Permanent Portfolio in the middle east

[internationalcanuck]

I am currently living the middle east (UAE) and interested in setting up a Permanent portfolio.  There are some unique conditions here, and would like advice of how to have a permanent portfolio in this environment.

- UAE/middle east economy is small and un-diversified (mainly banks and real estate) 
- UAE currently is tied to the US dollar.
- There are no long-term bonds in the UAE available for individuals to purchase as far as I am aware.
- I have a trading account denominated in US dollars

My questions:
EQUITY:
For the equities portion, should I still have a portion invest locally, such as the GULF/MES ETFs?  What should be the porportion? What should the other portion be invested in? A US ETF or a World ETF?

Bonds:
- no long-terms bonds available or a local long term bond ETF.  Is a US long-term bond ETF still appropriate since both countries effectively use US dollars?  Or should I use an emerging market bond fund?

[AnotherSwede]

Where will you live in 10 years or in retirement?

[internationalcanuck]

Where will you live in 10 years or in retirement?

I most likely will be immigrating to Australia.  That is the plan. My intention is to use the PP to save to buy a house.

[barrett]

Hmm, interesting. Can we assume from your name that you are Canadian? Also, how are you currently invested? I ask because sometimes standing pat, at least for the short term, is the best thing to do.

Also, and this is just my opinion obviously, a house is a nice goal but from my point of view owning real estate is a big bet on prosperity. My understanding is that real estate can also do well with moderate inflation. In other words, I wouldn't buy a house at the exclusion of other investments unless your job prospects are rock solid for a couple of decades. This goes back to an idea that has been discussed here... that a home shouldn't constitute a really high percentage of your net worth. Just something to think about.

[Pointedstick]

My advice is to consider a house a consumption item, not an investment. When you look at it this way, all of the sudden a lot of really affordable housing options appear unless you live somewhere with an insane real estate market, which is all the more reason not to buy into it as a place to live. If you can pay 100-200k AUD for a nice modest place, you can easily save that sum in just a few years with the high-paying job you've been imported to do in the UAE with the 50-70% savings rate you no doubt have (;)), and you can save it in cash-ish instruments instead of struggling with how to implement a funky international PP.

[internationalcanuck]

Currently:
$50k in an Australian Superannuation retirement fun (100% australian/international equities)
$5.5k in an offshore investment plan ($1800 being added to monthly) (85/15 equity/bond split)

$35k in savings currently waiting to invest in a trading account (and add approximately $2k per month) - this is the money I want to invest prudently

I see what you are saying about buying a house/apartment.  It is a big bet, and I cannot believe people do that with the leverage of a mortgage.  I am quite ambivalent about purchasing real estate.  I would like to, but it's not a must have.  Honestly I do the math, at current housing prices, just does not seem to make sense.  I am actually quite happy seeing my network increase through my investments and not owing any money in a mortgage.

Yes I am Canadian.  But I have no intention of returning to Canada.

Hmm, interesting. Can we assume from your name that you are Canadian? Also, how are you currently invested? I ask because sometimes standing pat, at least for the short term, is the best thing to do.

Also, and this is just my opinion obviously, a house is a nice goal but from my point of view owning real estate is a big bet on prosperity. My understanding is that real estate can also do well with moderate inflation. In other words, I wouldn't buy a house at the exclusion of other investments unless your job prospects are rock solid for a couple of decades. This goes back to an idea that has been discussed here... that a home shouldn't constitute a really high percentage of your net worth. Just something to think about.

[internationalcanuck]

My advice is to consider a house a consumption item, not an investment. When you look at it this way, all of the sudden a lot of really affordable housing options appear unless you live somewhere with an insane real estate market, which is all the more reason not to buy into it as a place to live. If you can pay 100-200k AUD for a nice modest place, you can easily save that sum in just a few years with the high-paying job you've been imported to do in the UAE with the 50-70% savings rate you no doubt have (;)), and you can save it in cash-ish instruments instead of struggling with how to implement a funky international PP.

Pointedstick,  yes I don't consider a house as an "ultimate investment", but rather a lifestyle choice.  Honestly am waiting for the babyboomer generation to start having to sell off their properties, prices will slip over the longer-term, or at least rise slower than wages.
And yes it is nice saving about 50% of my salary.  But I feel like the money should be put to work and at least keep up with inflation, and maybe then-some.

[Pointedstick]

If you're hoping to time your real estate purchase to coincide with deflation caused by boomers selling their houses so they can pay for a humiliating and dehumanizing last couple of years in a nursing home, I think you might have a ways longer to wait. Right now a lot of boomers are still in the mindset of buying or building their dream houses after they retire. I don't think that boomer sellers outnumber buyers yet, and I suspect they won't for some time.

[internationalcanuck]

If you're hoping to time your real estate purchase to coincide with deflation caused by boomers selling their houses so they can pay for a humiliating and dehumanizing last couple of years in a nursing home, I think you might have a ways longer to wait. Right now a lot of boomers are still in the mindset of buying or building their dream houses after they retire. I don't think that boomer sellers outnumber buyers yet, and I suspect they won't for some time.

Well I'm not expecting some kind of housing market crash.  Babyboomers are not all retiring at the same time, but many are moving into condos in the cities.  So I'm just giving my opinion that it seems like the pace of housing prices will slow if they don't decline.  It has been mentioned due to aging demographics, it does foresee a trend of deflation, which would moderate housing prices.  Anyways just my two sense, at lot can change as the future is predictable, which is the point of the PP, which is why I find myself liking it more and more that I read about it.
As I said I would be buying a house more for a lifestyle choice, which is also what turns me off, because it's a debt debt to take on simply for a "consumption".  I might be just better off buying REIT's for a Variable Portfolio.

[LazyInvestor]

You should stick with the regular US PP.

[dualstow]

UAE, that's a tricky one. Despite the veneer of business and tourism in places like Dubai, the underlying government would probably not pass muster to be included in the list of nations where you can run a pure pp. (Of course Aus and Canada would pass). Although you are supposed to invest in the local economy from which you are making your living, I would probably steer clear of UAE investments, even if they should issue bonds someday.

[internationalcanuck]

OK.  What I might do then is basically have a US centered Portfolio since the UAE dirham is tied to the US dollar. AUD dollar is cheap now, so technically it would be better investing in AUD dollars since my effective US denominated salary would buy more shares, but things could change with currencies in a year, its impossible to predict.

For the Equities, perhaps I could consider splitting the Equities between US and an Global ex-US Equities ETF, since the UAE economy is heavily influenced by global economy?  If It do a 50/50 split then I am not making any kind of bet or prediction of whether the U.S. or ex-US economy would would better, and since the UAE is a developing economy a Global ex-US ETF would capture some of the emerging market?

UAE, that's a tricky one. Despite the veneer of business and tourism in places like Dubai, the underlying government would probably not pass muster to be included in the list of nations where you can run a pure pp. (Of course Aus and Canada would pass). Although you are supposed to invest in the local economy from which you are making your living, I would probably steer clear of UAE investments, even if they should issue bonds someday.