Aussie Permanent Portfolio?

[paulbrianross]

Hi All,

Any other Australians out there interested in the Permanent Portfolio? I'm thinking about using the following for my four quarters:

GOLD = Perth Mint Depository Services

SHARES = Vanguard Index Australian Shares Fund or Vanguard High Yield Australian Shares Fund

BONDS = Vanguard Index Diversified Bond Fund (40% Aussie/60% Foreign, but it's the only Vanguard bond fund that doesn't have a $500k minimum)

CASH = Bank deposits and/or term deposits

Thanks for any help!
PR

[paulbrianross]

Hi Clive,

Thanks very much for the advice!

[Exocet]

Paul

I've been looking at an Australian implementation of the PP.  My conclusions are:

1) Gold - Two choices: either invest in shares of GOLD in the ASX or open a Perth Mint Depository Services account (minimum AU $50K).  I'd go with the latter option.

2) Cash - Check "Money magazine" for a great summary of the best interest-paying accounts.  The bottom line is that you should go with an online savings account from one of the plenty of banks available.

3) Stocks - Two choices: either buy shares of STW in the ASX (this is an ETF of the top 200 Au companies) or buy the Vanguard international shares index fund.  I'd go with the latter for best diversification.

4) Long-term bonds - this is the most difficult aspect from an Australian perspective... your option of the Vanguard bond is fine but it has bonds of rather short duration so it defeats the purpose from a PP perspective.  It's possible to buy 10 year government bonds in the open market but I'm unsure if this is the best choice.  An alternative is to open an account in the USA and buy a truly long term bond ETF.

Hope this helps.

[gawping]

Hi

I'm setting up an Aussie PP and am going to buy some singapore government bonds through fundsupermart.com. I can let this forum know if the process is successful. The Singapore Govt issues longer term bonds than the RBA.

[AdamA]

Hi

I'm setting up an Aussie PP and am going to buy some singapore government bonds through fundsupermart.com. I can let this forum know if the process is successful. The Singapore Govt issues longer term bonds than the RBA.

Why would you use bonds issued by Singapore if you're setting up an Australian PP?

[gawping]

The bonds are longer term than those issued by the aussie treasury. Also, the sing govt only issues the bonds to provide its banks with a riskless asset - the govt is in surplus and does not actually have to borrow any money.

[AdamA]

The bonds are longer term than those issued by the aussie treasury. Also, the sing govt only issues the bonds to provide its banks with a riskless asset - the govt is in surplus and does not actually have to borrow any money.

Hmmm...

Usually the recommendation is to buy from the government of the country where you live, to eliminate currency risk.  Why not just buy the longest dated Aussie bonds possible?  Or, you could buy 50% 10 year Aussie bonds and 25% stocks and 25% cash.  This gets pretty close to the 4 x 25%.

[gawping]

Yeah I might do that.

There was an announcement that the Aussie Treasury will start issuing 30 year bonds in the future but I'm not aware of when that will happen or whether it will be available to retail investors. There is a Vanguard bond fund on the ASX (Austrailian Stock Exchange) but it seems to be full of all kinds of higher risk securities.

[gawping]

I know its a no-no, but there are also long-term corporate bonds traded on the ASX...

[l82start]

you might try mixing Australian bonds or the bond fund and add in some Singapore and American to get longer term,  if you do use a bond fund just calculate any non PP bonds in the fund as being a VP,
some of the smarter investors here or your fellow Australian PP enthusiasts might be able to look at what mix (including the possibility of over-weighting bonds already suggested) gives you the best combination of long term and currency protection with what you have available, to get the closest you can to a PP ideal...

[AdamA]

I know its a no-no, but there are also long-term corporate bonds traded on the ASX...

You live in a country that has a stable currency and its own central bank.  I would not monkey around with corporate bonds or bonds from Singapore.