Permanent Portfolio Mar 2014 Update

Next month, it'll be the time again to re-balance my own implementation of Permanent Portfolio. I wanted to create a chart showing the performance of my own strategy. However, using Net Asset Value (NAV) of the portfolio can't work as it will keep increasing whenever I increase my investment amount during re-balancing.

After much thought, I feel the best way is to present it in the form of percentage gain/loss over time. The drawback is that additional investment will cause the percentage gain/loss to decrease, as the same absolute gain/loss amount is divided by a larger portfolio value. However, I couldn't think of a better alternative.

Anyway below is the chart updated till 14th March 2014:

I started this strategy around June 2012 and re-balance the portfolio amount every month until Oct 2012, when I decided to just balance once every 6 months, i.e. April and and October every year.

It is close to 2 years now and as shown by the red line above, it is kind of boring. I suppose the strategy will only start to outperform when it goes through a full financial cycle, i.e. stocks drop and gold/bonds rises (hopefully) in value. I'm patiently waiting...

Market Timing by Decision Moose

A few weeks back, I revisited a website which I had forgotten about. The website advocates investing in any one of the 9 asset classes through ETFs at any one time. The website tells you what and when to buy and switch among the 9 different asset classes. The ETFs are listed on the NYSE and they are:

1. Cash or Money Market Fund
2. Long-term zero coupon Treasury Bonds (EDV)
3. Large cap US Stocks (SPY)
4. Small cap US Stocks (IWM)
5. Gold Bullion (GLD)
6. Europe 350 Stocks (IEV)
7. Latin America 40 Stocks (ILF)
8. Japan stocks (EWJ)
9. Asia Pacific ex-Japan stocks (AXJL)

The historical record of this strategy speaks for itself here. I decided to invest a small amount buying European equity (IEV) after the website recommended a switch on 7th February 2014.

I have to reiterate that for a hassle-free way of investing, buying low cost index funds (ETFs) on a long term basis is the way to go. However, it is very boring process. Hence, I am also trying out different strategies like Unit Trusts (keeping transaction costs to a minimum), Permanent Portfolio, and this Market Timing method by Decision Moose. And maybe five to ten years down the road, will ditch the lowest performing strategies.

Warren Buffet's Annual Letter 2013

In Warren's Buffet's latest Annual Letter to his shareholders, he has an advice for the non-professional investors who are not equipped with the skill to evaluate businesses, and that is to invest in low cost S&P500 index fund (a.k.a. ETF). He also mentioned that in his will, the cash entrusted to a trustee for his wife is to be 90% invested in a S&P500 index fund, and the remaining 10% in short term government bonds.

To the ordinary people who have not started investing, it could not be any simpler to just invest in an index fund, be it the local STI ETF (minimum cost of $320) listed on the Singapore stock exchange or a Vanguard S&P500 ETF (minimum cost of USD100) listed in the New York Stock Exchange. This is ultimately what Warren Buffet is doing also.

Tracking your investment portfolio performance Pt 2

As it is important to track your own portfolio in CAGR terms, I shall explain the process of how you can do it using excel's XIRR function. Will use the example below to illustrate.

	A	B	C
1	Date	Cashflow	Type
2	1-Jan-14	-$1,000	Invest
3	1-Jun-14	-$500	Invest
4	1-Jul-14	$50	Dividend
5	1-Aug-14	$500	Withdrawal
6	31-Dec-14	$1,100	Today's Market Value

The first column is quite self-explanatory, the date of transaction. Column B represents the cashflow from your own perspective, i.e. an investment means a cash outflow (negative), and a withdrawal or cash dividend collected represents a cash inflow (positive).

The last row is to be updated with today's date, and the market value of the entire portfolio's current valuation, i.e. the money you were to get if you sell everything you have. This has to be done whenever you want to compute your CAGR. For the example, the formula would be =XIRR(B2:B6,A2:A6).
This will give you 14.2% return, from the profit of $150 made in the year.

If you are trading in other currencies say USD, you would similarly track you SGD cash outflow and inflow into a USD trading account. At the end of the day, the SGD market value would be the sum your stocks' USD value and the trading account USD balance multiply by today's exchange rate.

The process is definitely tedious. You can either continue to "act blur" with regards to your own true investment performance or get down to calculating it.

I tracked the performance of the my 3 portfolios mentioned in my previous post, wanting to see how each of them perform in a time period of 5 years. I used the STI as a rough gauge of their performance. It is to be noted that this is not an apple-to-apple comparison, as my own portfolio consists of regular investment over the period stated, whereas the STI performance is based on one lump sum investment at the beginning of the period.

I have 3 different spreadsheets tracking each of their performance. To compute the overall portfolio performance, just need to copy them into one spreadsheet and sort the first column by date. A superb spreadsheet for tracking stocks can be found here.

Stocks Portfolio
28 Apr 2008 till 20 Jan 2014

STI Absolute Gain/Loss	-4.2%
Personal Stock Portfolio CAGR	6.3%

Unit Trust Portfolio
09 May 2012 till 20 Jan 2014

STI Absolute Gain/Loss	6.1%
UT Portfolio CAGR	4.0%

Permanent Portfolio
12 June 2012 till 20 Jan 2014, based on USD/SGD exchange rate of 1.268

STI Absolute Gain/Loss	10.4%
PP Portfolio CAGR	3.4%

Overall CAGR: 5.65%

It's be interesting to see how each of the 3 CAGRs compare 3 to 4 years down the road.

Tracking your investment portfolio performance

Investor A made an investment if $100,000 on a stock a year ago and of today, its value stands at $110,000, a paper profit of $10,000.

Similarly, Investor B made an investment of $1,000 on the same stock a month ago and of today, its value stands at $1,010, a paper profit of $10.

The question is whose investment performance is better? Investor A who made a profit of $10,000 or Investor B who made a profit of $10? The answer is Investor B, who has an annualised gain of 12% vs investor A, who has an annualised gain of only 10%.

Yes, the Compounded Annualised Growth Rate (CAGR) should be the yardstick by which we measure our investment portfolio performance, just like what the finance industry does. This is contrary to the majority, who would just tabulate how much profit/loss one makes from stock A in a certain year, stock B in another year etc in absolute value or percentage terms. Using the example above, Investor A would tell others he is standing on a profit of $10,000 or had a 10% Return On Investment (ROI) on that particular stock. His "performance" would definitely sound better than that of investor B, where in fact he is not the better of the two.

The reason you need to measure your portfolio performance by CAGR is so you can compare it easily against the performance of other financial instruments. If your CAGR for the past 10 years is say 5%, you might as well sell everything and invest purely in STI ETF which gives you annualised gains of about 5-8% depending on which time frame you are looking at.

I will elaborate how to track your portfolio's CAGR in the next post, which needs to account for buy sell transactions, dividends, foreign exchange effects if applicable. It's a rather tedious process but absolutely necessary if you want to know how well you do relative to the market.

How to squeeze the most out of local banks

The purpose of this post is to highlight some of the great products offered by local  (Singapore) banks  which many might not be fully aware of, or how to make full use of them. I divided them into 2 categories, Savings Accounts and Credit Cards.

Savings Accounts

1. Standard Chartered BonusSaver Account
The main draw of this account is that it gives 1.88% p.a. interest on your  checking account, on a monthly basis provided you hit the minimum monthly spend of $500 using the linked debit or credit card. Some of the items that can be paid by Credit cards includes telco bills, ez-link card via ez-reload, groceries at NTUC etc.

Even if you can hit the minimum spend say every alternate months only, it still translates to a respectable 0.94% interest on your checking account. The amount that can earned this 1.88% is capped at $25,000, which is roughly six month worth of salary for the average income earner, so no reason you shouldn't be earning close to $40 per month if you hit the monthly $500 spend. Look at it from another perspective, the $40 translates to about 7.8% cashback on your $500 spending, and no other credit cards in the market can beat this.

April '14 Update: The OCBC 360 Savings account beats the BonusSaver account at time of update.

2. CIMB Starsaver account
This account gives 0.8% p.a. on the balance in your account, credited monthly. The pre-requisite is that you maintain a $100 incremental value to your account during that month. You can also deposit a one lump sum of say $10,000 and for the next 100 months the 0.8% interest will automatically be applicable.

The ATM card that comes with the account also allows free ATM withdrawals worldwide.

Credit Cards
1. Grocery Shopping
If you do shop at NTUC, Cold Storage, Sheng Shiong, the Maybank Friends & Family card is the best as it gives you 5% cashback for the above merchants (and a few others), credited within the next statement month, and has no minimum spending requirement. As you might have notice NTUC would promote its Plus Visa card which gives 4% rebate, but comes with its own set of Terms and Conditions which I don't bother to read through all. This card beats it hands down. As an added bonus, it has 0.5% cashback on all other spending.

2. Travel
Earning Miles- The ANZ Travel card is the best if you are buying tickets directly from airline website, awarding 2.8 miles for every dollar spend. If you hit $1500 within a 30 day period,you can get a redeem a free ride to the airport as well. Be aware of 2.5% extra charge if the website is overseas though, due to dynamic currency conversion. ANZ has one of the highest DCC charges. Maybank Travel Horizon card gives you 2 miles for every dollar spend overseas, with free conversion to Krisflyer miles.

Feb '14 update: Maybank will start charging miles conversion. 

Free Travel Insurance- The Visa Signature cards and World Mastercards from various banks gives you free travel insurance if the full air tickets or travel package are bought using the respective cards.

Airport Lounge access- You can get up to 13 lounge access at airports, here's how.
Priority Pass- Citibank PremierMiles, ANZ Travel Card, DBS Altitude Visa are some of the cards that makes you eligible for a Priority Pass membership. The card gives you 2 access to airport lounges worldwide within the 1 year membership, and yes 3 cards gives you 6 access, so stagger the application of the cards.

Feb '14 update: ANZ no longer comes with Priority Pass, but gives cardholders free unlimited access to "Veloce Lounges" worldwide.

ANZ Travel Card gives you 2 SATS lounge access at Changi Airport. Amex Krisflyer Ascend gives you another 4 entries to SATS lounges and other limited lounges worldwide.

Diners club card gives you 1 entry to lounges worldwide every calendar year 1st Apr till 31st March the following year.

Permanent Portfolio Nov 2013 Update

As mentioned in one of my previous posts, my next rebalancing of my US Permanent Portfolio is in October. Looking at the performance of the 4 asset classes, I bought Gold (IAU) and Bonds (TLT) to rebalance my portfolio to my pre-determined allocation. The chart below shows the performance of the 4 asset classes YTD.

The 2 white ovals represent the period where I re-balanced. Of course in between these periods, there are lots of market noise, e.g. to taper or not to taper QE etc. In the next six months, if bonds and gold drop further, I would be able to buy them even cheaper. If the stock market crashed, I would have avoided buying stocks at a high. Win-Win situation. Let's wait and see what will happen during April 2014.