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EagleToThesSky 20-02-2019 03:01 PM

Quote:

Originally Posted by BBCWatcher (Post 119266831)
What does the author mean by “income insurance” in this context? Is he/she pointing to a specific U.S. financial product? I have a guess — a couple guesses, actually — but I don’t want to guess.

From the book, Income insurance is a product people can purchase from major banks, such as JP Mogan, where you are completely protected from losing money and can share maybe 80% of gains when stock market goes up. In other words, if the market goes up for 10%, you may get 8% return. and if the markets go down by 10%, you get 0% return. So the money in the account never reduces and the increase for a "good" year is locked in and will never go away, even when market tanks.

Income insurance might not be the right term, because I read the Chinese version of the book.. did a simple google, the term might be "fixed indexed annuities"?

BBCWatcher 20-02-2019 04:08 PM

Yes, similar offers are available from insurance companies in Singapore -- the various savings and retirement plans they offer, with their guaranteed and non-guaranteed returns, and with varying credit ratings among the insurers -- some higher quality than others. The key difference is that the U.S. financial markets are bigger, more efficient, more transparent, and more competitive. So the deals on offer there are going to be better value deals all around.

A roll-your-own strategy is to use the options/futures markets to insure against particular downside risks -- the most severe ones anyway. But that's not free, of course, and you have to be careful about counterparty risks, as always. It's analogous to what companies in Singapore do in their currency hedging.

Shiny Things answers a lot of these questions, and as a generalization he's not a fan of such insurance. You really don't need such insurance if you simply follow "old fashioned" long-term investment principles.

bullshitregister 21-02-2019 10:35 AM

Hi BBC,

Apologies if this has been asked before. Please refer me to an earlier thread if there is as I could not find it.

I would like to find out your view on Dividend-focused ETF's and if you have any favourites in terms of fund managers or lowest cost.

Understand from your postings as well as the ST thread that the general recommendation is to hold an age-varied IWDA (dividend reinvested) and Bond portfolio for the long term. However, if I was only having a 5-10 year investment horizon, I was wondering if an alternative portfolio would be to hold a dividend-focused ETF (and hopefully that also has dividends reinvested).

Thanks in advance!

BBCWatcher 21-02-2019 01:05 PM

Quote:

Originally Posted by bullshitregister (Post 119302157)
I would like to find out your view on Dividend-focused ETF's and if you have any favourites in terms of fund managers or lowest cost.

OK, I don't like them except possibly for retirees. If you're not a retiree, they're wrong for you.

As a general principle, tax authorities prefer taxing money in motion. When companies pay dividends, that money moves, and that's when it's taxed. Alternatively, if the company retains earnings and invests those earnings to grow the business (and its market value), that's usually not taxed or even tax favored. So there's frequently a tax cost to dividends, somewhere. The fund might pay the tax then reinvest the net dividends, the fund might pay the tax then distribute the dividends, or you might pay the tax on the distributed dividends -- or some combination.

Quote:

However, if I was only having a 5-10 year investment horizon, I was wondering if an alternative portfolio would be to hold a dividend-focused ETF (and hopefully that also has dividends reinvested).
If you're a few years away from retirement, then you might consider a dividend-oriented ETF. It still don't like the idea, though, because of the inherent tax cost. I think it's better to choose an appropriate mix of stock and bond funds and then just gradually sell shares while you're in retirement to generate an income flow.

The reason I hedge a little bit for retirees is that, in certain tax jurisdictions anyway, a dividend-oriented fund can be appropriate in some percentage within a retirement portfolio. For example, retirees in the United States usually pay the lower "qualified dividends" tax rate on stock dividends that's the same rate as the long-term capital gains tax rate. That rate is lower than the rate on, for example, bank interest. So a dividend-oriented stock fund could be a reasonable thing to hold, in some measure and within a retirement portfolio. But that's not like Singapore. It looks like retirees in Singapore are better off sticking to a simpler portfolio that happens to be more tax efficient.

It's true there is a brokerage cost to sell shares, so you have to take that part into consideration relative to the potentially higher (but subject to more tax) dividend payouts in a dividend-oriented fund that distributes dividends to shareholders. It's good to minimize brokerage costs, too.

bullshitregister 21-02-2019 02:51 PM

Thanks for the insight BBC. I did not consider the tax implications at all and was not thinking of the 'moving money' scenario.

Agree that it may make sense for a retiree and it can possibly reduce brokerage if you live off the dividends only. But given I was thinking about a dividend-reinvesting dividend fund, then brokerage would still be incurred when selling it off for income needs :s13:

The reason why I said 5-10 years horizon wasn't only related to retiring, but also related to an attempt to reduce volatility. ie. In the next 5-10 year cycle the market could go up/down/sideways. And if I wanted to fund a house purchase in 10 years time, I thought a dividend fund would have less volatility (and reduce risk of a capital loss.)

However, now considering this more, my basis of assuming that dividend funds have less volatility and a lower drawdown may be incorrect and perhaps I need to do more research.

BBCWatcher 21-02-2019 06:22 PM

Quote:

Originally Posted by bullshitregister (Post 119307769)
The reason why I said 5-10 years horizon wasn't only related to retiring, but also related to an attempt to reduce volatility. ie. In the next 5-10 year cycle the market could go up/down/sideways. And if I wanted to fund a house purchase in 10 years time, I thought a dividend fund would have less volatility (and reduce risk of a capital loss.)

A dividend-oriented stock fund classically should have somewhat lower volatility, but that's not a given. It'll certainly have higher tax-related costs due to the way dividend taxes work, as I mentioned.

Because of the cost implications I prefer (for Singaporeans in Singapore anyway) keeping it simple and just adjusting the portfolio mix of stocks and bonds to be appropriate for the time horizon. For example, if you've got a 10 year time horizon on a particular bucket of money, then maybe something like an initial 50-50 mix makes sense, and then you gradually ease away from stocks and more into bonds as you converge on your drawdown date. Something like that, anyway.

If you want to go shopping for a dividend-oriented stock fund, and assuming you're not a U.S. person, you could take a look at what Blackrock (iShares) offers in London. WQDV is one such example (a dividend-oriented subset of IWDA, basically), but it's a tiny fund and not popular, so it'll probably have trading volume and wide bid-ask spread challenges. The Total Expense Ratio is pretty reasonable for London, though, at 0.38%. It's distributing, as you might expect. Most of the people looking for such a fund are retirees, or at least they should be, so distribution of the dividends is a useful feature. For one reason or another I don't like any of the other Blackrock dividend-oriented stock funds. QDIV is a much bigger fund (although still a bit small) and is essentially WQDV with everything that isn't U.S. listed chopped off. But that'll all get whacked with the 15% U.S.-Ireland treaty rate on dividends, internally in the fund. So a dividend-oriented U.S. listed stock fund is pushing more money through that 15% tax filter. That's much better than getting whacked with a 30% non-treaty U.S. dividend tax rate, but it's still a cut. And, as a U.S. taxpayer, I should thank you in advance. (I believe in taxes, by the way, especially when raised from wealthy and high income people who can afford to pay them. Taxes buy nice goods and services that I and others often enjoy. Promptly pay all taxes you legally owe, please.)

Investnewbie82 23-02-2019 12:13 AM

Hi!

I posted this on ST thread but I guess it got lost. Hope to get your input too :)

I've started DCAing into ES3 n IWDA (via scb n ib respectively). About 1k a month.

My question is about the bonds portion. I read its recommended to get MBH or A35. But also that SSBs are really good. So if I get SSB, how do we do the rebalancing? Someone commented to just treat CPF as the bonds portion. Does it make sense to just rebalance local vs global etf?

Also, isit essential for the portfolio? From what I understand, the bonds portion is to hedge against stocks when market falls. But I don't see how SSBs will help in that aspect. (Interest rates are fixed?)

My investment horizon is about 20 years, investing for retirement.

Thanks in advance!

BBCWatcher 23-02-2019 07:22 AM

Quote:

Originally Posted by Investnewbie82 (Post 119336033)
My question is about the bonds portion. I read its recommended to get MBH or A35. But also that SSBs are really good. So if I get SSB, how do we do the rebalancing? Someone commented to just treat CPF as the bonds portion. Does it make sense to just rebalance local vs global etf?

When assessing whether you have an appropriate (for you: your age, time horizon, investment goals) portfolio mix, you should count all household wealth. CPF is part of your (and your spouse’s/partner’s, if applicable) wealth. It counts.

Then you have the mechanics of how you rebalance, which is a secondary concern. CPF isn’t well suited to rebalancing, although it’s not altogether impossible. (If you have a long enough time horizon, your Special Account has reached the Full Retirement Sum, and you have Ordinary Account dollars piling up, you can use a CPF Investment Account to push dollars into ES3 or G3B if you wish.) SSBs can be used to rebalance quite well because you can buy and redeem them in $500 increments, which is more than good enough. (Rebalancing should just be occasional “nudges.” It’s not an emergency if your target portfolio mix is 80-20 and you’re at 78-22, for example.) SSBs also serve very well as a source of emergency reserve funds for emergency month #3 onward, so they serve a nice dual purpose.

MBH is a better bond fund all around than A35 for long-term investors.

Investnewbie82 24-02-2019 01:20 PM

Hi BBCW,

This question is on CPF OA/SA accounts. I undrerstand There is a 7k annual cash top up limit. Is there a limit to amount we can have in SA? Let's say I have 100 k OA and 100 k SA, can I transfer all into SA for extra interest?

Also, at 55, say we choose for ERS, so after that amount, we can keep the excess in RA? Can we withdraw this amount anytime we want? Like a 4% bank account?

BBCWatcher 24-02-2019 02:42 PM

Quote:

Originally Posted by Investnewbie82 (Post 119358147)
This question is on CPF OA/SA accounts. I undrerstand There is a 7k annual cash top up limit.

There is not such a limit. That’s the limit for tax relief when topping up a Special Account or Retirement Account, and it can be doubled ($7,000 x 2) if one of the top ups goes to an eligible family member’s SA or RA.

Quote:

Is there a limit to amount we can have in SA? Let's say I have 100 k OA and 100 k SA, can I transfer all into SA for extra interest?
Directed (single account) SA top ups are limited to the Full Retirement Sum. OA to SA transfers also also limited to the FRS and must be done before age 55.

“All three” CPF top ups are allowed every year, including when you’re 100+ years old, but must fit within the CPF Annual Limit.

Quote:

Also, at 55, say we choose for ERS, so after that amount, we can keep the excess in RA? Can we withdraw this amount anytime we want? Like a 4% bank account?
You cannot top up a Retirement Account beyond the ERS. CPF LIFE payouts, which are funded from the RA, must start no later than age 70.

Your Special Account still exists and could have dollars in it. And it could get restocked a bit from “all three” top ups.

Investnewbie82 24-02-2019 03:47 PM

Quote:

Originally Posted by BBCWatcher (Post 119359498)


Directed (single account) SA top ups are limited to the Full Retirement Sum. OA to SA transfers also also limited to the FRS and must be done before age 55.

So in my example of 100k each in OA n SA, I can only transfer a max of 66k now from OA into SA?

JuniorLion 24-02-2019 03:52 PM

Quote:

Originally Posted by Investnewbie82 (Post 119360579)
So in my example of 100k each in OA n SA, I can only transfer a max of 66k now from OA into SA?

FRS is 176k this year, so 76k (not 66k).

Investnewbie82 24-02-2019 10:18 PM

Ok thanks!
Quote:

Originally Posted by JuniorLion (Post 119360656)
FRS is 176k this year, so 76k (not 66k).

I've a further Question. Let's say I have 200k in OA now, 150k in SA. 38 years old this year I'm thinking of this plan of topping up SA to the max of 176k. Now if I put in excess money into OA, I can earn 2.5 % which I can withdraw at 55?

But if opt for ERS, I can only withdraw the excess at 65?

Sorry for being so many noob Q here..

BBCWatcher 25-02-2019 07:28 AM

Quote:

Originally Posted by Investnewbie82 (Post 119367464)
Let's say I have 200k in OA now, 150k in SA. 38 years old this year I'm thinking of this plan of topping up SA to the max of 176k.

Good idea, specifically a $7,000 cash top up for tax relief (still time to do that this month — February, 2019, for 4% interest crediting from March 1, 2019, using PayNow QR) then an OA to SA transfer for the rest (also within this month, which you can do online as late as February 28, 2019, for this month).

Quote:

Now if I put in excess money into OA, I can earn 2.5 % which I can withdraw at 55?
How do you “put in excess money into OA”? Through a repayment of money you used for OA plus accrued interest? You could, but generally speaking at age 38 you shouldn’t since you should be able to do much better elsewhere through prudent, age appropriate saving and investing.

Quote:

But if opt for ERS, I can only withdraw the excess at 65?
On your 55th birthday your Retirement Account will be created and funded to the Full Retirement Sum. If you top up your Retirement Account with cash to the Enhanced Retirement Sum, that’s fine, or even better than fine, but it doesn’t affect your ability to withdraw whatever is left over in your OA and SA.

pmstudent 26-02-2019 11:13 AM

SRS cheapest investment
 
Hi BBC,

I am looking to invest my SRS account, and searching for the cheapest way to invest in global index.
I looked at LionGlobal Infinity Global Index Fund, the initial charge of 2 % is ridiculous.
I looked at LionGlobal All Season Fund (Growth), it is the same.
Indexing is supposed to be cheap, close to zero fee, right ?
Please advise, what are my options ?

Thanks !


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