Official Shiny Things thread—Part III

[jeff0603]

Portfolio opinions

Hello everyone, I love reading the comments on this thread and Ive learnt quite a bit from this collective wisdom

Can I just ask what do the people here think of my portfolio

VUSD 40%
VUER 20%
VDEM 10%
STI ES3 30%

I am still very young so I will not hold onto bonds as of now. My monthly contribution will be around $800 but will increase with age to perhaps $2-3k a month in 4-5 years time. I will increase my proportion in bonds as I near my retirement age.

My rational is to diversify into the developed areas (EU/US) while also dipping into the emerging markets. I was thinking if I should include a Japanese ETF too, if so then I will reduce VEUR to 10% and buy a Japanese ETF at 10% too

Brokerage charges are a non issue as i am using IBKR and every month I still need to hit 10USD of commission

 

[swan02]

Can’t u just combine the first three into vwra/vwrd ?

Hello everyone, I love reading the comments on this thread and Ive learnt quite a bit from this collective wisdom

Can I just ask what do the people here think of my portfolio

VUSD 40%
VUER 20%
VDEM 10%
STI ES3 30%

I am still very young so I will not hold onto bonds as of now. My monthly contribution will be around $800 but will increase with age to perhaps $2-3k a month in 4-5 years time. I will increase my proportion in bonds as I near my retirement age.

My rational is to diversify into the developed areas (EU/US) while also dipping into the emerging markets. I was thinking if I should include a Japanese ETF too, if so then I will reduce VEUR to 10% and buy a Japanese ETF at 10% too

Brokerage charges are a non issue as i am using IBKR and every month I still need to hit 10USD of commission

 

[swan02]

Thanks again.

I was trying to find out whether "Linkers" are just as affected by rising interest rates just as Nominals are. Whether I understood the mechanics of it.

Bottom line, I'm trying to figure out, whether TIPs are good protectors of Nominal bonds ie interest rate rise caused by inflation.

Correct me where statement is incorrect. Thanks

1. Interest rates rises, "Linkers" will also go down in value if inflation does not rise.

2. Interest rate rises, inflation rises. Linkers go up in value.

3. Linkers can also go up in value as in Feb/March during the first leg, meaning it also has properties of nominal bonds (aka risk off characteristics), naturally noted it later succumb to the deflationary negatives.

4. Since Linkers can provide both risk off and risk on, it thus has diversification purpose, meaning it may replace part of nominal bonds allocation.

5. Linkers provide some protection for Nominal Bonds in the event of inflationary caused interest rate rise. BUT which, short or longer term linkers provide better protection ?..........I would assume longer term, though not as reliable, due to longer duration hence greater inflationary beta ?

6. Since it may also correlate with equities, it thus provides some risk on returns, but much less risky than equities (short term TIPS).

7. Short term Linkers are more reliable than longer term linkers if the aim is for unexpected inflation

8. Short and Long term linkers combo with Nominal bonds are great diversifiers for the fixed income component.

9. But Long term Linkers are not as reliable as short term linkers in dealing with unexpected inflation because they are more sensitive to nominal interest rates movements than inflation ?

10. Only the asset class "CASH" benefits from interest rate rise, when inflation does not rise. All other asset class will drop in value. However, short term TIPs are better placed to replace cash ?, and it is not so much affected by interest rate rises when inflation is not.

11. Also considering Linkers because Nominal bonds interest rates are so low, that it necessitates the introduction of other fixed income diversifiers such as Linkers.

1)

Anyway, if you care about diversification, buy nominals (regular govvy bonds). If you care about inflation protection, buy linkers. (And pay attention to which country’s linkers you’re buying! You might care about exposure to Aussie or US inflation, but you won’t care about exposure to, I dunno, EU or Swedish inflation.)

This is where I lost you. Is the argument you’re trying to make is that linkers will perform better than nominals (not a given, especially given that US breakevens are already back to where they were before the pandemic); that linkers provide a bigger diversification benefit (also not a given, US linkers got toasted in March); or something else?

 

[dullthings]

Best if U quote. Lots been said between us regarding MBH and A35. And things can be obsolete by now.

Anyways when in doubt, I suggest u take ST simple approach. I love to test the waters as I’m still learning.

Hi Swan02, thanks, the quote button didn't work as the the post was too long. I'll paste it below....

ST/Swan02, I read the discussion between the two of you on bonds but don’t really understand. What exactly do these mean for MBH and A35 (prices and yields) over the next 1-3 years, and over 10 years?

quote/ OK, for all of these questions I’m gonna speak very broadly, and generally focus on the US bond market (because, to be honest, that’s where the action is, and SGD bond markets will tend to follow the US). That out of the way... in the short end you’re basically right. Every central bank in the world is on the bid for short-dated bonds in various hilariously large amounts, in order to keep short-dated yields down.

In the longer end, not so much. Central banks aren’t as fixated on long-end rates, so you could potentially see a steepening in countries where the central bank’s not explicitly controlling the long end (that is, rates go up / prices drop in the long end, while the short end stays pegged at zero). That’s the US, maybe Europe, and Australia.

You’re sort of seeing this in Australian bonds right now. The RBA (who are not idiots, don’t fight the RBA) is explicitly engaging in yield curve control, keeping the cash rate and the 3-year bond yield below 0.25%. But because they’re not targeting the 10s, the longer-end yields bounce around a lot more (10-year ACGB yields blipped up to 1.1% a couple of months ago, which is nice carry if you can get it). /unquote

 

[celtosaxon]

Can I just ask what do the people here think of my portfolio

VUSD 40%
VUER 20%
VDEM 10%
STI ES3 30%

Agree with Swan02, merge the first 3 into VWRD. That will take care of Japan as well. The % allocations are roughly the same.

I am still very young so I will not hold onto bonds as of now. My monthly contribution will be around $800 but will increase with age to perhaps $2-3k a month in 4-5 years time. I will increase my proportion in bonds as I near my retirement age.

Smart move, and don’t forget your CPF should be counted as a bond equivalent anyway.

My rational is to diversify into the developed areas (EU/US) while also dipping into the emerging markets. I was thinking if I should include a Japanese ETF too, if so then I will reduce VEUR to 10% and buy a Japanese ETF at 10% too

Just bear in mind that Singapore equities represent only about a half of one percent of the world market cap, so 30% is an extremely overweight position, and the companies in the STI may not give you as much Singapore exposure as you think. One more thing, since the SGD is managed within a trade weighted basket of currencies, you may not need as much SGD denominated investments as you might think. Just food for thought, the decision is yours.

 

[BBCWatcher]

Agree with Swan02, merge the first 3 into VWRD. That will take care of Japan as well. The % allocations are roughly the same.

VWRA if you want an accumulating fund, and you probably do. IWDA and LCWD are other viable choices.

None of these funds are appropriate for U.S. persons.

 

[swan02]

Ok. I'm not Shiny but I'll try paraphrase what he meant. Firstly there was no mention of A35 or MBH as he was responding to a question regarding yield control and Australia is one of the several countries currently doing so.

He was referring to the Reserve bank of Australia targeting short term interest rates by yield capping by buying bonds (short term bonds 1-3 years) and flooding with liquidity thus aim to cap short int rates below 0.25 percent.....More supply will reduce or cap rates simply as that.

The longer end ie. 10 year bonds, the RBA has left it alone by leaving the "Market" to determine the rate which is usually influence by market expectations of future inflation.

Hence what you will see is likely steepening of the yield curve, which is a healthy graph and NOT an INVERTED yield curve that foretells a recession.


So he goes saying you can conduct a "carry trade", by borrowing at short term interest and lending at long term rates, which the banks normally do, if you are lucky because that opportunity normally gets arbitraged away quickly.

Hi Swan02, thanks, the quote button didn't work as the the post was too long. I'll paste it below....

ST/Swan02, I read the discussion between the two of you on bonds but don’t really understand. What exactly do these mean for MBH and A35 (prices and yields) over the next 1-3 years, and over 10 years?

quote/ OK, for all of these questions I’m gonna speak very broadly, and generally focus on the US bond market (because, to be honest, that’s where the action is, and SGD bond markets will tend to follow the US). That out of the way... in the short end you’re basically right. Every central bank in the world is on the bid for short-dated bonds in various hilariously large amounts, in order to keep short-dated yields down.

In the longer end, not so much. Central banks aren’t as fixated on long-end rates, so you could potentially see a steepening in countries where the central bank’s not explicitly controlling the long end (that is, rates go up / prices drop in the long end, while the short end stays pegged at zero). That’s the US, maybe Europe, and Australia.

You’re sort of seeing this in Australian bonds right now. The RBA (who are not idiots, don’t fight the RBA) is explicitly engaging in yield curve control, keeping the cash rate and the 3-year bond yield below 0.25%. But because they’re not targeting the 10s, the longer-end yields bounce around a lot more (10-year ACGB yields blipped up to 1.1% a couple of months ago, which is nice carry if you can get it). /unquote

 

[Kaypohji]

Don’t quite get this part.
Understood on not overweight on sti since it’s performance has been stagnant and world index doesn’t comprises much % of it.
But trade weighted basket of currencies?

One more thing, since the SGD is managed within a trade weighted basket of currencies, you may not need as much SGD denominated investments as you might think. Just food for thought, the decision is yours.

 

[tesarise]

Don’t quite get this part.
Understood on not overweight on sti since it’s performance has been stagnant and world index doesn’t comprises much % of it.
But trade weighted basket of currencies?

https://blog.seedly.sg/mas-exchange-rate-monetary-policy/

 

[BBCWatcher]

As background, if you're retiring in Singapore you'll be paying for your retirement lifestyle primarily using Singapore dollars. Thus you're rightly concerned about at least a couple bad scenarios:

1. You save diligently and invest prudently before retirement, and then just as you're approaching retirement (or in retirement) your investments (that aren't actual Singapore dollars or close correlates) significantly depreciate in value relative to the Singapore dollar. Said another way, the Singapore dollar suddenly generally appreciates against most of the world's other currencies, and it stays up there.

2. You save diligently and invest prudently before retirement, and then just as you're approaching retirement (or in retirement) your investments (that are Singapore dollars or close correlates) significantly depreciate in real value relative to the mostly imported goods and services that you consume in retirement.

To solve problem #1 pretty well, you can overweight Singapore dollars and/or their correlates. Funds such as MBH, ES3, and/or G3B are such examples. However, as you overweight any of these instruments you become more vulnerable to problem #2. To solve problem #2 pretty well you can stay invested in globally well diversified investments, such as CRPA, VWRA, and/or IWDA. It's about balancing these and other portfolio risks, in other words -- and periodically adjusting that balance particularly in the run up to retirement.

Fortunately the Monetary Authority of Singapore manages the Singapore dollar exchange rates as loose pegs to a trade-weighted basket of currencies, so it's already doing a lot of the heavy lifting for you.

 

[celtosaxon]

And probably the best way to deal with currency risk is to absolutely maximize your guaranteed future SGD income streams from CPF by targeting FRS in SA and ERS in RA for both you and your spouse (if applicable).

Having that as the core of your portfolio will allow you to hold riskier assets to fight inflation longer term, with the ability to ride out adverse currency & market movements.

 

[JadenQ]

1) Yes. The implications are, specifically, that your tax filing becomes horrendously complicated, for absolutely no benefit.
2) Yes, even if you don’t sell them in the US.
3) No, the entity doesn’t matter. Correction: the entity does matter, as BBCW points out downthread. Having an account at IBSG would mean you have to file an extra set of disclosure forms to the (US) feds.
4) Pick the Vanguard Target Retirement fund that matches your date when you think you’re going to retire. They’re great. They mix stocks and bonds, local and global, for a ridiculously low fee, and you literally don’t have to do any thinking; it’s just “buy one fund and you’re done”.

How do I go about buying into a Vanguard Target Retirement fund in Singapore? Is it via IBKR as well?

 

[swan02]

haha, that's what I recently advised a very risk adverse retiree.

1. Max to ERS, go on to the basic plan CPF life. Start your CPF life.
2. Start lump summing whatever cash you can find in and under your pillow into EQUITIES only. No need bonds. No need fear.

3. The CPF life has instantly increased your SWR.

And probably the best way to deal with currency risk is to absolutely maximize your guaranteed future SGD income streams from CPF by targeting FRS in SA and ERS in RA for both you and your spouse (if applicable).

Having that as the core of your portfolio will allow you to hold riskier assets to fight inflation longer term, with the ability to ride out adverse currency & market movements.

 

[celtosaxon]

haha, that's what I recently advised a very risk adverse retiree.

1. Max to ERS, go on to the basic plan CPF life. Start your CPF life.
2. Start lump summing whatever cash you can find in and under your pillow into EQUITIES only. No need bonds. No need fear.

3. The CPF life has instantly increased your SWR.

Did the retiree follow the advice? It’s not always easy to convince people who are risk averse.

But it is sound advice, especially if you can survive on CPF then you will have no fear and the upside on your riskier investments is just gravy.

My retirement plan is 40% guaranteed income streams, 10% bonds, 50% equities.

 

[Kaypohji]

Thanks this is clearer now

https://blog.seedly.sg/mas-exchange-rate-monetary-policy/

As background, if you're retiring in Singapore you'll be paying for your retirement lifestyle primarily using Singapore dollars. Thus you're rightly concerned about at least a couple bad scenarios:

1. You save diligently and invest prudently before retirement, and then just as you're approaching retirement (or in retirement) your investments (that aren't actual Singapore dollars or close correlates) significantly depreciate in value relative to the Singapore dollar. Said another way, the Singapore dollar suddenly generally appreciates against most of the world's other currencies, and it stays up there.

2. You save diligently and invest prudently before retirement, and then just as you're approaching retirement (or in retirement) your investments (that are Singapore dollars or close correlates) significantly depreciate in real value relative to the mostly imported goods and services that you consume in retirement.

To solve problem #1 pretty well, you can overweight Singapore dollars and/or their correlates. Funds such as MBH, ES3, and/or G3B are such examples. However, as you overweight any of these instruments you become more vulnerable to problem #2. To solve problem #2 pretty well you can stay invested in globally well diversified investments, such as CRPA, VWRA, and/or IWDA. It's about balancing these and other portfolio risks, in other words -- and periodically adjusting that balance particularly in the run up to retirement.

Fortunately the Monetary Authority of Singapore manages the Singapore dollar exchange rates as loose pegs to a trade-weighted basket of currencies, so it's already doing a lot of the heavy lifting for you.

 

[Kaypohji]

I was looking at VUSD and VUSA.
And I realise VUSD has better liquidity than VUSA... any idea why? Or did I see wrongly?
I would think accumulating fund is better than distributing

 

[Krish_v77]

SRS Investment Options

Hi ST, BBCWatcher, others, this is a wonderful thread and learnt a fair bit. Am particularly interested to know about potential SRS investment options. Lion global seems to have a sub-fund in tie up with Vanguard that tracks VT ETF. It’s called Infinity Global Stock index fund. When we buy through OCBC Unit trusts online, the fee is .352% and they seem to have a ongoing fee of .82%. It’s an SGD class fund instituted in Singapore, so no estate tax issues.

I also saw an article by investmentMoats about this product. FSM seems to have this fund as well.

Given the lack of attractive options for investing SRS outside of ES3/MBH, is this a reasonable choice inspite of the higher fees. In the Long run, as SRS is locked until age 62, can we not expect it to fair better over ES3 or MBH inspite of the cost. Any views?

Any thoughts from anyone for good SRS investment options and of the Lion Global infinity series

Endowus also provides some options for SRS investing through dimensional funds.

 

[BBCWatcher]

haha, that's what I recently advised a very risk adverse retiree.
1. Max to ERS, go on to the basic plan CPF life. Start your CPF life.

Actually the Escalating Plan, payout start at age 70, is the best overall choice for risk averse retirees. (The Basic Plan is the best overall choice for risk averse heirs. )

I think there’s also risk aversion merit in having one owner-occupied HDB flat of reasonable (not too lavish) character with a remaining leasehold that runs at least to the 120th birthday of the younger spouse/partner.

 

[swan02]

Yes u r right. This individual is not only risk averse but also places huge importance on heir who fortunately is me starting payout 70.

Even so, with an enhanced cpf life. I really don’t see the need of escalating, it’s overkill as together with a full on equity Mix with div shares are good for these oldies wanting to feel some cash n still beat inflation,
Great overall return n good for me as heir.

Actually the Escalating Plan, payout start at age 70, is the best overall choice for risk averse retirees. (The Basic Plan is the best overall choice for risk averse heirs. )

I think there’s also risk aversion merit in having one owner-occupied HDB flat of reasonable (not too lavish) character with a remaining leasehold that runs at least to the 120th birthday of the younger spouse/partner.

 

[swan02]

Check out CSSPX too.

How do u judge liquidity ?

I do it based on small spread yet has enough volume to execute that small spread.

A share price of 800 dollars but smaller volume can still be a lot more liquid as long spread is small vs a low dollar share price with bigger spread and large volume.

I was looking at VUSD and VUSA.
And I realise VUSD has better liquidity than VUSA... any idea why? Or did I see wrongly?
I would think accumulating fund is better than distributing