How to Build a Savings Pot

[RubiksCuber]

True, nobody knows when to buy and sell.
How to know where is the low? How to know where is the high?
The low can go lower, the high can go higher

Not true, it is easy. Use FATA. If both say buy, then buy. If both say sell, then sell.

 

[archcherub]

1) On average, yes.
2) Not necessarily. Some ETFs have tax advantages or other mechanical advantages over others: for example, the VWRD ETF I mentioned above is exactly like the VT ETF that's listed in the USA (they're even both run by Vanguard), but VWRD has more favourable tax treatment because it's listed in the UK. The end result is 0.3% more per year in your pocket.
3) Since you mentioned low-cost trading accounts - the answer is almost always "Standard Chartered". They charge 0.2% with no minimum; they don't charge any bogus dividend handling or custody fees (which are always a ripoff); the only catch is that their FX spreads are quite wide, so you'll pay a bit extra to buy the VWRD. If you're buying and holding it for 20 years, though, this will be a rounding error.

hey shiny thing, thanks for the write up again.
VWRD listed in FTSE...
thanks man! i wanted actually to hold ETF of USA.. like DIA or SPY.
Now I may take up your suggestions of VWRD instead =)

 

[QNH1013]

hey shiny thing, thanks for the write up again.
VWRD listed in FTSE...
thanks man! i wanted actually to hold ETF of USA.. like DIA or SPY.
Now I may take up your suggestions of VWRD instead =)

If you do want a pure USA exposure, there still is the Irish-domiciled S&P500 ETF listed on the LSE as well. The ticker is VUSA, and compared to SPY, which has its dividend taxed at 30%, this one should only have it's dividends taxed at 15%.

Downsides, you might lose a little more in FX, as it is priced in GBP and the spreads are typically higher than USD, as well as the fund having a slightly higher expense ratio compared to SPY.

 

[loftystew]

Oh jesus. Sorry googoogaga, the muppet brigade got to this question before we could give you some sensible advice. Let's start from the very beginning, the beginning is the best place to start...



I think you might be my favourite question-asker ever to appear in this forum. You've got a good goal (invest in the market for 25 years); you've got generally the right idea (invest in funds instead of single stocks); you've got realistic return goals (5% per year is totally doable); and you're not being suckered by the idea of actively trading your pot.

So, in answer to your question, what you want is totally, 100%, completely doable, and it's doable at very low cost.

The only thing I'd change from your original suggestion is that you should use ETFs instead of mutual funds:



Actually they do. Most mutual funds don't deliver enough extra performance to make back the extra 1.5% per year - so after fees, you end up underperforming a simple index fund. (And if you're targeting 5% per year, then 1.5% is a HUGE amount to pay in fees - that's 30% of your target return! No way, no how.)

If you buy ES3, the STI ETF, you end up owning all the stocks in the Straits Times index and you're only paying 0.3% for the privilege. (There are also ETFs that give you access to overseas stocks; we'll talk about those later if you're interested.)

My usual rule of thumb is "110 minus your age in stocks; and the rest in bonds". You can do that easily: 80% of your pot in ES3, and 20% in A35, which is an ETF that owns Singaporean government and government-agency bonds. The bond component gives you a nice bit of diversification; if stocks spew, like they're doing now, bonds tend to go up and reduce the volatility of your portfolio.





Wahkao gives bad advice. You'll see him popping up all over the forums dropping little nuggets like "there are 800 stocks on the SGX, you should investigate every single one of them and only buy low risk high return stocks" (of which more later).

This is, let's be honest, totally unrealistic for most people. You're absolutely right - you'll get a hell of a lot more out of just being good at your day job and earning promotions and raises.





And this "low risk high return" catchphrase... look, there's a story behind that. Wahkao goes around the forums spouting "buy low risk high return stocks" as the solution to everyone's problems without ever actually defining what it means, or how to find a "low risk high return" stock. Then this sophie.wee.weng character popped up, and we're really not sure whether she's a very clever bot or a very creepy stalker, because she's latched on to wahkao and started parroting his buzzwords.

If you see anyone on here saying "low risk high return", or "use FA+TA, both say buy then buy", or "don't be so hard up over {xyz}", it's not actual advice - it's the people on here riffing on Wahkao and Sophie's stupidity. You can disregard it.

------

There's one other thing you can add to your investment strategy that will add a bit of juice to your returns, and that's a thing called rebalancing.

The idea is that once a year, you buy and sell your ETFs to bring them back to the "110 minus your age" ratio. Let's say stocks have a good year from here, and in 12 months' time stocks have gone from 80% of your portfolio to 85%. You'd sell some ES3 and buy some A35 to bring the ratio back to 80-20 (or, more strictly, to 110-minus-your-age).

(Why "110 minus your age"? Because as you grow older, you want your portfolio to be safer and less volatile, so you want to move it out of stocks (which give you more capital growth but more volatility) into bonds (which give you less growth but are less volatile as well). Also, the rule used to be "100 minus your age", but bonds are REALLY expensive right now so you don't want to be too heavily invested in them.)

The idea here is that indexes don't usually outperform for long stretches of time. If stocks outperform one year, bonds will generally do better the next year. If big stocks have a good year, small stocks will eventually catch up.

This doesn't work on a single-stock level - it only works on a broad index level. But if you're investing in broad index ETFs, a regular once-a-year rebalancing helps keep you disciplined, and it adds an extra 1-2% per year to your performance over the long term. That's a hell of a lot of money over 25 years!

So my advice boils down to:

1) Stick your pot into ES3 and A35, in an 80-20 ratio;
2) Once a year, rebalance to bring the ratio back to 110 minus your age;
3) Go to the pub.

Hi shiny things. May I know what do you means by 110 minus your age? What is 110?

 

[DeadshotX]

Hi shiny things. May I know what do you means by 110 minus your age? What is 110?

some people's rule of thumb is to own bonds in your portfolio equivalent to your age. So a 30 year old investor will have 30% bonds and 70% equity, as he ages, his allocation of bond/equity will shift accordingly, holding less risky investments to prepare for retirement.

Shiny Things's rule of thumb is to use 110 minus age instead of 100, but the concept is the same. Depending on your risk appetite, you could invest in more risky equities as well.

 

[Lasogette]

Current strategy because have a bit more time in my daily job.

1. Spend 40% of my take home salary (cpf not counted in this)

2. Invest 20% in a portfolio (Sg permanent portfolio) - Now trying to branch off to reits and considering blue chips to get abit of cash flow.

3. 20% goes to shopping for business ideas on items which can be resold on ebay etc. Using strategies such as cash back on credit card or spend X amount to get X% interest to get maximum advantage. This ensures that I do not spend money on things I do not need just to get the cash back.

4. 20% goes to a pure cash bank account for savings for a rainy day. This 20% sometimes when my hand is itchy i will use about 5% on my CFD account to "predict the market" . Still trying to cut this habit.

Any other things I can do shiny?

 

[Shiny Things]

Hi shiny things. May I know what do you means by 110 minus your age? What is 110?

So Deadshot pretty much explained it. The general idea is that when you're young, you can afford to take more risk in your portfolio - which means more stocks than bonds. But when you're older, you need more security and less risk, which means more bonds than stocks.

The rule used to be "100 minus your age in stocks"; that is, if you're 30 years old, you put "100 minus your age" - or 70 percent - in stocks, and the remaining 30% in bonds. This gives you a bit more volatility, but you can ride that out because you're young, and then you can capture the extra money that stocks give you. By the time you're 50, you'll be 50-50 stocks-bonds; and when you're 70, you'll be almost all in bonds, which gives you a nice secure capital and a nice secure income.

I changed my version of the rule to 110 from 100, because that puts you a bit less in bonds and a bit more in stocks. I think bonds are expensive right now - bond yields are at all-time lows, and so bond prices are at all-time highs - so I'd rather be a little less skewed toward bonds.

 

[highsulphur]

Fwiw, I consider my cpf to be part of my bond portfolio

 

[antonpoh]

Fwiw, I consider my cpf to be part of my bond portfolio

Only those amount above the MS can be counted as your portfolio.

 

[Mecisteus]

Only those amount above the MS can be counted as your portfolio.

those amount below is still your money. i dont understand why many cannot view it that way.

assuming you need $X monthly to retire and $Y is your CPF Life payout. then you just need to target $(X-Y) to reach your retirement goal. $Y is already paved compulsorily for you. you just need to make up for the excess.

 

[commie_rick]

I'm in the 30 to 40 group too and I'm subscribing to Shiny's general approach too although I do buy single blue chip stocks from the STI index from time to time.

There was a thread by one TS asking how to invest 700k and the advices there are similar. One possible hurdle for you will be execution. I started buying VT on the way down last week to beef up my equity exposure but I'm not exactly sure how much to buy at specific lower levels...

Save up an emergency fund first before anything else. Although the ballpark figure is 6-12 months' worth of salary, you could aim small first (1 month, 3 months, or by quantum of $3K, $5K, etc.). For me I go by 3 months.

After your expenditure, whatever amount left will become the cash component in an investment portfolio. Accumulate that first. After reaching an amount, you could try to start buying some counters/ETFs, either by monthly purchase (DCA method, possible by early next year with 100 shares per lot) or if the amount is huge, go into it immediately.

Portfolio wise, it is up to you. A few people here had given you some advice, but it doesn't hurt if you read up further (especially on asset allocation). Remember - there is no 1 universal portfolio, and from the other threads you can see arguments and debates on which investment style is the best, but eventually you must choose the one that you are comfortable with. Also, it is OK to mix and match other people's portfolio ideas into yours.

Disclaimer - I have ETFs (local and overseas), S-REITs, individual counters (local and overseas), bonds and precious metals.

Go bullion dealers and buy lor.
They usually sell gold, silver and abut of platinum.

For paper gold n silver can always go for ETFs. But the reasons behind holding gold and silver is to protect against financial armageddon....which paper derivatives would be hit as well. Hence it would be the best to actually hold the physical stuff.

great advises. while we are on the subject of etf and gold, ive some questions.


1. i currently own a counter which i bought during ipo, the price dropped sharply after it went ipo. paper lost is about $900. i still get dividend from it but it is in hkd. so after currency exchange. it isnt much yield.
this counter belong in sti etf as well. ive plans to buy sti etf but was thinking should i sell off the counter first ? i dont wanna be diluting the ROI .


2. why gold contract is better than phyiscal gold ?

 

[antonpoh]

those amount below is still your money. i dont understand why many cannot view it that way.

assuming you need $X monthly to retire and $Y is your CPF Life payout. then you just need to target $(X-Y) to reach your retirement goal. $Y is already paved compulsorily for you. you just need to make up for the excess.

Your money means when you really need it for emergency you can draw it all out and use it.

 

[commie_rick]

Your money means when you really need it for emergency you can draw it all out and use it.

i think the 100 rulle should be amended to included cpf for those who want to actively contributely to cpf on top of the 20% deduction . equities, bonds and retirement fund(cpf)

 

[bakuten]

great advises. while we are on the subject of etf and gold, ive some questions.


1. i currently own a counter which i bought during ipo, the price dropped sharply after it went ipo. paper lost is about $900. i still get dividend from it but it is in hkd. so after currency exchange. it isnt much yield.
this counter belong in sti etf as well. ive plans to buy sti etf but was thinking should i sell off the counter first ? i dont wanna be diluting the ROI .


2. why gold contract is better than phyiscal gold ?

Ill answer question 2.
Pros
1.Gold contract is more liquid vs the physical stuff. You can liquidate it at a click. Physical gold u still need to carry it around to change it for currency.

2.Gold contract also saves on storage. If you store ur physical gold with vaults...u will need to pay a fee....or u can keep it inside ur home.

*edit*
3. Gold contract is traded closer to spot vs physical delivery, which you would have to pay a premium of usually 4-6%(1 ozt sized coin or bar) over spot.

Con(s)

1.paper gold is afterall a promise on the gold. Just ask the customers of MF Global on how much this promise was worth after its scandal. You are open to 3rd party default risks

 

[w1rbelw1nd]

those amount below is still your money. i dont understand why many cannot view it that way.

assuming you need $X monthly to retire and $Y is your CPF Life payout. then you just need to target $(X-Y) to reach your retirement goal. $Y is already paved compulsorily for you. you just need to make up for the excess.

Well it depends on how you want to view the assets.... For me CPF that is investable should be considered as cash account, because it can be used to invest in stocks and bonds and gold. It's just very expensive "cash" that I would not use to invest first if I got cash in my bank earning 0.05% interest.

The minimum sum for cpf, which is not investable, will not be considered as part of my investment portfolio because I cannot do anything with it. Calculating it as part of my portfolio will give a false sense that I have a lot of cash/bonds for rebalancing....

 

[Bedokian]

great advises. while we are on the subject of etf and gold, ive some questions.


1. i currently own a counter which i bought during ipo, the price dropped sharply after it went ipo. paper lost is about $900. i still get dividend from it but it is in hkd. so after currency exchange. it isnt much yield.
this counter belong in sti etf as well. ive plans to buy sti etf but was thinking should i sell off the counter first ? i dont wanna be diluting the ROI .


2. why gold contract is better than phyiscal gold ?

For (1), I know there are differing views on this, but my take is no harm keeping the counter and getting the STI ETF, if the ETF and the STI counter serves different purposes in your portfolio. For me, the STI counter I have is meant for dividend play, but I still get the ETF for an overall exposure to the local market.

 

[Bedokian]

Well it depends on how you want to view the assets.... For me CPF that is investable should be considered as cash account, because it can be used to invest in stocks and bonds and gold. It's just very expensive "cash" that I would not use to invest first if I got cash in my bank earning 0.05% interest.

The minimum sum for cpf, which is not investable, will not be considered as part of my investment portfolio because I cannot do anything with it. Calculating it as part of my portfolio will give a false sense that I have a lot of cash/bonds for rebalancing....

To add, CPF is like a cash/bond hybrid, but subject to rules and regulations on its usage. I would treat it as a separate portfolio, aka its own "universe", from my main investment portfolio, which I have control over.

Of course, on the whole, CPF is still counted as an asset, part of your own net worth, i.e. the entire "multiverse".

 

[commie_rick]

For (1), I know there are differing views on this, but my take is no harm keeping the counter and getting the STI ETF, if the ETF and the STI counter serves different purposes in your portfolio. For me, the STI counter I have is meant for dividend play, but I still get the ETF for an overall exposure to the local market.[/QUOTE]


that was what im aiming for if i were to buy etf.

 

[loftystew]

some people's rule of thumb is to own bonds in your portfolio equivalent to your age. So a 30 year old investor will have 30% bonds and 70% equity, as he ages, his allocation of bond/equity will shift accordingly, holding less risky investments to prepare for retirement.

Shiny Things's rule of thumb is to use 110 minus age instead of 100, but the concept is the same. Depending on your risk appetite, you could invest in more risky equities as well.

So Deadshot pretty much explained it. The general idea is that when you're young, you can afford to take more risk in your portfolio - which means more stocks than bonds. But when you're older, you need more security and less risk, which means more bonds than stocks.

The rule used to be "100 minus your age in stocks"; that is, if you're 30 years old, you put "100 minus your age" - or 70 percent - in stocks, and the remaining 30% in bonds. This gives you a bit more volatility, but you can ride that out because you're young, and then you can capture the extra money that stocks give you. By the time you're 50, you'll be 50-50 stocks-bonds; and when you're 70, you'll be almost all in bonds, which gives you a nice secure capital and a nice secure income.

I changed my version of the rule to 110 from 100, because that puts you a bit less in bonds and a bit more in stocks. I think bonds are expensive right now - bond yields are at all-time lows, and so bond prices are at all-time highs - so I'd rather be a little less skewed toward bonds.

Thank you for answering my question. I'm too looking into starting my own 'saving pot'.

I assume by stocks, it means STI ETF in general since there are many kinds of offering for STI ETF.

What about bonds? I never heard or seen anyone talking about local bonds other than the ones issued by SG government. Any example of it?

Thanks a lot.

P.S - Is POEMS by PhillipCapital a great platform to start building your 'saving pot' with? Thinking of going with that since you technically don't own the stocks you buy for standard chartered platform.

 

[Shiny Things]

I assume by stocks, it means STI ETF in general since there are many kinds of offering for STI ETF.

What about bonds? I never heard or seen anyone talking about local bonds other than the ones issued by SG government. Any example of it?

Yep, I mean STI ETF in general. The best incarnation of an STI ETF is ES3, but it has a lot size of about $3k at the moment; G3B has a lot size of $300 but is slightly more expensive to trade.

When the lot sizes for everything converge to 100, you'll always want to own ES3 instead.

For the "bonds" pot, there's A35 - it's an ETF that owns a pile of bonds from issuers like the government, HDB and LTA. It's rock-solid, yields a couple of percent, basically it's a great choice for your bonds component and it's easy to buy and sell.

P.S - Is POEMS by PhillipCapital a great platform to start building your 'saving pot' with? Thinking of going with that since you technically don't own the stocks you buy for standard chartered platform.

Good god, where does everyone get this crap that "you don't own the stocks you buy" at Stanchart? Are there brokerage reps actively going around and lying to people about this?

Anyway. You do own the stocks you buy at Stanchart; the difference is that they're held in an account at Stanchart rather than an account at CDP. It's exactly the same as having money in a bank account at Stanchart.

And Poems is not a particularly good platform, no. Their brokerage is way too high ($25 minimum), and they charge bogus dividend handling fees. Any broker that charges you those (or custody fees! Those grind my gears so hard) is ripping you off.