*Official* Shiny Things club - Part 2

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Maeda_Toshiie

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Part of the SSB is part of my emergency fund. Do you still count it when calculating the equity vs bond ratio or is it supposed to be excluded from the calculation?

The emergency fund is not part of your portfolio.
 

Maeda_Toshiie

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For portfolio size of six figures and up, how necessary is it to have EIMI in addition to IWDA? If EIMI is just 10% of the global portion, it's not really that significant right? Is there a good case for including or excluding it?

There is no "necessity" for any portfolio of size to have EIMI. It can make sense to try and capture greater potential* gains for greater volatility, or not bother to.


* Obviously there are no guarantees that EM will outperform the developed world in the long run.
 

BBCWatcher

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Why all this complication? Yes, your emergency reserve funds are assets. Yes, CPF savings are assets. Yes, the cash under your mattress is an asset. Yes, your collection of rare baseball cards is an asset. It all counts.

A portfolio allocation decision ought to be based on a total view of all your assets. There’s absolutely no need to make that analysis artificially complicated. It’s really quite simple, actually. It just boils down to what split you want between stocks/stock-likes and bonds/bond-likes at particular phases in your life. That’s it.

I really don’t understand the impulse to add complexity where none is merited. If you don’t like “the answer” when you toss in all your assets, no problem! You get to decide the split. You’re not required to make this decision based on what some person named BBCWatcher or Shiny Things or Mr. Moon suggests. But just toss in everything to this particular simple analysis, because what’s the rationale for excluding any asset? I can’t make a coherent argument for why this counts and that doesn’t in deciding a portfolio split. Why would you do that? (“I’ll split 78-22 ex-X, Y, Z, P, D, and Q”? Huh? How do you even wrap your head around that?)

Relax, already! Don’t insert advanced calculus where elementary school math will perform beautifully.
 
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BBCWatcher

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1) If I did my homework correctly, I'm considered a non-permanent resident of Japan.
Yes, I think that's right. Since you have lived in Japan for less than 60 months out of the past 120, and since you are not a citizen of Japan, you are considered a non-permanent resident taxpayer. That is, you're a tax resident, but you're allowed some temporary benefits on foreign (non-Japanese) source income, with certain conditions. Once you hit the 5 year mark those temporary benefits end.

Several of the major accounting firms publish useful tax summaries. PwC's is located here (click on the topics under "Individual"). You've probably already done that, or something like it, but for future reference for others it's useful.

You have a big tax-related decision to make if/as you approach the 5 year mark. Reading through the rules, Japan has a lower tax rate on capital gains for assets that are held at least 5 years. What might be possible before you hit the 5 year mark is to liquidate appreciated foreign assets to reset the cost basis, reinvest them (subject to any "wash sale" restrictions if Japan has them), and then avoid any short-term capital gains (selling assets held for less than 5 years). What I'm thinking here, specifically, is that you could start with the popular Irish domiciled/London listed funds (e.g. IWDA, EIMI, VWRD) but then, if you end up approaching the 5 year mark (and strictly before crossing it, whatever the tax year definition is), sell those assets and recycle them into the lower cost U.S. domiciled/listed equivalents or near equivalents. Japan has a reasonably favorable tax treaty with the U.S., as I recall....

....Yes, it does, so if you're able now or later to claim Japanese tax treaty benefits with the U.S., you'll really like investing in U.S. listed securities. In particular, the dividend tax rate is 10%, which is even better than the Irish treaty rate of 15%. Are you allowed to claim the Japanese tax treaty benefit without paying income tax during this first 5 year period? Interesting question! It's worth checking. Wouldn't that be something?

Therefore non-japan source of income are non-taxable.
Well, sometimes. From 2017, Japan started taxing the non-permanent resident taxpayers' income from the sale of personal property, such as houses and collectibles, even if not remitted to Japan. Foreign-listed securities are still non-taxable, at least if the proceeds (dividends, interest, capital gains) are not remitted into Japan. And before hitting the 5 year mark.

But I'm confused when I start diving into the details what is considered taxable. As IWDA reinvests dividends, are these dividends considered non-japan source of income if I buy IWDA them through IB using Jap local bank account? Meaning to say the Japanese government will know when I transfer Yen to USD through Japan local bank account, thus I believe the bank will report to the Jap Gov due to tax compliance. Or am I overthinking and over complicating all of it or maybe I'm just confused on the terms used for understanding tax?
First of all, IWDA reinvests dividends. There is never any distributed dividend, so there's nothing to remit even if you wanted to, except if you sell shares of IWDA. Second, it's perfectly OK to send money out of Japan to go buy something elsewhere in the world, such as foreign-listed securities. That's not a taxable event, not by itself.

If/when you hit the 5 year mark, you'll be subject to Japan's financial reporting requirement, to report your overseas assets.

2) If the answer to the previous question is yes and I will be taxed (20.315%) on dividends.
No, there are no distributed dividends with IWDA. They're internal to the fund. There are no dividends to remit. Only share sale proceeds, which include internally accrued dividends.

3) Even if I don't plan to retire in Singapore, would it still be wise to invest in ETFs in Singapore, maybe 10-20% of my portfolio as a backup plan? As it's still the only country where I can fall back upon.
You could, and you could use Interactive Brokers to do it (buy ES3) since you're a resident of Japan.

4) I'll like to understand more about the state nearing (7 years?) to retirement, since stocks are not currency, does it make sense to still think about returning back to SG to enjoy retirement as personal investments are non-taxable? Or am I overthinking about ramifications which are 20+ years later down the road?
The latter, I'd say. Singapore could quite easily change its tax treatment of passive income. I certainly wouldn't rule it out.

However, you probably should investigate what the Japanese tax advantaged savings vehicles are to see if those have merit. You could end up staying in Japan for a long time, or even forever, and I don't see any harm in taking advantage of those vehicles if they otherwise make sense.

5) I'm on the fence on this on self-contribution to CPF (naturally my Jap company doesn't contribute to CPF), I'll like to hear your take on this. Reading through many of BBCW replies, where if you have no idea where you'll retire, it kinda make sense to take on globalised investments such as IWDA 80% and CORP 20% of my portfolio?
I think the logic is similar to your approach to #3. You only currently have one country where you have an unambiguous right of abode, so to some extent you ought to respect that. Plus CPF really is a rather good deal. I think I'd do "a little." You'll probably need to add a little to your MediSave Account anyway in order to pay your MediShield Life premiums, at least. (MSL premiums cannot be skipped until you hit the 5 year mark overseas, and then you still might not.)

Always double or triple check tax advice, especially. I have some familiarity and experience with Japan's tax rules, but I'm not a true expert.

You didn't mention Japanese gift and inheritance taxes, but those are rather "interesting" from the 5 year mark onward. Just be aware of those if you decide to cross that threshold.
 

Shiny Things

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Btw what bond ETF do you guys suggest or buy?

I saw a few but not sure which one so I went for AGGG (ishares global aggregate bond etf)

Assuming you're a normal investor who's planning to retire in Singapore, I think MBH is all you need.

Bonds are about having a stable asset in your portfolio—stable compared to the ups and downs of stock markets. Global bonds are just a giant lump of currency risk that tends to outweigh the yield that you get from them.

If you're planning to retire overseas, then yes, you should have an allocation to global bonds, and I think CORP's the pick (AGGG has too much in low-yielding EUR and JPY and AUD govvy bonds).

got a qn about this 110 rule thingy. Does the SSB or CPF count as bonds? Or as cash equivalents? Do i disregard SSB and CPF and only count like the ABF as a true bond?

SSBs: absolutely yes, those are bonds. It's even got "bond" in the name.
CPF: I'd say yes, you count it as a bond, because it's a thing with relatively stable value and a fixed-ish coupon. (To the person upthread saying "don't count CPF as a bond because the rules might change": the government can default on Singapore government bonds as well, but they're still bonds.)

For portfolio size of six figures and up, how necessary is it to have EIMI in addition to IWDA? If EIMI is just 10% of the global portion, it's not really that significant right? Is there a good case for including or excluding it?

I don't think it's necessary if you wanna be lazy (nice handle by the way), but it's nice to have the extra diversification. And frankly I think EMs are cheap at this point (though to be fair I've thought EMs are cheap for a few years now and they've only gotten cheaper, so I've been excruciatingly wrong on that one for 2-3 years).

3) Even if I don't plan to retire in Singapore, would it still be wise to invest in ETFs in Singapore, maybe 10-20% of my portfolio as a backup plan? As it's still the only country where I can fall back upon.

4) I'll like to understand more about the state nearing (7 years?) to retirement, since stocks are not currency, does it make sense to still think about returning back to SG to enjoy retirement as personal investments are non-taxable? Or am I overthinking about ramifications which are 20+ years later down the road?


Let me know if this isn't the correct thread to ask for clarifications regarding tax.

I'm going to defer to BBCW on the tax questions because I am not a tax guy, but I can help with 3 & 4:

3) Nah. If you really don't have a strong commitment to where you're going to retire, I'd keep it simple. 110 minus your age in IWDA LN, the rest in CORP LN.

4) I think you're overthinking it. Circle back to where you want to retire when you're closer to the date. (And don't just optimise for tax. I mean, California's not a low-tax jurisdiction by any stretch but I love it.)
 
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Acidblaze

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MBH or A35

Hi there:

Ive just got out of posb invest save mainly for a few reason. You will take days to sell them and rates changes from the date of the selling actually being process.

So now I'm using SCB to purchase my bonds, I'm just wondering the difference between MBH and A35, maybe it's been answered but i cant seem to find it.

I intend to stay and live in Singapore all the way, if this makes a difference.

Thanks
 

tangent314

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So now I'm using SCB to purchase my bonds, I'm just wondering the difference between MBH and A35, maybe it's been answered but i cant seem to find it.

The best way to find out is to look at the fund factsheet, even if you could ask around to get the answer. It's always a good idea to understand a bit more about the fund that you are considering to buy, after a while of doing this you will get used to going into the factsheet and immediately picking out the information that is important to you.

But to answer your question, A35 is made up of Singapore government (and quasi-government corporation) bonds, while MBH is made up of corporate bonds that are either of investment grade (determined by S&P or Moody) or unrated bonds that iBoxx thinks is investment grade. TLDR A35 bonds are super-safe, MBH bonds are safe enough for most people. Naturally MBH yields are higher than A35. Generally we would recommend MBH over A35 now.

However there is a 3rd option you should consider if you are confident that you don't need the money until age 55, which is to top up your CPF SA, which gives you a yield significantly higher than MBH.
 

BBCWatcher

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(And don't just optimise for tax. I mean, California's not a low-tax jurisdiction by any stretch but I love it.)
I want to add at least 680 thumbs up to this comment.

If you can choose where you love to live (and how you love to live) first, then spend only modest effort to optimize your tax and other expenses after making that choice, that's the best approach. There are oh so many miserable people "saving" $6 of tax (or whatever) by living some place they'd really rather not be. F*** that. Live where you love to live, if you can.

Taxes often pay for nice things! And who cares about a 38% versus 32% tax rate if your salary is twice as high when you're living in the 38% tax area?

Way too many people are way too focused on taxes.
 

Shiny Things

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I want to add at least 680 thumbs up to this comment.

Way too many people are way too focused on taxes.

I will add 280 thumbs up to your 680 thumbs up.

Acidblaze said:
So now I'm using SCB to purchase my bonds, I'm just wondering the difference between MBH and A35, maybe it's been answered but i cant seem to find it.

Sure. They own different bonds:
  • A35 owns bonds issued by the Singapore Government, and GLCs (and a couple of other sovereign issuers). It has basically zero risk of the bonds defaulting, and a lower yield.
  • MBH owns bonds issued by corporates: mostly the big banks. It has a higher yield, but with a slightly higher risk of an underlying bond defaulting.

Very roughly, I think MBH yields about 0.7% more than A35, so that means you come out ahead by owning MBH as long as less than 0.7% of the underlying bonds default (don't repay) each year (anyone who says "but recovery rates aren't zero!", yes, give yourself a gold star, but I'm handwaving here).

The default rates on the sort of bonds that MBH owns are very low. It would have to be a worse-than-1998 crisis for them to see more than 0.7% defaults in any one year.

That's not to say there won't be swings - in a crisis like 2008, MBH would have dropped more than A35, but it would also have rallied back harder.
 

Acidblaze

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The best way to find out is to look at the fund factsheet, even if you could ask around to get the answer. It's always a good idea to understand a bit more about the fund that you are considering to buy, after a while of doing this you will get used to going into the factsheet and immediately picking out the information that is important to you.

I'm will try to take a look at the fact sheets but I believe even by reading it I wont be able to comprehand much.

However there is a 3rd option you should consider if you are confident that you don't need the money until age 55, which is to top up your CPF SA, which gives you a yield significantly higher than MBH.

I've already maxed my SA, but I don't agree that is a good enough bond element because when i really need the $$, I'll have to jump through many many many loops to get it.

Sure. They own different bonds:
  • A35 owns bonds issued by the Singapore Government, and GLCs (and a couple of other sovereign issuers). It has basically zero risk of the bonds defaulting, and a lower yield.
  • MBH owns bonds issued by corporates: mostly the big banks. It has a higher yield, but with a slightly higher risk of an underlying bond defaulting.

Very roughly, I think MBH yields about 0.7% more than A35, so that means you come out ahead by owning MBH as long as less than 0.7% of the underlying bonds default (don't repay) each year (anyone who says "but recovery rates aren't zero!", yes, give yourself a gold star, but I'm handwaving here).

The default rates on the sort of bonds that MBH owns are very low. It would have to be a worse-than-1998 crisis for them to see more than 0.7% defaults in any one year.

That's not to say there won't be swings - in a crisis like 2008, MBH would have dropped more than A35, but it would also have rallied back harder.

Thanks ST,

For the detailed clarification. Much appreciated.:D
 

BBCWatcher

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I'm will try to take a look at the fact sheets but I believe even by reading it I wont be able to comprehand much.
Then don’t buy/do anything you don’t understand, or at least don’t have enough trust in somebody else to make decisions.

I've already maxed my SA, but I don't agree that is a good enough bond element because when i really need the $$, I'll have to jump through many many many loops to get it.
Three many(ies) loops? Ah, no. Two simple things will happen. Some SA funds (as RA) will get streamed out for the rest of your life starting at age 70 (or at any time as early as age 65 if you tell CPF to do so), and everything else, in any amount (even a single dollar), at any time, can be withdrawn just like you’re withdrawing funds from a savings account. CPF even has PayNow service. And these easy outcomes are assured by a AAA-rated sovereign.

You want “loops”? How’d you like to be holding a Hyflux bond instead? ;)
 

BBCWatcher

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Index fund getting too big and hence losing it's effectiveness?
I don’t think “losing effectiveness” is his concern. Rather the opposite: he’s concerned that three fund managers (including Vanguard, which he founded) will effectively exercise all shareholder control over U.S. listed companies — a too high concentration of control, in his view.

I don’t like the idea of diluting shareholder voting power. It seems like there ought to be some reasonable way to allow fund shareholders to vote without requiring them to dig through 505 (number of stocks in the U.S. S&P 500 index) or more annual reports and proxy statements. Maybe start by requiring fund managers to ask their shareholders whether the fund manager can/should vote on their behalf at all. Then maybe ask fund shareholders for their basic views on corporate governance, and vote their shares consistent with those views. It ought to be possible to pass the proxy voting baton, in some non-onerous way, to fund shareholders so that the management of the big fund managers isn’t controlling everything.
 

revhappy

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I don’t think “losing effectiveness” is his concern. Rather the opposite: he’s concerned that three fund managers (including Vanguard, which he founded) will effectively exercise all shareholder control over U.S. listed companies — a too high concentration of control, in his view.

I don’t like the idea of diluting shareholder voting power. It seems like there ought to be some reasonable way to allow fund shareholders to vote without requiring them to dig through 505 (number of stocks in the U.S. S&P 500 index) or more annual reports and proxy statements. Maybe start by requiring fund managers to ask their shareholders whether the fund manager can/should vote on their behalf at all. Then maybe ask fund shareholders for their basic views on corporate governance, and vote their shares consistent with those views. It ought to be possible to pass the proxy voting baton, in some non-onerous way, to fund shareholders so that the management of the big fund managers isn’t controlling everything.

I think the problem is too many people have joined the passive bandwagon recently. Many of them haven't seen a bear market and when they see their portfolios down 20-30%, they stop buying more and start selling at every rise, that causes the fall to accentuate. We haven't had a recession and massive joblessness yet for the last 10 years. It will eventually happen and then these strategies will be tested.
 

ELKYme

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Bro, think that “these people” (you and me included) buying/selling won’t move ETFs pricing much if at all.

Rather, it is the banks and fund houses with their algorithms (triggering stop losses) that will have a major impact.

I think the problem is too many people have joined the passive bandwagon recently. Many of them haven't seen a bear market and when they see their portfolios down 20-30%, they stop buying more and start selling at every rise, that causes the fall to accentuate. We haven't had a recession and massive joblessness yet for the last 10 years. It will eventually happen and then these strategies will be tested.
 

peipei1

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Food for thought guys,

Index fund getting too big and hence losing it's effectiveness?

Article on john bogglehead, creator of vanguard.


http://www2.philly.com/philly/busin...blackrock-state-street-fidelity-20181129.html

The first Etf was Spy, if i am correct, started in 1993. It has gone through 2 big crashes and is up 500% as of yesterday. That is some reassuring i make to myself. :o

I feel the more buyers in Etf, the better for everyone. I could be wrong, but buyers will hold long term, new buyers will come in. It becomes something like Cpf or pyramid (good type of it). This prevents active funds, because of their once hugh size, to influence the market by resetting every 10 years with a crash. You read the news during last few months, i wonder how much the Msm work together with brokers and fund managers to influence share prices by cooking up fear articles in a co-ordinated release during a big event!
 

iceblendedchoc

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I never believe in putting my money into just ETFs and REITs, because your return will be just as "diversified" as those ETFs (meaning "low" returns)! :s13:

It goes both way.

We seen individual counters hit a few homeruns from individual pick and also lose our entire investment in the counters.
 

Acidblaze

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Then don’t buy/do anything you don’t understand, or at least don’t have enough trust in somebody else to make decisions.

Hmm... That's very true. I agree to try not to buy anything don't understand, but isn't it the purpose of this forum right? To seek help to clarify things so layman like me understand the terms? However when a new game is out, I will still buy them even tho I don't know how to play.:eek:

Three many(ies) loops? Ah, no. Two simple things will happen. Some SA funds (as RA) will get streamed out for the rest of your life starting at age 70 (or at any time as early as age 65 if you tell CPF to do so), and everything else, in any amount (even a single dollar), at any time, can be withdrawn just like you’re withdrawing funds from a savings account. CPF even has PayNow service. And these easy outcomes are assured by a AAA-rated sovereign.

Amazing!, so being a non US citizen, living in singapore below the age of 70/50 and in need of the money in my CPF SA account, what do i need to do? Care to share how many loops is needed?:s12:

You want “loops”? How’d you like to be holding a Hyflux bond instead? ;)

Hmm... I'm not great at holding filtered/alkaline papers/relationships but I do have a set of hydroflux under my sink.:D
 

boringLife-

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Can anyone advise if mbh is available via invest saver? I could only find abf bond fund in the drop down menu.
 
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