Official Shiny Things thread—Part III

[Bun & Bear]

Query on Accumulating vs Dividend Paying ETFs

This is the reason why I am hesitant to invest sti index, because this crisis effectively wiped out all capital gains from quite a long time back.

Whereas the Iwda and us indices did not lose 10 years worth of capital appreciation yet...

Hi all,

Huge apologies in advance for the extremely noob question. A total newbie at this.

I read what bladez87 and Okenba mentioned.

So my question is, in events like what we are experiencing now, where capital gains are wiped out, would it be better to invest in ETFs that pays dividends vis-a-vis those that accumulate, e.g. VWRD instead of IWDA?

From what I have gathered from the community, the rationale of investing in IWDA is because it is accumulating and therefore efficient. On the other hand, for the dividends that VWRD pays out, the assumption is that these dividends will be used to purchase more VWRD and hence, inefficient (because of transaction cost).

But what if over the years, instead of absolutely and constantly purchasing VWRD with the dividends, I use some to purchase, and some I keep as cash/top up CPF/purchase SSBs? In other words, I live with this inefficiency but ensure all my eggs are not in one basket. This is because, if I were to retire and an event such like this were to occur, then the amount that I thought I could draw down (e.g. by slowly selling IWDA or VWRA) when I began my investing journey would be moot. Whereas if I have a dividend paying ETF (e.g. VWRD or ES3), even though the value of the ETF would have dropped as well, I could choose not to sell and collect the dividends. Concurrently, I would have accumulated the aforementioned components (cash/top up CPF/purchase SSBs).

Grateful if the experts and seniors are able to advise/provide your thoughts/share your experience.

Thank you so much!

 

[culepico]

So is it too early to go in now? When will you go in?

I will not go in now. I will go in only when the market starts to recover. Of course, this is just my foresight and strategy, which many will oppose.

 

[12retire]

Buy IWDA and ES3 using IB

If i want to buy IWDA and ES3 using IB, do I need to subscribe to market data?

The data i see now in TWS is delayed? If you don't subscribe to market data, you are actually trading based on delayed data?

How about US stocks?

 

[flowerpalms]

I will go in at the end of the month, same as my regular DCA investing. But may adjust to a new amount from next investment onwards

I will not go in now. I will go in only when the market starts to recover. Of course, this is just my foresight and strategy, which many will oppose.

 

[highsulphur]

I will not go in now. I will go in only when the market starts to recover. Of course, this is just my foresight and strategy, which many will oppose.

How do you define "start recovering"?

SnP off it's low by x%?

 

[culepico]

How do you define "start recovering"?

SnP off it's low by x%?

Nope. Even if S&P 500 down by 30%, it can still go lower. If it goes down by 40%, it can still go lower.

My definition of "start recovering" is a consistent uptrend for a week or two. Also factor in world news like the coronavirus, oil price trade war etc. and determine whether the rise will continue (with a good level of confidence).

At the moment it is not happening yet.

 

[highsulphur]

Nope. Even if S&P 500 down by 30%, it can still go lower. If it goes down by 40%, it can still go lower.

My definition of "start recovering" is a consistent uptrend for a week or two. Also factor in world news like the coronavirus, oil price trade war etc. and determine whether the rise will continue (with a good level of confidence).

At the moment it is not happening yet.

I meant if it comes off the lows by x%

 

[tangent314]

But what if over the years, instead of absolutely and constantly purchasing VWRD with the dividends, I use some to purchase, and some I keep as cash/top up CPF/purchase SSBs? In other words, I live with this inefficiency but ensure all my eggs are not in one basket. This is because, if I were to retire and an event such like this were to occur, then the amount that I thought I could draw down (e.g. by slowly selling IWDA or VWRA) when I began my investing journey would be moot. Whereas if I have a dividend paying ETF (e.g. VWRD or ES3), even though the value of the ETF would have dropped as well, I could choose not to sell and collect the dividends. Concurrently, I would have accumulated the aforementioned components (cash/top up CPF/purchase SSBs).

You are overthinking it. Taking dividends from VWRD to top up cash/CPF/SSB is really no different from having a slightly lower DCA allocation into VWRA and slightly higher into cash/CPF/SSB. "Ensure all your eggs are not in one basket" just means you think your global equity exposure is too high so you want to reduce global equities in favor of local bonds. You don't need to take dividends and reinvest it elsewhere to achieve this.

If i want to buy IWDA and ES3 using IB, do I need to subscribe to market data?

The data i see now in TWS is delayed? If you don't subscribe to market data, you are actually trading based on delayed data?

How about US stocks?

You don't need to subscribe market data. The data may be 15 mins delayed, but you can get the live snapshot (costs 1c each time you use it, I think you get some number free per month and likely it counts towards the US$10 min commission if you are still on that). Alternatively just get the latest trade price from Google Finance, although that does not give you the bid/ask price.

 

[Okenba]

I will go in at the end of the month, same as my regular DCA investing. But may adjust to a new amount from next investment onwards

Womg! No bro! That's market timing! Don't do it! No one can do it! Just DCA like you've always done!

 

[highsulphur]

Womg! No bro! That's market timing! Don't do it! No one can do it! Just DCA like you've always done!

 

[culepico]

I meant if it comes off the lows by x%

Not a criteria. A 10% rise over 2 weeks is a better indication than a 20% rise over 2 days.

 

[highsulphur]

Not a criteria. A 10% rise over 2 weeks is a better indication than a 20% rise over 2 days.

My point is that have you defined for yourself what exactly is market recovering and are you going to act upon that definition?

It is easy to say I'll invest after the market recovers but most of the time it is way after the market recovers then a person realize he is buying close to pre crisis level.

 

[flowerpalms]

If you are suffering from performance anxiety i suggest you go see a psychiatrist

Womg! No bro! That's market timing! Don't do it! No one can do it! Just DCA like you've always done!

 

[Okenba]

If you are suffering from performance anxiety i suggest you go see a psychiatrist

 

[culepico]

My point is that have you defined for yourself what exactly is market recovering and are you going to act upon that definition?

It is easy to say I'll invest after the market recovers but most of the time it is way after the market recovers then a person realize he is buying close to pre crisis level.

It was already defined in my previous previous post?

For the second part, it will not rise close to pre-crisis level within 2 weeks? See the S&P 500 historical chart for the 2000, 2008 and 2018 dips and see how long it took to get to near pre-crisis levels?

 

[highsulphur]

It was already defined in my previous previous post?

For the second part, it will not rise close to pre-crisis level within 2 weeks? See the S&P 500 historical chart for the 2000, 2008 and 2018 dips and see how long it took to get to near pre-crisis levels?

OK pls update us when you decided market is recovering and you have started buying

 

[celtosaxon]

Not a criteria. A 10% rise over 2 weeks is a better indication than a 20% rise over 2 days.

If you want to try and time the market (only 2% of investors get it right, by the way), you are better off just picking a % off the peak and diving in.

Goldman Sachs has already said they believe the bottom will be -41% off the peak. Back in 2008 they were predicting -50% off the peak, turned out to be -59%... but nobody who got in at -50% is complaining today.

Even the longest bear market recoveries have been within 5 years, if that helps gives some perspective.

 

[SpeedingBullet]

If you're looking for indications, look at the volatility indices of not just equities, but bonds as well. Then watch FX flows.

This will give you a good macro picture. The market doesn't just comprise of stocks...

 

[888888888888]

USD is the currency of course, as far as coronavirus is still on live.
even JPY is losing abit shine as a safe haven pair. have to reevaluate relative yields, maybe go back intraday.

 

[culepico]

If you want to try and time the market (only 2% of investors get it right, by the way), you are better off just picking a % off the peak and diving in.

Goldman Sachs has already said they believe the bottom will be -41% off the peak. Back in 2008 they were predicting -50% off the peak, turned out to be -59%... but nobody who got in at -50% is complaining today.

Even the longest bear market recoveries have been within 5 years, if that helps gives some perspective.

I am still sticking by the principle to enter only during the initial stages of recovery.

Why?

Assume that I was right about the recovery stage. Now I have entered near the bottom of the market and protected myself from the capital loss of those who DCA down the market. If I DCA from then on then my average price will perpetually be lower than those who had entered earlier and DCA down before market goes up again.

Assume that I was wrong. The initial recovery was just a false dawn and market continues to dip after that. I am still better off than those who DCA down the market because my entry point is lower than their DCA average. I will then stop buying as long as the market is going down, and start buying again when it is going up. My average price will still be perpetually lower than those who had entered earlier and DCA down before market goes up again (and they probably will continue to DCA if it goes down again).

In both cases I am still better off? Or is there anything else that I have overlooked?

My analysis is that as long as I buy on the way up and stop buying on the way down, it is perpetually better than those who DCA blindly?