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Old 25-09-2018, 08:18 AM   #691
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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.
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Old 25-09-2018, 10:59 AM   #692
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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.
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Old 25-09-2018, 11:39 AM   #693
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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.
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Old 25-09-2018, 01:03 PM   #694
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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.
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Old 25-09-2018, 09:47 PM   #695
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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.
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Old 25-09-2018, 10:25 PM   #696
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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).
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Old 25-09-2018, 11:00 PM   #697
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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.
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Old 25-09-2018, 11:40 PM   #698
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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.
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Old 26-09-2018, 10:05 PM   #699
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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).
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Old 26-09-2018, 10:21 PM   #700
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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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Old 26-09-2018, 10:37 PM   #701
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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.
Thanks for your reply! ) i saw theres a few symbols for the same Vanguard High Dividend Yield?

There’s VYM, VHDYX, and i saw in SCB there’s 0LMF and VYMI as well! May i know whats the difference between them? Is there anywhere i can compare? Especially like which are Ireland domiciled so that the withholding tax wont be so high :/

Also saw there’s a Vanguard Dividend Appreciation ETF as well with multiple codes 0LLW, VIGI and VIG! Kinda confusing for me is there anywhere that explains these differences? :/

And sorry but one last query is would you recommend the High Dividend or the Dividend Appreciation one? Or neither? Am looking for a low-cost ETF to support my “Dividend” part of my portfolio
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Old 26-09-2018, 10:48 PM   #702
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And sorry but one last query is would you recommend the High Dividend or the Dividend Appreciation one? Or neither? Am looking for a low-cost ETF to support my “Dividend” part of my portfolio
Assuming you’re not a U.S. person, VHYL is probably what you’re looking for. That’s traded on the London Stock Exchange and Irish domiciled. Just check www.vanguard.co.uk for details.
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Old 26-09-2018, 11:07 PM   #703
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Assuming you’re not a U.S. person, VHYL is probably what you’re looking for. That’s traded on the London Stock Exchange and Irish domiciled. Just check www.vanguard.co.uk for details.
Oh yes im non-US! Singaporean hahah! And VHYL and VHYD the only difference is the curreny am i right?
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Old 26-09-2018, 11:15 PM   #704
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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 wannabelazy,

first of all, sorry for the late reply. I was away from the forum for a few days.

Secondly, I like the shortform you gave to my user name. Never really thought about it. Thank you a lot.

Last but not least, let me try to answer your questions.

Treating CPF as bond, maintaining the "age-appropriate" ratio simply means you allocate a bigger portion of your "controllable" asset for equities. For reallocation nearing retirement, you simply sell your equity and buy more bond. Since CPF is bond and in SGD, you do not touch them or top up if you can. Most likely, it will not mean only purchasing bond when you are 7-10 years from retirement. Remember there is a cap for CPF contribution. I do hope your income will exceed that cap rather quickly and early, say in your late 20s or early 30s. So your "controllable" income will be significantly higher than your CPF contribution. So you allocate your income according to the ratio or as closely to the ratio as possible. Lastly, a bit off from the ratio is not the end of the world.

When your CPF life kicks in, my opinion is that you have reached an age where you use a different and more conservative framework to look at your asset. Instead of the ratio, you think about whether you have enough for your retirement and how much you want to pass down to your children. Whatever you need for retirement should be in bonds or bond-like (come on, you do not want/need to experience the roller-coaster ride of stock market in your 70s for the money you actually NEED for retirement. You should be enjoying life). For whatever you want to pass down to your children (it could be 0), you can maintain your portfolio in such a way that it is age-appropriate for your children's age or simply give to them and let them manage it.

My two cents for your consideration.
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Old 27-09-2018, 06:58 AM   #705
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And VHYL and VHYD the only difference is the curreny am i right?
Yes, like many ETFs listed in London VHYL has a currency twin (VHYD). Since you’re starting with Singapore dollars, presumably, just pick the one with the higher trading volume. They look pretty similar on that score, maybe with a slight edge to VHYD. (Neither have huge volume, though.)

If you’re concerned about the volume — and that’s a reasonable concern — then you could just go with the more popular VWRD that isn’t specifically trying to hold high dividend stocks but that distributes dividends.
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