International diversification

[gnome]

I'm resident in the (not very) United Kingdom and, having sold a house, I would like to start a PP. But I rebel against the idea of a UK or US version, with 50% in cash/bonds, as both currencies have been grossly debased over the long term when compared with proper hard currencies like the Swiss Franc or Singapore dollar. It's hard to see that dynamic changing while the Us and UK remain addicted to debt. I also already have substantial equity investments in Sterling and dollars.

Another motive is to diversify against political risk. I currently keep the gold bullion that I already have in the Malca-Amit vaults in Singapore, and was planning to open a broker account at Saxobank in Singapore, to buy a Singapore version of the PP, as described on the forum by Coearth. I would do it through a UK personal investment company, as I don't think there is any Singapore withholding tax on dividends or capital gains. I know the prevailing wisdom here is to go either domestic or US for a PP, but can anyone persuade me that what I'm planning is a really bad idea?

Thanks in advance for your comments.

[Kbg]

What specific allocation are you looking at for both PP and total assets?

Orthodoxy would suggest you are making predictions on an unknowable future about the U.K./U.S. But if you like the thought of global vs. Local then globalize the stock, bond and cash components. You still have the issue of you live locally for most expenditures which you will disconnect from your investments...which could work out or not.

[dutchtraffic]

It really doesn't make any sense at all to create a PP with singaporean bonds if you live in the UK.
What's wrong with UK bonds? The argument of currency debasement is invalid because every fiat currency ends up worthless eventually.

http://www.xe.com/currencycharts/?from= ... D&view=10Y

[I Shrugged]

It strikes me that you would be replacing UK political and other risks with Singaporean risks. Whether that is good or not, I sure can't say.

I know that Harry Browne once was a fan of hard currencies, but he settled on the USD PP instead. We can be sure he knew that the fiat dollar would decline in value. It's a good question. The main thing I wonder is not about the Singapore cash portion, but, would the bond portion perform as intended.

[gnome]

Granted, all fiat money is just paper, but not everywhere is Zimbabwe. In 50 years the US dollar has gone from 4.38 swiss francs to parity, and the pound from 8.58 to 1.68 Singapore dollars. That's structural, rather than market fluctuation.

My understanding of the PP is that it is a volatility strategy, relying on the uncorrelated responses of the four assets to different macroeconomic phases. But that relies on them being free to respond. I would argue that the US and UK economies have been straight-jacketed by central bank intervention, such that HB's analysis no longer holds. It seems to me that we have a less constrained market economy in Singapore.

[dutchtraffic]

Granted, all fiat money is just paper, but not everywhere is Zimbabwe. In 50 years the US dollar has gone from 4.38 swiss francs to parity, and the pound from 8.58 to 1.68 Singapore dollars. That's structural, rather than market fluctuation.

My understanding of the PP is that it is a volatility strategy, relying on the uncorrelated responses of the four assets to different macroeconomic phases. But that relies on them being free to respond. I would argue that the US and UK economies have been straight-jacketed by central bank intervention, such that HB's analysis no longer holds. It seems to me that we have a less constrained market economy in Singapore.

If you want to take a massive currency risk (because thats what it is if you make a massive bet on singapore alone) then you are best of taking a diverse basket of currencies, there is an etf that holds global intermediate AAA-AA bonds. Then you won't be able to hold cash anymore if you follow a PP model, but then you have 50% global int. govt. bonds, 25% gold, 25% (global) stocks.

https://www.ishares.com/uk/individual/e ... -ucits-etf

[I Shrugged]

gnome, I understand your concerns. Harry never contemplated ZIRP, I wouldn't think.

[Kbg]

Japan and the US have indicated they are ditching ZIRP. Only the Europeans are retaining it...for now. Even central bankers have figured out their theory is wrong and it's not really helping any longer.

[MachineGhost]

Granted, all fiat money is just paper, but not everywhere is Zimbabwe. In 50 years the US dollar has gone from 4.38 swiss francs to parity, and the pound from 8.58 to 1.68 Singapore dollars. That's structural, rather than market fluctuation.

And the USA was also responsible for several orders of a magnitude rise in living standards exported around the world in that time frame. What has Swizterland or Singapore contributed in comparison over the last 50 years? Not much. The Swiss Franc is no longer a hard currency being delinked from gold anyway because they need to be competitive to export, i.e. debased currency. Never heard of Singapore being considerd a hard currency. They're a small nation with no real natural resources to export.

My understanding of the PP is that it is a volatility strategy, relying on the uncorrelated responses of the four assets to different macroeconomic phases. But that relies on them being free to respond. I would argue that the US and UK economies have been straight-jacketed by central bank intervention, such that HB's analysis no longer holds. It seems to me that we have a less constrained market economy in Singapore.

I would characerize the PP as a sloppy naive risk parity portfolio to four different macroeconomic enviroments that incidentally snags a bit of volatility capturing during rebalancings. It works because U.S. Treasuries are the world's most liquid, deepest and widely risk free asset, not the UK, not Switzerland and certainly not Singapore. I'd keep the conspiracy theory/ideology out of it.

[Kbg]

Agree with the single country critiques. I don't see a problem with going global though instead of your own country. The major issue to resolve for a global PP is to hedge or not hedge the local currency which unfortunately could be a significant head or tailwind.

If the U.K. Has a version of the US ETF DBV that might be an option for the cash or a brokerage based on a non pound denomination.

[LazyInvestor]

You should rethink your ideas taking into account the following two points:

- Gold is a part of PP exactly because the rest is in a FIAT currency. If you're looking for a hard currency then don't look at CHF or SGD but into more gold as it's the only hard currency left. Or maybe Bitcoin as it's a harder currency than either CHF or SGD but it has tons of other issues.

- You are not taking into account that the FIAT part of the PP should be in the world reserve currency so that the relationship to gold part works as defined by HB. Yes, HB mentioned that one should keep PP in a version related to their own country, but I'm not sure he thought it out through completely since he made that statement after discussing so much the importance of the relationship between USD as the world reserve currency and gold.

50:50 US:UK PP is better IMO than Sing PP. I like 100% US PP, and if I want to keep something outside of US, then I go with Bogleheads style of conservative portfolio.

[LazyInvestor]

Can you tell us a bit about ways and costs of buying bullion in Singapore and costs related to storing it in Malca-Amit vaults you mentioned?