Country Diversification

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Hi
I read in other treads there are discussion on country diversification. I noted there are different views on this. I am wondering for those who believe this is good to have, where and how to you do it? I assume through equity investment is easier. Which country do you invest and which broker you use? I am thinking through ETF will be easiest. Tks for sharing.

 

[BBCWatcher]

I noted there are different views on this.

I don't think there are different views on this. If there are, they're wrong.

If you believe that portfolio diversification is essential, then some amount of international diversification is essential. Otherwise you're betting 100% of your financial outcome on whatever happens to Singapore, a very tiny country in a much bigger world. We can certainly quibble about how much, and there might even be lively debates about that, but I don't think there's any serious disagreement that zero is the wrong answer.

I am assuming here there is a portfolio to diversify, at least enough investment to overcome barriers, such as minimum initial balance requirements.

I am wondering for those who believe this is good to have, where and how to you do it?

In my view you keep it simple and age appropriate. If you want global stock exposure, IWDA or VWRL are terrific. (VWRL includes emerging markets but also has a very slightly higher management fee. IWDA doesn't, but it has a lower management fee and reinvests dividends. Take your pick -- they're both good.) If you want global government bond exposure, IGLO/IGLA are terrific. I am assuming non-U.S. persons here.

For most investors under age 50, and with a Singapore asset base (including CPF), you can probably ignore the IGLO/IGLA options. Those get more interesting from about age 50, when you'll probably want to start shifting away from the riskier stuff (in Singapore, too). Maybe from about age 45 for a conservative investor and/or early retirement plans.

And that's it. You don't worry about which countries or which stocks or anything like that. It's not that complicated. You just buy the whole world, regularly, and take a long-term investing approach. And you just decide how international you want to be, bearing mind that (unless you're really "small"), zero is the wrong answer.

 

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Tks for sharing, BBCWatcher. U have been giving out many sound advice, I notice. If I recall, there are some comments that there is ready some country diversification when u buy companies listed on SGX, as most companies here derived some revenue from outside Singapore. I think there are some truth in this as Singapore is too small a market.

So to me country diversification is more than just that. If Singapore is under threat, even SGX trading floor will have issues operating! So may I ask what platform to you use to hold your ETF? What are the holding cost? Tks.

 

[BBCWatcher]

If I recall, there are some comments that there is ready some country diversification when u buy companies listed on SGX, as most companies here derived some revenue from outside Singapore. I think there are some truth in this as Singapore is too small a market.

Yes, there is some. Enough to qualify for the "more than zero" international diversification? No.

If Singapore is under threat, even SGX trading floor will have issues operating!

Yes, those types of calamitous risks are what I would generally describe as threats to clear title. There are lots of examples of such risks in the "Wild West" cryptocurrency markets, where thieves are regularly stealing crypto coins from digital wallets. At least some of those thieves might be current and former employees of the cryptocurrency companies. If you want to experience what a Somalia-like unregulated financial market is like, with constant threats to clear title, give those markets a try.

Singapore was invaded and occupied by a foreign power, and that foreign power stole and destroyed assets. This actually happened, and within the lifetimes of many of today's Singaporeans. So it's clearly not impossible. But you don't necessarily need a Japanese invasion to experience a "clear title" problem. For example, what happens if somebody "mucks" with the CDP database, and suddenly there's some doubt about who owns what? Probably that'll get resolved correctly, in due course, but it'd be messy.

That said, I don't think it's worth getting too hyper concerned about such very long tail risks, but a little bit of defense against such risks is helpful. Especially when it's so easy to accomplish.

So may I ask what platform to you use to hold your ETF?

You can ask, but unless you're a U.S. person my answers wouldn't make any sense.

Interactive Brokers is a popular choice for buying and holding (non-U.S. person appropriate) IWDA, VWRL, IGLO, and/or IGLA. The minimum account opening requirement is quite reasonable, currency exchange and fund transfer costs are excellent (both in and out), from US$2,000 to US$99,999 the maximum annual charge is US$120 (minimum commission charges), and the regulatory environment is solid (U.S. broker, U.K. exchange and listed funds).

 

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Tks BBCWatcher.