*Official* Shiny Things club - Part 2

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Purplestars

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Thanks Shiny & Revhappy,
because the price drop from 1.172 (end Dec 2017) to current 1.115 which it about 4.8% drop and the yield definitely not in that figure, so trying to understand why?

The lesson learnt is to stick your money in a safe bank account for a guaranteed 3%.
 

w1rbelw1nd

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It's almost may now, but A35 price is still lower than what I bought at last may

eh... ultimately this is made up of bonds and the returns that bonds make is mainly off coupons, not capital gains...

Hope no one is expecting a significant long term ETF price increase for any bond ETF, (at least those that distribute all coupons out). That is just expecting the impossible
 

artemov

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Suppose stock X have a bid-ask of 1.0 and 1.2, and I want to buy at 1.1 preferably. But in the unfortunate event of upwards spiralling price, I want to buy between 1.3 and 1.4, not any higher.

So I should
1) Make a LMT buy order of X at 1.1
2) Make another STP LMT buy order of X at 1.3 (stop price) and 1.4 (limit price)?
3) Combine 1) and 2) with One-Cancels-the-Other?

Sigh ... doesn't seem to work ... I applied the above to EIMI on IB TWS Demo. The buy got through immediately at the ask price lol ...
 

highsulphur

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Hi, I have a hypothetical question on order types.
It will really help in my understanding ...

Suppose stock X have a bid-ask of 1.0 and 1.2, and I want to buy at 1.1 preferably. But in the unfortunate event of upwards spiralling price, I want to buy between 1.3 and 1.4, not any higher.

So I should
1) Make a LMT buy order of X at 1.1
2) Make another STP LMT buy order of X at 1.3 (stop price) and 1.4 (limit price)?
3) Combine 1) and 2) with One-Cancels-the-Other?

Is there any simpler way of doing the above, with 1 buy order perhaps?

Not sure if it makes sense lol sorry ... thanks!

Try keeping it simple dude. It's investing. Not trading
 

limster

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Hi, I have a hypothetical question on order types.
It will really help in my understanding ...

Suppose stock X have a bid-ask of 1.0 and 1.2, and I want to buy at 1.1 preferably. But in the unfortunate event of upwards spiralling price, I want to buy between 1.3 and 1.4, not any higher.

So I should
1) Make a LMT buy order of X at 1.1
2) Make another STP LMT buy order of X at 1.3 (stop price) and 1.4 (limit price)?
3) Combine 1) and 2) with One-Cancels-the-Other?

Is there any simpler way of doing the above, with 1 buy order perhaps?

Not sure if it makes sense lol sorry ... thanks!

Assuming you are investing and not trading, the reason why you want to buy the share at 1.1 is because you believe the share price will increase. I presume you have some sort of target price, say 1.5.

When the share price increases to 1.3, it confirms your hypothesis that the share price is going up, and that is a bad thing? :s13: If you believe it will continue to rise to 1.5, why aren't you buying it at 1.3?

As kinetic shu shu will say, this is the "keyboard warrior who readies the warchest but always miss the boat syndrome"
 

revhappy

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Thanks Shiny & Revhappy,
because the price drop from 1.172 (end Dec 2017) to current 1.115 which it about 4.8% drop and the yield definitely not in that figure, so trying to understand why?
The interest rate sensitivity of a bond fund is directly proportional to its duration. This fund is a medium term bond fund with modified duration of 6.7 years. So it is it kind of expected that in the short term you will see losses of this magnitude when interest rate rises so much.

If you don't want to see big swings in your bond fund, it should be very low duration like 1 year.

So this ABF bond fund over a period of time, will give you stable returns. It is just volatile in the short run.


izofsTol.jpg



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epsilon-ve

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Btw, I just setup my RSP with POSB-IS for G3B, seems like the sales charge is no longer 1% with no minimum....

It's now 0.82% with no minimum! :)

Vyiv6rb.png


https://www.dbs.com.sg/personal/promotion/investing-in-unit-trust
https://www.dbs.com.sg/iwov-resources/pdf/invest/tnc-governing-dbs-rsp-promo.pdf

Great! For the current promotion for new RSP setup on iB from 1 April to 30 June 2018. Continue purchasing for 3 consecutive months and your sales charge will be given back to you via Paylah, capped at S$125 cashback per RSP per quarter. For more info refer to T&C
 

rrr2015

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you can get guaranteed 3% in bank account? how? :eek:
i was thinking about SSB vs A35. after some digging, looks like this being already discussed before.
https://forums.hardwarezone.com.sg/money-mind-210/*official*-shiny-things-club-4866757-594.html
The lesson learnt is to stick your money in a safe bank account for a guaranteed 3%.

Thanks for reminding this noob :)
Bond prices have a tendency to move in the opposite direction of interest rates.

so let's have a scenario where one already fully allocated in A35-STI-IWDA portfolio... no more DCA just bi-annual re-balancing

since A35 being bought at higher prices, and let's say with raising interest rates bond prices will get progressively lower. how will this affect A35 value 6.7 years down the road?

or maybe am just overthinking ....

The interest rate sensitivity of a bond fund is directly proportional to its duration. This fund is a medium term bond fund with modified duration of 6.7 years. So it is it kind of expected that in the short term you will see losses of this magnitude when interest rate rises so much.

If you don't want to see big swings in your bond fund, it should be very low duration like 1 year.

So this ABF bond fund over a period of time, will give you stable returns. It is just volatile in the short run.


izofsTol.jpg



Sent from Xiaomi REDMI NOTE 4 using GAGT
 

deathman91

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Am I right to say that the best brokerage(fee wise) for the respective investing amount is as follow?

<=$500: POSB Invest Saver (1%, no min)
>$500 to <=$3333: OCBC blue chip (0.3%, $5 min)
>$3333: SCB (0.2%, $10 min)
 

revhappy

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you can get guaranteed 3% in bank account? how? :eek:
i was thinking about SSB vs A35. after some digging, looks like this being already discussed before.
https://forums.hardwarezone.com.sg/money-mind-210/*official*-shiny-things-club-4866757-594.html


Thanks for reminding this noob :)


so let's have a scenario where one already fully allocated in A35-STI-IWDA portfolio... no more DCA just bi-annual re-balancing

since A35 being bought at higher prices, and let's say with raising interest rates bond prices will get progressively lower. how will this affect A35 value 6.7 years down the road?

or maybe am just overthinking ....
This is what I got from Google:

"A fund with a five-year duration would be expected to lose 5% of its NAV if interest rates rose by 1 percentage point, or to gain 5% if interest rates fell by 1 percentage point."

What you lose in NAV, you will make up in increased yield. Like in case of the A35, a 1% rise in yield will make the fund drop by 6.7%, but over a 6.7 year period you will get it back as increased yield. It is just that you need to hold it for 6.7 years.

The key thing is to look at the yeild to maturity figure and the duration, at the time of buying. So currently the yield to maturity of A35 is 2.49%. This means over a period of 6.7 years you will definitely get a yield of 2.49% per annum and your principal back. When the bond fund was bought at higher price, the yield to maturity was much lower, like 1.8% may be? So people who bought in then basically locked in that price, they will get atleast that much if they hold for 6.7 years. If rate fall below 1.8%, then they make some extra money, over the short term, if they sell early.

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BBCWatcher

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This means over a period of 6.7 years you will definitely get a yield of 2.49% per annum and your principal back.
No, it doesn’t mean that. Interest rates could continue to rise, and the fund’s share price will thus continue falling and still be lower at the end of that 6.7 year period. Approximately half the bonds the fund currently holds (in value terms) have a longer maturity than 6.7 years, so that’s how it works.

Moreover, unless that yield to maturity is adjusted for fund management expenses (probably not), fund dividends will be lower.

Let’s just make it simple: a bond fund does NOT offer guaranteed principal. There is principal risk in a bond fund, and for much longer than 6.7 years for A35. If you want guaranteed (by the AAA rated Singapore government) principal, there are two ways: (a) buy SSBs directly, or (b) buy Singapore Government Securities (either at original auction or on the secondary market), and hold them to maturity.
 

revhappy

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No, it doesn&#146;t mean that. Interest rates could continue to rise, and the fund&#146;s share price will thus continue falling and still be lower at the end of that 6.7 year period. Approximately half the bonds the fund currently holds (in value terms) have a longer maturity than 6.7 years, so that&#146;s how it works.

Moreover, unless that yield to maturity is adjusted for fund management expenses (probably not), fund dividends will be lower.

Let&#146;s just make it simple: a bond fund does NOT offer guaranteed principal. There is principal risk in a bond fund, and for much longer than 6.7 years for A35. If you want guaranteed (by the AAA rated Singapore government) principal, there are two ways: (a) buy SSBs directly, or (b) buy Singapore Government Securities (either at original auction or on the secondary market), and hold them to maturity.
I get your point now. I think the main reason for this deviation is big variance is duration between various bond constituents of the ETF.

I am more familiar with bond funds rather than bond ETFs. Bond funds, typically have most instruments of similar maturity, so a medium duration bond fund will have instruments maturing in 5 years +/- 1 year. So in this case the principal return is more or less assured as those maturing bonds are redeemed at par value.

I had a look at A35 etf and among its top 10 holdings there are instruments maturing in 2033 and 2042. That is really very very long term. So I take back my previous statement.

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Purplestars

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you can get guaranteed 3% in bank account? how? :eek:[

There are a couple of bank accounts in Singapore that gives 3%. Before anyone goes "waahh there are requirements you have to meet", do some homework on this forum and you will realize there are many Tricks you can use to overcome the hurdles.
 

Purplestars

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eh... ultimately this is made up of bonds and the returns that bonds make is mainly off coupons, not capital gains...

Hope no one is expecting a significant long term ETF price increase for any bond ETF, (at least those that distribute all coupons out). That is just expecting the impossible

I don't expect capital gains but capital losses with commission paid is certainly shocking. Biscuit tin does better preserving the value of my money.
 

BBCWatcher

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Bond funds, typically have most instruments of similar maturity, so a medium duration bond fund will have instruments maturing in 5 years +/- 1 year. So in this case the principal return is more or less assured as those maturing bonds are redeemed at par value.
No, that's not how it works either.

Let's start with understanding direct purchase of a Singapore government bond at auction. For example, there's a 5 year bond coming up to auction in May, 2018, so let's use that as an example. And let's suppose you buy that bond and hold it to maturity. This 5 year bond is actually a reopen, and the coupon is 2.75% which is likely going to be a little higher than the yield determined at auction next month. (We'll see, but that's likely.) So you'll likely have to pay a little above face value to get that bond. Let's suppose you pay $10,100 for a $10,000 bond, a slight premium. No problem. You'll get government assured Singapore dollar coupon payments of $137.50 every 6 months, and you'll get $10,000 (the face value) paid back to you in July, 2023, when the bond matures. That's how the direct purchase works. No matter what happens to market interest rates, the government assures that particular outcome if you hold the bond to maturity. And you can hold the bond to maturity, because it's your bond, 100% privately and individually owned by you.

OK, now let's suppose you buy shares in a bond fund, and let's suppose that fund invests only in 5 year government bonds. The fund doesn't have fixed auction dates, but rather, on a daily basis, investors can buy and sell the fund. So the fund buys and sells 5 year bonds on the secondary market to handle fund purchases and sales. It pays whatever the market rate is, of course, when it buys and sells those bonds on the secondary market (mostly).

So, you buy $10,100 of this fund on May 15, 2018, let's suppose. And interest rates rise gradually but inexorably over the next 5 years. Remember, the fund is always deploying and redeploying your funds (and everybody else's funds) into 5 year government bonds. But, darn it, the interest rate keeps rising. In July, 2023, you look at the value of your fund shares. Lo and behold, it's not $10,000. It's less than that. (How much less depends on how much interest rates have risen.) If bond prices fall, and keep falling, the value of your bond fund holding will never catch up. Your principal (or bond face value) is not assured. That's just how the math works. Part of the math is that your fund dividends should go up, too, but probably not fast enough and high enough to compensate for the fall in the share price. (I'm assuming dividends are paid out rather than reinvested, but that's a minor detail for these purposes.)

The opposite happens when interest rates drift downward and keep drifting downward. Bond prices go up, and your bond fund share value keeps rising. At the end of the 5 year period, in that event, you're holding bond fund shares that are worth more than you paid for them. You have some downside capital risk, but you also have some upside capital opportunity. However, the fund managers collect their management fee every year, and that acts as a headwind for capital appreciation (or tailwind for capital depreciation).

Anyway, to net it out, when you invest in a bond fund you have neither principal nor face value assurance. You do have principal risk, some. You have less principal risk if the fund holds shorter maturities compared to a fund that holds longer maturities, but you always have some principal risk. With individual bond purchases, no, you don't have principal (face value) risk, except the remaining, baseline risk of bond default (very, very unlikely for a AAA rated sovereign -- the most unlikely default among Singapore dollar denominated possible defaults -- but statistically that's a non-zero probability). That's an important difference between holding bonds directly and investing in bond funds.

That's not to say that one is "right" and the other is "wrong." For example, in some countries government bonds just aren't really available to retail investors in any meaningful way. In those countries your only choice is a bond fund if you want government bond exposure, and sometimes you don't even have that choice. In Singapore, we have choices, fortunately. I tend to favor direct purchase and holding of Singapore government bonds and t-bills for most people, but I can imagine a couple scenarios when the corresponding ETF has some merit.
 
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FrostWurm

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Anyway, to net it out, when you invest in a bond fund you have neither principal nor face value assurance. You do have principal risk, some. You have less principal risk if the fund holds shorter maturities compared to a fund that holds longer maturities, but you always have some principal risk. With individual bond purchases, no, you don't have principal (face value) risk, except the remaining, baseline risk of bond default (very, very unlikely for a AAA rated sovereign -- the most unlikely default among Singapore dollar denominated possible defaults -- but statistically that's a non-zero probability). That's an important difference between holding bonds directly and investing in bond funds.

Is this correct?

If the bond fund is based on the same issuer (ignore subordination), how can they not face the same principle risk? The 'face value assurance' / default risk is indirectly considered in the market value of the bond.

In fact, I would go so far as to say, that in a frictionless market, one should be indifferent to investing directly in a bond and investing in a bond fund that holds these bonds. Because any effects of interest rates are reflected in the price (naturally assuming that price and i/r are correlated).

Thus the only 'advantage' a bond fund offers, is that the frequent 'rolling' of the bonds within the ETF causes the bond fund's price to mirror interest rates exactly, which in a frictionless market, one should be able to do achieve the same outcome with a bond that he holds directly. (And also the regular benefits of diversification assuming it is a diversified bond fund).

All other risks are the same; please correct me if I am wrong.
 

jacky817

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Hi Shiny,

Is it a good idea to hold some REITS or even buy properties in singapore as a form of investment? :s22:


When you say “both accounts” do you mean that you opened an SGD e$aver account and a USD online trading account at the same time?

When you go down in person, they'll create your savings acc and then give you some form to sign to create the trading accounts.
 

makav31i

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Am I right to say that the best brokerage(fee wise) for the respective investing amount is as follow?

<=$500: POSB Invest Saver (1%, no min)
>$500 to <=$3333: OCBC blue chip (0.3%, $5 min)
>$3333: SCB (0.2%, $10 min)

POSB Invest Saver fee is 0.82% for quite some time already...I calculated, DBS Vickers Cash Upfront account is worth it from $610 onwards as the fee is 0.12% or $10 minimum with $5 rebate for each trade...So OCBC BCIP and SCB is definitely out..
 

rrr2015

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much appreciate if you can point me to thread for info digging lah
quite difficult to search ... TIA! :s12:

There are a couple of bank accounts in Singapore that gives 3%. Before anyone goes "waahh there are requirements you have to meet", do some homework on this forum and you will realize there are many Tricks you can use to overcome the hurdles.
 
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