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.
[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.
- 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.
The books should be on sale in bookstores soon but you can also purchase it online. Key in ‘BigFatPurse’ to receive a 15% discount off the book and there’s free delivery to a Singapore address. Buy it here!