Hey! So, first: let's talk about inverted yield curves - the US curve is going to be all over the news for the next few days, so let's get ahead of it and understand what it means and how it should affect you (spoiler alert, it shouldn't).
So before Lighthizer and the Mnook
dropped their tape bomb this morning, the US treasury yield curve—specifically, the spread between the yield on 2-year and 10-year bonds—was the flattest it'd been in a long time, with 10s yielding just three-and-a-half basis points more than 2s. It traded a little steeper, but it's back at two-and-three-quarter basis points now (and, shameless plug, you can see the current level of the 2s-10s spread at
www.istheyieldcurveinverted.net, designed and built by your favourite mouthy ang-moh and powered by Amazon Lambda).
The thing that has everyone freaked out is that that's very close to zero - a "flat" yield curve, where long-dated bonds don't yield any more or less than short-dated bonds. (When long-dated bonds yield more than short-dated bonds, that's called a "normal" yield curve; when short-dated bonds yield more than long-dated bonds, that's called an "inverted" yield curve.) Parts of the US yield curve have already been inverted, un-inverted, and inverted again; but the spread that everyone pays attention to is the 2yr vs the 10yr.
Why is everyone soiling themselves about this? Because, in the past, a flat or inverted yield curve has been a pre-emptive signal of economic slowdowns. (Think about why this is. Bond yields are,
very roughly and leaving a lot of things aside, a forecast of where interest rates are going to go in the future. And if the yield curve is inverted, that means interest rates will be cut in the future... and interest rates tend to get cut when an economy is slowing down.)
Over the past forty years or so, an inversion in the 2s-10s US treasury yield curve has tended to precede a recession. Here's a chart from the St Louis Fed's absolute solid gold FRED statistics database: you can play with it yourself
at this link here.
And that sort of makes sense. If you think the bond market is pretty good at predicting interest rates, and if you think interest rates are generally correlated with the state of the economy, then it follows that the bond market should be a leading indicator of the economy.
So. Should you freak out about this and sell everything? Obviously the answer is "no, you can sit back and relax". But here are some reasons why it's okay to relax and ignore anyone freaking out about an inverted yield curve.
1)
This is the US yield curve, not Singapore. The US yield curve is for the US, it's not going to do a very good job of forecasting economic conditions in a country twelve timezones away.
2)
Inversions come as much as two years ahead of recessions. Get a load of
this chart right here. I've lined the 2s-10s (scaled) up against the year-on-year change in the Wilshire 5000, a broad US-stock-market index (because FRED doesn't have S&P 500 data back far enough). You can see that when the curve inverts, it can take as long as
twp years before the year-on-year return on stocks becomes negative!
US 2s-10s first inverted in June '98, eighteen months before US equities peaked; and again in February 2006, again, a year-and-a-half before the peak in US equities.
Hiding out in cash for two to three years is silly. You're missing out on dividends and capital gains in the meantime while you wait for the next recession/downturn/whatever.
3)
Even when it comes, a stock market downturn is a buying opportunity. I'm not going to say "recessions don't affect the stock market", that's silly; anyone who lived through the Asia crisis or '08 knows that recessions can and do hurt stocks. But look how far we've come since the lows of March 2009. Anyone who stuck to a strategy of diligently buying—sitting on their stocks and bonds, rebalancing every so often, and reinvesting the dividends and coupons—is in great shape, even if it felt bad at the time. (I still have the ticket for some SPY I bought at seventy bucks or so back in '09.)
If you might need the money within a few years, then you shouldn't be in stocks anyway - money you need within 3-5 years should be invested in bonds. But if you're saving for retirement, then you should be thinking "oh boy, next downturn I'm going to be able to buy stocks for cheap".
So: I give you permission to chill out and not think about the yield curve.
OK, my first piece of guidance is that you should have a drink and chill out. Wow there’s a lot going on here.
THIS IS A DUMB REASON. You literally have to fill out one form (the W8-BEN), and you’ve probably already filled that out to open your IBKR account in the first place. Take some advice from Chopper and try a muggaccino of harden-the-f*ck-up.
Look, gold is a dumb investment and I can tell you’re just jumping on the bandwagon because it’s gone up so much in the last few weeks. This is a really bad idea, but if you’re absolutely hell-bent on this then GLDM, listed in the US, is the right answer.
This, also, is not very well thought out. MBH provides significantly higher returns than A35; it more than adequately compensates for the extra risk of corporates over govvies. Buy MBH.
Mate, no, this is loony. All of these questions are loony. Stepping up from A35 to MBH adds fractional extra risk over the long term - maybe a percentage point of extra volatility - in return for a pretty consistent 50-100bps a year of extra return.
Going to foreign-currency bonds adds FX risk, which is going to magnify your swings by as much as five or ten times.
That asset allocation is far too conservative unless you’re, like, ninety years old. I would not do this at all.
No. IWDA already owns a bunch of US stocks, so you’re doubling up on exposure to US stocks there. Count your portfolio of SG stocks as your “ES3 equivalent”.
You’ll need to track this yourself - track the FX rate you used to convert - but why do you want to track the cost basis in the first place?
The reason to have Singapore equities is that you’re going to retire in Singapore, so you want something that tracks the Singaporean economy and Singaporean costs of living.
If all your assets are in overseas stocks and the Singaporean economy booms, you’re going to be left behind.