*Official* Shiny Things club - Part 2

[chrisloh65]

But which one is most promising in terms of appreciating against SGD?

2. Euro - risk of EU break-up? (I think Mr Lee Kuan Yew does not think well about EU over the long term?).
3. Japanese yen - Don't think this will appreciate against SGD.
4. British pound - Brexit issue?
8. Chinese renminbi (*) - Up & coming but not really internationalized?

The rest no idea.

So any take on which is most promising say over the next 10-20 years period?

Answering the question directly, the world's top 10 most traded currencies are, in order:

1. U.S. dollar
(big gap)
2. Euro
3. Japanese yen
4. British pound
5. Australian dollar
6. Canadian dollar
7. Swiss franc
8. Chinese renminbi (*)
9. Swedish krona
10. New Zealand dollar

(*) Sort of; it's complicated.

 

[KeytoFreedom]

Hi all, what is the best way to invest $50K of SRS funds? Is buying a retirement plan offered by the insurance companies a good option - e.g. single premium and put for 10 years and get a lump sum?

 

[eD1s0n]

Hi all, what is the best way to invest $50K of SRS funds? Is buying a retirement plan offered by the insurance companies a good option - e.g. single premium and put for 10 years and get a lump sum?

how long before you can withdraw? if looking at 10 years can SSB. If longer can consider Stashaway.

 

[SibehHL]

I concur with you but some of the guys here just didn't understand or just pretend not to , that one day we will need to drawdown our investments as retirement funds. Giving long lectures on global economy does not change the fact that if we start to drawdown at an unfavorable time, fx losses could reduce significantly the percentage of capital gains in SGD.

Then again since we have on day one decided to accept this risk when we began our long term investment using a foreign currency, no point to listen to some of these guys and vomit blood.

Hmm.. Now I'm confused. Is the above true?

Let's say we buy IWDA now and sell in 20 years, 1USD=1.35 SGD. If 20 years later, 1USD=1.2 SGD, our returns will suffer right? If 1USD= 1.5 SGD then, we will earn even more than the capital gains. This is what we mean by currency risk. (I've accepted this risk as inherent if we want to buy overseas equities)

Where does the ETF value according to currency come in?

 

[BBCWatcher]

But which one is most promising in terms of appreciating against SGD?

An astrologer might have an answer.

What if none of them do?

 

[beefjerky]

I concur with you but some of the guys here just didn't understand or just pretend not to , that one day we will need to drawdown our investments as retirement funds. Giving long lectures on global economy does not change the fact that if we start to drawdown at an unfavorable time, fx losses could reduce significantly the percentage of capital gains in SGD.

Then again since we have on day one decided to accept this risk when we began our long term investment using a foreign currency, no point to listen to some of these guys and vomit blood.

your right. thats why as we grow older we shift more from stocks into sg denominated bonds

 

[hwckhs]

Giving long lectures on global economy does not change the fact that if we start to drawdown at an unfavorable time, fx losses could reduce significantly the percentage of capital gains in SGD.

If you drawdown by averaging out, you smooth out the forex rate and won't be affected by unfavourable times as much.

 

[eD1s0n]

Hmm.. Now I'm confused. Is the above true?

Let's say we buy IWDA now and sell in 20 years, 1USD=1.35 SGD. If 20 years later, 1USD=1.2 SGD, our returns will suffer right? If 1USD= 1.5 SGD then, we will earn even more than the capital gains. This is what we mean by currency risk. (I've accepted this risk as inherent if we want to buy overseas equities)

Where does the ETF value according to currency come in?

think of this another way.
Lets say someone created a clone ETF of IWDA, holding the exact same underlying companies and having the exact same expense ratio, but the ETF is valued in SGD. Lets call this hypothetical ETF SGWDA.

At the current exchange rate of 1 USD = 1.35 SGD, and assuming IWDA is at 57 USD, can we agree that SGWDA will be 76.95? Otherwise there will be an opportunity for arbitrage and someone can buy one of the ETF that is cheaper and break it apart for the constituent shares and sell it to the Authorized Participant of the other ETF, earning the difference in price.

Lets say 20 years later when 1USD =1.5 SGD, both IWDA and SGWDA will still be a equal price/value. Otherwise the opportunity for arbitrage mentioned above will still occur.

Hope this shows how holding a foreign currency denominated ETF does not expose you to any additional Forex risk compared to an SGD denominated one.

 

[SibehHL]

Of course the drawdown is by stages. But You didn’t understand at all did you? How Long did the USD stay around 1: SGD1.2 ?For someone who has been doing DCA for the previous 20 years at USD 1:1.5-1.7 SGD, he will be crying at the massive wipe out of capital gains.

But I would agree that for people who’s been doing DCA during those Low USD years already enjoy a capital gain of 10% if he is to sell his shares now.

If you drawdown by averaging out, you smooth out the forex rate and won't be affected by unfavourable times as much.

 

[hwckhs]

Of course the drawdown is by stages. But You didn’t understand at all did you? How Long did the USD stay around 1: SGD1.2 ?For someone who has been doing DCA for the previous 20 years at USD 1:1.5-1.7 SGD, he will be crying at the massive wipe out of capital gains.

But I would agree that for people who’s been doing DCA during those Low USD years already enjoy a capital gain of 10% if he is to sell his shares now.

I collected the USD/SGD graph below a short while back to get a feel of the long term USD/SGD trend.

Trend lines are drawn by me. The middle trend line shows an annualized depreciation rate of 1.1%. I am not saying that the same rate will definitely continue into the future, but it looks reasonably likely.

So, whenever I look at a USD quoted ETF (like IWDA or VRWD), I will check the long term annualized return (>15 years) and minus off 1.1%. The return still looks healthy to me. I am aware that the USD/SGD may drop further in future, but I am betting that the ETF value will increase a lot more to offset this USD depreciation. I am willing to accept this risk, as I want to diversify beyond Singapore.

 

[Shiny Things]

hi peeps,

I am currently invested in IWDA. but i am curious in moneyOwl Dimensional fund advisor (DFA), is it a good way to DCA? their total charges adds up to 1.17%p.a. though (0.65 p.a. for moneyowl, 0.18 for ifast platform and 0.34% for DFA funds)

Well that’s your answer right there. You can pay 1.17% every year in fees through MoneyOwl, or 0.2% every year by buying IWDA. Which would you rather?

another question,
i have term plan, medical plan and critical illness plan. Is it wise to add on disability income plan?

You probably already have too much insurance. CI insurance is usually a bit of a ripoff.

Can we have a quick and dirty answer to the forex risks when buying equity etf question?

Sure.

“The currency that the ETF is quoted in doesn’t matter. The main thing that matters is the strength of your home currency.”

That’s it.

Hi Shiny Things, just read your book. It's a really good read and I have learned so much from it.

Thanks! Glad you enjoyed it!

So being a Singaporean and intending to retire in Singapore, my USD investments (IWDA LSE, SDIA LN, etc.) will eventually need to be converted to SGD. And this unavoidably involves forex risks.

Please pardon me if this sounds like a dumb question. I understand that forex risk cannot be avoided completely, so my question is how can I reduce this risk?

Not a dumb question at all, but the answer is easier than you think: “don’t worry about it”. As people have mentioned upthread, owning a global equity portfolio gives you huge diversification across currencies - you have exposure through those businesses to USD, EUR, JPY, etc etc etc. It’s easier to just hand wave that away and not worry about hedging.

If you own USD-denominated bonds, like in SDIA, then you do have explicit FX risk, because you have a thing that repays a fixed amount of USD. That’s why I don’t usually recommend that Singaporean investors own non-SGD bonds; you’re taking explicit FX risk in return for not a lot of extra yield.

Hi all,

How big a factor is the liquidity of an ETF?

It’s not a huge factor. The ETFs I recommend generally have very good liquidity and active market-makers. If you go off searching for different options, then yes, you should think about liquidity, because it’ll affect how easy it is to buy into and sell out of a particular fund.

While I understand the value of IWDA, for STI ETF, due to the heavy weighting, what do you think of just owning 3 banks and 2 Reits in lieu of ES3? What other major sg stocks will you add if we did have a basket of stocks to replace?

Well, think about this. You’re arguing that instead of an ETF, you should buy a basket of stocks that correlates tightly with the STI. But if you buy the ETF, you get the same exposure, but you only have to pay one set of transaction costs instead of five; that seems like a pretty good deal to me.

But which one is most promising in terms of appreciating against SGD?

That’s... not really the sort of question we try to answer in this thread, to be honest. You’re asking “what FX trade should I make for a ten-year time horizon?”; if you’re just a regular investor, you have better things to do than try to predict FX movements.

Hi all, what is the best way to invest $50K of SRS funds? Is buying a retirement plan offered by the insurance companies a good option - e.g. single premium and put for 10 years and get a lump sum?

OK, retirement plans definitely aren’t the best option. You can do a lot better, and pay a lot less in fees.

For people who make enough money that it’s worth contributing to SRS (which isn’t everyone)... if your broker lets you buy ES3, then buying that with your SRS funds and counting that as part of your total portfolio is probably the best bet.

 

[BBCWatcher]

The middle trend line shows an annualized depreciation rate of 1.1%. I am not saying that the same rate will definitely continue into the future, but it looks reasonably likely.

I wouldn’t bet either way on a currency trend. The depicted history of the Singapore dollar was dominated by two real world events(*): (1) Singapore’s conversion from a developing to developed economy, which is almost always associated with relative currency appreciation, and (2) the Asian Financial Crisis. And that’s it, really, for the big stuff.

Point (1) isn’t going to recur. Point (2), a regional or national financial crisis, might, but that’d result in a multi-year relative depreciation of the Singapore dollar.

We should also keep in mind how MAS manages the Singapore dollar. That changed a bit over the timespan you’re looking at.

Anyway, we cannot predict the future with great clarity. But we can apply logic and understanding to the past if we’re going to attempt an extrapolation, and my point is there’s a lot of logic and experience suggesting we shouldn’t rely on an extrapolation.

(*) Plus whatever was happening on the U.S. side.

 

[chrisloh65]

Answering the question right will earn you Millions $ isn't it?
If none do, I am status quo, no different whether I hold SGD or other currencies.
If not, then there is profits or losses - that is the purpose of investment isn't it - To earn more than layman or average people and cut short working life (retire early)?

An astrologer might have an answer.

What if none of them do?

 

[Fcesca]

Hi all

I'm trying to trade GBP for USD on Interactive brokers

However, there seems to be no USD.GBP ticker on IB's list of forex products.

Seems you can only buy GBP with USD and not the other way round.

Anyone know why this is?

How can I get around it

Seems I can trade GBP for a second currency .e.g won and then trade that for USD, but it seems a wasteful way

 

[highsulphur]

Both equities and bonds are rallying to year highs

 

[razoreigns]

Hi ST,

I just spent a day reading though your book and found it enjoyable and informative. A topic that is not discussed though is on property and mortgage. Should one strive to pay of the mortgage on your own home asap before investing into stocks/bonds? If not necessary, wouldn't the investments be done on a "leveraged" basis?

My current situation is that I have sufficient funds to pay off my mortgage but I have not done so, but have instead invested into SGD bonds since the bond yield is higher than the mortgage interest. As I view my investments (with the funds that can be used to repay the mortgage) to be leveraged, I am concerned with investing into equity. Your thoughts and advice would be much appreciated!

 

[highsulphur]

Hi ST,

I just spent a day reading though your book and found it enjoyable and informative. A topic that is not discussed though is on property and mortgage. Should one strive to pay of the mortgage on your own home asap before investing into stocks/bonds? If not necessary, wouldn't the investments be done on a "leveraged" basis?

My current situation is that I have sufficient funds to pay off my mortgage but I have not done so, but have instead invested into SGD bonds since the bond yield is higher than the mortgage interest. As I view my investments (with the funds that can be used to repay the mortgage) to be leveraged, I am concerned with investing into equity. Your thoughts and advice would be much appreciated!

If the yield isn't very much different, I would rather pay off the mortgage. Well at least that was my case.

 

[razoreigns]

If the yield isn't very much different, I would rather pay off the mortgage. Well at least that was my case.

Hi, I am paying 2.28% for my mortgage and yielding about 4% on bonds. But if I used the funds for equity investing, it could be 7%. Hence, I am wondering on what is the recommended course of action as general advice. Should investors prioritize paying off a mortgage before even embarking or putting more money into stock/bond investments?

I know in western countries, a place of residence could be viewed as an "expense", either rental or mortgage payments. Therefore, there is no prioritization to prepay the loan before starting to invest?

 

[swordsly]

Hi, I am paying 2.28% for my mortgage and yielding about 4% on bonds. But if I used the funds for equity investing, it could be 7%. Hence, I am wondering on what is the recommended course of action as general advice. Should investors prioritize paying off a mortgage before even embarking or putting more money into stock/bond investments?

I know in western countries, a place of residence could be viewed as an "expense", either rental or mortgage payments. Therefore, there is no prioritization to prepay the loan before starting to invest?

I believe BBC would say this is a good debt -- your bonds (assuming almost risk-free like SSB) are yielding higher than your loan.

Imo, there is no need for you to take on extra risk by dumping the funds into stocks.
Stocks can yield 7%. It can also yield way lower. Do you honestly want that extra risk in light of a debt?

 

[razoreigns]

I believe BBC would say this is a good debt -- your bonds (assuming almost risk-free like SSB) are yielding higher than your loan.

Imo, there is no need for you to take on extra risk by dumping the funds into stocks.
Stocks can yield 7%. It can also yield way lower. Do you honestly want that extra risk in light of a debt?

The Sgd bonds that I have invested in are not risk free, hence the 4% yield. Unfortunately, neither are they as diversified as a bond ETF, since the investments were done prior to me reading this forum. I could bite the bullet and sell them though and incur the bond spread.