*Official* BBCWatcher club

[usperson1994]

Oh, by the way, did you get your US$1,200 in free COVID-19 money, with more possible if Congress and the President come to an agreement? You should be eligible, assuming your income wasn't too high last year.

I tried googling information about this but I must not be using the correct search terms, how do I check if I'm eligible?

 

[BBCWatcher]

What is considered a U.S. dollar-oriented country?

The United States, other countries that use the U.S. dollar (example: El Salvador), and countries with currencies firmly pegged to the U.S. dollar (example: Kuwait).

I came from Arizona around the age of 3, so it's been a while!

OK. Just be aware of what citizenship(s) your child(ren) will or will not be eligible for at birth, and depending on the other parent and per U.S. and other nationality laws. It’s really, really tough to be born stateless in this world. In most cases you won’t be able to pass U.S. citizenship to a child born outside the United States since you haven’t lived in the U.S. for at least 5 years, at least 2 of which were after age 14. (Children born inside the U.S., including its airspace and territorial waters, are born U.S. citizens — except the children of foreign diplomats.)

Arizona is a super competitive state in the upcoming election. Register and request a ballot now!

I tried googling information about this but I must not be using the correct search terms, how do I check if I'm eligible?

Check this page. Once you get a U.S. bank or U.S. credit union account try the “Get My Payment” button and see if that works, or the other button if applicable. You’ll need your U.S. account’s “routing number“ and account number. For example, Alliant Credit Union’s routing number is 271081528.

 

[bladez87]

Hi BBC, why is the dii rider in the saf aviva plan the most important in your opinion?

Sent from Xiaomi POCO F2 PRO using GAGT

 

[BBCWatcher]

Hi BBC, why is the dii rider in the saf aviva plan the most important in your opinion?

The most important rider? Because if you need life insurance (the base plan), you need disability income insurance even more. (You may also need DII even if you don’t need life insurance.) Whether you get that specific DII rider or another policy is a separate question.

 

[bladez87]

The most important rider? Because if you need life insurance (the base plan), you need disability income insurance even more. (You may also need DII even if you don’t need life insurance.) Whether you get that specific DII rider or another policy is a separate question.

Doesn't the ci or tpd rider provide similar use case as the dii?

Sent from Xiaomi POCO F2 PRO using GAGT

 

[BBCWatcher]

Doesn't the ci or tpd rider provide similar use case as the dii?

Certainly not.

 

[fujitsu555]

Whole life insurance (with CI & ECI) for young children

Hi Bbcwatcher, what's your view on getting whole life insurance (with CI & ECI) for young children (below 5)? Do you think it is good to lock in their insurability with a lower premium by buying early?

 

[BBCWatcher]

Hi Bbcwatcher, what's your view on getting whole life insurance (with CI & ECI) for young children (below 5)? Do you think it is good to lock in their insurability with a lower premium by buying early?

No, I don't think it's a good idea.

 

[5408854088]

this article compares VT, IWDA, and DFA World Equity Fund. any thoughts?

VT has lower expense ratio, forex risk, 30% dividend withholding tax, estate tax, dividend distributing, brokerage fees.

IWDA has lower expense ratio, forex risk, 15% dividend withholding tax, no estate tax, dividend accumulating, brokerage fees.

DFA World Equity Fund has higher expense ratio, wrapper fee, no forex risk, has 30% dividend withholding tax, no estate tax, dividend accumulating. Endowus has no platform fees, MoneyOwl is waiving it.

https://investmentmoats.com/money/invest-dimensional-fund-advisors-dfa-funds/

 

[BBCWatcher]

this article compares VT, IWDA, and DFA World Equity Fund. any thoughts?

There are some problems with the spreadsheet, including:

1. Everybody has tracking error. There should be no zeros in that row. It's possible that a particular fund manager has more tracking error than some other, but if that's the case it'll be the gigantic fund managers like Vanguard and BlackRock that have the least.

2. Relatedly, there are bid-ask spreads with mutual funds and unit trusts, too. Part of the spread is incorporated in the lack of intra-day price quotations versus their exchange-traded counterparts. I really don't think there's any material difference here.

3. The U.S. estate tax rate is never 40%. It's always less than 40%, sometimes as low as zero. The 40% rate is only the top marginal U.S. estate tax rate, never the average rate.

4. I have no idea what the author means with a zero entry for dividend taxes in the Infinity Global column. Dividend taxes very much apply, always.

5. Some financial institutions charge dividend distribution and/or fund/corporate action fees, and I think that ought to be an additional row.

6. Some of these choices automatically reinvest dividends, and some don't. Automatic dividend reinvesting is usually more cost efficient.

VT, IWDA, and the DFA World Equity Fund have virtually the same forex risk(s), differing only in terms of the differences in the stocks they hold and their associated second order currency effects. DFA happens to be quoted in Singapore dollars, but that detail doesn't make any difference at all except that the fund manager handles the currency conversions to/from Singapore dollars on the buy/sell sides (since the vast majority of the securities the fund holds to track the global index are quoted/listed/traded in currencies other than Singapore dollars), and the currency conversion costs end up in the fund's total expense ratio (TER). Stocks are not currencies themselves, so there's no first order foreign currency risk when investing in stocks. Stocks are not bonds.

 

[BBCWatcher]

Business Insider noticed a fun fact: over half of Berkshire Hathaway’s market value now consists of Apple stock and cash. That high concentration risk might be OK, or even better than OK, for Warren Buffett — an open question, but maybe. However, you are not Warren Buffett with an investment company worth hundreds of billions of U.S. dollars. I don’t think your personal investment portfolio should be structured this way, and hopefully you’re not doing that.

 

[Sweetangtang]

Hi BBCW,

Besides those etf that you recommended for long term holding such as VWRA, IWDA etc, as well as MBH and topping up CPF, what other etfs or instructment that you will recommended for long term investment?

Do you recommend investing into the following specific sector etfs:

1. OGIG
2. IXJ
3. CFA
4. CQQQ
5. SMH

I plan to DCA monthly. What other etf besides the list above do you recommend?

Thank you.

 

[5408854088]

There are some problems with the spreadsheet, including:

1. Everybody has tracking error. There should be no zeros in that row. It's possible that a particular fund manager has more tracking error than some other, but if that's the case it'll be the gigantic fund managers like Vanguard and BlackRock that have the least.

2. Relatedly, there are bid-ask spreads with mutual funds and unit trusts, too. Part of the spread is incorporated in the lack of intra-day price quotations versus their exchange-traded counterparts. I really don't think there's any material difference here.

3. The U.S. estate tax rate is never 40%. It's always less than 40%, sometimes as low as zero. The 40% rate is only the top marginal U.S. estate tax rate, never the average rate.

4. I have no idea what the author means with a zero entry for dividend taxes in the Infinity Global column. Dividend taxes very much apply, always.

5. Some financial institutions charge dividend distribution and/or fund/corporate action fees, and I think that ought to be an additional row.

6. Some of these choices automatically reinvest dividends, and some don't. Automatic dividend reinvesting is usually more cost efficient.

VT, IWDA, and the DFA World Equity Fund have virtually the same forex risk(s), differing only in terms of the differences in the stocks they hold and their associated second order currency effects. DFA happens to be quoted in Singapore dollars, but that detail doesn't make any difference at all except that the fund manager handles the currency conversions to/from Singapore dollars on the buy/sell sides (since the vast majority of the securities the fund holds to track the global index are quoted/listed/traded in currencies other than Singapore dollars), and the currency conversion costs end up in the fund's total expense ratio (TER). Stocks are not currencies themselves, so there's no first order foreign currency risk when investing in stocks. Stocks are not bonds.

thanks for this, it is very insightful.

since this is quoted in SGD, wouldn't it be better for the investor to take forex risk indirectly via fund manger instead of taking it on directly by themselves? i understand that either way there will still be forex risk (directly or indirectly), but the difference is that at which part of the process is the forex risk been taken upon.

on withholding tax, i would suppose since DFA funds are domiciled in Ireland, it will be more tax efficient as compared to funds that are domiciled in US? and on the estate tax, wouldn't it be ideal if there isn't any to start with, regardless of the percentage (comparing VT to DFA World Equity Fund).

 

[BBCWatcher]

Besides those etf that you recommended for long term holding such as VWRA, IWDA etc, as well as MBH and topping up CPF, what other etfs or instructment that you will recommended for long term investment?

Well, I assume genuine insurance necessities are addressed (if allowed) and there's an emergency cash reserve. There might be a decent argument in favor of a global bond index fund, such as CRPA, playing a minor supporting role approaching and during retirement. There's a decent argument for a little ES3 or G3B, approaching and during retirement in Singapore, anyway. I think a HDB BTO has merit, and maintaining a respectable but not overly lavish owner-occupied home has merit. (Which can be the same HDB BTO flat, of course.)

Do you recommend investing into the following specific sector etfs:
1. OGIG
2. IXJ
3. CFA
4. CQQQ
5. SMH

I don't, no.

since this is quoted in SGD, wouldn't it be better for the investor to take forex risk indirectly via fund manger instead of taking it on directly by themselves?

What forex risk?

Look, imagine buying gold, which is priced per troy ounce (or gram). You can buy gold from an exchange in the U.S. using U.S. dollars or (probably) an exchange in London using British pounds. You decide to buy your gold in London. Are you taking any British pound currency risk? No. You just happened to exchange British pounds for gold. It's still gold, a globally traded commodity, and gold isn't U.S. dollars, Singapore dollars, British pounds, or South African rand. If the U.S. dollar-British pound exchange rate changes, so will the price(s) of gold across those two currencies, in lockstep. They're only quotation currencies, that's all.

Stocks are the same: not currencies, globally traded (and with even less friction than physical gold). Whether you buy your MSCI global stock index stock fund using U.S. dollars, Singapore dollars, or Turkish lira is immaterial, except to the extent there's a currency conversion cost "underneath" or not.

I don't understand what you're trying to say here about "forex risk." What is that -- what do you mean?

on withholding tax, i would suppose since DFA funds are domiciled in Ireland, it will be more tax efficient as compared to funds that are domiciled in US?

For U.S. listed stocks, yes, but DFA (the fund manager) still pays 15% dividend tax on the dividends that the U.S. listed stocks distribute. Plus whatever other dividend taxes there are for stocks listed in other jurisdictions. Taxes are still paid.

and on the estate tax, wouldn't it be ideal if there isn't any to start with, regardless of the percentage (comparing VT to DFA World Equity Fund).

Yes, but (as it happens) the U.S. estate tax is zero for the figure cited at the top of that spreadsheet. U.S. estate tax only applies (for non-U.S. persons) when total U.S. estate taxable assets exceed US$60,000 in fair market value on the decedent's date of death. Isn't the illustrated scenario less than that?

No matter what the level of U.S. estate taxable assets, it's mathematically impossible for the effective tax rate to hit 40%. It can get very close to 40% for very large taxable estates, but never 40%. I get pretty annoyed when financial bloggers don't understand basic stuff like tax brackets.

 

[5408854088]

What forex risk?

Look, imagine buying gold, which is priced per troy ounce (or gram). You can buy gold from an exchange in the U.S. using U.S. dollars or (probably) an exchange in London using British pounds. You decide to buy your gold in London. Are you taking any British pound currency risk? No. You just happened to exchange British pounds for gold. It's still gold, a globally traded commodity, and gold isn't U.S. dollars, Singapore dollars, British pounds, or South African rand. If the U.S. dollar-British pound exchange rate changes, so will the price(s) of gold across those two currencies, in lockstep. They're only quotation currencies, that's all.

Stocks are the same: not currencies, globally traded (and with even less friction than physical gold). Whether you buy your MSCI global stock index stock fund using U.S. dollars, Singapore dollars, or Turkish lira is immaterial, except to the extent there's a currency conversion cost "underneath" or not.

I don't understand what you're trying to say here about "forex risk." What is that -- what do you mean?


For U.S. listed stocks, yes, but DFA (the fund manager) still pays 15% dividend tax on the dividends that the U.S. listed stocks distribute. Plus whatever other dividend taxes there are for stocks listed in other jurisdictions. Taxes are still paid.


Yes, but (as it happens) the U.S. estate tax is zero for the figure cited at the top of that spreadsheet. U.S. estate tax only applies (for non-U.S. persons) when total U.S. estate taxable assets exceed US$60,000 in fair market value on the decedent's date of death. Isn't the illustrated scenario less than that?

No matter what the level of U.S. estate taxable assets, it's mathematically impossible for the effective tax rate to hit 40%. It can get very close to 40% for very large taxable estates, but never 40%. I get pretty annoyed when financial bloggers don't understand basic stuff like tax brackets.

forex risk as in currency conversion. example if USD continues to weaken against SGD, there might be a loss when we are trying to convert USD back to SGD, even if we are not buying anything and just keeping the money in bank.

for estate tax, i understand that it ranges from 18% to 40%. this is the table that you are referring to right?

 

[Converged]

Hi, amy fees for stock split for ibkr or scb?

Posted from PCWX using 999

 

[BBCWatcher]

forex risk as in currency conversion. example if USD continues to weaken against SGD, there might be a loss when we are trying to convert USD back to SGD, even if we are not buying anything and just keeping the money in bank.

No!

You’re not holding any currency once you exchange a currency for something that isn’t a currency. The risk you take is in the value of whatever you’re then holding, which can be expressed at any moment in time in whatever currencies you wish.

I’ll try another example: artwork, a painting by Picasso. You can buy such a painting using any convertible currency you wish. Let’s suppose the auction house accepts U.S. dollars, euro, Swiss francs, and Singapore dollars to buy the painting. Are you thinking that if you pay for the painting using Singapore dollars that you have different (less) currency risk to Singapore dollars than if you pay for the painting using euro? No, absolutely not! It’s a painting you’re holding. Its value is whatever it is, and the currencies then move however they move. But you’re not holding any currencies when you’re holding a Picasso. You’re holding a globally tradable asset, salable in any convertible currency at whatever price you and a future highest auction bidder agree to.

Exchange-traded stock index funds are not currencies. They are globally traded at the click of a mouse (or tap on a tablet or smartphone). IWDA (and its twins), for example, is(are) listed in multiple currencies in multiple exchanges, including Mexican pesos in Mexico. Are you taking Mexican peso currency risk when you buy IWDA using that currency? No! It’s just one of the multiple pathways to buy something that isn’t a currency. Once you’ve disposed of Mexican pesos (which is what happens when you exchange them for shares of IWDA or a Picasso) you’re no longer holding Mexican pesos, and Mexican peso variations have no meaning per se. And you’re holding Mexican pesos for literally one second if you wish in order to facilitate your electronic trade. (Or U.S. dollars, or euro, or British pounds, or Swiss francs....) Your risk is then stock value risk, or Picasso value risk.

Is this still confusing? If it is, try gold again as an example: if you happen to buy 50 grams of gold using British pounds instead of Singapore dollars, do you have any British pound exchange rate risk after the purchase? Remember, it’s exactly the same gold in your hands, 50 grams, a globally traded commodity. Not British pounds, not Singapore dollars, not Korean won. Whatever arbitrary currency you used to buy the gold is gone, in the hands of the seller. You’re holding gold. Or stocks. Or a Picasso.

for estate tax, i understand that it ranges from 18% to 40%.

No, the U.S. estate tax brackets start at 0% — there is a 0% bracket. For non-U.S. persons the U.S. estate tax’s zero percent bracket is for the first US$60,000 of U.S. estate taxable assets. U.S. estate taxable assets are a subset of (not all) U.S. assets.

 

[mozzozo]

Hi BBCW, thanks for answering my questions over at ST's side. Got an insurance question, how much coverage is enough coverage? Thing is my parents started buying insurance for me from quite a young age, at that time the focus and products were different. So looking at how I can better structure my plans.

 

[BBCWatcher]

Got an insurance question, how much coverage is enough coverage?

Well, that’s a broad question! Here are the basics....

If you’re financially sensible, and leaving aside rare exceptions (example: tax optimization), you only buy insurance to help defend against a genuine calamity or catastrophe (some really seriously bad situation) that a money payout would make better that you cannot reasonably handle on your own (you cannot self-insure). So let’s walk through some hypothetical, fictitious examples when you shouldn’t buy insurance, not generally anyway:

1. You probably shouldn’t buy insurance to pay for a new coffee cup when you drop a coffee cup and it breaks. Coffee cups cost $10 (or thereabouts). This isn’t a genuine calamity or catastrophe. Don’t worry about the small stuff, not with insurance. One easy way you can sanity check this is to calculate the policy’s maximum possible payout. If that maximum isn’t at least 6 digits ($100K+), it’s probably too small to bother with. $2K or $20K probably ain’t going to rock your world much. (Middle class in Singapore assumed here.) A $3,000 deductible? A 6 month waiting period before disability payouts begin? Probably OK.

2. You probably shouldn’t buy insurance that pays $10,000 if your girlfriend or boyfriend dumps you. The $10,000 won’t make your girlfriend or boyfriend love you again. “Money can’t buy me love.” Not real love, anyway. As another example, if you misplace or otherwise lose your newborn child’s foot imprint (which some parents like to do), you may be very sad, but money cannot replace something of sentimental value like that.

3. Jeff Bezos doesn’t need life insurance. (He may have some life insurance for exotic reasons, such as tax reasons, but absent exotic reasons he doesn’t need any.) Bezos can afford to self-insure. There should be absolutely no way his dependents will ever suffer a lack of food, clothing, shelter, or other basic necessities due to a lack of financial resources. I assume Bezos has already set up lavish trust funds for them. Even Bezos might have a couple other types of insurance, but he doesn’t need that one.

4. Private sector insurance comes with overheads. It’s never a fair bet, not on average. The insurance company must cover its costs (which can be high) and should make a little profit. That’s all reasonable and proper. So you don’t want to go overboard on buying insurance, because cash you keep is going to be a better bet. You’re willing to pay the markup (the overheads) when the insurance company’s risk pooling offers genuine value to you, but no more than that.

So let’s move on to distinguish between two basic types of insurance: “all risks” and “named perils.” There is some gray area between them, but the basic idea is that an “all risks” policy is written to focus on the calamitous or catastrophic event, the loss. Example, “If you become disabled, then we will pay....” Such policies may still have a few exclusions (example: “unless the disability is due to participation as a combatant in a war...”), but they’re usually pretty straightforward. A “named perils” policy lists the manners, or pathways, to the loss and covers (or doesn’t cover) specific causes. It focuses on the “how you got to the loss,” the storyline, not the loss itself. Example: “If you are diagnosed with Stage 3 or later ovarian cancer, we will pay....” I recommend “all risks” coverage when you can. The catastrophic/calamitous loss is what matters, not how you ended up experiencing the loss. The soap operas don’t matter, except to insurance company marketing departments and gullible insurance consumers. As an easy example, a lot of insurance companies sell “accidental death insurance,” meaning the policy pays $100,000 (let’s suppose) to the policyholder’s survivor(s) if the policyholder dies within the coverage period in particular specific ways. Now, let’s imagine the phone call to the policyholder’s surviving spouse....

Spouse: “Hello?”
Police Officer: “Hello, is this Mrs. Josephine Johnson, wife of Mr. Charles Wang?”
Spouse: “Yes, that’s correct. Who is it?”
Police Officer: “This is Officer Newton. I’d like to ask you to come to Singapore General Hospital. We believe Charles Wang is here, and we’d like you to identify him.”
Spouse: “Oh my goodness! Is he OK? What’s wrong?”
Police: “We need you to stop by to identify this person who unfortunately died earlier today. May I send a police car to bring you to SGH?”
Spouse: “Oh Nooooo!!!! How did he die?”
Police: “I cannot discuss all the details now, but we suspect that he was fishing, reeled in a big fish, and fell off a bridge.”
Spouse: (Sound of paper shuffling as she checks the policy....) “Woo hoo! We’re getting a payout! Ahem....Oh, that’s terrible, Officer Newton. Please send the car right away....”

Can you imagine?!?! What difference does it make how Mr. Wang died? If he’s dead, he’s dead. Either his surviving dependents lose the benefit of his future income earning potential from his work, or they don’t. Heart attack, stroke, getting run over by a Porsche, or falling off a bridge — it doesn’t matter. But yes, there are accidental death insurance policies. Other examples of frankly dumb “insurance” products include cancer insurance, policies that specifically and only pay a benefit if you’re diagnosed with some named cancer listed in the policy. Not for Muscular Dystrophy, not for intense recurring migraine headaches (unless related to a named cancer, such as brain cancer), not for a debilitating infectious disease, not for liver disease (unless it’s liver cancer, and liver cancer is on the list). Just the list of specific cancers that may or may not be particularly life impactful. This junk is dumb.

Another important point: your genuine insurance needs can differ greatly depending on whether you have at least one genuine dependent or not. A genuine dependent is anyone you care about who would experience significant, serious baseline lifestyle disruption (who could not afford to eat, for example) if he/she were to lose the benefit of your future income potential from work. It could be a family member, but it doesn’t have to be. It could even be the friend from primary school that has no one else in the world looking after him, who has learning and physical impairment, who you financially support from your work income. It could be a girlfriend or boyfriend, even. But this surviving person has to be more than sad upon your death (or disability). If you don’t have any dependents, you don’t need life insurance — insurance that pays a benefit upon your death. Dead people don’t buy iPhones, beer, shelter, or dental checkups. Your dead body cannot spend anything. Only living people can, and if none of the living people depend on your future income potential, you don’t need this sort of insurance.

Insurance salespeople like to argue that you ought to buy life insurance as soon as you’re born (or earlier if it were possible) because who knows whether you’ll be able to buy it in the future. You might not be able to buy it due to a disqualifying medical condition later on. I think this is a very weak argument. It’s essentially the same argument that a newborn should buy dentures now, because — who knows? — the supply of ceramics may be too limited in the future. In other words, “Get in line.” It’s not hard to imagine much better investments to make in children. Also, it’s a really, really interesting question whether an adult should, for example, bring a child into this world if he/she cannot obtain life insurance and cannot self-insure. If all insurance companies think you’re a bad risk, should you be a parent? Well, it’s an interesting question, and choices like these are available. Another common problem is that a parent buys what he/she thinks is a great life insurance policy for his/her newborn. Let’s suppose it’s a $30,000 policy purchased in 1974. $30,000 may have seemed like a lot in 1974 Singapore, but it’s definitely not a lot in 2020+ Singapore. That sort of policy really doesn’t help (see #1 above).

It’s very common for insurance companies to peddle products that combine insurance elements with investment elements. As a general rule you shouldn’t combine these two elements, any more than you should combine insurance with a food plan providing a monthly supply of groceries from NTUC Fairprice. Bundling of this sort helps an insurance company make more profit and make it more difficult to compare insurance products against competitors. There are lower cost investment choices elsewhere, which is why so many people (including me) say “Buy Term, Invest the Rest” (BTIR). However, there is one possible exception. Some people are just not good at diligently saving and prudently investing for their future selves. These people need the psychological power of an insurance premium bill (and a higher one of course) to save much of anything, even if it’s a high cost and inefficient way to save. I don’t criticize such people, and there are many such people. You may be one of them, and that’s OK. It’s easy to say “save diligently, invest prudently.” It’s harder to do.

With that background, and assuming you’re an early or mid career adult in Singapore, here’s what I suggest as the general package of insurance necessities (typical, for most people):

1. Disability Income Insurance (DII). In Singapore DII is available from three carriers (AIA, Aviva, and Great Eastern) in four policies. There’s a whole separate thread on this subject.

2. An “as charged” public hospital B1 ward Integrated Shield plan, probably with its lowest cost rider added. For Singapore Permanent Residents I now like Aviva’s MyShield Plan 3 with their lowest cost rider, and for Singaporean citizens I like either that same Aviva plan or Great Eastern’s SupremeHealth B Plus with Classic-B rider.

3. If you have at least one dependent, term life insurance to age 65. You can find this coverage at Comparefirst.sg and it includes Total and Permanent Disability (TPD) coverage.

4. I’m probably going to classify CareShield Life as an insurance necessity for most people, but that really doesn’t matter since, if you’re young enough and a Singaporean citizen or PR, it’s compulsory.

5. If you venture outside Singapore (more than one annual pilgrimage to Johor anyway), travel medical insurance. I still like Bupa Global’s base annual plan that you can buy online in British pounds. But this isn’t relevant at the moment with the COVID-19 pandemic and essentially zero international travel.

6. If you have a home (or perhaps even if you rent), a little home insurance. I don’t have a strong favorite here, but I think QBE’s Home Prestige policy is kind of interesting since it includes a higher than typical personal liability insurance element. There’s an insurance broker that advertises on Qoo10 that sells that particular policy at a discount. I’m open to alternative suggestions here.

7. If you have a car, why? But if you foolishly do, obviously you need auto liability insurance.

....And that’s it, really. Past #7 we’re really falling off/out of the essential list. The first three are what I call the “Big Three” since they’re the most typical. But it could be “Big Two.”

 

[5408854088]

No!

You’re not holding any currency once you exchange a currency for something that isn’t a currency. The risk you take is in the value of whatever you’re then holding, which can be expressed at any moment in time in whatever currencies you wish.

I’ll try another example: artwork, a painting by Picasso. You can buy such a painting using any convertible currency you wish. Let’s suppose the auction house accepts U.S. dollars, euro, Swiss francs, and Singapore dollars to buy the painting. Are you thinking that if you pay for the painting using Singapore dollars that you have different (less) currency risk to Singapore dollars than if you pay for the painting using euro? No, absolutely not! It’s a painting you’re holding. Its value is whatever it is, and the currencies then move however they move. But you’re not holding any currencies when you’re holding a Picasso. You’re holding a globally tradable asset, salable in any convertible currency at whatever price you and a future highest auction bidder agree to.

Exchange-traded stock index funds are not currencies. They are globally traded at the click of a mouse (or tap on a tablet or smartphone). IWDA (and its twins), for example, is(are) listed in multiple currencies in multiple exchanges, including Mexican pesos in Mexico. Are you taking Mexican peso currency risk when you buy IWDA using that currency? No! It’s just one of the multiple pathways to buy something that isn’t a currency. Once you’ve disposed of Mexican pesos (which is what happens when you exchange them for shares of IWDA or a Picasso) you’re no longer holding Mexican pesos, and Mexican peso variations have no meaning per se. And you’re holding Mexican pesos for literally one second if you wish in order to facilitate your electronic trade. (Or U.S. dollars, or euro, or British pounds, or Swiss francs....) Your risk is then stock value risk, or Picasso value risk.

Is this still confusing? If it is, try gold again as an example: if you happen to buy 50 grams of gold using British pounds instead of Singapore dollars, do you have any British pound exchange rate risk after the purchase? Remember, it’s exactly the same gold in your hands, 50 grams, a globally traded commodity. Not British pounds, not Singapore dollars, not Korean won. Whatever arbitrary currency you used to buy the gold is gone, in the hands of the seller. You’re holding gold. Or stocks. Or a Picasso.

Sure, but will the same concept still apply when we are selling that painting or gold (in whichever currency that it was purchased in), ultimately converting it back to Singapore dollars?