*Official* Shiny Things club - Part 2

[spookyboi]

Hi all, been a lurker for some time.

22Y/O, finally having a steady income flow, was thinking of beginning my investment journey

If I have approx $1.5-1.7k/mth to invest, will you advise that i:

– open a IBKR account to invest $1k/mth in IWDA (hitting the bare min i know), then the rest in ES3 + a portion of it in my employer's stock plan (they are offering discounts but i'm a bit concerned about the 30% dividends withholding tax)

or

– stick to SCB for both IWDA and ES3 for the time being and only make the switch to IBKR when i build up my portfolio ≥$100k in a few years' time?

IMO I think I can afford to take a fair bit of risk as i have enough emergency funds to cover me for quite some time, enough mthly savings after taking investments & expenses into account, and no commitments in the near future.

Not sure where to go about from here and hope to learn more from the experts

 

[mattzakh]

What do you guys think of robo advisor? I know they invests in etfs, but are they "trying to beat the market"?

 

[BBCWatcher]

It does, but not enough. If you’re a Singaporean investor, and you’re going to retire in Singapore, you’ll want Singapore dollars to spend on your retirement costs (medical, housing, going down to the Sands and putting it all on the banker at the baccarat tables). If you have all your portfolio in IWDA, the risk is that the Singapore dollar’s going to strengthen, which will reduce the value of your portfolio in Singapore dollar terms. Splitting your portfolio (I prefer 50/50, because it’s easy) between ES3 and IWDA gives you some balance between the value of overseas diversification and the protection of having assets in your home currency.

Here's where Shiny Things and I have a friendly disagreement. I agree that having too much of your wealth subject to currency risk would be a problem in retirement. However (I would argue), during most of one's accumulation phase it's not a problem. Rather, it's an opportunity, because Singapore dollar cost averaging will also handle currency effects. (Although IWDA isn't currency. It's a basket of stocks only somewhat correlated with a global basket of currencies.) When the Singapore dollar is "high," you'll naturally, automatically be buying more global stocks; and vice versa. This is a good thing!

So, I prefer just staying global during most of an accumulation phase, although I would allow up to 20% ES3 (overweighting Singapore stocks) if you wish since there's some extended emergency reserve dimension to all investments. I think 50% ES3 is way too high during that phase of saving/investing. Starting 7 to 10 years before drawdown age (retirement), I would start a gradual shift away from stocks into bonds, and for the global stocks I'd also adjust more into local. Converge to reach (at your drawdown age) 30-70 stocks-bonds and, within the stocks, 50-50 local-global.

It just so happens that U.S. listed stocks represent roughly 50% of global investable stock market capitalization, so U.S. based/oriented investors would naturally, logically adopt an approximately 50-50 split between local and global stocks if they're seeking a globally neutral portfolio. So the "textbooks" often suggest 50-50 for U.S. investors, at least if they've been written within the past several years. But that "textbook" advice doesn't translate to Singaporean investors, in my view.

 

[revhappy]

Here's where Shiny Things and I have a friendly disagreement. I agree that having too much of your wealth subject to currency risk would be a problem in retirement. However (I would argue), during most of one's accumulation phase it's not a problem. Rather, it's an opportunity, because Singapore dollar cost averaging will also handle currency effects. (Although IWDA isn't currency. It's a basket of stocks only somewhat correlated with a global basket of currencies.) When the Singapore dollar is "high," you'll naturally, automatically be buying more global stocks; and vice versa. This is a good thing!

So, I prefer just staying global during most of an accumulation phase, although I would allow up to 20% ES3 (overweighting Singapore stocks) if you wish since there's some extended emergency reserve dimension to all investments. I think 50% ES3 is way too high during that phase of saving/investing. Starting 7 to 10 years before drawdown age (retirement), I would start a gradual shift away from stocks into bonds, and for the global stocks I'd also adjust more into local. Converge to 30-70 stocks-bond and, within the stocks, 50-50 local-global.

It just so happens that U.S. listed stocks represent roughly 50% of global investable stock market capitalization, so U.S. based/oriented investors would naturally, logically adopt an approximately 50-50 split between local and global stocks if they're seeking a globally neutral portfolio. So the "textbooks" often suggest 50-50 for U.S. investors, at least if they've been written within the past several years. But that "textbook" advice doesn't translate to Singaporean investors, in my view.

The fact that you and Shiny are so aligned is in itself great. Makes me feel all westerns are like this; Boggle style index investors. So this small difference is okay, welcome too

Sent from Dont Take Any Of My Statment As Investment Advice. Do Your Own Due Diligence. using GAGT

 

[goldnut]

What do you guys think of robo advisor? I know they invests in etfs, but are they "trying to beat the market"?

No robo will dare to claim they can beat off the market.

 

[BBCWatcher]

Another factor in my logic is that the Singapore dollar is a "weird" currency. If MAS is to be believed -- and I believe them! -- then the Singapore dollar's value will always be well anchored, in the medium and long terms, to a Singapore trade-weighted global basket of currencies. It's not a "conventional" currency. The Singapore dollar is more like a currency index, because that's how MAS manages it.

Given the Singapore dollar's interesting construction, Singaporean investors have a significant advantage in global investing. I think they should press that advantage, prudently.

 

[archcherub]

hi shiny things!
trying to hold more USD, as my retirement plans involve USA. hahaha. plus currently in talks to buy a small LLC in delaware (i know their state tax on of the highest, the founder base in delaware as his business is ecommerce, and delaware do not impose taxes on sales froom other states)

just happened that I will be flying to NYC in nov for a short holiday with my wife.
was wondering what i should do there to start planning for my retirement (im getting older)

1) i have an old social security number that I have never used. it was given to me when I studied as exchange student in north carolina. no idea if it would be useful
2) me thinking of opening an interest bearing account with an USA bank, so that i can do wire transfer more conveniently in the future. thinking of citibank since they are more global.
3) any other advice you would give me?
appreciate the help since you are the most logical and informed american i happened to know.

 

[revhappy]

hi shiny things!
trying to hold more USD, as my retirement plans involve USA. hahaha. plus currently in talks to buy a small LLC in delaware (i know their state tax on of the highest, the founder base in delaware as his business is ecommerce, and delaware do not impose taxes on sales froom other states)

just happened that I will be flying to NYC in nov for a short holiday with my wife.
was wondering what i should do there to start planning for my retirement (im getting older)

1) i have an old social security number that I have never used. it was given to me when I studied as exchange student in north carolina. no idea if it would be useful
2) me thinking of opening an interest bearing account with an USA bank, so that i can do wire transfer more conveniently in the future. thinking of citibank since they are more global.
3) any other advice you would give me?
appreciate the help since you are the most logical and informed american i happened to know.

He is not American, he is Australian.

Sent from Dont Take Any Of My Statment As Investment Advice. Do Your Own Due Diligence. using GAGT

 

[revhappy]

Another factor in my logic is that the Singapore dollar is a "weird" currency. If MAS is to be believed -- and I believe them! -- then the Singapore dollar's value will always be well anchored, in the medium and long terms, to a Singapore trade-weighted global basket of currencies. It's not a "conventional" currency. The Singapore dollar is more like a currency index, because that's how MAS manages it.

Given the Singapore dollar's interesting construction, Singaporean investors have a significant advantage in global investing. I think they should press that advantage, prudently.

The biggest advantage is low rates in Singapore dollars. Considering FED has raised rates so many times already and that was the fear for SG property investors. Yet, there has hardly been any impact on Singapore property investors.

Sent from Dont Take Any Of My Statment As Investment Advice. Do Your Own Due Diligence. using GAGT

 

[celtosaxon]

It just so happens that U.S. listed stocks represent roughly 50% of global investable stock market capitalization, so U.S. based/oriented investors would naturally, logically adopt an approximately 50-50 split between local and global stocks if they're seeking a globally neutral portfolio. So the "textbooks" often suggest 50-50 for U.S. investors, at least if they've been written within the past several years. But that "textbook" advice doesn't translate to Singaporean investors, in my view.

Another fact often cited is that nearly 30% of S&P 500 companies revenues come from overseas, so you are potentially getting 30% global exposure from the US alone.

Given the SGD is pegged to a trade weighted basket, it may be worth considering trade volumes, to better align with Singapore’s currency and economic situation. Singapore’s trade volume (both imports & exports) is roughly 70% Asia, 15% Europe, 10% US and 5% other. Within Asia the top countries are China, Malaysia, Indonesia, Hong Kong & Japan. Perhaps a combined Singapore and emerging Asia position of 40-50% might be rationalized on this basis. Especially now, given the low valuations in emerging markets (if one is investing for the long term).

I personally have no hesitation with 20% in EM. What makes me hesitate to go beyond this is the higher volatility of EM, you really need nerves of steel, and risk tolerance is unique to every investor.

 

[unhinged_loon]

What do you guys think of robo advisor? I know they invests in etfs, but are they "trying to beat the market"?

The currently available local ones suck. Ignore them until someone comes along with something better.

No robo will dare to claim they can beat off the market.

Beat the market? Or beat off to the market? I assume the former.

Another factor in my logic is that the Singapore dollar is a "weird" currency. If MAS is to be believed -- and I believe them! -- then the Singapore dollar's value will always be well anchored, in the medium and long terms, to a Singapore trade-weighted global basket of currencies. It's not a "conventional" currency. The Singapore dollar is more like a currency index, because that's how MAS manages it.

Given the Singapore dollar's interesting construction, Singaporean investors have a significant advantage in global investing. I think they should press that advantage, prudently.

How?

 

[Maeda_Toshiie]

What do you guys think of robo advisor? I know they invests in etfs, but are they "trying to beat the market"?

As someone else said, the ones in SG right now are bad in various ways in terms of high fees and the use of US ETFs (with higher withholding taxes for US equity holdings).

I'm actually interested in creating a SG-relevant roboadvisor of some sort, but I'd have to find time to read up on how to build a site to host it (have to pick up PHP and SQL), and then program the underlying algo.


Incidentally, I also found out that low cost index funds are hardly found in Japan with insane levels of household wealth sitting in cash deposits. Vanguard has an office in JP but they barely sell directly to Japanese investors. IMO, there is an opportunity there, especially with the Japanese millennials who are less traditionally minded than previous generations.

 

[goldnut]

I'm actually interested in creating a SG-relevant roboadvisor of some sort, but I'd have to find time to read up on how to build a site to host it (have to pick up PHP and SQL), and then program the underlying algo.

And get MAS certified which means audits and background check but higher levels of trustworthiness.

Still, if you do pass that hurdle, a robo combo of VUSD, IWDA and EIMI would be quite popular here.

How much management fee would you charge though? I assume you're not doing it for free, of course.

 

[BBCWatcher]

1) i have an old social security number that I have never used. it was given to me when I studied as exchange student in north carolina. no idea if it would be useful

It is, and it's yours for life. It's the number that defines and facilitates practically all of your U.S. financial affairs, among other things.

2) me thinking of opening an interest bearing account with an USA bank, so that i can do wire transfer more conveniently in the future. thinking of citibank since they are more global.

Citibank is not anywhere near attractively interest bearing.

It's not clear to me why you'd want or need a U.S bank (or credit union) account. There are really only two basic reasons to have a bank account anywhere. One reason is to receive funds, such as a salary, that the payor will not remit elsewhere. The other is to transfer funds -- to pay bills, for example -- that cannot be paid using a Mastercard or Visa (i.e. the biller does not accept those forms of payment). There are some rare, fairly exotic other reasons, but those are the basic two reasons.

So why do you need a bank account in the U.S. again?

A business based in the U.S. probably needs a U.S. bank account, for both those two reasons, but surely a preexisting business would already have such an account.

 

[SpeedingBullet]

So the fact that this arb (the “cross-currency basis”) even exists is counterintuitive. A dollar is a dollar is a dollar, and there’s no reason Japanese banks or European banks should pay more for a dollar than American banks would…but they do. And before 2008, it didn’t exist at all, because banks would arb it away; but after 2008, the balance sheet cost of closing the arb has gotten so high that it’s not worth it for banks to close it.

Imagine you have one crisp US dollar. If you put that dollar on deposit at the Fed for three months, you’ll get the Fed Funds rate—about 2.1%, give or take a bit of volatility around the “turn”, market slang for the 31st of December (because it’s the “turn of the year”, and it’s when banks want to pad their balance sheets with lots of US dollars).

But if you enter into a forward agreement for that dollar—sell it for yen today, and agree to buy it back in three months, paying yen—you’ll get closer to 3% annualised yield.

The difference (and it shows up through euro forwards as well) comes because non-American banks want to have US dollars on their balance sheets as well. Those banks have easy access to euros and yen, but they don’t have easy access to US dollars, so they have to borrow them through the FX forwards markets.

Digression: why is a USDJPY FX forward the same as a secured USD loan? Think about the cash flows:

FX forward:
Day 1: Pay USD; receive JPY (an FX trade)
Day 90: Receive USD; pay JPY (reversing the FX trade, at a rate you agreed on day 1)

Secured loan:
Day 1: Pay USD; receive JPY (as collateral for the loan)
Day 90: Receive USD back; pay JPY back (give back the collateral)

Those are the same thing!

Normally, retail traders can’t take advantage of trades like this, because you have to have an ISDA in place, or the brokerage costs are high, or, or, or, or... But this one is interesting because if you have USD floating around, you can put this trade on and pick up a few extra basis points of interest on those USD. Note: this DOES NOT WORK IF YOU DON’T ALREADY HAVE USD CASH. If you have SGD cash, it won’t work; the few basis points of extra interest will get outweighed by any swings and roundabouts in the USDSGD FX rate over the next three months.

Also, it doesn’t work great in amounts over about $100k USD, because IBKR charges hefty negative interest on positive yen balances over 11 million yen—about -1.25%—enough to wipe out the arb. If you wanted to do it in industrial size, you’d buy 3-month JGBs (which yield about -0.15%) instead of just leaving yen cash in your account.

Here’s how to do it:

1. At Interactive Brokers, sell USDJPY spot, and sell the January CME JPY FX futures in an equivalent amount. (The futures notional is 12.5 million yen, so very roughly if you sell $111,500 USD you’ll buy one futures contract to hedge.) It has to be the January futures, because the big interest rate pickup is over the 31st of December (remember, you’re loaning USD to banks over the turn.)
2. Wait. You’ll have PnL on the FX position that should be almost exactly offset by the PnL on the futures position; small negative interest on the yen cash position; and the positive interest will come from carry as the futures converge with the cash.
3. When the futures contract matures, it’ll physically deliver: it’ll debit the yen from your account, credit you with USD. The USD you end up with will be the equivalent of having earned about 3% annualized on your USD amount.
4. Pub.

This is genius. Thanks for doin’ me an edumacashuns. I’ve never traded forwards before, and seeing how I actually do have some spare USD sitting around IBKR (from all that option selling), i think i could do this.

Few more follow-on qns if you dont mind

1. This arb only works during the last few months of the year and into the new year? It wouldn’t work say Mar-Jun? I’m thinking quarter-end results reporting which the banks might wanna hold some spare Benjamins?
2. This opportunity I assume is unique in a sense that you’d need to long a high i/r fx against a negative yielding fx? Or is this strictly USD/-ve ylding FX since it’s king dollar?
3. Building on 2., would this work with say USDCHF, USDDKK, USDSEK? (Im guessing they’re yielding negaively).
4. Should the BOJ spring a surprise pop in i/r, this trade is essentially gone?

 

[BBCWatcher]

Just one little caution for those of you who are not U.S. persons (most of you). This particular currency maneuver, if executed to its maximum extent, will likely push you over the U.S. estate tax exemption of US$60,000 all by itself. However, you're certainly not required to care about estate taxability. YOU won't pay the estate tax, because you'll be dead, and dead bodies don't need money. Your estate will owe/pay the estate tax.

 

[kingboonz]

Hi guys. Can I understand what is the reason why do you guys don't usually recommend overseas bonds typically?

I see in most portfolio recommendations that bonds should be in SG, but I can't figure out why.

It seems that for one, overseas bonds tend to pay out higher, am I right or am I mistaken?

The only downsides seems to be currency risks.



My second question is whether Singapore Govt are they likely to raise interest rates and follow US?

 

[Crunchlax]

Hi Shiny,

Just started my investment journey after reading a few books, including yours. Opened an IB account and have bought some IWDA.

A question about the fx routing though. Is using TWS just to use FXCONV necessary? The desktop app runs a bit slow on my computer.

 

[kingboonz]

Hi Shiny,

Just started my investment journey after reading a few books, including yours. Opened an IB account and have bought some IWDA.

A question about the fx routing though. Is using TWS just to use FXCONV necessary? The desktop app runs a bit slow on my computer.

As quoted from a customer service office:

FXCONV and IDEALPRO have little differences, one of which is that IDEALPRO leaves a virtual FX position on your portfolio, which you can remove on your TWS by setting the value of that FX position to 0.

I asked the CSO because I converted my money using IDEALPRO and it left a virtual FX position which I didn't know how to close. Eventually I closed it via TWS

 

[LyzeOfKiel]

Another factor in my logic is that the Singapore dollar is a "weird" currency. If MAS is to be believed -- and I believe them! -- then the Singapore dollar's value will always be well anchored, in the medium and long terms, to a Singapore trade-weighted global basket of currencies. It's not a "conventional" currency. The Singapore dollar is more like a currency index, because that's how MAS manages it.

Given the Singapore dollar's interesting construction, Singaporean investors have a significant advantage in global investing. I think they should press that advantage, prudently.

Been a typical Singaporean confine on this small island due to work and family restriction without much knowledge (Of course I would like to travel and see the world if given any opportunity).

I would like to know:

- How is Singapore dollars constructed differently from other currency? Is there some in depth history behind or book that we can read further?

- How can Singaporean investors have a significant advantage in global investing? I do know from that Singaporean have capital tax gain advantage compare to U.S. from reading this thread.

- Does this mean that if one day, the world stop "believing" in MAS. Singapore dollar will have a drop in value?

This "believe in MAS" seem to me that the world is building castle in the air by believing MAS without any foundation.