Need advice on my post wedding asset allocation

[duckyboi]

Hi gurus. I am getting married in a few months and obviously this warrants a major re-look at my finances as my fiancee and I have recently opened our joint account. Thought I would like to seek some of you gurus advice on any holes you see in my financial plans:

Age: 30
Household Income p.a (with fiancee): $150k
Current assets:
My cpf: $59k OA, $16k SA
Her Cpf: $70k OA, $24k SA
Liquid Cash:
Joint account:
$60k (savings for house)
$30k (set aside for wedding expenses)
$5k spare
My own account: $20k
Her account : $70k

Investments:
$40k invested in the following allocation:
10% in bonds (a35, astrea)
4% in gold etf
5% in global etf (iwda)
11% in emerging markets (eimi, hk banks)
70% in singapore stocks (mainly STI etf, some reits)

Insurance:
For me: prudential prushield premier and pruextra premier, term life coversge of 300k and term accident of 400k, CI and early CI of 175k.
For her: basic coverage from work

Gaps I have identified:
1) obviously its to get insurance for her. I am thinking about dropping CI and getting disability income instead.
2) we are holding way too much cash at the moment, but that is to be expected since we will need to cover wedding expenses and also we need to put aside some money to save for a house. Post wedding, I will probably move some spare cash over into investments.
3) regarding our investments, I think I am abit too heavily weighted to singapore, intend to get more global exposure by buying more IWDA and EIMI. Targeted asset allocation is to move toward 20% bonds, 40% singapore stocks, 40% global stocks
we do not want to count our cpf in our investment portfolio, this is fallback money in any case, and also possible money to use to finance our home purchase.
4) my fiancee is not very good with investment so has asked me to help her invest.I intend to use about 50k of her liquid cash to get a portfolio similar to my above allocation.

Some questions you all can help me with:
1) is my asset allocation strategy sound?
2) moving forward, we anticipate our household expenses at about $60k a year. I intend to DCA about 30k a year, assuming our income levels remain about the same.the rest will go toward saving for our house. Is this realistic? Are we holding too much cash?

 

[sAVaGEmP5]

Sry first to reply but not thebest definitely.

I didnt read in detail... I think u shld allocate more to house if u can. Insurance can start maybe 2-3 yrs later since u all still "young" but settle house need alot of hidden cost.

Investment wise... just do global ETF like 50% of ur 40k, the 20k sell n put back into ur saving accts first.

 

[BBCWatcher]

Hi gurus. I am getting married in a few months and obviously this warrants a major re-look at my finances as my fiancee and I have recently opened our joint account.

Congratulations!

Age: 30
Household Income p.a (with fiancee): $150k
Current assets:
My cpf: $59k OA, $16k SA
Her Cpf: $70k OA, $24k SA

What do your and her MA balances look like? The reason I ask is that you might be slightly underperforming on CPF bonus interest. To qualify for maximum bonus interest you have to arrange your CPF dollars such that you have a total of $60K (fine), but then you need at least $40K of that in SA+MA. If you’re under the magic $40K number, give some consideration to either a cash top-up of MA (if it fits within the CPF Annual Limit, which looks likely for at least one of you — and I prefer MA top-ups before SA top-ups) and/or transferring a bit of OA into SA.

I do not understand the other poster’s comment about allocating more to a house. You currently have more than enough for a down payment on a BTO in any realistic scenario I can imagine. I think you’re in fine shape.

Liquid Cash:
Joint account:
$60k (savings for house)
$30k (set aside for wedding expenses)

OK, take a look at this $90K to see what interest rate you’re getting. Then compare that interest rate to this month’s Singapore Savings Bond (SSB). If the SSB wins, shift some funds into the SSB. SSBs are terrific vehicles to save for a wedding and/or home expenses (such as getting some furniture).

$5k spare
My own account: $20k
Her account : $70k

That’s quite a bit of cash, I’d note. The “rule of thumb” is 12 months of emergency reserve, and that’s counting your Ordinary Accounts toward mortgage payments.

Investments:
$40k invested in the following allocation:
10% in bonds (a35, astrea)

OK, a couple quick comments here. First of all, you’re calculating these percentages based on an “After subtracting all this other stuff which makes up MOST of my wealth, here’s what I’m left with....” That’s not how I recommend thinking about your total household wealth. Try calculating the percentages based on total wealth, and then figure out what percentage(s) you’re comfortable with across these splits:

(a) stocks/stocks-likes versus bonds/bond-likes;
(b) local versus global.

For retirement savings with >7 years before retirement, I like (a) to be split 80:20. The equity in your future home counts as stock-like, and CPF and bank balances count as bond-like.

For retirement savings with >7 years before retirement, I like (b) to have a cap of 20% local.

Wedding and home down payment savings are not retirement savings, so they are exceptions that would cause you to be “off” your desired splits — whatever your desired splits are — but emergency reserve is (or at least can be) retirement savings.

4% in gold etf

OK, so you’ve picked three investments I really don’t like, particularly for retirement savings for someone age 30. MBH and SSBs outrank A35 in my view. Astrea? Well, I hope you got that tiny bit at initial allocation and are now ready to dump it and lock in your modest profit. Gold? Please, no. If you and your spouse want to wear a bit of it, fair enough, but please don’t invest in commodities, precious or otherwise. Invest in the companies that add value to commodities, which you’ll do through stock funds.

5% in global etf (iwda)
11% in emerging markets (eimi, hk banks)
70% in singapore stocks (mainly STI etf, some reits)

My goodness, that’s a weird skew. And you’ve carved up this $40K into so many little buckets, including $1,600 (if my math is right) in a gold ETF? I don’t like that approach. By adding so much complexity you’re adding cost in the form of commissions. Singapore REITs (even if you did want to overweight in real estate) are duplicative to the STI. If you look at the STI, it’s chock full of real estate exposure since the STI has so many property companies. And REITs are commanded to throw off dividends, which you don’t actually want at age 30 since that just makes it all the more expensive to reinvest. On top of all that, you’re about to buy a home in Singapore, which is real estate, too.

Hong Kong banks? That’s an odd gamble. Bank stocks are surely going to get crushed when (not if) Hong Kong’s property boom expires, right? Or is that an employee stock purchase plan (ESPP) artifact, because you work for one of those banks?

This is a very, very Singapore skewed portfolio. I would prefer a more global posture.

I’m not liking this arrangement, Duckyboi. You can make it better and simpler. And it looks like you’ve realized this already (see below).

Insurance:
For me: prudential prushield premier and pruextra premier, term life coversge of 300k and term accident of 400k, CI and early CI of 175k.
For her: basic coverage from work
Gaps I have identified:
1) obviously its to get insurance for her. I am thinking about dropping CI and getting disability income instead.

Yes, in my book DII is a much higher priority than the patchy patchwork of Early CI, CI, and accident. I agree.

With respect to Integrated Shield coverage, you’re riding along the very expensive private medical inflation in Singapore, which I forecast will continue more or less unabated for years to come. If you want to get off that inflation rocket, then Prudential’s PRUshield Plus (and associated Lite rider — remember we have Medisave in Singapore?) is really quite excellent. If you absolutely must have private hospital coverage then go take a look at the new Integrated Shield plan from Raffles with their Raffles Hospital rider, bearing in mind you’ll have a pre-existing condition reset when you change carriers. That Raffles plan covers public hospitals in A ward and, with the rider, Raffles Hospital — and it does that for a lower premium than any of the Integrated Shield plans that cover all private hospitals, albeit a higher premium than a pure public hospital A ward plan.

2) we are holding way too much cash at the moment, but that is to be expected since we will need to cover wedding expenses and also we need to put aside some money to save for a house. Post wedding, I will probably move some spare cash over into investments.

That’s all logical, but take a look at SSBs.

3) regarding our investments, I think I am abit too heavily weighted to singapore, intend to get more global exposure by buying more IWDA and EIMI.

Yes, but don’t worry about EIMI until your wealth gets bigger. Or you could use VWRD.

Targeted asset allocation is to move toward 20% bonds, 40% singapore stocks, 40% global stocks

There’s a friendly debate about this, but I prefer less overweighting in Singapore local stocks.

we do not want to count our cpf in our investment portfolio, this is fallback money in any case, and also possible money to use to finance our home purchase.

I think you should count it, then decide what splits you’re comfortable with. If that means a 70/30 split between stocks and stock-likes v. bonds and bond-likes (instead of 80/20), so be it. Count all wealth, then make your various allocation calculations.

4) my fiancee is not very good with investment so has asked me to help her invest.I intend to use about 50k of her liquid cash to get a portfolio similar to my above allocation.

Whatever works in your household. Sometimes what works, especially early on, is that she focuses on the more conservative stuff. Marriage is many things, including an economic merger. But for at least some period of time that reality is not always well understood, that it’s all just “ours.” Eventually.

 

[duckyboi]

Hi bbc! Great fan, thanks for chiming in

Ill add some explanations for context:

Regarding house: we cant buy a hdb flat because her dad's used her name to buy a property (to avoid tax- in return he's willing to give us a substantial interest free loan) so we do need to save up a bigger chunk for the house. Not particularly pressing, as we arent in a hurry to buy- but its still a concern. This is a rather unique situation for us compared to other young sg couples- but it is what it is.

Regarding cpf- our accounts are generating the max interest (or will be within a couple of months)

With respect to investments- yes, I get where you're coming from. Many reits and other shares were purchased on the advice of my dad back when I was still a student, so thats why its a little messy. So far, they have been pretty good to me with respect to dividend income and are all in the green, so I would say my dad's advice certainly wasn't wrong. I will be streamlining the portfoilo moving forward tho- trimming some fat so to speak.

The hong kong stocks were picked up for cheap in the 2015-16 china mini slump. I should clarify they are actually shares of ICBC and BoC, and not smaller HK banks. Should I still liquidate them or leave them as part of my emerging market portfolio?

Will definitely look at rebalancing the portfolio to get more global exposure moving forward though.

 

[havetheveryfun]

The hong kong stocks were picked up for cheap in the 2015-16 china mini slump. I should clarify they are actually shares of ICBC and BoC, and not smaller HK banks. Should I still liquidate them or leave them as part of my emerging market portfolio?

how much exactly in terms of $ value for the China Banks ?

If only like $5-$10k value and you believe in the China growth story, just leave them lor. They have good dividends around 4-5% yield at the current prices and your yield is probably even more at the price you got.

 

[BBCWatcher]

Regarding house: we cant buy a hdb flat because her dad's used her name to buy a property (to avoid tax- in return he's willing to give us a substantial interest free loan) so we do need to save up a bigger chunk for the house.

“Gee, thanks, Dad.”

So you’re effectively shut out of HDB and have a 12% ABSD if you ever want a primary residence? Wow. I guess you’ll be renting, and thus OA to SA transfers would be wise.

The other way to look at it is that your wife already owns a home — her name is on the title, after all — and you and she can move in when the current tenants’ lease ends. “Thanks. Dad.”

With respect to investments- yes, I get where you're coming from. Many reits and other shares were purchased on the advice of my dad back when I was still a student, so thats why its a little messy. So far, they have been pretty good to me with respect to dividend income and are all in the green, so I would say my dad's advice certainly wasn't wrong.

Actually, you don’t want dividend income per se during your accumulation phase. You want total long-term returns. High dividend stocks and stock-likes tend to be low growth. High dividends also tend to make your investing costs higher, because you have to bear the costs of reinvesting.

The hong kong stocks were picked up for cheap in the 2015-16 china mini slump. I should clarify they are actually shares of ICBC and BoC, and not smaller HK banks. Should I still liquidate them or leave them as part of my emerging market portfolio?

I think I would, albeit it’s not an emergency. Same comment here about dividends: that’s not actually attractive per se.

 

[pcmdan]

Don't understand why he will kana 12%.

His name is not used and they are buying a private

Just use his name for the new house, it will be the first house bsd. With an additional 1% for any incremental above 1mil

Next his dad could go talk to hdb to buy over her share..since I am sure his dad is way above 35. And since he can loan u a huge loan I see no reason why he can't buy off her share

 

[BBCWatcher]

Don't understand why he will kana 12%.

He won’t, but she would. If the property is jointly titled (should ordinarily be — it’s a marital asset) then that’d be 12% ABSD.

Yes, the ABSD is avoidable, but this isn’t terrific and it isn’t HDB.

And since he can loan u a huge loan I see no reason why he can't buy off her share

The father has ABSD and HDB limitation “problems,” and he’s “used” his daughter to work around at least the ABSD problem. His ABSD problem.

Of course, if he loves real estate, he could just invest in REITs and not shift any of these problems onto his daughter and her new household. Or he could just give the daughter the home that she already legally owns. Which means the daughter could just move into the home she already owns, along with her new husband. That might not go over well at the next family gathering, I suppose, but that’s her legal right at the moment.

 

[malthead]

is it a viable option to stay in the property that her dad bought for her?

This must have been bought before the loophole whereby the legal owner is the not the one borrowing

 

[BBCWatcher]

is it a viable option to stay in the property that her dad bought for her?

As I understand it, ABSD aligns with title. Since her name is on the title, it’s her legal right to live in that home, her home (after any tenancy agreement ends).

This must have been bought before the loophole whereby the legal owner is the not the one borrowing

Maybe, and wouldn’t that be “interesting”? But it’s also possible there’s no mortgage, that this was strictly an ABSD avoidance maneuver. And, if there is no mortgage, wouldn’t that be something? “Father or house, father or house.... I’m thinking it over!”

 

[malthead]

As I understand it, ABSD aligns with title. Since her name is on the title, it’s her legal right to live in that home, her home (after any tenancy agreement ends).


Maybe, and wouldn’t that be “interesting”? But it’s also possible there’s no mortgage, that this was strictly an ABSD avoidance maneuver. And, if there is no mortgage, wouldn’t that be something? “Father or house, father or house.... I’m thinking it over!”

for asian culture, just because its under your name, doesn't mean its yours! especially if your father pays for it entirely. sure, you can go to court on the right to live in but most prob won't do it.

Ideally, the property the father bought is suitable for the newly wed to stay in so the couple can just "buy" the property from him. He gets to cash out and they have a place to stay. But chances are the location or size may not be what the newly wed is looking for

 

[BBCWatcher]

for asian culture, just because its under your name, doesn't mean its yours!

I was wondering when somebody would toss out the “Asian culture” claim. No, it’s not “Asian” specifically. It’s an informal family arrangement, and that’s not at all unique to Asia. There are very few characteristics that are unique to a particular continent. Exactly this same pattern would/does occur in similar circumstances on all other continents, with the possible exception of Antarctica.

Ideally, the property the father bought is suitable for the newly wed to stay in so the couple can just "buy" the property from him. He gets to cash out and they have a place to stay. But chances are the location or size may not be what the newly wed is looking for

That’d be great, but as a matter of first principles this is not how a responsible parent should behave. The choice should be entirely his adult daughter’s to make. If she would like her 0% ABSD rate on her first home, she should get it. If she wants a HDB home with her new husband, she should get it. None of this nonsense about “Oh, I’ll give you an interest free loan (which can only be on a private property).”

This father can do all the real estate investing he wants and in a tax friendly way, for him, without burdening his daughter with an informal family arrangement that restricts her freedom of movement and her financial life as she embarks on a new journey with her new husband. All he needs to do is to shift this particular wealth (now with his daughter’s permission, since it’s her property!) into REITs, if he wants to stay invested in real estate.

At the same time, it’s important that this daughter know her legal rights, and they are powerful. In this case the government and its courts will protect her and her interests even in the hopefully unlikely event her father won’t.

Now, it is true that this daughter had to agree with this informal arrangement as a young adult, otherwise she wouldn’t have title (presumably exclusive title) to the property. But that doesn’t mean anybody will require her to stick to that informal agreement. It’s unenforceable. If she wants the property — and to hell with the father — that’s her right.

 

[malthead]

I was wondering when somebody would toss out the “Asian culture” claim. No, it’s not “Asian” specifically. It’s an informal family arrangement, and that’s not at all unique to Asia. There are very few characteristics that are unique to a particular continent. Exactly this same pattern would/does occur in similar circumstances on all other continents, with the possible exception of Antarctica.


That’d be great, but as a matter of first principles this is not how a responsible parent should behave. The choice should be entire his adult daughter’s to make. If she would like her 0% ABSD rate on her first home, she should get it. If she wants a HDB home with her new husband, she should get it. None of this nonsense about “Oh, I’ll give you an interest free loan (which can only be on a private property).”

This father can do all the real estate investing he wants and in a tax friendly way, for him, without burdening his daughter with an informal family arrangement that restricts her freedom of movement and her financial life as she embarks on a new journey with her new husband. All he needs to do is to shift this particular wealth (now with his daughter’s permission, since it’s her property!) into REITs, if he wants to stay invested in real estate.

At the same time, it’s important that this daughter know her legal rights, and they are powerful. In this case the government and its courts will protect her and her interests even in the hopefully unlikely event her father won’t.

Now, it is true that this daughter had to agree with this informal arrangement as a young adult, otherwise she wouldn’t have title (presumably exclusive title) to the property. But that doesn’t mean anybody will require her to stick to that informal agreement. It’s unenforceable. If she wants the property — and to hell with the father — that’s her right.

we can debate till the cow comes home what is the right thing (for the parent and the child) but in this case, lets just focus on ts situation since the dad has ALREADY bought a pte property under TS's wife's name.

 

[BBCWatcher]

I would say it is a blessing in disguise for TS since he can invest in private properties earlier.

No, that doesn’t change. He already has the independent ability to invest in private properties if he wishes. His wife’s ownership of a private property doesn’t affect his preexisting ability to do that in any way.

His wife’s ownership of a private property does mean there are HDB obstacles (but only flowing from an informal family arrangement; she has the unquestioned legal right to sell her property, and to buy a HDB leasehold together with her husband), and there would be 12% ABSD (instead of 0%) if she were to be a joint owner of a new marital private residential property. But Duckyboi’s pre-existing, independent, separate ability to buy a private market residence is not affected in any way.

Regardless of whatever some of you all say about properties, people who are smart enough to buy freehold private properties early in their life (like me) are laughing all the way to the banks 20 years later!

Yes, because 20 years ago happened to coincide with the depths of the Asian Financial Crisis. Will that be true over the next 20 years? Well, you’d have to bet against the government since the government’s policy (adopted several years ago but not 20 years ago) is a strict cap on real estate gains in Singapore (and today is not the depths of a financial crisis). I wouldn’t bet against this government.

If your timing is impeccably lucky, you can make money at a roulette wheel in a casino. That’s not saying much.

Looks like TS father-in-law is a really smart investor!

There are no facts in evidence one way or the other. From his individual point of view he could be a terrible investor if his daughter decides to assert her legal rights.

If 99-years leasehold properties have lease-decay to $0 problem when their leases runs out, the same is true for Singapore REITs! The high REITs' yield is just a fallacy (as a compensation for reducing capital value of their properties as their lease goes to ZERO!)!

If you’re concerned about that problem, and if you want to invest in the real estate sector, there’s a simple solution: a quality, low cost REIT index fund. A REIT index fund that’s at least reasonably well diversified can never decay, because it’s constantly being refreshed with new REITs whenever any do decay. That’s conceptually just like a Straits Times Index fund, which is required to hold all 30 stocks in the STI. If any of those 30 stocks falls out of the STI due to bankruptcy or any other reason, another stock (the current #31) immediately takes its place. The index and the fund continue forward, as long as there are at least 30 investable stocks listed on the SGX (i.e. as long as Singapore continues existing as a going concern, as a nation with a functioning economy).

The U.S. Dow Jones Industrial Average (DJIA) has been running for well over a century, since 1896. Today’s DJIA contains zero stocks that were part of the original 1896 construction. General Electric was part of the original 1896 DJIA, and GE is still a major U.S. headquartered corporation. But GE was very recently dropped from the DJIA in June, 2018.

 

[BBCWatcher]

A REITs ETF holding leasehold properties that are depreciating in capital value will not suffer lease-decay problem? What a joke indeed!

I don't think you understand how REIT index funds work. Or indeed how practically any index funds work.

 

[BBCWatcher]

I know very well that any index fund is only as good as the component stocks it is made up of.

It’s now quite clear you don’t understand how index funds actually work. Or for that matter most funds, whether actively or passively managed.

 

[Opps-gal]

I would say it is a blessing in disguise for TS since he can invest in private properties earlier.

Regardless of whatever some of you all say about properties, people who are smart enough to buy freehold private properties early in their life (like me) are laughing all the way to the banks 20 years later!

Looks like TS father-in-law is a really smart investor!

And I won't mind to repeat again: Avoid REITs!

I won't be so stupid to ever believe that investing in REITs is same as owning private properties directly!
Many of these Singapore REITs has the same lease-decay problem because they own 99-years and 60-years or even 30-years leasehold commercial properties!
If 99-years leasehold properties have lease-decay to $0 problem when their leases runs out, the same is true for Singapore REITs! The high REITs' yield is just a fallacy (as a compensation for reducing capital value of their properties as their lease goes to ZERO!)!

"If 99-years leasehold properties have lease-decay to $0 problem when their leases runs out, the same is true for Singapore REITs! " Can somebody else confirm this?

 

[BBCWatcher]

"If 99-years leasehold properties have lease-decay to $0 problem when their leases runs out, the same is true for Singapore REITs! " Can somebody else confirm this?

That’s correct only for a static, unchanging REIT that owns no freeholds. “Static, unchanging” means the REIT never acquires a new leasehold.

Many REITs, and practically all REIT funds, do not share these characteristics. And all you have to do is to read the prospectus or annual report to get that data. For example, Ascendas REIT’s latest annual report is available here. (Ascendas REIT is one of the 30 Straits Times Index components. When you buy a STI fund, you’re investing rather heavily into real estate, highly focused on Singapore and regional real estate.) Ascendas REIT reports that their non-freehold properties have a 45.5 year weighted average remaining land leasehold (p. 47). During that financial year they acquired 3 properties and disposed of 3 properties, keeping the number of properties they hold level at 131. Do the math and you can see that at a 3 property/year disposal rate on a 131 property portfolio they would maintain their weighted average remaining land leasehold steady or even slightly biased upwards. (It would take just under 44 years to turn over their entire portfolio at that pace. Some of those properties are freeholds, so they’re actually running ahead of pace of land leasehold decay.)

And that’s just a single REIT. A REIT fund (of any decent or better quality) doesn’t have a decay problem either, because individual REITs just fall in and out of the fund, that’s all.

Ervino has raised a concern that doesn’t exist in the real world. Just go read the prospectuses and annual reports, and you’ll figure out the truth is exactly as I’ve described it.

Practically every business endeavor involves and manages perishability, usually on timescales much shorter than 99 years or 49 years. Every product a bread baker manufactures, for example, is worthless a few days after production. Pharmaceutical companies’ products are worth much less when they reach patent expiration. Copyrights eventually expire. Apple’s latest iPhone will be obsolete after a couple years. And so on. If the business is static and unchanging, and just sits on the loaves of bread it baked on June 30, 2018, then never does anything thereafter, then sure, that bakery’s enterprise value will fall. But that’s silly. Most businesses — including most real estate investment trusts — are not like that. They manage any perishability in their businesses, that’s all. It’s a perfectly normal aspect of even half competent business management. And then a fund doesn’t care whether Business A fades to zero, because Business B just takes its place among the XXX businesses the fund holds.

By the way, individual freeholds can become worthless. Ukrainians with freeholds in Crimea are now holding worthless (or near worthless) title claims. Many Cuban Americans, many living in Florida, are holding near worthless title claims to Cuban freeholds dating back to the late 1950s. Some Hawaiian freehold owners have discovered that the local volcano has other ideas about who actually owns their property, to pick a third example. (In the third example property insurance might provide compensation — it depends on whether volcano-related loss is in the policy — but in the first two examples, no, those events would typically be excluded from property insurance. Or the insurer itself would be unable to pay claims because it’d be gone.) But a dynamic, competently managed REIT wouldn’t be particularly affected (unless overly concentrated), and a REIT fund that’s at least reasonably well diversified wouldn’t be particularly affected either when such events happen. It’s certainly possible for you to be wiped out completely as the owner of an individual freehold property, but investors in reasonably (or better) well diversified REIT funds? No, those sorts of individual property risks are not possible.

 

[JuniorLion]

What the !@#$. This kid takes the argument of REITs versus FH CBD versus 99 leasehold versus HDB to every thread he visits. It's getting quite annoying. Really don't need to read the same thing over and over all.

 

[Mecisteus]

What the !@#$. This kid takes the argument of REITs versus FH CBD versus 99 leasehold versus HDB to every thread he visits. It's getting quite annoying. Really don't need to read the same thing over and over all.

Just click the report post button.

If more people report, this property agent will be banned.