A few readers have shown interest in constructing their permanent portfolio. Since most of the information about permanent portfolio are based in the US, there is a need for Singaporeans to use other financial products that are tailored to our needs. During the interview with Craig Rowland, he highlighted that permanent portfolio is designed to work in your own country, so as not to assume the currency risk.
To recap, the permanent portfolio consists of four components with equal weightage: Stocks, Bonds, Cash and Gold.
Singaporeans can consider the STI ETF listed on SGX to form the stocks component in their portfolio. It is denominated in SGD but it is focused on Singapore and a few regional companies. It does not have the diversification of international stocks like the Vanguard Total World Stock Index Fund. I would say that the stock market is pretty much correlated despite of geographical location. If you are comfortable focusing on Singapore, you can stick with STI ETF. Alternatively, you can divide the stock component into STI ETF and VT, to take the advantages of both funds.
|ETF||Straits Times Index ETF (ES3)||Vanguard Total World Stock Index Fund (VT)|
|Tracked Index||Straits Times Index||FTSE Global All CAP Index|
|Top ten holdings(as of May/Jun 12)||SingTelDBSOCBCUOBJardine MathesonKepCorpHong Kong LandF&NWilmar
|AppleExxon MobilMicrosoftIBMRoyal Dutch ShellGeneral ElectricChevronAT&TNestle
Singapore is one of the countries in the world with little or no debt. With a triple A rating from many credit rating agencies, Singapore Government Securities (SGS) Bonds can be considered the safest securities in the world. Since 8 July 2011, we can buy and sell SGS bonds over SGX through our brokers, and store the securities in our Central Depository Account. This is convenient for you to rebalance your portfolio when required. For the purpose of permanent portfolio, you should buy the longest duration bond available in the market. Currently, there is a 30-year bond that will expire in 1 Apr 2042 – see the list of SGS bonds.
Alternatively, you can buy ABF Singapore Bond Index Fund listed on SGX. It buy and hold SGS Bonds as well as bonds issued by statutory boards such as HDB and LTA. I would think that the fund cost of 0.2% is unnecessary considering it is so easy to buy and sell SGS bonds over the exchange.
|SGS Bonds||ABF Singapore Bond Index Fund|
|Tracked Index||Nil||iBoxx ABF Singapore Bond Index|
There are a few options to keep this component of your portfolio liquid. First, put the money in a savings account. Of course, the interest earned will be miserable. Second, put money in short term fixed deposit or short term SGS bonds (less than a year). But the money would be locked during the period of deposit. Third, put in POEMS Cash Management Account (basically your idle money in your POEMS brokerage account will be automatically invested in Phillip Money Market Fund). This is the most convenient as you can re-balance (buy and sell stocks/bonds/gold) in your brokerage account without the need to shift money around. However, it does charge a management fee of 0.45%. Currently, my preference is to stick to option 3 in favour of convenience.
|Bank Savings Deposits||Fixed Deposits/Short term bonds||Phillip Money Market Fund|
|Tracked Index||Nil||Nil||No index but put money in short term saving deposits and government debt securities.|
|Where to transact?||Banks||Banks for Fixed Deposits and SGX for bonds||Phillip Brokerage Account|
If you have a large portfolio, it would make sense to buy gold bullions. This is because it is very difficult to re-balance the portfolio since you cannot cut part of the bullion to sell it. I would recommend gold ETF for starters. One can buy the SPDR Gold ETF listed in SGX. This is the same fund listed in NYSE. Personally, I would prefer to buy iShares Gold ETF listed on NYSE as it charges a lower management fee.
|SPDR Gold ETF||iShares Gold ETF|
It is possible to construct a low cost permanent portfolio using financial products listed on SGX and a Phillip Cash Management Account.
|Cash||25%||Phillip Money Market Fund||0.45%|
|Gold||25%||SPDR Gold ETF||0.4%|
Co-Founder. Believer of the Factor-based Investing approach. Running a Multi-Factor Portfolio that taps on the Value, Size, Profitability and Momentum Factors. Quant at heart. Believe the financial industry can treat their customers better. Wants to change the world.