The application of permanent portfolio in financial management and retirement scheme

Abstract

In our previous research on permanent portfolio (PP), we have demonstrated that the permanent portfolio significantly outperforms all-stocks portfolio based on the Hong Kong Hang Seng Index, and it makes a good portfolio for investors who want to keep investing simple and non-labor intensive while earning a satisfactory and stable return. In this paper, we tried to investigate whether the PP can be improved by replacing the cash component with another component, which has a longterm growth history – REITS using MSCI World REITs Index. The results are very encouraging, with the portfolio returns significantly improved without sacrificing any stability.

We also compared the performance of the PP, both the original version and this enhanced version, with the average performance of the Mandatory Provident Fund (MPF) schemes in Hong Kong. The MPF schemes are regulated retirement schemes in Hong Kong that came into existence in December 2000. The outcome was that both the original PP and enhanced PP perform better than the average MPF schemes. We believe that this simple asset-allocation approach to investment can be broadly and usefully applied to any investment management of a long-term nature, and particularly of relevance to investment for retirement purposes.