Thanks a lot for the perspective. As someone who does plan to retire in Singapore, the split of SG versus world equity is a big thing for me. So really appreciate the thoughts.
Now, one question I have is why would you suggest to move to heavy SGX index 7-10 years before retirement? If the argument is that heavy indexing of SGX is a bet, why not avoid taking the bet all along? Assume one retires at 65 and lives to 85, there will be 30 years of betting if he starts to heavy index SGX at 55. Isn't he better off to keep only a minor portion in SGX even after retirement?
That would naturally happen anyway. I would be inclined to do something like this:
Accumulation Phase (More than 7 Years from Retirement)
* ~20% MBH, SSBs, CPF
* ~15% G3B or ES3
* ~65% IWDA or VWRA
Starting 7 years away from retirement, or up to 10 years away if you're particularly conservative, you'd slowly, progressively rebalance until you get to this allocation:
Initial Retirement Allocation
* ~70% MBH, SSBs, CPF
* ~15% G3B or ES3
* ~15% IWDA or VWRA
If you want to get slightly fancy you might add a little CRPA into the retirement mix.
Notice that the allocation to the STI30 stocks stays approximately fixed in percentage terms. That's a little extra bonus, meaning you should incur less trading cost to rebalance in the 7 to 10 year period before retirement.
Of course these percentages can be different, but I'm just not a fan of pushing that ES3 or G3B figure up to ~40% of the total long-term portfolio.
Per this regard, would you recommend the IWDA (as Shiny does in his book), or the VWRA? I read in an earlier reply of yours that you personally don't invest in these ETFs because it doesn't make tax sense for you, so I'm just hoping to pick your brain here.
This question comes up a lot, and in my view either is perfectly fine. There's even a third fund domiciled in Luxembourg that looks great, too. (I don't remember the symbol offhand.)
So, is it better to go in with, say, 60%-65% of my portfolio, into a Developed market (IWDA), or a Developed+Emerging market (VWRA)? (Based on what little I've read and understood on them so far!)
Since you're not expecting to retire in Singapore it's quite clear cut that you shouldn't be overweighting "Singapore," at least not much beyond some emergency reserve funds. If you're really not sure where you're going to retire, or if your expected retirement country really doesn't offer "on shore" investments that you'd ever want to touch -- Venezuela, to pick an example -- then you just pick a globally diversified portfolio and call it a day.
I'm no guru compared to ST and BBCW, but personally, I don't think you need to put money into the STI at all.
There is that argument, although let's remember that IWDA (global developed economy stock markets) and VWRA (global stock markets) both include a tiny dollop of SGX-listed stocks. So you are getting a very little bit of "Singapore" in those funds, too.
This is really a discussion about whether and how much a long-term investor expecting to retire in Singapore should overweight SGX-listed stocks within his/her retirement portfolio as a matter of prudent investing practices, and during this investor's accumulation phase.
While I can see some advantages of a person living in the US putting more money in the S&P 500, I'm not sure if the benefit is as significant here. Most of the stocks in the STI already have a regional/global outlook and Singapore itself is heavily reliant on external trade.
I don't think an investor expecting to retire in the United States needs to overweight U.S. listed stocks. There's a popular U.S. listed ETF, symbol VT, that's basically identical to VWRD except tax appropriate for U.S. persons. Same fund manager (Vanguard), same stock index, same countries (essentially the entire stock investable world, including the U.S.) Approximately 56% of VT is U.S. listed stocks. That's fine, that'll work.
This is obviously a poor comparison, but should a person living in Papua New Guinea invest in stocks on the Port Moresby stock exchange? I doubt he would be any worse off if he put the money into IWDA/VWRA.
It's not a perfect comparison, sure, but it's an interesting one. I use Japan as another point of comparison/sanity checking. That stock market's index consists of the top 225 stocks (Nikkei225), and that stock market, the Tokyo Stock Exchange, was based in the world's second largest economy (now third largest). I don't think a ~40% portfolio allocation to the Nikkei225 backtests well at all, even for retirees in Japan which offers a very different currency and consumer environment than Singapore's much smaller and more open economy.
We're dealing in the world of probability forecasts, of course. It's
possible, for example, that DBS or OCBC will soar to incredible valuation heights over the coming years and decades, to be the bank that the world envies and covets. And that it'll keep its stock listed on the SGX? Is that likely? Or is it more likely to do what Broadcom did and head to New York for a stock market listing that befits its greater global stature? I'm trying to distinguish here between Singapore and the SGX, or as you put it between Papua New Guinea and the "Port Moresby Stock Exchange." PNG and Singapore could have, probably do have, incredible potential. Their stock markets, not so much -- and we know this latter part already, with high confidence.
OK, the counter argument is something like let's just add a large dollop of "boring," dividend producing bank stocks, some real estate owners, an Australian telco, the owner of this forum, and a few other random bits, and that should be somewhere in between a bond portfolio and a stock portfolio, maybe. In which case I'd ask, "Well, why not just increase MBH and make it a two fund portfolio?" For example, 30% MBH, 70% VWRA or IWDA?
The "big whale" investors have kind of figured this out already, it seems. To the extent they're interested in equity stakes in local businesses, they seem to prefer private stakes. They're ignoring SGX listings by and large, for better or worse. Are they wrong? Well, they could be, but I don't feel brave enough to stake 40+% of my retirement portfolio to bet against them. I might go out on a limb but not that far, that's all.
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