Official Shiny Things thread—Part III

[tesarise]

Ah... so this money is not earmarked for any specific purpose after 3 years? In that case, agree with Swan02, start your investing journey with a broadly diversified, low cost exchange traded index fund. If you can start doing this at your age and continue adding to it with discipline after you start working, you will be well on your way to $1m by age 40.

second this. alternatively can consider using roboadvisor when starting out

 

[BBCWatcher]

Ah... so this money is not earmarked for any specific purpose after 3 years? In that case, agree with Swan02, start your investing journey with a broadly diversified, low cost exchange traded index fund.

I agree, although let's review a couple things first, GreenTea97:

1. We've confirmed that these funds won't likely be needed for a specific, near-term purpose.

2. I think we've confirmed that your emergency reserve is an excellent one: the "Bank of Parents." That works!

3. The one open question I have is whether you've already nailed down what I would call "insurance necessities," and it's a short list at your stage of life in this place:

(a) I think there's a reasonable argument that an "as charged" public hospital B1 ward Integrated Shield plan is essential. For example, assuming you're a Singaporean citizen Great Eastern's SupremeHealth B Plus with optional Classic-B rider would cost $69+$25=$94 per year for a 23 year old, and that'd tick this particular box quite nicely. (The $69 portion is MediSave payable.)

(b) If you have a dependent then term life insurance is merited. I don't think you do, though, since the "Bank of Parents" seems pretty robust.

(c) Unfortunately disability income insurance (DII) isn't available until you're working and earning an income. However, assuming you're a Singaporean citizen or Permanent Resident, if you were to become seriously disabled tomorrow then you'd be eligible for CareShield Life benefits starting at age 30 (less than 7 years from now). So there's nothing to do here at the moment except to plan for DII coverage when you start work.

With those caveats, yes, it's great that you're forging ahead into long-term investing.

 

[Kaypohji]

Hmm liquidity is viewed using %? Not just the absolute number where the spread has to be as close as possible?

0.09 as out of $339 csspx ? vs 0.04 out of 64.15 vusd?

Express as a percentage and you will get your answer.

 

[swan02]

it’s logical.

Let say BB ETF per share price is $100,000 And the spread between buy and sell is $1

And let say a similar etf called AA has share price $100 but spread is $0.10

And your purchase is 1million worth.

R u really going to pick AA etf ?? Of cuz not assuming volume are decent.

Hmm liquidity is viewed using %? Not just the absolute number where the spread has to be as close as possible?

 

[GreenTea97]

Thanks a lot for the fantastic advice @celtosaxon @swan02 @BBCWatcher I'll be sure to do more research on the best insurance plans for me. Anyway, i've actually read shinything's "rich by retirement" but held off on the DCA method of investing into ETFs since i don't rly have any income coming in so is that path still ideal for me? as for roboadvisors such as stashaway, i kept away from that for now since i've read that the guaranteed returns are actually slightly lower than singlife's 2.5% interest which leaves index funds, inherently it's riskier than the other 2 but was told by a friend that the likelihood of me gaining an extra few thousand within the next 3 years is quite high due to the current market (taking it with a HUGE grain of salt tho) the only reason i'm considering index funds is because it's diversified with a "lesser" chance of it tanking and also the fact that there's a likelihood for huge gains in a relatively short period of time with that said, what would be the best course of play for me?

 

[chrisloh65]

George Soros, 1 of the world's greatest speculator, said that current stock market is in a big bubble:

https://www.marketwatch.com/story/george-soros-bashes-president-trump-explains-why-he-no-longer-participates-in-this-market-bubble-2020-08-12

George Soros bashes President Trump, explains why he no longer participates in this market bubble
Published: Aug. 12, 2020 at 10:52 a.m. ET

‘We are in a crisis, the worst crisis in my lifetime since the Second World War. I would describe it as a revolutionary moment when the range of possibilities is much greater than in normal times. What is inconceivable in normal times becomes not only possible but actually happens. People are disoriented and scared. They do things that are bad for them and for the world.’

...........................

He went on to say the market, which he no longer participates in, is sustained by the expectation of more fiscal stimulus along with hopes Trump will announce a vaccine before November.

Another expert economist has this to say about unsubstainable US debt and USD bubble!:

https://www.economist.com/finance-and-economics/2020/07/30/emmanuel-farhi-has-died-at-the-age-of-41

"Jul 30th 2020 edition
Emmanuel Farhi has died at the age of 41
The economist was one of the brightest minds of his generation

Emmanuel farhi showed a lot of promise in a lot of fields. At 16 he won a national physics competition in France. In the test to enter its most prestigious engineering school, he received the highest mark. After considering a career in maths, he settled on economics, where he flourished. “He was one of the greatest economic minds of his generation,” says Xavier Gabaix, a colleague at Harvard University. But on July 23rd that career was cut short when Mr Farhi died unexpectedly at the age of 41.

................................

Mr Farhi saw America’s role as the world’s banker as unsustainable. If it produced too few safe assets then, with interest rates unable to adjust fully, global aggregate demand would stay depressed. But if it tried to keep up with investors’ demand for safety, its ability to repay its debts might one day be called into question. Speaking to the Richmond Federal Reserve in 2019, he noted America’s shrinking share of the global economy and worried that its role was becoming too much to bear.
"

 

[chrisloh65]

Buffett Indicator (used by Warren Buffett, 1 of the world's greatest investor), also said that current stock market is in a big bubble!

https://www.marketwatch.com/story/warren-buffett-said-this-metric-signaled-the-2001-crash-now-its-sounding-the-alarm-on-stocks-around-the-world-2020-08-12

Warren Buffett said this metric signaled the 2001 crash — now it’s sounding the alarm on global markets
Published: Aug. 12, 2020 at 12:14 p.m. ET

A sell signal is flashing on Buffett’s favorite indicator

George Soros, 1 of the world's greatest speculator, said that current stock market is in a big bubble:

https://www.marketwatch.com/story/george-soros-bashes-president-trump-explains-why-he-no-longer-participates-in-this-market-bubble-2020-08-12

George Soros bashes President Trump, explains why he no longer participates in this market bubble
Published: Aug. 12, 2020 at 10:52 a.m. ET

‘We are in a crisis, the worst crisis in my lifetime since the Second World War. I would describe it as a revolutionary moment when the range of possibilities is much greater than in normal times. What is inconceivable in normal times becomes not only possible but actually happens. People are disoriented and scared. They do things that are bad for them and for the world.’

...........................

He went on to say the market, which he no longer participates in, is sustained by the expectation of more fiscal stimulus along with hopes Trump will announce a vaccine before November.

 

[celtosaxon]

Anyway, i've actually read shinything's "rich by retirement" but held off on the DCA method of investing into ETFs since i don't rly have any income coming in so is that path still ideal for me?

One of the principles behind DCA investing is that the best time to invest is now, so whatever you can save out of your earnings should be put to work as soon as the money is available. Why now? It’s because over long periods of time, the market goes up more than it goes down. Nobody can successfully time the market - those who say they can have gotten lucky... their luck will run out.

as for roboadvisors such as stashaway, i kept away from that for now since i've read that the guaranteed returns are actually slightly lower than singlife's 2.5% interest which leaves index funds, inherently it's riskier than the other 2 but was told by a friend that the likelihood of me gaining an extra few thousand within the next 3 years is quite high due to the current market

I don’t see much value using roboadvisors at your age - you should really be going all equity, and you don’t need anything fancy, you could just go with one ETF.

Comparing an interest bearing account with an index fund is like comparing an apple and an orange, completely different. An index fund is NOT something you invest in hoping for a short term gain. It’s a wealth building vehicle that you hold long term, through all of the ups and downs, with an average 9-11% per year over decades (historically). It’s not uncommon to see 20%+ annually during good years. Nobody can predict.

the only reason i'm considering index funds is because it's diversified with a "lesser" chance of it tanking and also the fact that there's a likelihood for huge gains in a relatively short period of time with that said, what would be the best course of play for me?

Index funds are still risky, just this past March we saw over 30% drop!

 

[swan02]

Respectfully correcting your terminology. what u r referring to is lump summing not dca. Lump sum every month without any money left for Investment is still lump sum.

Dca is when u still have stash available after buying and it’s a form of market timing or fear repression or risk reducing. Most here r doing that.

One of the principles behind DCA investing is that the best time to invest is now, so whatever you can save out of your earnings should be put to work as soon as the money is available. Why now? It’s because over long periods of time, the market goes up more than it goes down. Nobody can successfully time the market - those who say they can have gotten lucky... their luck will run out.
p!

 

[moolala]

Hi ST, what are your thoughts on SPACs such as $shll and $spaq?

I heard that after the merger goes through and the ticket symbol is changed, they would pretty much guarantee a gain on your capital up to 2x,3x

Is this true and what are the risks involved?

I'm thinking of doing an all in on these SPACs for my long term account

 

[jacky817]

https://www.asiaone.com/money/ultimate-guide-reits-singapore-2020
What do you guys make of this article? Not sure how legit the info are, but i'm surprised to see the US REIT getting 11% pa over a 20 year period. Welcome all criticisms at this article

Respectfully correcting your terminology. what u r referring to is lump summing not dca. Lump sum every month without any money left for Investment is still lump sum.

Dca is when u still have stash available after buying and it’s a form of market timing or fear repression or risk reducing. Most here r doing that.

Pretty sure DCA just means to invest a fixed amount at a fixed time interval, so as to capture the mean value of the market over time. Investing monthly works since most ppl's salary comes in monthly

 

[tesarise]

Respectfully correcting your terminology. what u r referring to is lump summing not dca. Lump sum every month without any money left for Investment is still lump sum.

Dca is when u still have stash available after buying and it’s a form of market timing or fear repression or risk reducing. Most here r doing that.

I'm afraid your definition/interpretation of DCA might be the minority here

 

[swan02]

You can capture the mean value by lump sum every month too.

People often get confused by the term DCA and used incorrectly/inadvertently.

1. In DCA, you are investing every month for e.g over a period but there is always cash still available. And yes you still get the avg price. You may still continue to receive your pay check or windfall.

2. You still achieve the Avg price, also by lump sum every month. BUT you don't have any cash left, but wait for the next cash flow to come next month such as pay check or windfall.

3.They both look similar and achieve the same effect when just narrowly looking at what's invested. However, when seen as a total portfolio including what is still in cash. One may be 100 percent equity portfolio (Lump sum), and continues to lump sum every month with his pay check leaving zero investable cash lying around, but the DCA person who invests in 100% equity every month may still be just 10% equity/90% fixed income (DCA) even though the aim is still 100 Percent equity which he aims to be fully invested to 100% equity in let say 10 periods/10 months.

Hence this brings the question DCA vs Lump Sum.

Once you are clear of the above differences, you can then compare intelligently between DCA vs Lump sum to have a better understanding and there are numerous articles supported by data that Lump sum beats DCA on average due to the fact of equities rising most of the time.

And many of these articles will begin by explaining the differences between the two strategy, and this pertains to the "Un-invested" component usually cash earning peanuts.

Thats why Shiny encourages one to be fully invested over a short period e.g. 6 months. He uses the term DCA and that is correct, as effectively it is market timing, it is also risk reducing, but he also knows that on avg still, lump sum is likely to be better aka do it now, but yet it can be emotionally risky if that luck runs out should the person lump sums and market drops big time. On avg Lump sum beats DCA about 66 percent of the time.

And that is why, even a low risk 100% MBH etf to start off leaving zero uninvested cash is likely to beat someone who DCA 100% equity each month over 24 months or maybe even shorter, because the DCA person has cash which poses large opportunity cost the longer it lingers.

Regarding REITs

1. Yes REITs over long term returns can be actually that high.
2. But it is that because one of the reasons is leverage. You can also achieve the same returns if you can borrow cheaply and apply that to IWDA. Leverage magnifies your ROE, just as those who make big money out of residential properties even if it grows only 3 percent a year in line with inflation.
3. REITs are indeed diversifiers as they are seen as bond proxies.

Eventually such vehicles may succumb to the equity like risk on effect, and falls together with the market ESPECIALLY also bombarded by not only the economic crisis (income crisis) but also the dreaded Credit crisis.

And REITs being a leveraged vehicle aka having bigger beta falls a lot more than say IWDA, thus increases your overall portfolio drawdowns.

4. However, in normal days, apply this to a portfolio, and likely it will bring down the overall standard deviation of your portfolio. And it may also be great diversifiers in the equity component (Tech crisis 2000), as it won't fall as much if the industry isnt as impacted especially if no Credit crisis occurs. Credit crisis increases the cost of capital of the loan that Reits heavily borrows.

5. However, argument surrounds having REITs may impede your diversification especially if you take your residence as part of your portfolio.

6. However, if I were an individual with little cash to invest but very long time frame. I certainly would end up 50 percent in REITs etf such as DPYA, and the other 50 percent likely a NASDAQ etf, with time frame 20 years, zero bonds, in order to magnify the beta of my returns without having to leverage. After all, Reits managers are able to obtain much lower cost of funds than you.

https://www.asiaone.com/money/ultimate-guide-reits-singapore-2020
What do you guys make of this article? Not sure how legit the info are, but i'm surprised to see the US REIT getting 11% pa over a 20 year period. Welcome all criticisms at this article

Pretty sure DCA just means to invest a fixed amount at a fixed time interval, so as to capture the mean value of the market over time. Investing monthly works since most ppl's salary comes in monthly

 

[swan02]

It is not my definition. But the definition if you research in many financial planning articles, that they ensure you understand the nuances FIRST. I'm certain Shiny also knows this although I'm not certain how that is conveyed in lay words in his book.

or else it is difficult to further explain Lump sum Vs DCA.

Just as Celtosaxon spoke about a strategy which is actually lump sum to prove that it is on avg better than DCA. What he is saying is DCA vs Lump sum.

I'm not particularly anal about the term usage, but when you start to do your research, and you do not get the differences correct, you will find it annoyingly impedes your research and can't see the macro view of your portfolio and more confusion sets in, impacting your appreciation of whether DCA or lump sum suits you best.

Of all the numerous articles I've read. this blogger explains it best.
https://ofdollarsanddata.com/dollar... Sum (LS): The,your available money over time.

I'm afraid your definition/interpretation of DCA might be the minority here

 

[BBCWatcher]

https://www.asiaone.com/money/ultimate-guide-reits-singapore-2020
What do you guys make of this article? Not sure how legit the info are, but i'm surprised to see the US REIT getting 11% pa over a 20 year period. Welcome all criticisms at this article

It's easy to pick arbitrary time periods and get "interesting results," but here's a little test. Vanguard has two exchange-traded funds and publishes after tax annualized performance results at 1, 3, 5, and 10 year look back periods. So let's look at those numbers, first for VNQ, their U.S. REIT index ETF through June 30, 2020:

1 Year: -4.04%
3 Year: 1.16%
5 Year: 3.57%
10 Year: 7.32%

Now let's look at VOO, their U.S. S&P 500 stock index ETF:

1 Year: 4.78%
3 Year: 8.29%
5 Year: 8.41%
10 Year(*): 11.25%

(*) This figure is actually the "since inception" figure. VOO debuted on September 7, 2010, so the exact 10 year performance number won't be available until the next quarterly update through September 30, 2020. But this figure is very close to reality since it's only missing July, August, and the first week of September, 2010.

These figures are calculated with full dividend reinvestment and on an after tax basis for Vanguard's model U.S. citizen investor, including both dividend and capital gains taxes. And that's part of the story, and part of the story for Singaporean investors, too. Taxes matter to some degree, and they matter here. REITs in both the U.S. and Singapore are required to distribute at least 90% of net earnings to shareholders, whereupon they're taxed. Singaporean investors in U.S. REITs (without an "Irish wrapper" anyway) pay 30% dividend withholding tax. The U.S. S&P 500 stocks, on the other hand, have more choices available. Yes, these 505 stocks (it's actually 505) collectively pay some dividends, but they can also engage in share buybacks and, better yet, invest in their business futures in a wider variety of ways. And if anything the figures above are unfairly penalizing the U.S. S&P 500 stocks from the point of view of a Singaporean investor who doesn't owe/pay U.S. capital gains tax.

Please note that past performance is not indicative of future results. However, I get a little suspicious when an author doesn't even attempt to include taxes (and other costs -- the VNQ/VOO numbers above are inclusive of Vanguard's management fees) and picks a specific 19.5 year interval for comparison that doesn't include about 10 months prior to the article's publication date. The 1/3/5/10 Year historical comparisons are standard ones, so why not use the standard ones -- and then others besides, if you want?

So no, U.S. REITs (in low cost index fund form) haven't yielded ~11% per year for Singaporean investors from 2000 through 1H2019. The author obviously forgot to factor in costs, including especially the 30% dividend taxes over those ~19.5 years. (At least, that certainly seems to be the case. I'm not a mind reader, but I'm trying to reverse engineer the numbers.) It's possible a particular U.S. REIT delivered that result, but that's speculative. And particular U.S. stocks have done a hell of a lot better than ~11%/year net.

 

[swan02]

BBC or anyone familiar with very long term TIPs 15+ years.

In nominal bonds, I can easily tell the benefits between short term, intermediate and long term for a portfolio.

Please explain if you can the differences in benefits between short (up to 5 years duration, intermediate ie. 8 years duration and Long term TIPs (greater than 15 years duration) for a portfolio especially pertaining to inflation, and if you are able to, regards to expected and unexpected inflation, and the reliability of them.

My research so far only confirms, that short term TIPs, are great for unexpected inflation but lacks inflation beta........so what do portfolio managers typically hold ?............and how it diversifies the big risk especially with regards to long term duration nominal bonds. Do they take up long term TIPs for that ?

and I start to see nominal bonds being superceded by intermediate or long term TIPs, why ?.....do TIPs also protect in deflation which I've seen it does at the first leg during the crisis.

Thanks

 

[swan02]

There are also 50 year comparisons of REIT vs S&P 500 of REITS beating s&p500.

Frankly, even with taxes involved, and authors motivation to push out a message based on selective period and excluding taxes and fees, I don't see the demerits of Reits. The motivation is still the same, that Reits do play great roles akin to equities.

At least to me, over the long term, the message is still Reits do perform relatively well to global stocks even against the almighty S&P 500. The question to answer is really, whether to include them assuming the scenario ones does not have a principal residence ? Do you wish to elaborate on that ?

Interesting to note regarding Berkshire, where it was punished for keeping too much cash. Yet still can increase share price simply by a magic wand of share buybacks recently. Thus Warren can easily increase its value anytime he wishes..........this benefit runs concurrent of the effect of insider trading, except this is fully legal. What a powerful position !

Yes, these 505 stocks (it's actually 505) collectively pay some dividends, but they can also engage in share buybacks and, better yet, invest in their business futures in a wider variety of ways. And if anything the figures above are unfairly penalizing the U.S. S&P 500 stocks from the point of view of a Singaporean investor who doesn't owe/pay U.S. capital gains tax.

Please note that past performance is not indicative of future results. However, I get a little suspicious when an author doesn't even attempt to include taxes (and other costs -- the VNQ/VOO numbers above are inclusive of Vanguard's management fees) and picks a specific 19.5 year interval for comparison that doesn't include about 10 months prior to the article's publication date. The 1/3/5/10 Year historical comparisons are standard ones, so why not use the standard ones -- and then others besides, if you want?

So no, U.S. REITs (in low cost index fund form) haven't yielded ~11% per year for Singaporean investors from 2000 through 1H2019. The author obviously forgot to factor in costs, including especially the 30% dividend taxes over those ~19.5 years. (At least, that certainly seems to be the case. I'm not a mind reader, but I'm trying to reverse engineer the numbers.) It's possible a particular U.S. REIT delivered that result, but that's speculative. And particular U.S. stocks have done a hell of a lot better than ~11%/year net.

 

[BBCWatcher]

There are also 50 year comparisons of REIT vs S&P 500 of REITS beating s&p500.

Is there? All costs need to be taken into account, please remember. Gross returns don't matter. One could say that U.S. corporate bonds of comparable risk have outperformed U.S. municipal bonds. Yes, they probably have...on a gross basis. But U.S. municipal bond interest is U.S. tax free, and U.S. corporate bond interest (to U.S. persons anyway) isn't. These details matter, a lot.

Frankly, even with taxes involved, and authors motivation to push out a message based on selective period and excluding taxes and fees, I don't see the demerits of Reits. The motivation is still the same, that Reits do play great roles akin to equities.

That's a hypothesis, and it might be correct. Historical accuracy is still important, though.

At least to me, over the long term, the message is still Reits do perform relatively well to global stocks even against the almighty S&P 500.

Let's see good, clean data. I'm just provided some really good, standardized data. Context matters, too. Is any homeowner in Singapore in any serious danger of having too little household wealth tied up in real estate? That seems far fetched, doesn't it?

Interesting to note regarding Berkshire, where it was punished for keeping too much cash. Yet still can increase share price simply by a magic wand of share buybacks recently. Thus Warren can easily increase its value anytime he wishes..........this benefit runs concurrent of the effect of insider trading, except this is fully legal. What a powerful position !

While share buybacks aren't necessarily winning moves, they have some potential tax advantages, so there is that. REITs evidently cannot do this, not in the U.S. and Singapore anyway.

 

[swan02]

What I'm asking is whether you will consider REITs if there isn't any primary residence or any property for that matter ?

I'm certain many are interested to know ? I don't think I have ever come across your views in a scenario where an investor is with zero property allocation.

I used to be one of those who rents a cheap room.

Let's see good, clean data. I'm just provided some really good, standardized data. Context matters, too. Is any homeowner in Singapore in any serious danger of having too little household wealth tied up in real estate? That seems far fetched, doesn't it?
.

 

[BBCWatcher]

What I'm asking is whether you will consider REITs if there isn't any primary residence or any property for that matter ?

I'm certain many are interested to know ? I don't think I have ever come across your views in a scenario where an investor is with zero property allocation.

I question the premise of your question. A typical (or even fairly atypical) investor won’t have zero real estate allocation. REITs represented about 2.8% of the value of the U.S. S&P 500 stock index at year end 2019, as just one example. This percentage has risen since S&P allowed REITs into the index in 2001. (Initially they didn’t know what to do with them.) And there’s some indirect real estate exposure beyond that. Home Depot, as one example, has some strong correlation to real estate. And what are companies like IWG (listed in London), Airbnb (just about to IPO), and the infamous WeWork (aborted IPO), as other examples? Real estate, surely.

There’s absolutely no danger of zero here.