two can happen to an huge, significant economy like Japan – a manufacturing powerhouse – it can happen to Singapore as well.

    Of course, I could be wrong on this, and you may already have considered all these factors. Perhaps my concerns were unfounded, or perhaps I have some severe blindspots here. Perhaps you may have other considerations. In any case, let’s discuss this and hopefully we can come to a solution. 🙂

  3. This portfolio looks impressive with the balance of return (7.4%/year from 2003-2012) and risk. I’m interested to purchase your book and see how it is implemented in the Singapore context. However, I came across another post of simulated portfolio since 2012 (https://www.drwealth.com/singapore-permanent-portfolio-performance/), the portfolio only gave a return of 1.26%/year.
    This is too low and looks like the return is not consistent (2012-2016 is not very long but not a short duration either). What do you think are the reasons for such a major difference 2003-2012 v.s. 2012 -2016?

    • Permanent Portfolio thrive on volatility of individual components. The problem is the Singapore stock market, bonds and gold prices have been pretty much flat in the past 5 years. In 2007 we see a big rise in stocks and gold. After the crash, bonds shot up while stocks came down, and gold continue to shine before it crashed. So more volatility is good for the permanent portfolio.

  4. Dear Epps, I am a big a fan of the Permanent Portfolio; I believe in the concepts underlying it and even implemented it. The only issue I have is the extreme illiquidity of the Singapore 30-year govt bond where as of today, there is only a bid price and no ask price (No one in secondary market seems to be willing to sell). I have called my own broker and another broker to ask if they can contact the market-makers assigned by MAS to provide liquidity in this case and the reply is not encouraging; they either only do it for institutional investors only or they don’t do it at all. If one of the 4 legs is not implementable, then the whole concept of the permanent portfolio collapses. Another solution I can think of is to buy the next-longest maturity govt bond instead, which is the 20-year SG govt bond.
    Any thoughts on your end?

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