OK, Swan... let's deal with your stuff individually. There is A LOT going on here.
Firstly, I'll be blunt: I think you have made a mistake by thinking you can retire early. I think you have picked a portfolio that's going to struggle to sustain a 3.25% withdrawal rate. I think your glide path is going to come back to bite you in old age. I think you need to start your planning again from scratch.
Let’s start from the very beginning, and I’ll treat you as if you were a consulting client. You have high six figures to invest, and you’re retiring in Singapore. You said that you need:
- it has to last for sixty years;
- at a three-and-a-quarter-percent withdrawal rate (which implies you can live on less than about $30k SGD a year, not inflation adjusted, for the rest of your life!);
- and you have an extremely low risk tolerance.
The entire Singapore government yield curve is trading sub-2-percent. If you have a portfolio of risk-free assets yielding 2%, and you withdraw 3.25% from it each year, you will eventually run out of money.
One of those three things has to give.
Either:
- you go back to work, so your money doesn’t have to last sixty years; or,
- you reduce your withdrawal rate, so you’re living even closer to the poverty line; or,
- you increase your risk tolerance and buy some equities.
Tell me which of those three you’re willing to bend on, and I’ll tell you how to redesign your portfolio so it can hit the other two goals.
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If you’re willing to reduce your withdrawal rate, but you want to keep a low-risk allocation - if you really want a conservative mostly-bonds portfolio that leans on SGS - then that portfolio is not going to be able to support much more than a 2% withdrawal rate. I’m spitballing a bit here, but an SGS-heavy portfolio with a small equity slug (like a 20-80 allocation or so) will support a 1.5% withdrawal rate and still leave a bit of leftover yield and capital growth in the portfolio to deal with inflation.
If you’re willing to add more risk, but want to maintain a 3.25% withdrawal rate, you’re going to need to add more equities. The thing working in your favor here is that Singaporean equities have a very juicy div yield, nearly 4%. Just eyeballing it, you’d get a 3% total portfolio yield plus some capital growth prospects out of something like:
- 40% MBH
- 10% SHYU LN (USD high-yield, yielding about 5%)
- 25% ES3
- 25% VWRD (you obviously need the distributing share class because you care about income).
That’d have a lot better prospect for maintaining a reasonable withdrawal rate for sixty years.
And if you’re willing to un-retire, then all of these problems go away! The longer you work, the more money you’ll save, and the less money you’ll
need to save. Nobody retires when they’re thirty, I mean, come
on.
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Also, you talk a lot about how you’re going to use a “V-shaped glide path”, so that you end up with a lot of equities when you’re older. That’s not going to work. The problem is that your portfolio at the “apex” of the V - where you are now - is far too conservative, and you’ll be dipping into your capital (as we discussed above). So by the time you’ve gotten older and moved more into equities, your portfolio will be smaller than when you originally started (and even worse when you account for inflation).
A “V-shaped glide path” moves the sequence-of-returns risk to the end of your life rather than the beginning, and frankly that’s just as bad. When you’re old, your cost of living is higher; your medical expenses are higher; and you’ll be dipping into a smaller retirement pot than you would have had otherwise.
So if that thirty or fifty-percent equity downturn comes late in life, you’re really going to be in trouble, because you’ll have had fifty percent lopped off a much smaller pot… but you’ll need to withdraw more and more from that pot each year.
I'm an early retiree planning for a 60 year time frame, not 30. Easier to say Jack bogle works with 5 mil USD. Many do not have that and neither do I, but many do want to FIRE asap, as such jack bogle methods won't last a survival of a 60 year time frame.
This is why the FIRE movement sh*ts me up the wall, pardon my French. It makes people think they can pull the ripcord at age 30 or whatever when they don't have enough in the bank to fund a fifty- or sixty-year retirement. "Financial Independence, Retire Early" is delusional unless you hit the lotto.
Let’s get down to some straight talk here: retiring is EXPENSIVE. As you get older, your expenses go up, mostly because of medical expenses; but you’re not earning anything any more. The money has to come from somewhere, and the amount of money will go up the older you get.
A thirty-year-old might be able to get by on thirty grand a year, give or take: but what about when they get older? Inflation alone is going to double the cost of living every 35 years or so (assuming a pretty reasonable 2% inflation rate); add higher cost of living and medical expenses on to that, and a retirement lump that might have looked manageable at age thirty will start to look pretty scrawny at age 60.
You wanna know something? Most of these FIRE gurus, even though they claim they've retired early, actually still have full-time jobs! Running a media empire (blogs, writing books, doing TV hits, whatever) is a full-time job, whether they say they're "retired" or not.
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Separately, you’ve written a lot of things that don’t make sense. To be honest, they read like you skimmed that “early retirement now!” blog that you linked to but you didn’t understand all of it.
It looks like you just fixated on the oddly specific 3.25% withdrawal rate, on the idea of a V-shaped glide path, and you decided to come in here and say that you’d figured everything out and that we’d give you our blessing. Unfortunately, it seems like you might have been a bit hasty.
Let’s dive in and hopefully we can fix some misconceptions?
if you hadn't gone through 2008 and before, you are likely to overestimate your risk appetite as I did. I was at 100% equity and young and spewing like you did thinking I'm invincible with a trader mindset.
Firstly mate, we’re trying to help you here. You don’t need to get so punchy. But I think the problem that you’ve run into is that you’ve run too far the other way, from “balls-out long equities” to “I won’t invest in anything that will lose value ever”.
It’s OK to take some risk and own some equities. In fact, as I’m sure you know - up to a point, adding equities to an all-bonds portfolio actually lowers the portfolio risk AND increases the return! It’s a literal free lunch.
let see how you face your next 50% drop. But wait, do you even have 100k minimum to begin with to understand your risk appetite. You are likely mired with debt like so many Singaporeans and can only dream to FIRE.
Don’t be so arrogant; it’s really not a good look.
IGLO is not a good choice in a “low-risk” portfolio for a Singaporean investor, because it’s a giant lump of FX risk. Currencies move a lot more than corporate credit. IGLO-in-SGD-terms is way more volatile than MBH would ever be.
And for that matter, get a load of the yield on IGLO. How is something with a sub-1-percent yield to maturity going to help you to hit a 3.25% withdrawal target?
In my opinion.
1. SSB an asset class by itself providing as close as possible to TIPs features i.e. allow you in a short time frame enjoy a higher interest rate when interest rate rises, and yet not being affected by falling bond values.
No. Look, I genuinely don’t know what you’re talking about here.
The main features of TIPS (the US’s inflation-protected bonds), and the reason they’re good for an early retiree’s portfolio, is that they are
linked to inflation. SSBs are not linked to inflation.
The thing you’re focusing on is the price floor for SSBs. And that’s fine, but… it doesn’t actually matter! Regular bonds might go down in price if rates go up, but they’ll then go back up in price because they pay off the full face value at maturity. The price floor on SSBs only matters if you want to sell them before they mature.
That is *not* an inflation-linking feature, and it’s nothing to do with TIPS.
If you recall back then in May 2019 risk off, I harped about ABF being lousy during the risk off. ABF wasn't let say performing as well as IGLO or IBTM during the risk off because as you already mentioned, it has large amounts of Quasi govt Institution but So is MBH which is even more Quasi Institution.
No, again you’re saying things you don’t understand.
Firstly, the ABF Bond Fund’s code is A35, not ABF.
Secondly, A35 holds more than 85% Singapore government bonds. Its performance has very little to do with how much or how little GLC debt it holds.
Thirdly, A35 has outperformed IGLO over the last year, last three years, and last five years.
Fourthly, MBH is not “even more quasi-institution”. I’m going to assume you meant “quasi-government institution” there, but MBH doesn’t have a lot of GLC debt in it. It’s heavier on banks.
I wish there were a 100% SGD AAA govt bond ETF, but there isn't and have no choice but to rely on ABF along with its high relative TER. Hence my search for global govt safe haven bonds hedged to SGD began.
That doesn’t exist and it doesn’t need to exist. There is no good reason for a Singaporean retail investor to own, say, Japanese government bonds hedged into SGD.
The Eastspring funds that you’re looking at are all terrible investments, especially given your stated preferences. They’re all riskier than MBH (they own more corporate bonds and more equity-like risk), and they all have stratospheric TERs (north of 1.25%). Why pay more for a worse product?
I totally agree if the AUM is never touched i.e. applies to most of your readers who are working, it is likely over a long period the AA with MBH will likely have a larger annualised return over a long time frame. I'm not so sure MBH will be good in the event of sequential risk for one such as I a young retiree.
Sequence-of-return risk is the risk of a big drop in asset markets early in retirement. It’s the thing that bit retirees who were heavy on equities in 2007. MBH is a bond fund, so it’s very unlikely to cause sequence-of-return risk.
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And look, a couple of last things:
Can you at least write just a hint in Shiny's book that writes about the survival of a 60 year retirement time frame of a SGD domiciled investor, and I'll consider seriously about buying. I don't want a book "rich by retirement". I want a "still rich after 60 years in retirement".
No, because NOBODY RETIRES WHEN THEY’RE THIRTY. This is not a thing that people do. You have been lied to.
If you want advice tailored to your specific situation, that’s why I offer individual consulting.
Instead, I receive replies why my AA is so equity low, why not MBH (which I expected), gold etc. I just want to gather feedback on how people allocate in a high fixed income portfolio.
So the problem is that you came in with some fundamental assumptions (that you had enough money to early-retire, that a portfolio heavy on SGS would be able to hit a 3.25% withdrawal rate, etc etc).
But your underlying assumptions were wrong, and that's what people are pointing out. You're being challenged to rethink your underlying assumptions.
