Permanent Portfolio – How to Implement It In Singapore


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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.

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Permanent Portfolio – How to Implement It In Singapore

  1. 1. Permanent Portfolio – How to Implement It In SingaporeA 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 aretailored to our needs.During the interview with Craig Rowland, he highlighted that permanentportfolio is designed to work in your own country, so as not to assume thecurrency risk.To recap, the permanent portfolio consists of four components with equalweightage: Stocks, Bonds, Cash and Gold.StocksSingaporeans can consider the STI ETF listed on SGX to form the stockscomponent in their portfolio. It is denominated in SGD but it is focused onSingapore and a few regional companies. It does not have the diversificationof international stocks like the Vanguard Total World Stock Index Fund.I would say that the stock market is pretty much correlated despite ofgeographical location. If you are comfortable focusing on Singapore, you canstick with STI ETF. Alternatively, you can divide the stock component into STIETF and VT, to take the advantages of both funds.ETF Straits Times Index ETF(ES3)Vanguard Total WorldStock Index Fund(VT)Tracked Index Straits Times Index FTSE Global All CAPIndexTop tenholdings(as ofMay/Jun 12)SingTelDBSOCBCUOBJardine MathesonKepCorpHong Kong LandAppleExxonMobilMicrosoftIBMRoyal Dutch
  2. 2. F&NWilmarJardine StrategicChevronAT&TNestleWal-MartExchange SGX NYSEFund Cost 0.3% 0.25%Denomination SGD USDBondsSingapore is one of the countries in the world with little or no debt. With atriple A rating from many credit rating agencies, Singapore GovernmentSecurities (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 ourbrokers, and store the securities in our Central Depository Account.This is convenient for you to rebalance your portfolio when required. For thepurpose of permanent portfolio, you should buy the longest duration bondavailable in the market. Currently, there is a 30-year bond that will expire in 1Apr 2042 –see the list of SGS bonds.Alternatively, you can buy ABF Singapore Bond Index Fund listed on SGX. Itbuy and hold SGS Bonds as well as bonds issued by statutory boards such asHDB and LTA. I would think that the fund cost of 0.2% is unnecessaryconsidering it is so easy to buy and sell SGS bonds over the exchange.SGS Bonds ABF SingaporeBond Index FundTracked Index Nil iBoxx ABFSingapore BondIndexExchange SGX SGXFund Cost Nil
  3. 3. Denomination SGD SGDCashThere 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 bemiserable. Second, put money in short term fixed deposit or short term SGSbonds (less than a year).But the money would be locked during the period of deposit. Third, put inPOEMS Cash Management Account (basically your idle money in your POEMSbrokerage account will be automatically invested in Phillip Money MarketFund).This is the most convenient as you can re-balance (buy and sellstocks/bonds/gold) in your brokerage account without the need to shiftmoney 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 SavingsDepositsFixedDeposits/Shortterm bondsPhillip MoneyMarket FundTracked Index Nil Nil No index but putmoney in shortterm savingdeposits andgovernment debtsecurities.Where totransact?Banks Banks for FixedDeposits andSGX for bondsPhillip BrokerageAccountFund Cost Nil Nil 0.45%Denomination SGD SGD SGDGoldIf you have a large portfolio, it would make sense to buy gold bullions. This isbecause it is very difficult to re-balance the portfolio since you cannot
  4. 4. part of the bullion to sell it. I would recommend gold ETF for starters. Onecan buy the SPDR Gold ETF listed in SGX. This is the same fund listed inNYSE. Personally, I would prefer to buy iShares Gold ETF listed on NYSE as itcharges a lower management fee.SPDR Gold ETF iShares Gold ETFExchange SGX NYSEFund Cost 0.4% 0.22%Denomination USD USDConclusionIt is possible to construct a low cost permanent portfolio using financialproducts listed on SGX and a Phillip Cash Management Account.Weightage Product CostStocks 25% STI ETF 0.3%Bonds 25% SGS Bonds NilCash 25% Phillip MoneyMarket Fund0.45%Gold 25% SPDR Gold ETF 0.4%About UsBigFatPurse wants to help retail investors find their approach to the market. The onlyway to survive in the market is to understand yourself, learn the right knowledge andput them into good use. There are generally three types of investors•Passive Investor•Active Investor•TraderWhat kind of investor are you? What knowledge do you need? What should you do as aPassive Investor, Active Investor, and Trader? We want to help you find these answers.Click here and visit our site at :