Official Shiny Things thread—Part III

[Shiny Things]

The latter is not part of the U.S. Federal Reserve's mandate. The Federal Reserve's primary mandate is maximum employment (correct), and the Fed's secondary mandate is "stable prices." There is no specific inflation target in the statute, and there's no actual consensus backing for 2% as a target (cap or average). The 2% figure is a figure some central bankers pulled out of their asses.

So you're absolutely right that there's no specific inflation target. The point I was getting at, though, was that inflation was about to crash away from "low but stable" to "icky and deflationary", and that gave the Fed room to act.

Moreover, many, many central bankers have been miserable failures in managing inflation at or even near 2%. Do you want to discuss the German central bank...oh, excuse me, the European Central Bank?

Oh, don't get me started on those guys. In their defense, the Draghi-era ECB successfully used the bazooka in 2011 to stave off pan-European contagion; my only wish is that they'd had a bigger bazooka and kept firing it in spite of Germany's weird case of monetary Calvinism.

Though you can, and I would, argue that when you get close to zero interest rates, monetary policy loses its effectiveness, and fiscal policy becomes much more effective... so the German government bears some responsibility, because they refused to do anything on the fiscal policy side to fix Germany's excess savings problem. Same goes for Switzerland.

Hi Shiny, I have started building my portfolio since start of this year. But via SCB instead of IB for IWDA component.

Would it be wise to transfer it to IB considering I'm buying for long term and currently I'm investing S$1k monthly and plan to increase yearly? While my G3B and MBH is in POSB.

Yep. Once your amounts increase a little further, you'll get more value out of the tighter FX spreads at IBKR than you would from the no-monthly-fees at Stanchart. You might as well do it now.

Are you alluding to Singapore?

Yep.

Shiny:

For a credit/debit spread options trade, if we set the limit price to somewhere in between the bid/ask, how does the platform know when to execute the trade? Eg. a bull put spread. Does it just wait the higher strike put bid + lower strike put ask equals the limit price I'm asking for before simultaneously executing?

Depends on the broker and the algorithm; for example, here's how IBKR routes options spread orders. Not knowing the guts of how IBKR's smart-router works, my reflex would be that it works orders in the individual legs at prices where if one leg gets filled, it'll be able to hit a resting order to fill the other leg and fill you on the spread at your desired price.

IBKR does point out that they'll try to route spread orders to Nasdaq ISE first, which has its own complex order book that interacts with ISE's order books for the individual legs. Basically this stuff gets really complicated, but in short it's letting the exchange try to find the fill for you, rather than IBKR or you having to hunt for the fill on each leg.

 

[gazar1]

The latter is not part of the U.S. Federal Reserve's mandate. The Federal Reserve's primary mandate is maximum employment (correct), and the Fed's secondary mandate is "stable prices." There is no specific inflation target in the statute, and there's no actual consensus backing for 2% as a target (cap or average). The 2% figure is a figure some central bankers pulled out of their asses.

Moreover, many, many central bankers have been miserable failures in managing inflation at or even near 2%. Do you want to discuss the German central bank...oh, excuse me, the European Central Bank?


No, it really wasn't, and 2015-2016 is not aging well in Fed history. The Federal Reserve screwed up that time. There was no danger of inflation, but the Fed tightened anyway. The tightening delayed/stalled employment and wage recovery, and consequently Pennsylvania, Michigan, and Wisconsin narrowly voted for Donald Trump in November, 2016. "Ooops."

No, that wasn't one of the Fed's shining moments. There are parallels with 1936-1937.


If you have a big (~$30K) bill to pay about 25 months from now -- a wedding, university tuition bill, home outfitting, or something else -- yes, that's a pretty good choice. That's called saving, not investing. Is that your situation, or is some or all of this $30K available for long-term investing?

Hi it is available for longhorn term investment but I am not sure what to invest.

I thought the Maybank 2.05 is consider safe and steady.

 

[gazar1]

2.05 a bit on the low side. how long do you have to put it there and cannot touch? 3 years?

Yes for Maybank is 3 years, do you have a better recommendations?

 

[gazar1]

Also keen to find out as advice from my friend.

Now is a good time to buy SIA shares, is it true?

Should I use my $30k cash to invest in SIA shares instead?

Hope BBCWatcher or Shinythings can enlighten me as I am not a investment savvy person.

Am still reading up you guys thread to learn.

Many thanks in advance.

 

[netsit]

Hi guys i have a question about cash drag/positions.

I have an outstanding mortgage loan of around SGD730k for an investment residential property that has a market value of SGD1.1M, rental collected is net positive after mortgage payments.

I am holding SGD170k cash in deposits getting around 2% interest. Another 90k in SSB. SGD114k in equities (IWDA).

The reason for my cash holdings is to guard against the event of a margin call when property value devalues significantly/downturn periods where there are no rental income.

Since covid19 happened, I am having 2nd thoughts about holding lesser cash to deploy more into the equity markets. As I am seeing government's support on 1) defering mortgage payments and 2) resiliant property prices, I feel like a margin call event is highly unlikely now and in the future. I also have no mid-long term major expenses like wedding, kids, etc.

Do you guys buffer cash holdings for events like that? Do you think my cash positions should be lower and how low?

 

[BBCWatcher]

Hi it is available for longhorn term investment but I am not sure what to invest.
I thought the Maybank 2.05 is consider safe and steady.

Yes, for paying a bill about 25 months from now. Or perhaps for a grandmother or grandfather, although even that’s debatable. It’s not for savings available for long-term investing.

Yes for Maybank is 3 years, do you have a better recommendations?

Also keen to find out as advice from my friend.
Now is a good time to buy SIA shares, is it true?
Should I use my $30k cash to invest in SIA shares instead?

Good God, no. That’s a lottery ticket, not even necessarily a good one.

The likely best answer involves one or a couple low cost stock index funds, but what does the rest of your household financial picture look like? Let’s cover the basics (and all of these are household questions, so include your spouse/partner if you have one):

1. Do you have at least 6 months worth of ordinary expenses already set aside in liquid, safe vehicles (e.g. ordinary bank account, Singapore Savings Bonds)? If you have a mortgage, you can count your CPF Ordinary Accounts but only to the extent they could pay the mortgage.

2. Have you covered all your genuine insurance necessities? For most households this includes Disability Income Insurance (DII), a basic public hospital Integrated Shield plan, and, if you have at least one dependent, term life insurance.

3. What other savings/assets do you have? (Anything that offers reasonable global diversification?) And how many years do you have until retirement (typically/classically age 65)? Do you plan to retire in Singapore and have that legal right (Singaporean citizen, PR, or LTVP holder married to one)?

I have an outstanding mortgage loan of around SGD730k for an investment residential property that has a market value of SGD1.1M, rental collected is net positive after mortgage payments.

I am holding SGD170k cash in deposits getting around 2% interest. Another 90k in SGS bonds. SGD114k in equities (IWDA).

The reason for my cash holdings is to guard against the event of a margin call when property value devalues significantly/downturn periods where there are no rental income.

Since covid19 happened, I am having 2nd thoughts about holding lesser cash to deploy more into the equity markets. As I am seeing government's support on 1) defering mortgage payments and 2) resiliant property prices, I feel like a margin call event is highly unlikely now and in the future. I also have no mid-long term major expenses like wedding, kids, etc.

Do you guys buffer cash holdings for events like that? Do you think my cash positions should be lower and how low?

Wow, that’s an interesting question. I agree that a margin call on the mortgage is fairly unlikely, but we cannot rule it out. If you still feel S$170K of buffer is the right amount, couldn’t some of that go into CPF OA where it’d earn 2.5% interest instead of 2.0%? The downside, of course, is that OA is otherwise locked until age 55, so it’s only liquid for housing (and education to some extent). So you wouldn’t have liquidity for other purposes. And there’s no rule that says you must keep margin buffer as cash earning 2.0% (if you’re lucky — that’s probably going down). Any assets that are liquid for housing will do. A stock index fund held outside the SRS (for example) is still liquid for housing.

Anyway, yes, I think you could tweak your allocations a bit to reduce cash drag somewhat, still with ample safety. This is one of those issues (cash drag/“too much” cash piling up) I periodically review myself, then I make adjustments if necessary. It’s a happy problem to have, actually.

 

[flowerpalms]

Just did my rebalancing for May. All is good

 

[noobmaster89]

Hello there, need some advice with my current monthly investments. Personally can only allocate ard $1k per month. Time horizon of ~30 years with the goal of accumulating enough for retirement.

1) $300 into ES3 (FSMone)
2) $500 into Stashaway highest risk portfolio, for global exposure. Would FSM one be a better alternative eg. VOO etc? How do the fees compare?
3) $100-$200 into Syfe REIT+ portfolio
4) $100 monthly top up into CPF SA (seeing this as an alternative to bonds).

Any advice on any better alternatives? Considering that I do not have much time to research on the stock market (I do occasionally make purchases of local blue chips via SCB though). Thanks!

 

[razoreigns]

Hi guys i have a question about cash drag/positions.

I have an outstanding mortgage loan of around SGD730k for an investment residential property that has a market value of SGD1.1M, rental collected is net positive after mortgage payments.

I am holding SGD170k cash in deposits getting around 2% interest. Another 90k in SGS bonds. SGD114k in equities (IWDA).

The reason for my cash holdings is to guard against the event of a margin call when property value devalues significantly/downturn periods where there are no rental income.

Since covid19 happened, I am having 2nd thoughts about holding lesser cash to deploy more into the equity markets. As I am seeing government's support on 1) defering mortgage payments and 2) resiliant property prices, I feel like a margin call event is highly unlikely now and in the future. I also have no mid-long term major expenses like wedding, kids, etc.

Do you guys buffer cash holdings for events like that? Do you think my cash positions should be lower and how low?

It really depends on your risk appetite. Margin calls not happening now could be a function of government intervention. This protection will not last indefinitely. When you invest in property with leverage, it is always good to be more conservative. The stress of a margin call + possible fire sale is unforgettable. Personally, I keep a separate pool of funds equal to the outstanding loan in senior IG bonds, with matching or shorter duration. This is a separate pool from the regular equity/bond investment portfolio.

 

[netsit]

Wow, that’s an interesting question. I agree that a margin call on the mortgage is fairly unlikely, but we cannot rule it out. If you still feel S$170K of buffer is the right amount, couldn’t some of that go into CPF OA where it’d earn 2.5% interest instead of 2.0%? The downside, of course, is that OA is otherwise locked until age 55, so it’s only liquid for housing (and education to some extent). So you wouldn’t have liquidity for other purposes. And there’s no rule that says you must keep margin buffer as cash earning 2.0% (if you’re lucky — that’s probably going down). Any assets that are liquid for housing will do. A stock index fund held outside the SRS (for example) is still liquid for housing.

Anyway, yes, I think you could tweak your allocations a bit to reduce cash drag somewhat, still with ample safety. This is one of those issues (cash drag/“too much” cash piling up) I periodically review myself, then I make adjustments if necessary. It’s a happy problem to have, actually.

Thanks for your reply!
If the cash is moved into OA, it can't be used in the event of a mortgage margin call as I understand that it will be an outright lumsump cash topup.

For OA, I only kept the min 20k, the rest have been pushed to SA regularly - doing so early has enabled me to be able to already hit the FRS sum of 181k currently which means that it will now grow at 4-5% keeping up with the annual rate of increase for FRS.

In your opinion, to maintain ample safety - how much % of property value should my cash position be? I am looking at my cash position being 260k (170k deposit + 90k SSB) since SSB are fairly liquid in the sense that you can withdraw them anytime within max 30 days.

It really depends on your risk appetite. Margin calls not happening now could be a function of government intervention. This protection will not last indefinitely. When you invest in property with leverage, it is always good to be more conservative. The stress of a margin call + possible fire sale is unforgettable. Personally, I keep a separate pool of funds equal to the outstanding loan in senior IG bonds, with matching or shorter duration. This is a separate pool from the regular equity/bond investment portfolio.

Thanks! Could you elaborate what do you mean by "matching or shorter durations"? Is the rationale that in the event of a margin call, we can expect IG bonds to be very value stable and hence easy to liquidate? What broker/bank do you use for this purpose? Is it a etf bond or a bond bond?

 

[BBCWatcher]

If the cash is moved into OA, it can't be used in the event of a mortgage margin call as I understand that it will be an outright lumsump cash topup.

You could be right, but that's something to check if you're really interested.

For OA, I only kept the min 20k, the rest have been pushed to SA regularly - doing so early has enabled me to be able to already hit the FRS sum of 181k currently which means that it will now grow at 4-5% keeping up with the annual rate of increase for FRS.

That's awesome, really. Congratulations. Don't forget about your spouse/partner and/or elders, as applicable.

In your opinion, to maintain ample safety - how much % of property value should my cash position be? I am looking at my cash position being 260k (170k deposit + 90k SGS bonds) since SGS are fairly liquid in the sense that you can withdraw them anytime within max 30 days.

First of all you're certainly allowed to view your emergency reserve funds as one common household pool, with a mortgage margin call being classified as an emergency on the short list of emergencies. The idea of an emergency reserve fund is a buffer for "strange and weird events" -- a bout of unemployment, for example -- that helps you avoid digging into your long-term invested assets. I don't think you need to view them as separate pools, and typically whatever you want to maintain in mortgage margin reserve would be more than enough as general emergency reserve.

Second, you can safely/prudently reduce your mortgage margin reserve as your outstanding LTV improves. At some point you'd just drop down to the level of standard/general emergency reserve as the mortgage gets repaid at standard pace.

Let's suppose you assume a possible/hypothetical 40% decline in the valuation of your property, so that it ends up worth about S$660K with a S$700K outstanding mortgage. (It's too far fetched that property values crash by 40% literally overnight, so I'm reducing the outstanding mortgage slightly with the assumption such a fall would require some time to occur and be lender realized/appreciated.) You have about S$260K now in cash and near cash buffer, it looks like. (S$280K if you're able to toss in the S$20K of OA.) Yes, that looks a little high to me. Even if the bank wants S$180K more -- and that seems far fetched, but if -- you're still at least S$80K above that. Could you shift S$50K+ from cash to long-term invested assets while sleeping very well indeed? Yes, I think you could.

These are back-of-the-envelope figures here, of course, but yes, I think you're probably dragging along too much cash. As I said, it's a happy problem to have, easily adjusted if you wish.

 

[razoreigns]

Thanks! Could you elaborate what do you mean by "matching or shorter durations"? Is the rationale that in the event of a margin call, we can expect IG bonds to be very value stable and hence easy to liquidate? What broker/bank do you use for this purpose? Is it a etf bond or a bond bond?

To begin with, you need to have a reasonable LTV. Banks will only margin call you if 1) you cannot pay your monthly installments, 2) the valuation of the property has dropped drastically upon their review cycle.

For (1), you can use your CPF OA to act as a buffer. You can also explore refinancing to increase the tenor of your loan, hence reducing your monthly installment.

For (2), you need to have the flexibility to pay off portion or all of your loan should interest rates become uncomfortable. This action will also reduce the LTV and solve the margin call. The IG bonds that I have invested in are relatively safe and liquid, but traded OTC. In general, the remaining tenor of those bonds should not be longer than the remaining loan tenor, for example, exclude AT1s even though the yield looks more attractive. Alternatively, you can park them in MBH for greater pricing transparency, liquidity, diversification, with average duration 5+ years.

 

[cassowary18]

Hello there, need some advice with my current monthly investments. Personally can only allocate ard $1k per month. Time horizon of ~30 years with the goal of accumulating enough for retirement.

1) $300 into ES3 (FSMone)
2) $500 into Stashaway highest risk portfolio, for global exposure. Would FSM one be a better alternative eg. VOO etc? How do the fees compare?
3) $100-$200 into Syfe REIT+ portfolio
4) $100 monthly top up into CPF SA (seeing this as an alternative to bonds).

Any advice on any better alternatives? Considering that I do not have much time to research on the stock market (I do occasionally make purchases of local blue chips via SCB though). Thanks!

1 and 4 looks fine (although BBCWatcher would say put your money in MA instead, either is fine). Curious though, why put your money in Stashaway and get charged an additional 0.75%? You could just buy a low cost global index fund like IWDA or VWRA using Standard Chartered and that would do the trick. Also why overweight REITs, may I ask? Bearing in mind that your ES3 already has real estate inside.

 

[BlackRozeInc]

I have a question about Accumulating ETFs, not sure if it has been asked before.

I understand that in those ETFs, dividends are not distributed but are instead reinvested into the funds, thereby increasing the fund NAV. Thats why you tend to have higher returns in Acc funds, compared to Dist funds where you would have to reinvest manually.

Since dividend is reinvested into NAV, what happens during a bear market when prices of shares drop? Since NAV is calculated based on the assets and such held by the fund, would that mean that those dividends as well would be affected as well?

Sorry for the noob questions, just trying to understand ETFs more.

 

[noobmaster89]

1 and 4 looks fine (although BBCWatcher would say put your money in MA instead, either is fine). Curious though, why put your money in Stashaway and get charged an additional 0.75%? You could just buy a low cost global index fund like IWDA or VWRA using Standard Chartered and that would do the trick. Also why overweight REITs, may I ask? Bearing in mind that your ES3 already has real estate inside.

For 2, mainly because of ease of convenience and it allows me to track my portfolio easily as compared to DIY with SCB. Apart from DIY with SCB which requires strict discipline to enter regardless of price, are there any alternative methods to consider?

For 3, mainly for REIT exposure and cost is quite low (0.4%), although might be a bit of an overlap with ES3 so am open to suggestions/alternatives as well.

 

[decibel.]

Hello there, need some advice with my current monthly investments. Personally can only allocate ard $1k per month. Time horizon of ~30 years with the goal of accumulating enough for retirement.

1) $300 into ES3 (FSMone)
2) $500 into Stashaway highest risk portfolio, for global exposure. Would FSM one be a better alternative eg. VOO etc? How do the fees compare?
3) $100-$200 into Syfe REIT+ portfolio
4) $100 monthly top up into CPF SA (seeing this as an alternative to bonds).

Any advice on any better alternatives? Considering that I do not have much time to research on the stock market (I do occasionally make purchases of local blue chips via SCB though). Thanks!

No need to "diversify" across so many providers. Just focus on CPF then global exposure. The way you do it, I can imagine when work gets busier it's really tough to keep track of all these performance. Besides if you want REITs might as well go for STI.

Sent from HUAWEI VOG-L29 using GAGT

 

[cassowary18]

For 2, mainly because of ease of convenience and it allows me to track my portfolio easily as compared to DIY with SCB. Apart from DIY with SCB which requires strict discipline to enter regardless of price, are there any alternative methods to consider?

For 3, mainly for REIT exposure and cost is quite low (0.4%), although might be a bit of an overlap with ES3 so am open to suggestions/alternatives as well.

If you're talking about index investing, robo and DIY are the two most popular one. Don't mix though. If you want to robo go robo all the way then you don't have to worry about rebalancing and stuff. If you want to cut costs then just DIY and stay the course, be disciplined about investing and you'll be fine.

 

[flowerpalms]

My May rebalancing consist of:
Selling 550 shares of ES3
Selling 3 shares of IWDA
Buying 2900 shares of MBH

Sent from Samsung SM-G973F using GAGT

 

[hkchew03]

My May rebalancing consist of:
Selling 550 shares of ES3
Selling 3 shares of IWDA
Buying 2900 shares of MBH

Sent from Samsung SM-G973F using GAGT

Why bother 3 shares of IWDA?
The comm and fx to convert to MBH makes little sense.

 

[flowerpalms]

Why bother 3 shares of IWDA?
The comm and fx to convert to MBH makes little sense.

Just following the allocation

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