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.

1. Permanent Portfolio – How to Implement It In Singapore
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.
Stocks
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)
SingTelDBSOCBCUOBJardi
ne MathesonKepCorp
Hong Kong Land
AppleExxon
MobilMicrosoftIBMRoy
al Dutch ShellGeneral
Electric
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2. F&N
Wilmar
Jardine Strategic
Chevron
AT&T
Nestle
Wal-Mart
Exchange SGX NYSE
Fund Cost 0.3% 0.25%
Denomination SGD USD
Bonds
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
Exchange SGX SGX
Fund Cost Nil 0.2%
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3. Denomination SGD SGD
Cash
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
Fund Cost Nil Nil 0.45%
Denomination SGD SGD SGD
Gold
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
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4. 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
Exchange SGX NYSE
Fund Cost 0.4% 0.22%
Denomination USD USD
Conclusion
It is possible to construct a low cost permanent portfolio using financial
products listed on SGX and a Phillip Cash Management Account.
Weightage Product Cost
Stocks 25% STI ETF 0.3%
Bonds 25% SGS Bonds Nil
Cash 25% Phillip Money
Market Fund
0.45%
Gold 25% SPDR Gold ETF 0.4%
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