I guess if you grind long enough, some people will notice.
The 15HWW Permanent Portfolio is a real portfolio where I put $150,000 of my own money into 6 years ago and you can check out the latest quarterly update here.
A week ago, I watched a video by Chris Ng who mentioned how he would improve the portfolio and I also read an article by Ryan Goh who shared some of his considerations/warnings to those who might want to emulate my portfolio. Never ever copy and paste please, and Ryan shared some great insights.
So I got thinking and here are some of my comments on these valid criticisms.
1. 60% Chance Of Surviving a 4% Drawdown For 4 Decades
These are numbers that Chris showed me and I did not verify it. 60% seems decent but honestly, does not give one much confidence.
But well, this portfolio was never meant to be a retirement portfolio. The huge allocation to gold, cash and bonds offers some stability but would likely drag down returns that is much needed to survive a 4% yearly withdrawal.
Let me reiterate again that I actually see this portfolio more as emergency funds (as absurd as that sounds) rather a retirement portfolio.
2. Please Take Out Crypto
Ok, I would definitely not advise people to put their emergency funds in crypto.
But if you have a fat emergency fund (relative to your needs) like me and is pretty disappointed with the current fiat/banking system, I do not really see the fuss in putting 5% in BTC and 5% in ETH.
I admit it would probably mess up any attempts at modelling and inject a layer of unneeded volatility. However, if looking at returns so far, it has not really skewed the 5.5% p.a return so far. If crypto is removed, I am certain the returns will be in the same ballpark.
3. Why Benchmark Against CPF SA?
Yes, my portfolio vs parking cash in CPF SA is two very different instruments. But well, just like personal finance, I have also realised investing can be very personal and individual-specific.
If I were to wind up the portfolio today and want something with less volatility and a low stable return, I might consider topping up my CPF accounts over the next few years. Therefore, that is what I am comparing with.
With the 15HWW Permanent Portfolio, I take on more volatility in exchange for liquidity. CPF assets are only accessible at 55 or 65.
Nobody is bothered with upside volatility and the major concern is always managing the downside therefore I am always concerned with the drawdown experienced in the portfolio.
4. Time To Abandon The Singapore Terrible Index?
The STI has not done well in the past decade, especially if we compare it with S&P 500 and many millennials and zoomers in Singapore have written it off. If we replace the STI with another broad-based world index, the chances of success as a retirement portfolio could go up by 10%, I was told.
Few question the Berk B (good returns) and Gold (standard Permanent Portfolio constituent) positions in the portfolio but STI always draw sighs. However, my question would be if you are bullish on our local economy, how should you express it?
Increase your home equity or property investment amidst property curbs? Maybe.If you are interested in banks and REITS, the STI is already overweight in those two categories.
Or perhaps the continued rise in SG as the preeminent global city of the world will only accrue benefits to the tax coffers and wages and leave investors with heads in their hands.
Conclusion
Calling it a Permanent Portfolio is probably a misnomer since I actually made an active decision to add crypto a year ago. However, a similar set-up could be attractive to the man on the street, since it is indeed much more passive than picking individual stocks.
Due to its features of decent, steady returns and muted volatility so far, I guess most of the misunderstandings come in as it appears to be a suitable retirement portfolio.
Perhaps it is time to construct a theoretical SGD $1 million portfolio for retirement/drawdown use. I do not have that much assets yet but it could make for a good dry run in a decade’s time.
Thanks for reading!
There is something very odd about portfolios with smaller drawdowns. They should do better and be more bond-like. But for some reason, they just don’t do as well. I suspect it is due to the components specific to this. Gold in the past tend to do better when inflation starts abating.
Some time ago, when I had access to Timeline, which does these safe withdrawal rate and monte carlo simulation. I ran something like the permanent portfolio allocation and see if they last well. They don’t do too well on a 5% initial withdrawal rate.
The difference between safe withdrawal rate and the monte carlo ran, is that it is based on historical return, and there are unique sequences. If i am right, unless the Monte Carlo is very well designed, it does not factor in the 2 to 3 standard deviation away inflation that can happen again.
Here is my article from back then: https://investmentmoats.com/financial-independence/timelineapp-permanent-portfolio-worse-retirement/
Hi Mr. 15HWW, thanks for linking to my post and taking the comments in good faith. I was trying to be as constructive as possible.
From your updates in this post, I think you mean that you’re trying to construct an All-weather portfolio rather than a set-it-and-forget-it Permanent Portfolio. At least, that’s what it seems like to me.
But beyond the semantics (which is less important), are you trying to structure something that has minimal volatility while providing returns better than your alternative (i.e. the CPF SA)?
If so, then you probably should just run some sort of mean-variance optimisation on the asset classes (assuming v. low or even negative correlation among them) and if you get a return of CPF-SA + X%, then you know you have found your secret sauce.
That aside, if these are for emergencies, then maybe better to consider something that Zigs when the market Zags? While emergencies can happen anytime, you definitely want this fund to be around if markets are down even in a downturn.
Hope this helps!