Setting up PP in Australia

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Toby
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Setting up PP in Australia

Post by Toby » Wed Jan 15, 2020 8:46 pm

Do any of you hold a PP in Australia? I've just moved here from the UK and I'd love to see an example of how someone's set up their Aussie PP. I remember it being a lot of work years ago setting up my PP in the UK figuring out which funds to hold, which to hold in ISAs (tax-sheltered) and which outside etc. I'm kind of dreading going through the same work figuring out how to set it up in Australia. If someone could share their Aussie PP setup I'd be hugely grateful
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Smith1776
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Re: Setting up PP in Australia

Post by Smith1776 » Wed Jan 15, 2020 9:04 pm

You should send a PM to forum member Hal.

He's a PP adherent residing in Australia. He should have some good insights for you.

The only thing I can tell you with reasonable confidence is that an Aussie investor needs international diversification much more than our U.S. counterparts. Same goes for us Canadians. Our respective countries are just too small.
Combining factors in a portfolio: https://alphaarchitect.com/2015/03/26/the-best-way-to-combine-value-and-momentum-investing-strategies/
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Hal
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Re: Setting up PP in Australia

Post by Hal » Wed Jan 15, 2020 10:31 pm

Happy to help Toby and Smith1776,

At present I hold the following allocation.

1. 25% Allocated Gold at The Perth Mint
2. 50% Intermediate Government Bonds, ASX ticker RGB
3. 12% Vanguard Australian Equities, ticker VAS
4. 13% Vanguard International Equities, ticker VGS

but I plan to reallocate in a Self Managed Retirement Fund to the "Smith Portfolio :) "

1. 25% Allocated Gold at Perth Mint
2. 75% Vanguard Diversified Conservative Index, ticker VDCO

I keep two PP's due to the difficulties rebalancing between the retirement fund and the taxable fund.

Also suggest you follow Martin North and John Adams for an insight into the Australian Market

https://www.youtube.com/channel/UCKWDsc ... KHsmow4-bQ

https://www.youtube.com/channel/UCzwmB2 ... hko2Gpj2iA

Feel free to ask if you have any queries,
Hal
Toby
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Re: Setting up PP in Australia

Post by Toby » Thu Jan 16, 2020 6:52 am

Thanks Hal, that's really helpful to see the makeup of your portfolio. A couple of questions
  1. Why 50% intermediate bonds, instead of 25% each of cash + long term bonds (say eTB GSBK39)?
  2. Where can I learn more about the "Smith portfolio"? What motivated your switch to it?
  3. Is there any way to tax-shelter investments outside of super? Ideally, I'd like to be able to access my money before retirement age
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Hal
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Re: Setting up PP in Australia

Post by Hal » Thu Jan 16, 2020 7:45 am

Toby wrote:
Thu Jan 16, 2020 6:52 am
Thanks Hal, that's really helpful to see the makeup of your portfolio. A couple of questions
  1. Why 50% intermediate bonds, instead of 25% each of cash + long term bonds (say eTB GSBK39)?
  2. Where can I learn more about the "Smith portfolio"? What motivated your switch to it?
  3. Is there any way to tax-shelter investments outside of super? Ideally, I'd like to be able to access my money before retirement age
Hi Toby,

1. Went for the 50% intermediate bonds as there is an ETF available -primarily for ease of portfolio management. No reason you could not use 25% GSBU20 and 25% GSBE47. https://www.asx.com.au/products/bonds/list-of-agbs.htm
I personally minimise the amount of cash held due to the uncertainty of the bank deposit guarantee scheme.
See https://www.youtube.com/watch?v=8Wyj3q-e__I

2. The "Smith Portfolio" :). - my name for Smith1776's idea of using the Vanguard Conservative Fund to cover the Stock/Bond/Cash allocation, leaving just gold to be purchased separately. The PP was primarily designed for US investors - if the AUD drops due to inflation etc, gold will not rise dramatically to cover the losses. VDCO has international diversification so "all your eggs are not in one basket". See Smith's posts for more information. VDCO just became available about two years ago.
https://www.vanguardinvestments.com.au/ ... /?overview

3. Tax sheltering outside Super - wish I knew! The only way I could see would be to hold gold outside Super as it produces no return. Still have to pay capital gains tax on its sale, plus the difficulties in rebalancing.

Hal
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Smith1776
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Re: Setting up PP in Australia

Post by Smith1776 » Thu Jan 16, 2020 3:08 pm

Hal wrote:
Thu Jan 16, 2020 7:45 am

Hi Toby,

1. Went for the 50% intermediate bonds as there is an ETF available -primarily for ease of portfolio management. No reason you could not use 25% GSBU20 and 25% GSBE47. https://www.asx.com.au/products/bonds/list-of-agbs.htm
I personally minimise the amount of cash held due to the uncertainty of the bank deposit guarantee scheme.
See https://www.youtube.com/watch?v=8Wyj3q-e__I

2. The "Smith Portfolio" :). - my name for Smith1776's idea of using the Vanguard Conservative Fund to cover the Stock/Bond/Cash allocation, leaving just gold to be purchased separately. The PP was primarily designed for US investors - if the AUD drops due to inflation etc, gold will not rise dramatically to cover the losses. VDCO has international diversification so "all your eggs are not in one basket". See Smith's posts for more information. VDCO just became available about two years ago.
https://www.vanguardinvestments.com.au/ ... /?overview

3. Tax sheltering outside Super - wish I knew! The only way I could see would be to hold gold outside Super as it produces no return. Still have to pay capital gains tax on its sale, plus the difficulties in rebalancing.

Hal
The Smith Portfolio. 8)

I have reached the height of Internet fame!

Tyler -- get over here! Update your site! ;D
Combining factors in a portfolio: https://alphaarchitect.com/2015/03/26/the-best-way-to-combine-value-and-momentum-investing-strategies/
Toby
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Re: Setting up PP in Australia

Post by Toby » Thu Jan 16, 2020 8:23 pm

Thanks for explaining!

For now, I think I'll do something like
25% cash in bank, although thank you Hal for the warning re the uncertain reliability of the bank deposit guarantee scheme
25% GSBE47
25% gold (I might take the easy option and go for PMGOLD etf and also to avoid storage fees)
12.5% VAS
12.5% VGS

I love the idea of a simpler portfolio, and lol yes I would love to see Tyler make a chart for the Smith portfolio. Without seeing some charts or doing some closer digging I'm just not sure how well VDCO covers short and long term treasuries. I don't imagine that corporate bonds would do as well in a period of deflation compared to long term treasuries. What are your thoughts about corporate bonds vs treasuries?

With allocated gold, isn't the storage fee pretty significant? I saw a fee of 1% p.a. here:
https://www.perthmint.com/storage/pricing.html
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Hal
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Re: Setting up PP in Australia

Post by Hal » Thu Jan 16, 2020 9:34 pm

Seems a fine plan Toby,

A few thoughts...

Gold.
For me, that is my insurance plan if things go very bad. Perhaps hold a few coins and put the rest in PMGOLD to minimise storage fees ? Remember countries have closed the stock exchanges in times of emergencies.

Bonds.
Corporates vs Treasuries. Depends on the solvency of the borrower. For Australia now, the Treasuries are fine. If the debt/GDP gets above 60%, you may wish to revisit this. https://www.firstlinks.com.au/australia ... 1-a-primer

Welcome any other forum members comments.

Hal
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Smith1776
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Re: Setting up PP in Australia

Post by Smith1776 » Fri Jan 17, 2020 12:30 am

The Smith Variation of the PP does indeed have credit risk in the fixed income side. A few thoughts.

First, that credit risk is not totally uncompensated risk. In principle, you do have higher expected returns from corporates, so it's not a total negative.

The credit risk is basically the trade-off for having the international diversification in such a simple package. It's a tradeoff I'm personally willing to make. Particularly as a non-U.S. PP investor, I think it makes sense.

Sure, if you live in the U.S., your government has the reserve currency of the world. Credit quality is pretty much unquestioned, and your currency has the privileged position of being the go-to flight to safety asset. I don't think the international diversification is strictly needed, or is even necessarily desirable for the U.S. investor.

Smaller countries like Canada and Australia? I think it's a trade off that is justifiable and comes out as a wash. I'm indifferent. Sure, my government can print money. But is Canada's currency and government the unquestioned monolith that the U.S. is? Nah, not even close. So some international diversification makes more sense for us.

Also, on a less lofty level, Vanguard's research on their one-fund solutions shows that there is some performance benefit in terms of risk-adjusted returns to international fixed income.
Combining factors in a portfolio: https://alphaarchitect.com/2015/03/26/the-best-way-to-combine-value-and-momentum-investing-strategies/
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Re: Setting up PP in Australia

Post by Toby » Fri Jan 17, 2020 10:18 pm

Thanks Hal & Smith1776 for your thoughts. Hal, maybe holding some physical gold makes sense to prepare for the worst-case outcome, which may be more likely than what I appreciate. Smith1776, that makes sense that corporate bonds yield higher returns and also that portfolio offers more international diversification. And it has the huge appeal of being simpler to manage, by doing its own internal rebalancing, and it might even offer some tax savings because each time I rebalance I'll get with capital gains tax.
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