How to start Singapore Permanent Portfolio?

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21 Nov How to start Singapore Permanent Portfolio?

Following is an example plan to show how an investor can start a Singapore Permanent Portfolio. The figures here are for readers to double check against the figures in their own plans to start a Singapore Permanent Portfolio, and are not advices nor recommendations that readers should invest in these particular assets. In the example, an investor starts with minimum sum S$12,000. The investor strives to get as close to 25% initial allocation for each asset as possible. Below figures exclude brokerage fees and annual fees.

Example: Using data from 2 April 2012, to start a Singapore Permanent Portfolio, an investor can invest about S$12,000 all at once in:

25% Stocks: 1 lot (1000 shares) of SPDR STI ETF (SGX symbol ES3) at S$3.04 per share – total investment S$3040. ES3 is traded in individual board lot of 1000 shares each. (Click Here for a Comprehensive Guide to STI ETF)

25% Bonds: 3 lots (30 units) of Singapore Government 30-year Bond (SGX symbol PH1S) at S$100.0 per unit – total investment S$3000. PH1S is traded in individual board lot of 10 units each.

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25% Gold: Invest 1 lot (10 share) of SPDR Gold Shares GLD 10US$ (SGX symbol O87) at US$161.48 per share – total investment US$1614.80 or S$2023 (USDSGD 1.25293). O87 is traded in individual board lot of 10 units each.
Alternatively, 45 grams of gold in UOB Gold Savings Account at S$67.45 per gram (S$2098 per ounce) – total investment S$3035.25 – note that this will incur 1.44 grams per year or 3% annual fees, so Gold Savngs Account is not advisable if annual fees is more than 1% of the gold investment.
For gold investments, there is no need to hedge the gold value back to SGD, irregardless of which currency the gold is bought in – this allows gold to do its job as a inflation protection hard asset.

25% Cash: deposit about S$3000 in Philip Money Market Fund or LionGlobal SGD Money Market Fund – avoid initial sales charges when investing into these funds.
Alternatively, invest S$3000 in 1-year Singapore Treasury Bill – total investment S$3000 – Singapore T-bill is the most ‘insured’ asset as government are least likely to default on bond obligations compared to corporate and municipal bonds.

Rebalancing – Managing Portfolio: After starting the Permanent Portfolio fund, the investor does not need to monitor the portfolio frequently. The only time to manage the portfolio is during rebalancing event. Rebalancing can happen in 3 ways.

  • First, the investor will leave the portfolio alone untouched, until one of the asset reaches 35% or 15% of portfolio, in which case the portfolio will be rebalanced back to 25% equal spilt among the 4 assets – this is the method to use when there will be no fresh fund entering portfolio,and aims to capture profits and rebalance risks.
  • For second method, if there is fresh fund to put into portfolio, the fresh fund will usually buy into the worst performing asset at every year end, or at regular monthly or quarterly interval, so that each asset becomes 25% of portfolio again – this is to reset the risk/reward ratio of the portfolio and buy assets when they are cheap.
  • The third method of rebalancing is to use fresh fund to buy into different assets, while keeping the asset ratio unchanged – this aim to let profits run and to only rebalance when one of the asset reaches 35% or 15% of portfolio.

All the 3 rebalancing methods have very similar long term returns, so choice of rebalancing method can be based on whichever method suits the investor more conveniently.

An investor should understand and plan their investment strategy well, including reasons for asset allocations, how and when to rebalancing portfolio, and the benefits and disadvantages of a particular portfolio strategy. An example of a well designed investment portfolio strategy is the Permanent Portfolio strategy, and detailed description of Singapore Permenent Portfolio investment strategy can be found on this website.

This article is contributed by Epps, reposted from singapore-permanent-portfolio.blogspot.sg. Epps invests in and blogs about the Singapore Permanent Portfolio.



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30 Comments
  • Justbeginner
    Posted at 13:46h, 24 January Reply

    Hi, I am very new to this. I really like what you are teaching here. I do have a question, can you advise me how to rebalance base on the example you have given? If ETF reaches 35%, how are you going to rebalance the ETF to 25% when ES3 is traded in individual board lot of 1000 shares each?

    • Alvin
      Posted at 14:01h, 24 January Reply

      You will need at least S$24,000 to start a Singapore Permanent Portfolio.

      Stocks – 2 lots of STI ETF about $6,000
      Bonds – 6 lots of bonds about $6,000
      Gold – 3 lots of Gold ETF about $6,000
      Cash – $6,000

      The larger the size of your portfolio, the easier you can re-balance the portfolio.

      Below is an example how you re-balance the portfolio.

      Stocks
      New value: 35% of portfolio or worth $8,400.00. Excess $2,400.00 so sell 1 lot of STI ETF ($3,200 per lot).

      Bonds
      15% or worth $3,600.00. Deficit $2,400.00 so buy 2 lots of bonds ($1,000 per lot).

      Gold
      30% or worth $7,200.00. Excess $1,200.00 so sell 1 lot of gold ETF ($1,800 per lot)

      Cash
      20% or worth $4,800.00. Deficit $1,200.00 so balance cash to 25%.

      With a small capital, you can only achieve an approximate 25% for each asset class.

  • Justbeginner
    Posted at 01:34h, 25 January Reply

    Thanks a million Alivin, I have a clearer picture now on rebalancing.

    One question, as I only have about $12,000 to invest now, That will be $3000 for each portfolio.

    I am looking at instead of investing in STI ETF which is now $3,250 per lot and I can only buy 1 lot the most, it will be much cheaper to invest in VTI which is USD77.08 per lot (as mention in your other articles). With $3,000 I can buy about 30 lots of VTI, Correct? US stocks is selling at 1000 share per lot too right?

    In this way, I can have more lots for Share and rebalance will be much easier. Am I right to say that?

    • Alvin
      Posted at 03:16h, 26 January Reply

      Justbeginner, you can choose Nikko AM STI ETF100 as the alternative to SPDR STI ETF. The former traders in 100 shares per lot. So it is easier to rebalance if your capital is small. Try not to buy foreign shares as PP is to work in your own country.

  • Justbeginner
    Posted at 10:16h, 26 January Reply

    Thanks alot Alvin.

  • Starting
    Posted at 04:47h, 27 February Reply

    Hi Alvin, if I have 100k to start on building a permanent portfolio, could you advise how I should go about, specifically on what to buy? Thanks!

    • Alvin
      Posted at 14:01h, 27 February Reply

      Here is what I would set up a Singapore Permanent Portfolio:

      Stocks – STI ETF (ES3)
      Bonds – NA12100N 420401 10 (PH1S)
      Gold – GLD 10US$ (O87)
      Cash – Either Phillip Cash Management Account or Lim & Tan Trust Account

      If you need more help, drop me a mail via the contact form.

  • Starting
    Posted at 15:53h, 15 April Reply

    Hi if I started using 100k and now the gold has dropped to 15% and I intend to pump in fresh funds of 20k, how should I go about rebalancing?

    • Alvin
      Posted at 08:10h, 21 April Reply

      The fresh funds will go to your cash component. When cash component reaches 35% of your portfolio, you buy the rest of the assets to achieve 25%.

  • Benjamin
    Posted at 21:47h, 03 May Reply

    On your advice, I borrowed the book to read today. Assuming I got 30k to invest and try out this permanent portfolio, If you were me, what would you buy into ?

    Benjamin

    • Alvin Chow
      Posted at 20:32h, 10 July Reply

      Hey Benjamin, sorry to get back late. As mentioned in previous comments, I would invest in

      Stocks – STI ETF (ES3)
      Bonds – NA12100N 420401 10 (PH1S)
      Gold – GLD 10US$ (O87)

  • yenyee
    Posted at 07:43h, 24 July Reply

    Hi, rather than using the Singapore Government 30-year Bond (SGX symbol PH1S) as the bonds component, would it be advisable to use ABF SG Bond ETF (A35)?
    Thank you!

    • Alvin Chow
      Posted at 07:51h, 24 July Reply

      Yes, you can use bond funds too.

  • John
    Posted at 18:23h, 28 August Reply

    For the cash portion, would investing foreign currency deposit; such as US$, be suitable?

    • Alvin Chow
      Posted at 18:39h, 28 August Reply

      It is not recommended John. There would be currency risk.

  • Lili
    Posted at 07:13h, 04 November Reply

    Hi Alvin,

    I went to attend on sunday Investment seminar inviting by Lek and I realised I had not started my investment portfolio and now to start still able too and how much is min and very min. Thank you

    • Alvin Chow
      Posted at 07:47h, 04 November Reply

      the minimum is $12,000.

      Nikko am sti etf – about $350 per lot
      singapore 30-year bonds – about $1000 per lot
      spdr gold etf – about $1500

      minimally u nd 2 lots for each asset class so gold being the most expensive will determine the minimum which is $3000 per asset class. $3000 x 4 components = $12,000

      one way to lower the amount is to buy the gold trust listed in US where u can buy odd lots. then ur bonds will set the minimum which will be $2000 per asset class. $2000 x 4 asset class = $8000.

  • linktalk
    Posted at 14:59h, 12 February Reply

    Hi Alvin,

    First of all, thanks for making time to continue with this blog. very informative.

    I just started using the Stan Chart Online Trading to DCA my STI ETF (G3B). Since there is no commission per transaction, I buy 1 lot (100 shares) every monday. So far I have invested around $5k, with an average of $3.21 per unit. Not very good (as of writing, the STI ETF is $3.08), but I will stick to this since I know DCA will continue to work for me.

    My question is, how do you incorporate DCA into the PP? I have around $1.3k every month to invest. I have an emergency fund of $8k I keep in the Stan Chart Bonus Saver for its generous 1.88% interest. Should I start using this to buy Gold and the 30 year bonds? I am contemplating either the UOB Gold A/c or the SPDR Gold Trust. My worry is that apparently Stan Chart has a horrible USD-SGD exchange rate and the UOB Gold A/C might be too expensive to use since i wouldn’t be buying a lot of gold to justify the 1.44g/year fee.

    Regards,
    Linktalk

    • Alvin Chow
      Posted at 18:59h, 12 February Reply

      if you want to do dca for PP, you have to use equal amount to buy every week or month. for example, $300 to buy sti etf, $300 to buy gold, $300 to buy sgs bonds and $300 to savings account each month.

      right now u do not have equal proportion of the asset classes to begin with. you need to balance up first.

      stick to gld etf.

  • Sachin
    Posted at 21:02h, 03 April Reply

    Hello Alvin,

    Thanks for the article.
    It appears that real starting point for setting up the Permanent Portfolio is to have a cash of minimum 12000 SGD. In this regard, I have a few queries here

    a) Before starting a permanent portfolio, I believe a person needs to set aside cash of at least 6 months or so as to take care of emergencies such as any accidents/job loss/business loss etc. I believe the permanent portfolio contribution will start AFTER setting aside this emergency cash. Is that right ?

    b) Next, contribution to permanent portfolio can happen based on free cash that a person has. Now assume that person is debt ridden with say home loan. So my query is if there is extra income i.e. cash lying with a person and he has a home loan to cater to, then how should the split be between home loan pre-payment vs contributing to portfolio ? Is it 50:50 or some other ratio ?
    Note I’m not referring to the monthly installment of the home loan here. Instead I’m referring to the extra cash that a person has, which he/she can use to do partial payment and hence reduce the principal of the home loan.
    I believe that is as important as contributing to the permanent portfolio itself.

    It’ll be good if this is clarified so that contribution to the permanent portfolio is meaningful.

    Kindly convey.
    Thanks.

    From:
    Sachin.

    • Alvin Chow
      Posted at 14:31h, 04 April Reply

      Hi Sachin,

      Thank you for your questions.

      a) Investments should only start after needs and emergency cash are secured. Hence, yes to your qn.

      b) This is subjective as not everyone intends to make repayment to home loans. It depends on your objective. Home loan is the cheapest form of loan compared to other types of debts you can get from the bank. Hence, it makes sense to make use of the lower interest and deploy your cash in other investments. For e.g., if the home loan is currently at 2%, or it rises to 3% in the near future, instead of repaying the loan amount and you use the capital to invest in an asset that can give you higher returns than 3%, you are better off doing the latter.

      • Sachin
        Posted at 13:51h, 05 April Reply

        Thanks Alvin.

        One of the main reasons for query a) was to know if the cash in Permanent Portfolio was different THAN the emergency, then what is its real use ? Meaning is it mainly for rebalancing the portfolio ? If not, why just keep it idling away ?

        Regarding the loans mentioned in b), of course if it was credit card loan, then it is very clear that use of extra cash to clear it off the loan. Overall, I see that any loan is -ve, since that is a debt. Also any idle cash is 0, while saving is +ve. So coming to the question in b), for a low interest loan like home loan, shouldn’t paying off the loan (-ve) be a higher priority, using the extra cash, since the home itself is an investment (+ve) compared to loan (-ve). In that context, a related question, why is owning a house NOT considered as part of permanent portfolio ? I feel if that is included, then the confusion of priority for the extra cash will go away considering it will need to be balanced with other things in the portfolio.

        Finally, a new question on gold. What is preferred – buying real gold or an investment like etf in gold ? And what is the pro/cons of that approach ?

        From
        Sachin

        • Alvin Chow
          Posted at 09:36h, 07 April Reply

          It is normal to think that holding cash is a drag.

          But do not forget that stocks, bonds and gold can come down in price together. And investors would wish to have cash to buy up these 3 assets when that happens. The low savings returns on cash would be compensated by returns from this rebalancing exercise.

          Never put your house that you stay in as an investment. Imagine you need to rebalance your portfolio, would you be selling your house or can you sell part of your house? If you don’t rebalance, you cannot capture the investment profits. It sets you in dilemma.

          With regard to home loan, as I mention it is a personal choice. But if you ask me, the capitalists will always take some debt – ‘renting’ other people’s money at low cost. Imagine you have a house worth $1m and you have remaining $500k mortgage. You have another $500k in cash. Would you prefer to pay back the loan, or would you prefer to use it to downpay for another house and rent it out to repay the mortgage of the second property? It is clear to the capitalist but not everyone wants to grow their wealth this way. Some people are happy to pay off all their loans and stay in one house. As I said, it is a personal choice.

          Gold – hold physical if your portfolio size allows. Cos you can bring it away should anything happen to the country you stay. By then, stocks, bonds, cash would be withheld or are worthless. And properties you can’t bring along with you.

          You should buy a copy of the Singapore Permanent Portfolio. It would answer most of your questions :) http://bigfatpurse.com/ppbook and remember to key in “bigfatpurse” for 10% discount!

  • A Comprehensive Review of My Family’s Insurance Coverage
    Posted at 05:20h, 13 December Reply

    […] for the premiums, I could set aside the same amount. Furthermore, I could invest this money into my permanent portfolio, or simply invest it into my sharebuilder account and it will most probably generate better […]

  • Robert Yeo
    Posted at 22:37h, 08 September Reply

    In ur book u mentioned that the mkt makers sre obliged to quote a bid and ask for na16100 …

    However, i find that is not the case. And also vol is too low, often zero.

    In view of that, do u think abf bond etf would be better?

    • Alvin Chow
      Posted at 17:15h, 14 September Reply

      Even though the vol may appear zero, it is likely someone would transact with you when you have place in an order within the bid ask spread range.

      As I mention the bond etf is made up of short to long term bonds and hence does not provide enough volatility to counter the movements in share price. Unless we have a long term bonds ETF in SG like what the US have.

  • john
    Posted at 23:56h, 14 September Reply

    hi Alvin,

    How do I purchase the SGS 30 years bond through standard chartered trading account? may i know what is the stock code, i couldn’t find it.

    thanks!

    Cheers!
    John

    • Alvin Chow
      Posted at 07:29h, 15 September Reply

      Do you mean this: NA16100H 460301 (BJGS)

  • john
    Posted at 10:55h, 15 September Reply

    hi Alvin,

    Yes the NA16100H 460301 (BJGS), would like to purchase it to start the Sg permanent porfolio. i can’t buy it through standard chartered trading account? It is the one which charges the lowest fee ($10) without opening the CDP account.

    If cant, is there any other bonds which is equivalent to it that i can buy through this standard chartered trading account?

    Or it would be better to open up a CDP account to purchase the SGS bonds to maintain the stability and profitability?

    I am planning to trade for $3000 for each asset class (bond, gold, sti etf and cash).as a beginning and maybe pumping in more funds later on.

    thank you very much.

    John

    • Alvin Chow
      Posted at 09:49h, 22 September Reply

      i am not sure if Stand Chart allow you to trade the bonds. My impression is you could but best to check with the customer support.

      Sticking to the long term bonds is necessary for PP and I have not seen any suitable alternatives in SG yet.

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