Yeah - I know it's probably a drag. But it does offer me emotional safety - which is priceless. I am also quite long cash, so I 'l rationalise my massive safety net later. I think first thing is to take the cash and put in MBH (as per Shiny tip)- next step, think about rainy day allocation (probably too much).
So you're going in the right direction, and it's not a great idea to force yourself to jump in all at once. Part of what a financial advisor (a good one) does is a counselling role—reminding you that there's value in letting go of some, not all, of that safety net.
Your first goal should be to bring down your safety net to six months' worth of expenses. That's a totally sensible level; it'll cover unemployment, it'll cover unexpected medical expenses, it'll cover a lot of things. Anything above that, you can start moving into MBH and not feel guilty about it at all.
I would like to put my spare USD in IB to work while DCAing over a 3 year period into IWDA. What do you guys recommend I should do?
You’re thinking much too hard about this mate. You haven’t really even taken the first step of buying some IWDA and some ES3 and some MBH. You should do that before you start asking how to optimise your spare cash.
Anyway, a couple of points:
- As BBCW said, three years is far too long a period to be dollar-cost-averaging over. I know you’re doing it because you’re uncomfortable about investing, but it’ll get a lot easier after you take the first step. Six months is more sensible.
- And if you’re spreading it over six months, you really don’t need to think too hard at all about where you’re putting your cash. Just buy BIL.
What bonds would be relevant for this short term, rising interest rates, recession looming environment?
Those are opposing things. If a recession is looming, rates are going to go edown. They can’t both be right.
Or are TIPS a better idea? But I don't really understand TIPS a single bit at all.
That is maybe a sign that YOU’RE OVERCOMPLICATING THIS.
Invest it over six months. Put the spare cash in BIL while you wait. Investing is only complicated if you make it complicated.
1. Currently I'm in my 40s.
An example in the book says we should put the money into the portion which have not meet the desire percentage. So do I stop contributing G3B and diverse 70% to IWDA and 30% A35? If I stop contributing to G3B, will I miss the dollar cost averaging benefits ad compound intrest of G3B? Coz it will take afew years to achieve the target for IWDA and A35.
Yeah. It’s not the end of the world if you take a couple years off from buying G3B/ES3.
2. For rebalancing, it is done 2 times per year. For monthly contribution like the POSB invest-saver, the total investment sum is changing every month. Example in book is using fixed amount. How do we do rebalancing?
It’s pretty easy. A couple times a year, just take a look at your portfolio, and sell and buy things to get back to your target allocation. You don’t need to think too hard about it.
1. For the Cost Basis, is the value show here the total for (Net Price for buying IWDA + Commission for buying IWDA)
Yep.
2. For the Mkt Value, is the value show here (Cost Basis - Unrealized P&L)?
No. Market value is number of shares * share price.
3. Is there somewhere can we see whether the total money we invest (Net Ammount for buying stock + Commission Pay to the broker + Any additional Fee) is in the postitive or neagtive value from the time we open Interactive Brokers?
Your “life-to-date PnL” is the thing you’re after. I’m not quite sure how to do this, but: why do you need to see this? What are you looking to do?
4. Let say, I bought 20 IWDA at price $57 last month and also bought at 20 IWDA at price $54 yesterday. How can we sell specifically the 20 we bought at price $57?
You can do this using the “tax lot selector” (I think that’s what it’s called), but why do you want to do this? As was pointed out, it doesn’t matter (to Singaporean investors at least; it matters to me, sigh); you’re just creating more work for yourself.
5. When we buy USD and sell, the commission is deduced using SGD. When we buy IWDA, the commission is deduced using USD (Correct me if I am wrong).
a. What if we buy SGD and sell USD, does the commission deduced from our SGD or USD?
b. Is there any commission when we sell IWDA?
A) I thiiinnkkk it’s in SGD but I’m not 100% sure.
B) Yes. There’s commission on buy trades and sell trades for everything.
Could you explain this a little further? How do you lend out $$ in forwards?
How does this mechanism work in theory and how does one execute it IBKR?
So the fact that this arb (the “cross-currency basis”) even exists is counterintuitive. A dollar is a dollar is a dollar, and there’s no reason Japanese banks or European banks should pay more for a dollar than American banks would…but they do. And before 2008, it didn’t exist at all, because banks would arb it away; but after 2008, the balance sheet cost of closing the arb has gotten so high that it’s not worth it for banks to close it.
Imagine you have one crisp US dollar. If you put that dollar on deposit at the Fed for three months, you’ll get the Fed Funds rate—about 2.1%, give or take a bit of volatility around the “turn”, market slang for the 31st of December (because it’s the “turn of the year”, and it’s when banks want to pad their balance sheets with lots of US dollars).
But if you enter into a forward agreement for that dollar—sell it for yen today, and agree to buy it back in three months, paying yen—you’ll get closer to 3% annualised yield.
The difference (and it shows up through euro forwards as well) comes because non-American banks want to have US dollars on their balance sheets as well. Those banks have easy access to euros and yen, but they don’t have easy access to US dollars, so they have to borrow them through the FX forwards markets.
Digression: why is a USDJPY FX forward the same as a secured USD loan? Think about the cash flows:
FX forward:
Day 1: Pay USD; receive JPY (an FX trade)
Day 90: Receive USD; pay JPY (reversing the FX trade, at a rate you agreed on day 1)
Secured loan:
Day 1: Pay USD; receive JPY (as collateral for the loan)
Day 90: Receive USD back; pay JPY back (give back the collateral)
Those are the same thing!
Normally, retail traders can’t take advantage of trades like this, because you have to have an ISDA in place, or the brokerage costs are high, or, or, or, or... But this one is interesting because if you have USD floating around, you can put this trade on and pick up a few extra basis points of interest on those USD. Note: this DOES NOT WORK IF YOU DON’T ALREADY HAVE USD CASH. If you have SGD cash, it won’t work; the few basis points of extra interest will get outweighed by any swings and roundabouts in the USDSGD FX rate over the next three months.
Also, it doesn’t work great in amounts over about $100k USD, because IBKR charges hefty negative interest on positive yen balances over 11 million yen—about -1.25%—enough to wipe out the arb. If you wanted to do it in industrial size, you’d buy 3-month JGBs (which yield about -0.15%) instead of just leaving yen cash in your account.
Here’s how to do it:
- At Interactive Brokers, sell USDJPY spot, and sell the January CME JPY FX futures in an equivalent amount. (The futures notional is 12.5 million yen, so very roughly if you sell $111,500 USD you’ll buy one futures contract to hedge.) It has to be the January futures, because the big interest rate pickup is over the 31st of December (remember, you’re loaning USD to banks over the turn.)
- Wait. You’ll have PnL on the FX position that should be almost exactly offset by the PnL on the futures position; small negative interest on the yen cash position; and the positive interest will come from carry as the futures converge with the cash.
- When the futures contract matures, it’ll physically deliver: it’ll debit the yen from your account, credit you with USD. The USD you end up with will be the equivalent of having earned about 3% annualized on your USD amount.
- Pub.
If I'm planning to put aside 1k sgd per month and buy into IWDA every 3 month, should I go SCB or IB?
IBKR for your global stocks (IWDA), Stanchart for local (ES3 & MBH)
Hey Shiny Things. Thanks for the reply. I currently have a small portfolio of individual local stock picks but thinking to switch over to full IWDA. Why buy ES3 though? Wouldn't IWDA already covered Singapore market?
It does, but not enough. If you’re a Singaporean investor, and you’re going to retire in Singapore, you’ll want Singapore dollars to spend on your retirement costs (medical, housing, going down to the Sands and putting it all on the banker at the baccarat tables). If you have all your portfolio in IWDA, the risk is that the Singapore dollar’s going to strengthen, which will reduce the value of your portfolio in Singapore dollar terms. Splitting your portfolio (I prefer 50/50, because it’s easy) between ES3 and IWDA gives you some balance between the value of overseas diversification and the protection of having assets in your home currency.
(Most people don’t have
any overseas investments, so if you have some, you’re still doing better than most people!)
