Index fund investing

[Hyphos]

I don't see a lot of people in this forum discussing about having a portfolio of Index funds even though this is the most recommended way of investment. Does anyone here have the majority of their portfolio in index funds? Which index funds to you have and how are your returns? I am thinking of revising my portfolio (currently mainly high div and growth stocks). I have beaten STI for these two years but I highly doubt I can continue to beat or even match it all the way till retirement.

 

[Alpaca]

Index funds are bound to raise in the future ... is just that the hpr may be smaller as compare to other assets u can hold till yr retirement if u wan , unless u retire in 1-5 year time

 

[kakaboo]

If you have a portfolio of 10-20 blue chip companies which are listed under STI, what is the difference ?

 

[Shiny Things]

IDoes anyone here have the majority of their portfolio in index funds? Which index funds to you have and how are your returns?

Oh me me me me me, pick me pick me pick me.

I'm 100% in index funds, aside from the little bit of cash I use to punt around in equity options, rates, and FX.

My portfolio's not going to be the same as yours because I'm US-based, but here's what I use:

* SPY - US large-cap equity;
* VO - US midcap equity;
* VEA - Europe/Japan/Australia large-cap equity;
* I don't have any emerging-market equity exposure, but if I did I'd use VWO.

For bonds:
* CSJ - short-dated USD investment-grade corporate bonds (used to be LQD, but I slashed my duration exposure ahead of the taper);
* JNK - USD junk-bonds (tiny, tiny exposure);
* CMF - California muni-bonds, because for me the interest on them is tax-free. For you it doesn't matter, so you don't want to own this one.

My returns are friggin' awesome, too, but that's mostly because SPY is a huge chunk of my portfolio and it's up more than 20% year-to-date including divvies. That won't happen every year, but hey, I'll take it!

If you have a portfolio of 10-20 blue chip companies which are listed under STI, what is the difference ?

The difference is that the portfolio of 10-20 blue-chips costs 10-20 times as much in brokerage.

 

[Dyhalt]

I used to buy ES3.SI ETF, which tracks the 30 component stocks in STI.

I don't invest heavily into it especially when STI index is making historic high, the annual return is slightly above 2% if I remember correctly.

I think the main reason why I don't invest in Index is because at its current return it fails to beat inflation in terms of yield, I might consider buying again if the yield returns to somewhere around 3%

 

[Hyphos]

If you have a portfolio of 10-20 blue chip companies which are listed under STI, what is the difference ?

For index fund investment most people recommend to have at least 3 funds: Local stock index fund, local bond fund and international stock fund, with % bonds dependent on your age and risk appetite. Your example means your entire portfolio is 100% local stocks.

However in Singapore there are no good local bond funds, so probably one can consider CPF to be your "bond" allocation. I am thinking of holding STI ETF, VEA and VTI. My only worry is the the Vanguard funds are traded in USD so there is currency risk. Shiny Things, what are your thoughts on this?

I used to buy ES3.SI ETF, which tracks the 30 component stocks in STI.

I don't invest heavily into it especially when STI index is making historic high, the annual return is slightly above 2% if I remember correctly.

I think the main reason why I don't invest in Index is because at its current return it fails to beat inflation in terms of yield, I might consider buying again if the yield returns to somewhere around 3%

According to the fund's performance the 10 year annualized returns is 10+% and 5 year annualized returns is 9+%. Why is your yield so low?

SSgA: SPDR Straits Times Index ETF

 

[Epps_Sg]

I don't see a lot of people in this forum discussing about having a portfolio of Index funds even though this is the most recommended way of investment. Does anyone here have the majority of their portfolio in index funds? Which index funds to you have and how are your returns? I am thinking of revising my portfolio (currently mainly high div and growth stocks). I have beaten STI for these two years but I highly doubt I can continue to beat or even match it all the way till retirement.

I think you may be looking for a more autopilot investing strategy requiring minimal portfolio management. Put in another way, an investing strategy where you do not need to stock pick so much, do not need to do market timing so much, and preferably with high chance of positive returns in long run. If so, then check out more on 'passive investing' using stocks index funds and bonds or bond funds.

Investing purely in stocks index alone can be high risk too. Imagine STI dropping 40~50%, can you withstand that amount of drop and keep buying/averaging down the index fund? Can you avoid panicking with the crowd and selling at market bottom? If not, below is alternative strategy for index investing...

Another index investing strategy is to buy stock index fund and bond fund in a fixed ratio, say 50/50. Stocks and bonds 'tend' to move in opposite directions, so If stocks index drop a lot, bonds should be more attractive and rise up to offset some stock losses. At end of year, the ratio of stock/bond will change due to price changes of both - at end of every year, rebalance the stock bond ratio back to 50/50 to reset the 'risk' of the portfolio, using fresh cash to buy new stock/bond or buy/sell existing stocks/bonds. Well, this is the basics of passive investing using diversified assets - lower volatility, preferably no market timing involved.

Index fund investing is normally for the long run, and as such, you should look for index funds with the lowest possible yearly running cost to maximize future compounded returns. For Singapore stock index, that means investing in SPDR STI ETF (symbol: ES3) that has 0.3% yearly running cost only. Personally, I am invested in STI ETF, and Singapore Govt bonds and some other asset classes, using a indexed approach and passive investing.

You can also check out Andrew Hallam's book on his passive investing strategy. Here is a link to his view on why do passive investing with index funds.

All-in-all, hope you find an investing strategy that you feel comfortable with.

 

[Epps_Sg]

However in Singapore there are no good local bond funds, so probably one can consider CPF to be your "bond" allocation. I am thinking of holding STI ETF, VEA and VTI. My only worry is the the Vanguard funds are traded in USD so there is currency risk.

Just my opinion... I prefer to minimize currency risk so probably USD bond fund is not so good an idea, unless you intend to migrate to US or retire in US in future. If you invested in US bonds 10 years ago you probably wont be so happy now because SGD has appreciated against USD in last decade.
You can also buy Singapore govt bonds directly, if you know what you are doing.

 

[Shiny Things]

I think the main reason why I don't invest in Index is because at its current return it fails to beat inflation in terms of yield, I might consider buying again if the yield returns to somewhere around 3%

According to the fund's performance the 10 year annualized returns is 10+% and 5 year annualized returns is 9+%. Why is your yield so low?

He's forgotten about capital gains.

 

[Shiny Things]

Just my opinion... I prefer to minimize currency risk so probably USD bond fund is not so good an idea, unless you intend to migrate to US or retire in US in future. If you invested in US bonds 10 years ago you probably wont be so happy now because SGD has appreciated against USD in last decade.
You can also buy Singapore govt bonds directly, if you know what you are doing.

VEA and VTI aren't bond funds, they're stock funds.

Here's a thing about ETFs - you have exposure to the currency of the underlying assets, not the listing currency. (If you want me to prove this, let me know; it's a bit long and involved and it's not even 8am over here yet and I haven't had my coffee.)

So if you buy ES3, VEA and VTI, you'll have exposure to USD (from VTI), EUR/JPY/AUD (from VEA), and SGD (from ES3). A bit of currency risk is not necessarily a bad thing, but you don't want the majority of your portfolio in overseas stocks unless you have a REALLY strong view of the direction of your local currency. After all, you're retiring in Singapore (presumably), so you'll need SGD when you retire.

60% ES3, 20% VTI, 20% VEA is probably fine, though.

 

[Epps_Sg]

VEA and VTI aren't bond funds, they're stock funds.

Here's a thing about ETFs - you have exposure to the currency of the underlying assets, not the listing currency. (If you want me to prove this, let me know; it's a bit long and involved and it's not even 8am over here yet and I haven't had my coffee.)

So if you buy ES3, VEA and VTI, you'll have exposure to USD (from VTI), EUR/JPY/AUD (from VEA), and SGD (from ES3). A bit of currency risk is not necessarily a bad thing, but you don't want the majority of your portfolio in overseas stocks unless you have a REALLY strong view of the direction of your local currency. After all, you're retiring in Singapore (presumably), so you'll need SGD when you retire.

60% ES3, 20% VTI, 20% VEA is probably fine, though.

Thanks for correction that VTI and VEA aren't bond funds. I understood the point about exposure to currency of underlying assets.
Also agree on your view that minor currency risk may not be always bad, especially for a small country like Singapore that is easily affected by global financial turmoil (a fact that our prime minister took every opportunity to remind us... ). For investor in a small country like Singapore, and if the portfolio capital is sufficiently big, it may be good to invest 20% to 40% of stock portfolio in other developed markets also.

On a personal note, at the start, I am comfortable with only investing in Singapore because it is still 'relatively' well governed and has surpluses. When my stock portfolio grows more, I do look for opportunity to invest a bit in other regional markets also.

 

[Dyhalt]

According to the fund's performance the 10 year annualized returns is 10+% and 5 year annualized returns is 9+%. Why is your yield so low?

SSgA: SPDR Straits Times Index ETF

I only counted the dividend yield and excluded the capital gain from stock price. Thanks for the reminder

 

[deweylim]

However in Singapore there are no good local bond funds, so probably one can consider CPF to be your "bond" allocation.

But if you have CPF as your "bond" allocation, it is stuck with the government forever right? I mean, you can't balance it when the bonds are high and the stock are really low.

I have 30% in A35 (bond ETF).. Any bro can give advise if this is ok? Or should I be buying direct?

 

[peterchan75]

Here is another reason why...
Fama, Shiller, Hansen Win Nobel Prize for Asset-Price Work - Bloomberg

 

[makav31i]

But if you have CPF as your "bond" allocation, it is stuck with the government forever right? I mean, you can't balance it when the bonds are high and the stock are really low.

I have 30% in A35 (bond ETF).. Any bro can give advise if this is ok? Or should I be buying direct?

Actually you can rebalance using the cpf as you can use the money in your CPF to purchase stocks...

 

[Mecisteus]

I don't see a lot of people in this forum discussing about having a portfolio of Index funds even though this is the most recommended way of investment. Does anyone here have the majority of their portfolio in index funds? Which index funds to you have and how are your returns? I am thinking of revising my portfolio (currently mainly high div and growth stocks). I have beaten STI for these two years but I highly doubt I can continue to beat or even match it all the way till retirement.

if you say that you have beaten STI then why not stick to your strategy?

otherwise you can create a core and supplementary portfolio. the core consisting of index funds while your supplementary consisting of active management stocks. or vice versa depending on your confidence level.

 

[ochazuke]

I just started a small portfolio this year, rebalance every 6 months or yearly:-

67% index stocks (split evenly between local ES3 and international VWRL) and 33% A35

Will need to wait and see in a few years how it will turn out.

 

[Epps_Sg]

I just started a small portfolio this year, rebalance every 6 months or yearly:-

67% index stocks (split evenly between local ES3 and international VWRL) and 33% A35

Will need to wait and see in a few years how it will turn out.

Statistically speaking, rebalance yearly can be better to capture trends and get slightly higher returns. 6 months of rebalance period may be a bit too frequent - but if you have enough cash every 6 months, why not? As you said, see how it turns out.
The stock index is roughly about 2 times more volatile than A35. Meaning your 67% stock component can be 4 times as volatile as your A35 bond component. Meaning, both stock gains and loss will both be higher, because the 33% A35 does not have enough price movement to offset stock index drop significantly.

 

[genie47]

index funds vs hedge funds. Hard truths. You are better off investing by yourself into index funds.

 

[Hyphos]

What is the cheapest way to invest in Vanguard index funds? Think most of the local banks/brokerages exchange rate spread will eat into profits.