*Official* Shiny Things club

[VictorvonDoom]

i'm not sure i understand this. cimb pays 0.8% interest. a35's yield is 2.66%

I was under the impression a35 yield is the region of low 1.xx% I could be wrong.

 

[VictorvonDoom]

actually I think instead of A35 you can also use cash instead, the point is not to be 100% in stocks and leave nothing as a "war chest" when stocks go down. The point of not being 100% in stocks is so that you dont have to sell when you need in of money during a recession, you can just use your cash portion or sell bonds to tide you through. Its just that bonds give more interest than if you were just to hold the cash itself, so why not ?

I'm half in cash and half in a35 for my "bonds" portion.

Don't have to follow strictly. Just understand the rationale behind the asset allocation and rebalancing.

 

[Shiny Things]

I understand how STI ETF works but do correct me if my understanding is wrong. STI ETF works like any other shares which gives dividends and it tracks very closely to STI index and can be sold in a lot of 1000 shares to earn capital growth.

Pretty much.

How about ABF ETF? I am quite confuse over bond index. From what I know, it does not have a maturity date ? and as the interest rate increases, the price of the bond index reduces. But what else about this bond index ? From what I check in yahoo finance, ABF ETF price seems to be extremely stagnant. So how do you guys benefit from it by investing it ?

That's the point. The price is very stable - it doesn't swing wildly up and down - and it throws off a low, reliable stream of interest. That's why people invest in bonds, because they want that price stability and that steady stream of coupons. (Dividends can be cut easily; bond coupons can't.)

And bonds have a place in a portfolio for all the reasons that people have already talked about:

* A counterweight to your stocks - bonds tend to go up when stocks go down;
* More stability when you get older - when you're retired, you don't want your portfolio to get whacked by a 2008-size crash, and if you own bonds that won't happen;
* Rebalancing: a once- or twice-yearly rebalancing between stocks and bonds forces you to buy low and sell high, and that adds 1-2% per year to your returns for basically no effort. It's pretty much the only free lunch in the markets.

If thats the case, isn't it better if I invest regularly using DCA on Nikko am STI ETF ? since it has capital growth and the dividend yield is better than A35.

A lot of people have already given good explanations, but here's another one to add to the pile: because owning some bonds reduces the likelihood that you'll panic and sell everything.

During the little bit of mayhem on Monday morning, a lot of investors said "oh no, I've lost a ton of money, sell everything, get me out!". This is an understandable reaction, but it's the wrong one; if you'd sold on Monday or Tuesday, you'd be hugely in the hole right now, and you'd be calling your broker screaming "oh no, I've missed out on making a ton of money, get me back in!".

Owning some bonds reduces your losses when stocks go down, and that makes it easier for you to hold on and resist the urge to panic. In 2008, an all-stocks portfolio would have been drawn down by nearly 50%; a 60-40 stocks-and-bonds portfolio would have only lost 25% or so. And losing 25% of your retirement wealth is a lot easier to handle emotionally than losing 50%.

The point of not being 100% in stocks is so that you dont have to sell when you need in of money during a recession, you can just use your cash portion or sell bonds to tide you through. Its just that bonds give more interest than if you were just to hold the cash itself, so why not ?

Yep, this is a good way of putting it.

From what I understand (again, I may be wrong), the primary reason why Shiny Things himself advocate readers here to invest in A35 is to act as a counter-weight to stocks.

Pretty much!

If you're chasing higher marginal returns and is able to stomach higher risks, then yea, build your portfolio towards 100% stock-based. Nobody claims that it is wrong, having A35 as a part of your portfolio is just what Shiny Things recommend. It's not a heed-or-go-bankrupt kind of secret investing tactic.

Mmm - I disagree with this. Adding a small slug of bonds to a 100% equities portfolio reduces the volatility dramatically, but the returns hardly drop at all. You get almost exactly the same return, but with much less risk.

(Don't believe me? Have a look at this backtest: adding a 10% bond component to a 100% US equity portfolio reduces the returns by a measly 0.13% or so, but it reduces the worst drawdown by 10%. That'll help you sleep better at night; it'll stop you from making rash decisions; and when you get older, the bond component of your portfolio will give you the nice, steady income stream you need without worrying about the dividend being cut, or your capital being drawn down.)

 

[13luetooth]

Thanks for sharing and explaining these to me. I have a much clearer understanding reading u guys explaination.

Shiny Things, what is your take on investing on REITs ? I am thinking of investing on REITs first and collect the dividends and spread them over to index investing so in the end I will have REITs and index investment.

 

[hyperbole]

I was under the impression a35 yield is the region of low 1.xx% I could be wrong.

http://sgxdata.pebbleslab.com/index.asp?m=2&NC=A35

even if it's low 1.xx%, CIMB is only 0.8% so i can't see how it's better.

 

[doody_]

OCBC360 account is also a good alternative for the bond portion if you can get at least 2% interest. It only pays up to 50k but that should be sufficient for those starting out.

 

[limster]

Shiny Things, what is your take on investing on REITs ? I am thinking of investing on REITs first

I am just wondering why the majority of beginner investors never follow Shiny Thing's advice to buy ES3+A35+IWDA, always want to stock pick.

Their usual question is, instead of your recommendation of index investing, can I buy something else first?

This is one of the reasons why sometimes ILP can beat DIY.

 

[chopra]

OCBC360 account is also a good alternative for the bond portion if you can get at least 2% interest. It only pays up to 50k but that should be sufficient for those starting out.

Yes, there are plenty of alternatives to A35 now, like ocbc360 uob1 Bonussaver, provided u meet their respective criteria to get higher tiered interest.

Sent from ew line is so sloooow using GAGT

 

[13luetooth]

I am just wondering why the majority of beginner investors never follow Shiny Thing's advice to buy ES3+A35+IWDA, always want to stock pick.

Their usual question is, instead of your recommendation of index investing, can I buy something else first?

This is one of the reasons why sometimes ILP can beat DIY.

The reason why I asked is because I want to understand the reason behind index investing over other investment. Of course I can go the easy way out and just follow Shiny Thing's advice but what do I learn from that?

Thats the reason why most begineers ask because we want to understand why prefer index investing over stock pick on blue chips or REITs and etc. I think that is alot more important to learn while just getting started.

 

[K|muRa^84]

I think too many pple underestimate the benefits of having bonds in their portfolio

 

[13luetooth]

I think too many pple underestimate the benefits of having bonds in their portfolio

Mind sharing?

 

[limster]

The reason why I asked is because I want to understand the reason behind index investing over other investment. Of course I can go the easy way out and just follow Shiny Thing's advice but what do I learn from that?

Thats the reason why most begineers ask because we want to understand why prefer index investing over stock pick on blue chips or REITs and etc. I think that is alot more important to learn while just getting started.

In your original post, you asked about buying REITs "FIRST", meaning before creating your index portfolio.

If you build the "core" of your porfolio around the ETFs suggested by Tiny and have some spare 10% or even 20% to play around, and want to punt alternatives like REITs etc, that's totally fine. (some even want to play FOREX).

On the other hand, if you want to start with individual stocks "FIRST" instead of the "core" ETFs, then yes, that's a recipe for disaster. To put it simply, do you think a complete beginner who picks stocks can outperform index investing? So its good to learn, but learn using your spare 10%, 20% after you build the "core"

I also learnt my own lesson as a beginner trying commodities. But that was fortunately less than 5% of my portfolio.

 

[Bedokian]

The reason why I asked is because I want to understand the reason behind index investing over other investment. Of course I can go the easy way out and just follow Shiny Thing's advice but what do I learn from that?

Thats the reason why most begineers ask because we want to understand why prefer index investing over stock pick on blue chips or REITs and etc. I think that is alot more important to learn while just getting started.

The very first question you need to ask yourself is "what is my investment objective?" It is like a company's vision and mission statement, and from there everything that you do will go towards that aim.

Index investing is not really for everyone, because it is viewed as boring, but in investment portfolios, nobody is right or wrong, just that everyone has their own investment methodologies.

For myself my objective is to have "passive income via dividend and index investing". I am a firm believer of diversification (especially in asset class level) in order to spread my risks. So I do stock picks, but usually I will buy and hold long term, usually for yield. Also, I see the benefits of index investing because if I am unsure on what to get, I would just go into the market on a macro scale (e.g. if you do not know which US counter to buy, just get the S&P 500 ETF, to secure an exposure to the US market).

 

[w1rbelw1nd]

Thanks for sharing and explaining these to me. I have a much clearer understanding reading u guys explaination.

Shiny Things, what is your take on investing on REITs ? I am thinking of investing on REITs first and collect the dividends and spread them over to index investing so in the end I will have REITs and index investment.

When I was stock-picking (REITs and other SGX-listed stock), I could not tell even on hindsight what I did was out of pure luck, or because I am able to take into account things the market never price in. Spending the time self-doubting, doubting your self-doubts is tiring.

If you were to go to the stock shares and indices thread, you will realise that a lot of people are incredibly emotional from the recent crash. For index investors, we can just "blame the market" and focus on the long term investment goal and rebalance our portfolio if need be. Personally I find that it is a lot more manageable when I can say "Market so screwed up, I already bought the cheapest(mgmt cost wise) index available with the exposure I want, just make use of the volatility to rebalance" compared to "Should I have gone for Keppel so early??? Its PE is the lowest in a year but why is it still dropping?? Should I buy more Keppel since my dividend yield will be higher??? But would my exposure be too high??????"

That being said someone with a more successful stock picking experience may give another perspective.

 

[allan_nalla]

actually I think instead of A35 you can also use cash instead, the point is not to be 100% in stocks and leave nothing as a "war chest" when stocks go down. The point of not being 100% in stocks is so that you dont have to sell when you need in of money during a recession, you can just use your cash portion or sell bonds to tide you through. Its just that bonds give more interest than if you were just to hold the cash itself, so why not ?

Oh, I see what you're driving at. Sorry, I should've clarified that I have a different perspective.

In my case, I have already set aside an emergency fund. So in circumstances where I find myself in need of money during a recession, that's where I'll be stretching my arm into. To me, all the money in my portfolio are going to be used to invest, whether it remains as cash, stocks or bonds. Hence, if there is a buying opportunity, the only amount I'm going to spend is from my cash portion in my portfolio. And if I happen to find myself running out of portfolio cash, I re-analyze my holdings and determine if the buying opportunity is much better than any of them. If there is, I'll just sell the one and replace it with the better prospect.

Of course, I'm not saying it definitely works out, let alone suggesting that my method is the best there is. I just have a different viewpoint on money in and outside of my portfolio I guess.

Cheers.

Mmm - I disagree with this. Adding a small slug of bonds to a 100% equities portfolio reduces the volatility dramatically, but the returns hardly drop at all. You get almost exactly the same return, but with much less risk.

That's interesting. Probably because of my aforementioned perspective on money inside of my portfolio explains why I find myself able to stomach higher risks. It's probably because of my age too.

Of course, now that you've pointed it out, I might have to re-think about it since it makes no economical sense to strive for a marginal 0.13% return in exchange for a extra 10% drawdown risk.

Pardon me for my ignorant information though.

 

[Shiny Things]

The reason why I asked is because I want to understand the reason behind index investing over other investment. Of course I can go the easy way out and just follow Shiny Thing's advice but what do I learn from that?

Thats the reason why most begineers ask because we want to understand why prefer index investing over stock pick on blue chips or REITs and etc. I think that is alot more important to learn while just getting started.

Yeah, this is a good call! I mean, on the one hand - yeah, let's be honest, everyone who gets involved in stocks, their first instinct is to say "oh which stock should I buy, I'm going to cherry-pick the best stock out of all 800 in the market". The instinct isn't "which index should I buy and sit on for 20 years", because that's booooooring.

But if we've got people coming in here saying "right, this Shiny Things person seems to know what he's doing, but why does he recommend what he recommends" - that's a legitimate question to ask.

Shiny Things, what is your take on investing on REITs ? I am thinking of investing on REITs first and collect the dividends and spread them over to index investing so in the end I will have REITs and index investment.

I'm not a huge fan of REITs, but not for any particular reason - I'm just not a big fan of real estate in the first place. So this is probably my one blind spot; I don't have a good justification for not liking real estate.

I can argue that REITs are going to get crushed when rates go up (their funding costs will go up at the same time that their asset values go down), and I can argue that real estate simply doesn't perform as well as stocks over the very long term.

It's also worth keeping in mind that the high yield of REITs is a little bit deceptive - it's because they're required to pay out all of their profits as dividends. If a regular company did that, they'd have a gigantic yield as well, but they wouldn't have any profits to reinvest in their business from year to year, and they wouldn't have any cash in the tin for emergencies. So don't get blinded by the high yield of REITs.

 

[alpinenepal]

Need some advice here ..

Currently I'm looking to buy iShares MSCI India Index ETF on monthly basics, not sure whether to buy in USD(I98) or SGD(QK9). Other than the bid/ask spread, what are the other factors i should consider ?
Thanks in advance !

 

[hogrider88]

I think too many pple underestimate the benefits of having bonds in their portfolio

Because people are eager to see returns and movement

 

[13luetooth]

Yeah, this is a good call! I mean, on the one hand - yeah, let's be honest, everyone who gets involved in stocks, their first instinct is to say "oh which stock should I buy, I'm going to cherry-pick the best stock out of all 800 in the market". The instinct isn't "which index should I buy and sit on for 20 years", because that's booooooring.

But if we've got people coming in here saying "right, this Shiny Things person seems to know what he's doing, but why does he recommend what he recommends" - that's a legitimate question to ask.



I'm not a huge fan of REITs, but not for any particular reason - I'm just not a big fan of real estate in the first place. So this is probably my one blind spot; I don't have a good justification for not liking real estate.

I can argue that REITs are going to get crushed when rates go up (their funding costs will go up at the same time that their asset values go down), and I can argue that real estate simply doesn't perform as well as stocks over the very long term.

It's also worth keeping in mind that the high yield of REITs is a little bit deceptive - it's because they're required to pay out all of their profits as dividends. If a regular company did that, they'd have a gigantic yield as well, but they wouldn't have any profits to reinvest in their business from year to year, and they wouldn't have any cash in the tin for emergencies. So don't get blinded by the high yield of REITs.

Thank you ! Now I understand more. So the reason you advice to invest on index is because of its stability and low risk with decent capital growth and dividend yield which is very beneficial to small investors who wants to invest regularly but yet not required to monitor heavily on the market. It is for a long term investment.

 

[1nd3x1nv3stor]

Shiny Things, what is your take on investing on REITs ? I am thinking of investing on REITs first and collect the dividends and spread them over to index investing so in the end I will have REITs and index investment.

Or alternatively, if you really like REIT, you could invest on REIT ETF (don't stock pick on REIT stocks).
Your REIT ETF will be part of your stock components.

Say, you are 30 years old and following Shinny Things 110-age recommendation. The your stock components should be 80% and your bond should be 20%.
Then you could have, say, 20% in A35, 70% in ES3, and 10% in REIT ETF (I don't really know what the equivalent of VNQ in SGX).