Drawdown Strategy

[BBCWatcher]

However, investment grade bonds could give you 4% p.a. or even higher, for example this one, where YTM is currently 4.547% p.a.

That’s a single U.S. dollar bond, with significant currency risk for a retiree living in Singapore. It’s also callable. It’s a nonstarter.

I don’t think the thread starter is planning to retire in Wyoming.

Oh ya btw, the citibank maxigain is guaranteed @ >2.2% now.

Fabulous, after one year of holding. No, it’s not guaranteed, because it’s based on a fluctuating SIBOR rate and also on Citibank’s maintenance of that product (and Citibank’s continued solvency and business participation in Singapore). You’re not thinking in multi-decade timescales here.

And, unfortunately, you cannot draw down even the interest on Maxgain without resetting the interest rate. Don’t you think that would be a problem for retirement income purposes?

On top of all that, the interest rate on funds in a Maxgain Savings Account in excess of $150,000 is 0.05%. So that doesn’t work either.

Good grief, these are bad ideas. The goal is retirement income security. Let’s at least try to focus on fulfilling the goal, OK?

 

[BBCWatcher]

I don’t know why I bother sometimes, but here we go down the rabbit hole again with someone who’s arguing with somebody else (not me)....

Singaporeans better be beware!
The fact that Singapore imports most of your basic necessities means that you are most at risk of forex movements, particularly those of USD and RMB!

First of all, I recommended some international exposure for this retiree. But that’s quite different than recommending a single U.S. dollar denominated bond and pretending that its current ~4% yield is meaningful for a retiree living in Singapore. It’s not. It’s a foreign currency, with currency risk. That ~4% yield (with some default risk) could be easily swamped by exchange rate movements.

For a retiree living in Singapore, the factors you describe would be transmitted via inflation (or deflation) into the domestic economy. And that’s why a balanced approach is prudent, including some equities exposure — equities are far better inflation fighters than foreign currency bonds are. Inflation would also end up reflected in domestic interest rates in due course. But going heavy (or all-in) on a U.S. dollar denominated single bond? That’s not retirement security.

Ask you: Why you prefer a "bond" that is perpetual, non-callable, and you can't redeem at par value?

I don’t recommend perpetuals at all. You did that.

The problem will callable bonds (perpetual or not), especially individual ones representing such a large percentage of your portfolio, is that they’re called at the worst possible time for you. They’re only called when market interest rates are lower — when your alternative bond investments are so much less attractive than the bond you’re holding. That’s supremely bad for a retiree seeking retirement income security.

I don’t recommend individual bonds, perpetual bonds, or callable bonds, at least not in these circumstances.

 

[SibehHL]

Interesting thread (not so much the bickering) and was hoping for more positive ideas & discussions....

 

[Time-to-retire]

I'm new here.

My wife and I are near retirement, we have accumulated $1.5 mil in cash.

The drawdown would start in about 5 years and continue for the next 25-30 years. Since we did not built a stock/bond portfolio in the past and all our money are in cash, what sort of drawdown strategy would you recommend?

Would love to hear your opinion. TIA

Dear BlueRobin
I will like to share my current experiences as I have lived through your stated scenario a couple of years back and had to managed a sum of 1.5 M.
Currently, my wife and I are a couple of years younger than both of you (we think) and will begin to draw down on our investment about 5-7 years.
We have invested 1M (out of the 1.5M) in a mixture of the following:

1. STI ETFs [about 2.5% dividend]
2. ABF SG Bonds and other not-so-risky bonds (e.g., FCL Trea bonds) [between 2.5-3.0%]
3. Reits [between 6-8 %]
3. Equity [between 3-4%]

The average annual return is 5% (which is what I am very comfortable with), and provides about $4,100 per month at current investment environment. It took us a couple of years of experimenting with the asset composition (fortunately to have the last bear market) to create a portfolio that have given us the 5% dividend currently.

What happens in the next several years or when it's time for the draw down is anyone's guess. Our CFPLife at 65 yrs (We will not delay withdrawal till 70 yrs as mathematically it is not worth the increased % payout), will provide us with another $2,000 giving a total monthly income of $6,000 which is our income goal for retirement.

The remaining funds of 500K are currently parked in a variety of high-interest accounts:
1. Singapore Saving Bonds
2. SG Securities (10 years) [You might not consider this savings??]
3. DBS Multiplier account (since both of us are still working)
4. Citi Maxigain Savings account
5. SCB eSaver

(There are others but I do not use them).

Since we are currently working and drawing an income, and that my wife and I are quite comfortable with out current portfolio, we are channeling current savings and bonus into IWDA (on the LSE) and maybe US equities. Still understanding the latter.

Based on our experiences, it will take a couple (to a few years) with opportunities in the stock market to create a portfolio of the different asset classes (i.e., bonds, equities, ETFs, etc). to arrive at the required percentage of returns that you will like. You have to feel comfortable with what you are investing (and be able to sleep at night during the recent 20% pullback) as this is your money.

Naturally, it took us a few years to completely invest the 1 M (and no, I did not do any Dollar Cost Averaging) and bought small amounts each time when the market has corrections, to help with averaging down. However, most of the investments were made during the previous pullback, when STI was between 2800-3200. I still invested when the market was moving from 3200 to current levels, but only for specific companies or reits. I try not to average up, and I see corrections as a sale for me to invest more (to average down). Because of my interest in personally managing my retirement account, and understanding about financial investment, etc. I do spend time reading and understanding so that I can make informed decisions. This is the most difficult part of investment, NOT putting the money into the asset classes. Opening a trading account and 'clicking' BUY is easy. However, there are the other DCA strategy that others have recommended. I do not think these strategies meet my needs and goals, at this stage of my investment time-frame.

Sorry for being so long-winded, and I hope my lived experiences with investing 1M over a 5 year period have provided you with a sense of what it means for us at this stage. I started late into the investment game, and I think I am quite satisfied with what I have done. Why is 500K still sitting in the bank? Well, so that I can sleep soundly at night.
Just as a point of encouragement, I did seek advice from the other investors here before I started on my investment journey. So you are surely on the right track BlueRobin. Cheers

 

[Time-to-retire]

no offence to other SSI peeps but you should probably look for someone else who has that amount of money to ask for advice instead of people who don't even have 1 million.

After all, those people who have had that amount of money or more would probably have gone through the same thinking process as you and would be able to give you their opinions or even their current lifestyle (how they make use of this 1.5 million for their lifestyle) .

Dear BlueRobin
The comment by havetheveryfun is quite important because of the following scenario:

Most of the current investors (in this forum) are those who have been investing an amount of their (extra cash) into a certain portfolio and have been growing this portfolio over many years, finally amassing to more than 7-figure (hopefully). I do not belong to this category as I did not take a personal interest in my investment and trusted banks and FAs for over 10 years. Unfortunately, I lost money instead of growing it. What I have done over a 10-year period was to save a huge chunk of our salary and keep in FDs.

How I am similar to you is that in 2013, we realised that this savings has become a huge amount (and moving closer to retirement) and I took a personal interest in wanting to invest it for retirement. Even though our circumstances of arriving at the 1.5M is different, but we are at similar starting scenario.

With 1.5M in cash (which is an excellent feeling) moving into retirement, the normal psychological state is to take no-risk, especially so when this is for retirement and we do not have many more years to work. Many suggestions provided were to break the 1M into 5 chunks and invest $200,000 every 2-3 months into a certain percentage of bonds and equities. This is wonderful in theory BUT totally impossible for me psychologically (especially for someone who has limited positive experiences with investing). For many seasoned investors in this forum, I am sure they will do it if they have been given a windfall of 1.5M.

If you are like me at this moment, I doubt you will invest the 1M over a year. [If you could that will be great since you can shorten your investment time by 4 years!!] It took me conservative investing over 4 years to managed 1M, which roughly worked out to about $200,000 per year. Remember I had the help when the market was at 2800!! Even then the maximum amount invested was a total of $500,000, as there is always the fear of 'what happens when I lose all of it?' I believe many experienced investors here do not experience the same psychological state and emotions as what I had to go through.

Once I have a better understanding of the stock market (at least the bear situation) and is able to understand and live through the unrealised loss, I became more comfortable and selective during the bull market (which is over the past 1-1/2 years). I am still buying shares (not speculating or trading) almost daily taking advantage of minor corrections. My goal is to invest another 1M over the next 5-7 years, so that by the time we (spouse and I) retire, we should comfortably have a passive income of $100,000 per year (at 5% of 2M). Even if your goal is not to leave behind any legacy for any one (e.g., children), it will still be a nice feeling that you can live on your passive income without touching your capital sum??

The psychological dimension of what you would like to do with your 1.5M (at this moment) is the most difficult decision you have to make BlueRobin. If your strategy is to use a drawdown method and make your 1.5M last for 25-30 years, then finding high-yielding interest instruments will be your best bet, and keep rounding your interests. As shared by one investor earlier, you have about 5-10 years to do that. Even when you start to draw down at age 65, a major part of your 1.5M will still be earning interest. I am happy for your current situation. Cheers

 

[Panerex]

BlueRobin,
You specifically asked about the upcoming issuance of new 10-Year SGS bond NX18100A (deadline for application on 25 Apr 2018, 9pm)

Although you do not know what is the coupon rate going to be, you can sort of estimate it based on the latest 'Yield' of an existing 10-Year SGS bond, when nearing the auction date of NX18100A. If say, on 24 NX18100AApr 2018, you checked that the existing 10-Year SGS bond is yielding, for example 2.41%, then you can expect the new NX18100A coupon rate to be around that figure.

Instead of buying Singapore Savings Bond, I somehow accidentally bought into this NX18100A.

I hope it is a pleasant blunder eventually

 

[Maeda_Toshiie]

Instead of buying Singapore Savings Bond, I somehow accidentally bought into this NX18100A.

I hope it is a pleasant blunder eventually

http://www.sgs.gov.sg/~/media/SGS/SGS Announcements pdf/Bonds PDF/2018/NX18100A Result.pdf

Not too bad.

 

[BlueRobin]

Hi Time-to-retire,

First of all, thank you for taking the time to post your thoughts. I've read both your replies and deeply appreciate your sharing of actual experience in managing your money.

I've gathered quite a lot of information from this thread, I am cautious as to what to do next. Ideally I wish I could be in the same situation like you, just live on dividend forever, I am not sure though I have the skill to do it.

Once again, thanks for sharing.

Dear BlueRobin
I will like to share my current experiences as I have lived through your stated scenario a couple of years back and had to managed a sum of 1.5 M.
Currently, my wife and I are a couple of years younger than both of you (we think) and will begin to draw down on our investment about 5-7 years.
We have invested 1M (out of the 1.5M) in a mixture of the following:

1. STI ETFs [about 2.5% dividend]
2. ABF SG Bonds and other not-so-risky bonds (e.g., FCL Trea bonds) [between 2.5-3.0%]
3. Reits [between 6-8 %]
3. Equity [between 3-4%]

The average annual return is 5% (which is what I am very comfortable with), and provides about $4,100 per month at current investment environment. It took us a couple of years of experimenting with the asset composition (fortunately to have the last bear market) to create a portfolio that have given us the 5% dividend currently.

What happens in the next several years or when it's time for the draw down is anyone's guess. Our CFPLife at 65 yrs (We will not delay withdrawal till 70 yrs as mathematically it is not worth the increased % payout), will provide us with another $2,000 giving a total monthly income of $6,000 which is our income goal for retirement.

The remaining funds of 500K are currently parked in a variety of high-interest accounts:
1. Singapore Saving Bonds
2. SG Securities (10 years) [You might not consider this savings??]
3. DBS Multiplier account (since both of us are still working)
4. Citi Maxigain Savings account
5. SCB eSaver

(There are others but I do not use them).

Since we are currently working and drawing an income, and that my wife and I are quite comfortable with out current portfolio, we are channeling current savings and bonus into IWDA (on the LSE) and maybe US equities. Still understanding the latter.

Based on our experiences, it will take a couple (to a few years) with opportunities in the stock market to create a portfolio of the different asset classes (i.e., bonds, equities, ETFs, etc). to arrive at the required percentage of returns that you will like. You have to feel comfortable with what you are investing (and be able to sleep at night during the recent 20% pullback) as this is your money.

Naturally, it took us a few years to completely invest the 1 M (and no, I did not do any Dollar Cost Averaging) and bought small amounts each time when the market has corrections, to help with averaging down. However, most of the investments were made during the previous pullback, when STI was between 2800-3200. I still invested when the market was moving from 3200 to current levels, but only for specific companies or reits. I try not to average up, and I see corrections as a sale for me to invest more (to average down). Because of my interest in personally managing my retirement account, and understanding about financial investment, etc. I do spend time reading and understanding so that I can make informed decisions. This is the most difficult part of investment, NOT putting the money into the asset classes. Opening a trading account and 'clicking' BUY is easy. However, there are the other DCA strategy that others have recommended. I do not think these strategies meet my needs and goals, at this stage of my investment time-frame.

Sorry for being so long-winded, and I hope my lived experiences with investing 1M over a 5 year period have provided you with a sense of what it means for us at this stage. I started late into the investment game, and I think I am quite satisfied with what I have done. Why is 500K still sitting in the bank? Well, so that I can sleep soundly at night.
Just as a point of encouragement, I did seek advice from the other investors here before I started on my investment journey. So you are surely on the right track BlueRobin. Cheers

 

[Panerex]

http://www.sgs.gov.sg/~/media/SGS/SGS Announcements pdf/Bonds PDF/2018/NX18100A Result.pdf

Not too bad.

Because of 2.625% coupon rate?