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ELKYme

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The percentage of how much (A)savings we make as opposed to how much (B)spending we do of our monthly income will determine how early or late we retire:

It’s about having good habits early in life:

https://youtu.be/vE_H6wZewNs

Curious, any thoughts about the recommendations in this piece?

Commentary: You can still retire at 40, even with a longer life expectancy

Of course, past performance is no guarantee of future results, especially in the context of Singapore's stock market. I'm also aware of what BBCW and/or ST would have to say about the author "overselling" REITs. But nonetheless, a few recommendations piqued my interest.

Specifically, the article states:

Further, it stated:

These seem to skew more towards active portfolio management than the passive investment strategies which you and ST are in favour of. But given that a portion of our portfolios will still include STI ETFs, is the recommendation of buying the 15 highest yielding divident stocks a sound one? It doesn't seem to take that much more effort compared to the current passive investment strategy that most of us would adopt, and the additional returns are certainly enticing.
 

boolCano

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Thanks BBC, I'm actually in similar position as whucarezz. Going Schwab would mean switching to SGD, withdraw, fund Schwab, go USD again, so not feasible. Will take a look at BIL, not sure if it'll work like laddering 4-weeks t-bills.

Just directly wire USD from IBKR to Schwab US custodial account
 
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martin

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Hi BBCW, regarding the NY07100X which has now reopened. I have been searching for info on its application deadline but all i could find is that the auction date is 29 Oct? Is this the deadline? Yet i seem to have read that application for sgs bonds is always only wed to fri, office hours?

Another query, since it is also available in the secondary market, how do we compare whether to buy from secondary market or bid from this reopened mini auction? Is it a given to do the latter? And always do non-competitive bid? Thanks much.
 

BBCWatcher

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Hi BBCW, regarding the NY07100X which has now reopened. I have been searching for info on its application deadline but all i could find is that the auction date is 29 Oct? Is this the deadline?
No. Since the auction is on a Monday, the application deadline should be before 9:00 p.m. on the previous Friday (tomorrow as I write this). Just log onto Internet banking at DBS/POSB, UOB, or OCBC and it should tell you.

Another query, since it is also available in the secondary market, how do we compare whether to buy from secondary market or bid from this reopened mini auction? Is it a given to do the latter?
Absolutely. The bond auction is immensely more efficient, and there’s no transaction fee.

And always do non-competitive bid?
Yes, I always recommend that you leave the competitive bidding to the professional bond traders and institutional investors who sometimes know what they’re doing. Non-competitive means you’ll get whatever the best price is at auction, and you’re most likely going to get a full allocation. This is a bond reopen, so you will have to pony up 115% of the face value in order to support your non-competitive bid. But you’ll get back any overage automatically when the auction is completed.
 

martin

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Great. Thanks. Been looking out for this since you last alerted me. Btw, anything similar in the horizon so i could reserve some funds for that later if there is. Only managed to get $6k from the temasek bond so this is now the next best for me. Ssb already exhausted my quota earlier but now redeeming some to buy the better issues lately.
 

BBCWatcher

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Btw, anything similar in the horizon so i could reserve some funds for that later if there is.
This (October, 2018) is also a t-bill month (12 month government bond). But after these October auctions, and the monthly SSBs, there’s nothing else I see on the Singapore retail bond horizon for 2018.
 

martin

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This (October, 2018) is also a t-bill month (12 month government bond). But after these October auctions, and the monthly SSBs, there’s nothing else I see on the Singapore retail bond horizon for 2018.

Appreciate it.
 

salmonella

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Great. Thanks. Been looking out for this since you last alerted me. Btw, anything similar in the horizon so i could reserve some funds for that later if there is. Only managed to get $6k from the temasek bond so this is now the next best for me. Ssb already exhausted my quota earlier but now redeeming some to buy the better issues lately.

Not sure how this works... This NY07100X is currently yielding something like 2.1-2.2%, so is the reissue likely to be similar? Is this yield attractive?

Also, I have some of the very first issue of the ssb. how do we calculate whether it makes sense to redeem ssb and buy new issue? (And this is made complicated since we can redeem with certainty, but no certainty whether we can buy the same quantity again)
 

martin

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I put in a non competitive bid of 20k for NY07100X. Successfully alloted. It says cut-off yield is 2.2%. Is this it? This would be slightly lower than the 5 year average yield (2.22%) of the nov issue of ssb. Ssb has the major advantage to redeeem anytime to buy subsequent issues if the rates continue to rise which seems to be the case.
 

ELKYme

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Hi Bro,
Higher returns always comes with higher risk. Most low risk investments such as bonds are normally <3% (except CPF OA).

Nobody here will have any suggestions for risk-free high returns.

To have a better chance of a higher return and try to mitigate the additional risk, many here are splitting % of their investments between ETFs & bonds (bond % higher as retirement draws nearer to minimise risk further).

The point I’m trying to make in my initial post is that many of us are fixated with “rate of return” when we should actually be more focused on “savings rate”...unless you already have a seriously big pile to invest.
https://financialpanther.com/dont-worry-rate-return-worry-savings-rate/

I was wondering more about the suggested ways to increase returns, not so much on spending/saving habits.
 

quoppy

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Hey there BBCW, I've learnt a lot from reading your posts, and I'd appreciate your financial advice on working in the US as a single mid-thirties Singapore citizen. I will be starting work in a few months in Seattle.

My employer offers both a pre-tax 401k and after-tax Roth 401k (but no after-tax contributions), with a matching contribution of up to 2%. I can contribute a maximum of $19,000 for 2019 to either or both accounts. For now, I plan to retire in Singapore. How should the contributions be allocated?

For health plans, 1 option is a high-deductible plan ($1,500) with a health savings account to which my employer will contribute $500. Given the tax savings, is this a good idea? The other plans are: a high-deductible ($1,000) with a health reimbursement account funded by the employer, and a low-deductible ($300) with no employer contributions.

For long-term investing, should I open an IRA? My annual salary will be above the Roth IRA limit, so I might have to use a backdoor Roth IRA if that's better than a traditional IRA. Or am I better off just paying the additional tax and directly buy IWDA+EIMI through IB, which I am currently doing in Singapore?
 

BBCWatcher

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My employer offers both a pre-tax 401k and after-tax Roth 401k (but no after-tax contributions), with a matching contribution of up to 2%. I can contribute a maximum of $19,000 for 2019 to either or both accounts. For now, I plan to retire in Singapore. How should the contributions be allocated?
I'd go with the Roth 401(k), for two reasons. One reason is that I think the tax outcome will be better in the circumstances you describe. That's a guess, but it's a reasonable one. Second, since you seem to be inclined to max out that $19K, the Roth 401(k) variant works better. Pushing in $19K after tax is a bigger effective contribution than $19K pre-tax, so you win.

For health plans, 1 option is a high-deductible plan ($1,500) with a health savings account to which my employer will contribute $500. Given the tax savings, is this a good idea? The other plans are: a high-deductible ($1,000) with a health reimbursement account funded by the employer, and a low-deductible ($300) with no employer contributions.
If they're otherwise identical, and if you're good or better health, the first plan is likely to work out best for you. The health reimbursement account in the second plan is probably a Flexible Spending Account (FSA), and FSAs are not carried over year to year. The HSA can be, and if you never spend it (or only partially spend it) then it becomes another pool of retirement savings.

For long-term investing, should I open an IRA? My annual salary will be above the Roth IRA limit, so I might have to use a backdoor Roth IRA if that's better than a traditional IRA. Or am I better off just paying the additional tax and directly buy IWDA+EIMI through IB, which I am currently doing in Singapore?
Yes, absolutely, I would add to your 401(k) with the Roth IRA, backdoor'ed if need be. That'll get you up to a cool $25K per year of U.S. tax advantaged retirement savings. If you're going to be saving that much or more for retirement anyway, taking the tax benefit is a no brainer. My current favorite is Fidelity's twin FZROX/FZILX mutual funds in some reasonable ratio -- 50-50 is probably correct. Although I like Schwab for their lovely Visa ATM card too, so you might want to grab that deal at some point.

The only "gotcha" is if you end up retiring in a country that doesn't treat Roth 401(k)s and Roth IRAs well from a tax point of view -- where the U.S. tax advantages are "lost" on you. The Roth is a future bet, that the tax code in your retirement country will be, in your retirement years, kind to appreciated assets that are not (except before appreciation) U.S. taxed. If you want to hedge your bets then I'd still take the Roth IRA deal (since that's the best you can do for that leg) but split the 401(k) up into some Traditional 401(k) and some Roth 401(k). For example, if you want to split it right down the middle, you could do this:

Traditional 401(k): 65% of $19,000 (~$12,500)
Roth 401(k): 35% of $19,000 (~$6,500)
Roth IRA: $6,000 (via backdoor if required)

But the disadvantage is you'll effectively reduce your retirement contribution, since the Traditional 401(k) is pre-tax then taxed (at future U.S. ordinary income tax rates) upon withdrawal. (Roth is better if you're pegging at the annual max.) I think the future U.S. tax filings are also more complicated that way.

I don't think I'd do that. I think I'd take the straight Roth bet. In the unlikely event you end up retiring in a Roth hostile country, there are some potentially legal "tricks" you can play, such as withdrawing your Roth funds after age 59 1/2 (qualified withdrawal) but before immigrating into that retirement country.

Note that your tax advantaged accounts should properly hold the most aggressive parts of your portfolio, at least during your accumulation phase, in order to maximize the long-term value of the tax benefit. Leave any bond investing outside your retirement accounts, and if you're in a high tax bracket (sounds like it) you might consider a low cost municipal bond fund for that portion. There's no state income tax in Washington State, so you can choose any non-state specific municipal bond fund. Just be aware that U.S. munis are U.S. dollar denominated, and you'll probably want to augment them with voluntary CPF contributions, notably. (CPF assets are U.S. taxable and U.S. reportable, I'm afraid.)

If you can clock 10 years in the U.S. Social Security system, awesome. That'll vest you in another source of retirement income, assuming the rules don't change. Just be aware of crossing the threshold for long-term residence for purposes of tax expatriation. I'm not saying you shouldn't cross that threshold -- maybe you end up staying in the United States for the rest of your life -- but just be aware of it.

I've mentioned before that it's a good idea to get into a U.S. tax friendly posture strictly before stepping foot in the United States. If you'd like me to elaborate on that, let me know.

Good luck!
 

quoppy

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Thank you for your detailed response!

Note that your tax advantaged accounts should properly hold the most aggressive parts of your portfolio, at least during your accumulation phase, in order to maximize the long-term value of the tax benefit. Leave any bond investing outside your retirement accounts, and if you're in a high tax bracket (sounds like it) you might consider a low cost municipal bond fund for that portion. There's no state income tax in Washington State, so you can choose any non-state specific municipal bond fund.

I will be just within the 35% bracket for the first few years. Would funds like WFCMX from Wells Fargo or BBF from BlackRock be good examples? Sadly can't post links yet, but both can be found on Yahoo Finance.

Just be aware that U.S. munis are U.S. dollar denominated, and you'll probably want to augment them with voluntary CPF contributions, notably. (CPF assets are U.S. taxable and U.S. reportable, I'm afraid.)

...

I've mentioned before that it's a good idea to get into a U.S. tax friendly posture strictly before stepping foot in the United States. If you'd like me to elaborate on that, let me know.

Yes please.

Within Singapore, my financial assets comprise:
  • 36,000 of IWDA and 2,000 of EIMI with IB;
  • 350,000 SGD that I had planned to deploy to IWDA and EIMI, currently sitting in the bank or short-term FDs;
  • 28,000 in SGX stocks (mix of ES3, blue chips, and REITs);
  • 7,000 in bonds (MBH, SSB, SGS, and an odd 700 in A35 before MBH started);
  • 20,000 / 42,000 / 54,500 in CPF OA / SA / Medisave;
  • 60,000 of emergency cash for 12 months; and
  • 25 years left on a 450,000 mortgage that I intend to repay with rental income or cash from my salary. The current value is not great for a 3 year old apartment, and there are planned developments around the area over the next few years which should increase the value if I want to sell it.

I guess 1 or more of these might be taxable, eg. if I make voluntary contributions to SA and Medisave?

Once again, thank you for being so generous with your knowledge. I learnt a lot more in 10 minutes from your post, than over the past few days!
 
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BBCWatcher

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I will be just within the 35% bracket for the first few years. Would funds like WFCMX from Wells Fargo or BBF from BlackRock be good examples? Sadly can't post links yet, but both can be found on Yahoo Finance.
Vanguard's municipal bond index mutual funds (e.g. VWLUX / VWLTX) are such examples.

Within Singapore, my financial assets comprise:
  • 36,000 of IWDA and 2,000 of EIMI with IB;
  • 350,000 SGD that I had planned to deploy to IWDA and EIMI, currently sitting in the bank or short-term FDs;
  • 28,000 in SGX stocks (mix of ES3, blue chips, and REITs);
  • 7,000 in bonds (MBH, SSB, SGS, and an odd 700 in A35 before MBH started);
  • 20,000 / 42,000 / 54,500 in CPF OA / SA / Medisave;
  • 60,000 of emergency cash for 12 months; and
  • 25 years left on a 450,000 mortgage that I intend to repay with rental income or cash from my salary. The current value is not great for a 3 year old apartment, and there are planned developments around the area over the next few years which should increase the value if I want to sell it.

  • OK, your first problem is that assets such as EIMI, IWDA, ES3, MBH, A35, the REITs, and some of the "blue chips" will be classified as what are called "Passive Foreign Investment Companies" (PFICs). You can hold PFICs as a U.S. person, but in my view they're "tax toxic." If you do hold them then you're supposed to make "mark to market" elections every year, and pay ordinary income tax (35% marginal bracket) on that annual dividend/interest inclusive of the unrealized gains on those holdings. Yuck.

    The only "blue chips" that I'm highly confident would not be classified as PFICs are the ordinary stock shares of DBS, OCBC, and UOB. There's a special exception carved out for most financial institutions.

    If you want a U.S. tax appropriate analog to ES3 then EWS is available. The idea here is you'd liquidate ES3 (and anything else you're going to liquidate for tax reasons) strictly before stepping foot in the U.S., then redeploy whatever fraction of your portfolio you want to redeploy into Singapore stocks into EWS instead. Hold EWS during and just past your U.S. personhood, then flip back to an offshore posture (ES3).

    Direct holding of Singapore Government Securities, including Singapore Savings Bonds (SSBs), is perfectly fine. The interest and any original issue discount (OID) is U.S. taxable at ordinary rates. Fixed deposits are fine, too, and the interest is U.S. taxable (of course).

    Real estate.... Well, the rental income will be U.S. taxable, although if you owe some Singapore income tax on that income then you'll pay IRAS first then be allowed a Foreign Tax Credit (IRS Form 1116) that'll reduce your U.S. income tax on that income to account fully for the tax you pay in Singapore. But there might be some ways to improve on even that outcome, especially if you can keep reasonably careful records and (I'd advise) avoid selling the property while a U.S. person (to avoid the possible capital gains tax hit). For example, you might be able to deduct the mortgage interest to some extent.

    I guess 1 or more of these might be taxable, eg. if I make voluntary contributions to SA and Medisave?
    Your contributions to CPF are out of after tax income, and ordinary/traditional CPF dollars are not PFICs. (The CPF Investment Scheme is a different story.) But the interest on all CPF holdings is U.S. taxable (at your marginal ordinary tax rate), and CPF accounts are FinCEN Form 114/IRS Form 8938 reportable. Or at least CPF sure seems "FBAR"/"FATCA" reportable, and there's no harm in over-reporting.

    If your employer is offering competent U.S. tax preparation assistance for at least the first couple years, that'd be awesome. However, tax preparation assistance won't tell you the sort of stuff I'm describing. Sometimes an employer offers an accounting firm's "tax briefing," but they tend to be rather perfunctory and not advisory -- here's how the tax system works (in brief), not here's how to make the system work best (and legally) for you.

    One other thing I should mention is that it's useful to have a low cost way to tap Singapore dollar funds (in your bank) when you land in the U.S., to support your "spin up" spending at whatever somewhat unpredictable pace seems prudent. My current two favorite ways to do that are with ICBC's Global Travel Mastercard (for anybody/everybody who accepts Mastercard in the U.S.), and CIMB's Visa ATM card that accompanies their StarSaver savings account. I prefer having automatic monthly full balance GIRO payments on credit cards, especially if you're not in Singapore. If you've got those two cards in your wallet when you land, you're in good shape. You could take a look at Interactive Brokers, Schwab, DBS/POSB ("USA Remit"), Transferwise, and any other currency conversion/transfer paths to see who offers the best deal, and only for "big" stuff, such as tax informed investment repositioning and an apartment rental deposit.
 
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Shiny Things

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I will be just within the 35% bracket for the first few years. Would funds like WFCMX from Wells Fargo or BBF from BlackRock be good examples? Sadly can't post links yet, but both can be found on Yahoo Finance.

MUB is the pick for non-state-specific muni-bond ETFs. Low-cost (7bps), super liquid and easy to trade, and minimal exposure to clusterf*cks like Puerto Rico, Chicago, and tobacco bonds.
 

quoppy

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OK, your first problem is that assets such as EIMI, IWDA, ES3, MBH, A35, the REITs, and some of the "blue chips" will be classified as what are called "Passive Foreign Investment Companies" (PFICs). You can hold PFICs as a U.S. person, but in my view they're "tax toxic." If you do hold them then you're supposed to make "mark to market" elections every year, and pay ordinary income tax (35% marginal bracket) on that annual dividend/interest inclusive of the unrealized gains on those holdings. Yuck.

The only "blue chips" that I'm highly confident would not be classified as PFICs are the ordinary stock shares of DBS, OCBC, and UOB. There's a special exception carved out for most financial institutions.

If you want a U.S. tax appropriate analog to ES3 then EWS is available. The idea here is you'd liquidate ES3 (and anything else you're going to liquidate for tax reasons) strictly before stepping foot in the U.S., then redeploy whatever fraction of your portfolio you want to redeploy into Singapore stocks into EWS instead. Hold EWS during and just past your U.S. personhood, then flip back to an offshore posture (ES3).

Ouch. After liquidating whatever's necessary, should I look at re-investing into something more US tax-friendly like a Vanguard Target Retirement Fund (VFIFX)? Probably that and EWS in a 90% to 10% split (or even just 5% EWS) seems reasonable and close to my current allocation.

Another question I missed earlier on what to invest with the retirement accounts. Given your advice on being more aggressive, should I dedicate that to an ETF like VT since VFIFX has a (smallish) bond component?

I do not have much knowledge of the US markets, so I will stay away from individual stocks.
 
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