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BBCWatcher

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Any idea why is MBH on a gradual downward trend?
MBH is not designed to be a short-term holding, please note.

That said, over the past several days Singapore dollar interest rates have been rising, and that tends to reduce the market value of outstanding (previously issued) bonds. Bond prices and interest rates move in opposite directions. A bond fund holds bonds, of course, so the share price of MBH should be falling right along with bond prices.
 

hengah_ongah

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Is it worth it to go long on robo advisor e.g. utrade robo as Sing dollar can be chosen as the currency?
so that we can avoid e hassle of converting it into foreign currencies and div will also be paid in sing$
 

BBCWatcher

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Is it worth it to go long on robo advisor e.g. utrade robo as Sing dollar can be chosen as the currency?
so that we can avoid e hassle of converting it into foreign currencies and div will also be paid in sing$
With an accumulating fund such as IWDA there are no cash dividends, and you'd be reinvesting dividends during accumulation phase. So that part doesn't matter.

UTRADE ROBO charges an annual management fee ranging from 0.88% to 0.50% depending on the amount of assets you have with them. That's quite expensive if the only benefit you're getting is the currency conversion. And that's assuming the currency conversion is free, i.e. no markup from the hypothetical mid-point rate. Probably that's not what they do.

So no, I don't think those are strong arguments in favor of UTRADE ROBO. Lately LionGlobal has introduced a couple low cost (by Singapore standards) unit trusts that are available through zero charge platforms, and with lower minimums. I think those LionGlobal unit trusts would be better for starting investors than UTRADE ROBO.
 

hengah_ongah

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Oh thanks a lot for the advice..
For going long IWDA, what do investor normally do once they hit retirement age and need passive income. They got to sell some shares every few months?
 
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Oh thanks a lot for the advice..
For going long IWDA, what do investor normally do once they hit retirement age and need passive income. They got to sell some shares every few months?

Right, and ideally, you should have started your re-allocation of your portfolio 7-10 years before your retirement, increasing bond vs stock and increasing SGD (assuming you retire in sg) vs USD or other foreign currency. These accumulating funds like IWDA would be on top of your list to sell for re-allocation
 

wannabelazy

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Right, and ideally, you should have started your re-allocation of your portfolio 7-10 years before your retirement, increasing bond vs stock and increasing SGD (assuming you retire in sg) vs USD or other foreign currency. These accumulating funds like IWDA would be on top of your list to sell for re-allocation

Hi ETTS, for a Singaporean using their CPF savings as their bond portfolio, how does portfolio reallocation work? Does this mean 7-10 years of bond ETF purchases (with none prior to these 7-10 years)? And how does portfolio reallocation look when CPF Life payouts begin? Because it seems that once CPF funds form the retirement sum, the lump sum is swapped for an annuity?
 
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vegavega25

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Shall I update my status by filing a new W8-BEN rightaway? (https://www.fidelity.com/customer-service/how-to-update-foreign-status)

Yes, absolutely, with all your financial institutions.

Okay, this bit is done. Now on to the 2016 and 2017 1040NRs.

But while here, how in the world do I choose which state's 529 to even look at? At this time, I can imagine (very broadly; CA / MA / MD / PA / NY) where my kid will go to University in 15 years, but there is absolutely no way of knowing. I no longer have a home or family (not counting extended relatives) which I can say with any degree of confidence is an "anchor" in the US.
 

BBCWatcher

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But while here, how in the world do I choose which state's 529 to even look at? At this time, I can imagine (very broadly; CA / MA / MD / PA / NY) where my kid will go to University in 15 years, but there is absolutely no way of knowing.
The various states sponsor 529 plans, but the funds from any 529 plan can be used for any qualified educational expenses, not just expenses incurred within the state that sponsors the plan.

You compare 529 plans based on costs, fundamentally. California is the biggest state, so it has an inherent cost advantage that seems to be reflected in its 529 plan.
 

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Hi BBCWatcher, what do you think about VHDYX? The Vanguard High Dividend Yield Index? :)
Its exchange-traded twin, VYM, is generally better. VYM is certainly better through Vanguard itself because Vanguard doesn’t charge any commissions for their own ETFs, and VYM has lower fund management expenses.

VYM and VHDYX are tax inappropriate for non-U.S. persons, including residents of Singapore (who are not U.S. persons). VYM could be interesting for some U.S. persons, such as older investors.
 

wannabelazy

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Hi ETTS, for a Singaporean using their CPF savings as their bond portfolio, how does portfolio reallocation work? Does this mean 7-10 years of bond ETF purchases (with none prior to these 7-10 years)? And how does portfolio reallocation look when CPF Life payouts begin? Because it seems that once CPF funds form the retirement sum, the lump sum is swapped for an annuity?

Hi BBCW, any thoughts on this please? Since I realise it's your prescribed portfolio reallocation strategy.
 

tangent314

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Hi ETTS, for a Singaporean using their CPF savings as their bond portfolio, how does portfolio reallocation work? Does this mean 7-10 years of bond ETF purchases (with none prior to these 7-10 years)? And how does portfolio reallocation look when CPF Life payouts begin? Because it seems that once CPF funds form the retirement sum, the lump sum is swapped for an annuity?


Just maintain the target ratio for your age.
Every month, recalculate your portfolio ratio and compare it against your target ratio. If you are too high on bonds, then buy equities for that month, otherwise buy bonds.


Once your CPF Life begins at age 65, your bond portfolio will drop significantly with your RA suddenly being emptied out. However, the CPF Life does have value that should count as your bond portfolio, and that value can be approximated as the bequest value at that point in time.
 

BBCWatcher

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Once your CPF Life begins at age 65, your bond portfolio will drop significantly with your RA suddenly being emptied out. However, the CPF Life does have value that should count as your bond portfolio, and that value can be approximated as the bequest value at that point in time.
I agreed with you up until this last bit, but this last bit doesn't seem quite right to me. In particular, you don't really want to measure CPF LIFE in terms of bequest value even for portfolio allocation decisions at age 65+, since that'll probably steer you in the wrong direction in terms of making a payout plan decision. But let me ponder that one and see if I have any better ideas.
 

sweetbearfire

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Should I top up to ERS

Hi BBCWatcher,

I have a family member who is 58 this year. His CPF account looks roughly like this:

OA: 400K
SA: 300K
MA: 54K
RA: 171K

These figures are approximate but basically he has reached FRS in his RA.

Should he (i) transfer funds from SA into RA to hit ERS (ii) top up his RA to ERS with spare cash?

What should the factors he consider when trying to achieve ERS?

Could you think of the pros and cons of topping up to ERS?

Pros:
Higher stream of monthly income upon age 65

Cons:
Immediate loss of liquidity equivalent to one BRS tranche.

Thanks.
 

BBCWatcher

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I have a family member who is 58 this year. His CPF account looks roughly like this:
OA: 400K
SA: 300K
MA: 54K
RA: 171K
These figures are approximate but basically he has reached FRS in his RA.
Awesome!

Should he (i) transfer funds from SA into RA to hit ERS (ii) top up his RA to ERS with spare cash?
If he has that $85,500 in cash, and if that cash is currently yielding less than 4% (the Special Account rate) -- or if he has at least part of his $85,500 top-up available in cash -- then it'd be better to use that cash.

What should the factors he consider when trying to achieve ERS?
Well, if he has a spouse or partner who has CPF balances that are trailing well behind his, then it's usually best if he can help that person pull his/her CPF balances up closer.

Could you think of the pros and cons of topping up to ERS?
Pros:
Higher stream of monthly income upon age 65
That's right, or at age 70, or anywhere in between. And there's lovely 4% interest on that top-up as it ripens into its premium contribution to CPF LIFE, starting from October 1 if he can get to a CPF office and hand over a check before 10 a.m. this Friday. (We're getting close to the end of the month.)

Cons:
Immediate loss of liquidity equivalent to one BRS tranche.
True, but he's got ~$700K of liquid CPF assets alone -- and perhaps more OA+SA streaming in from employment if he's still working. Even without the interest on that $700K that's equivalent to $8,333/month over the next 84 months ($100K/year). I picked 84 months because that's the maximum number of months he has until he turns 65. That's loads of liquidity, and that's just from his CPF OA and SA.

I should also point out that, after an ERS top-up (which I think is a good idea in these circumstances), and if he hasn't reached and won't reach the CPF Annual Limit, and if he has some spare cash still lying around, he can stuff it into CPF through an "all three" top-up (CPF Form VC/1 or its electronic equivalent). That top-up then earns a blended interest rate >2.5% (blended between OA and SA, since his top-up will get allocated to both sub-accounts according to the standard allocation rule for his age). And that certainly beats bank fixed deposits and SSBs. With his MA pegged at the Basic Healthcare Sum (BHS) like he has, CPF is an interesting little piggybank for up to $37,740/year (the CPF Annual Limit).
 

hengah_ongah

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Riding on the cpf question, should a young adult try to build and hit max SA first before investing in equity?

Understand that around 20% should b allocated to bond for a 30 years old +, in this case i am using cpf as my bond allocation. However, if going by this timeline, it would be quite difficult to hit FRS/ERS.
 

BBCWatcher

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Riding on the cpf question, should a young adult try to build and hit max SA first before investing in equity?
As you've phrased it, no.

However, if you want to give MA then SA (in that order, I'd advise) a little greater attention than the "rule of thumb" would suggest, in particular because you qualify for tax relief and perhaps also bonus interest, then that's quite reasonable. A 4% or even 5% nominal yield with tax relief is quite attractive.

But I don't think I'd focus solely on CPF. I'd do some of both (CPF and stocks) if possible.
 

sweetbearfire

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If he has that $85,500 in cash, and if that cash is currently yielding less than 4% (the Special Account rate) -- or if he has at least part of his $85,500 top-up available in cash -- then it'd be better to use that cash.

Am i right that transferring funds (say $85.5K) from SA to RA yields no difference in terms of interest rate? But he will lose immediate access to these funds once they enter RA.

Anyway, thanks for your very comprehensive reply. Really appreciate.

Awesome!


If he has that $85,500 in cash, and if that cash is currently yielding less than 4% (the Special Account rate) -- or if he has at least part of his $85,500 top-up available in cash -- then it'd be better to use that cash.


Well, if he has a spouse or partner who has CPF balances that are trailing well behind his, then it's usually best if he can help that person pull his/her CPF balances up closer.


That's right, or at age 70, or anywhere in between. And there's lovely 4% interest on that top-up as it ripens into its premium contribution to CPF LIFE, starting from October 1 if he can get to a CPF office and hand over a check before 10 a.m. this Friday. (We're getting close to the end of the month.)


True, but he's got ~$700K of liquid CPF assets alone -- and perhaps more OA+SA streaming in from employment if he's still working. Even without the interest on that $700K that's equivalent to $8,333/month over the next 84 months ($100K/year). I picked 84 months because that's the maximum number of months he has until he turns 65. That's loads of liquidity, and that's just from his CPF OA and SA.

I should also point out that, after an ERS top-up (which I think is a good idea in these circumstances), and if he hasn't reached and won't reach the CPF Annual Limit, and if he has some spare cash still lying around, he can stuff it into CPF through an "all three" top-up (CPF Form VC/1 or its electronic equivalent). That top-up then earns a blended interest rate >2.5% (blended between OA and SA, since his top-up will get allocated to both sub-accounts according to the standard allocation rule for his age). And that certainly beats bank fixed deposits and SSBs. With his MA pegged at the Basic Healthcare Sum (BHS) like he has, CPF is an interesting little piggybank for up to $37,740/year (the CPF Annual Limit).
 

BBCWatcher

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Am i right that transferring funds (say $85.5K) from SA to RA yields no difference in terms of interest rate? But he will lose immediate access to these funds once they enter RA.
That’s correct. It’s very, very hard to beat liquid funds earning Singapore government guaranteed 4% interest, which is what he has. That’s a lovely high balance savings account, really. So cash is best for the RA top-up, if spare cash is available.

There’s a CPF “hack” which we’ve nicknamed the “Special Account Shield” (SA shield). That involves investing Special Account funds via the CPF Investment Scheme for a very short period of time, transferring the funds into RA, making any other desired withdrawal, then lowering the shield to return shielded funds back into SA. There’s a cost to execute that maneuver, though. Spare cash still works better, if it’s available, and that 2.5% interest Ordinary Account is still also an excellent “on demand” savings account.
 
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