House Prices could drop by a Quarter?

[JR8]

I'm all in favor of better options if they exist, and I'm in favor of portfolio diversification always.

... just not provider diversification. Some leap of faith there.

So what's the better option for high safety retirement savings?

Maybe you don't know the question as asked is unanswerable. What is 'high safety'. Are any such savings made at any point in life intended perhaps for retirement 'retirement savings'? For example I wouldn't start out my career and saving for retirement by seeking 'high safety', since safety comes at a cost of low returns. You tend to start of welcoming calculated risk (and hence returns) since you're young enough to weather the parallel volatility. It's only nearing and at/after retirement that people generally wish to lock it all in and go low risk or indeed as near as possible off-risk, since at that point they have neither the years nor desire to go back out and make up any short-falls.

There also seems little point discussing other options, vs a compulsory scheme.

[BBCWatcher]

The average US 5-year AAA corp is last indicated there as trading at 0.53% over the same maturity US Treasury. Hardly profound.

Are you kidding? On a 5 year maturity in a low yield environment that's huge! And one of the ratings agencies (S&P) lists the U.S. government at AA+.

Yet here you are celebrating how wonderful it is to have all your money c/o one government agency.

No. Who said that? Portfolio includes the concept of providers and custodians. Currencies, too.

Of course the implosion of UK pensions (National Insurance, a government agency) couldn't happen in Singapore so all is well, right?

U.K. NI is not a defined contribution system.

[ecureilx]

Are you the govt? You have just spoken for them.

I am only talking about possibilities and you seem to be sure about what you are saying.

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Now you sound like somebody I know .. or may be ...

Take an issue and start believing the impossible scenario has a zero chance of happening, then twist it to 0.0001% of happening and then insist the 0.0001% equates to high probability.

So back to you, do you work for the govt to insist, if not now, soon, SG Gov may start withholding CPF for Departing PRs ?

In case you wonder, Malaysians CPF being held back is due to other reasons. And it is being progressively relaxed to the dismay of Bumis. For example, giving up MY Citizenship, or leaving West Malaysia permanently will see you get your CPF back.

[BBCWatcher]

I've lived here from 2.35 to the USD to 1.15 and back to 1.4 now over the 3.3 decades I've been here.

Good point. I looked at the past decade, but if you look at a longer time horizon then the Singapore dollar looks relatively strong against the U.S. dollar right now....

....But there's nothing "fixed" about the U.S. dollar either. Both currencies fluctuate. If you're holding something like that VWRL exchange-traded fund then you're holding shares (tiny fractions) of practically every publicly traded medium and large sized company in the world. Hence it also embodies currency diversification, even if you used Specific Currency X to buy it (ideally on a Currency X cost averaged basis).

If you buy gold -- or oil, or a contract to deliver 3 metric tons of Florida orange juice to Shanghai in March, 2018 -- in Currency X, are you still holding Currency X? Or are you holding the asset? Of course it's the latter: you're holding the asset. You can look at the market value of that asset as often as you want in any currency you want. Lots of assets aren't currencies and aren't particularly subject to single currency risks. VWRL certainly isn't, as one example. A currency is just a means of exchange, a government-created and -maintained accounting construction -- a very useful, highly liquid one. It's also the only thing accepted as payment for government taxes and fees. (You can try paying your tax bill with IRAS by shipping them a painting by Monet, but I'm pretty sure IRAS wants only Singapore dollar currency.)

CPF SA is denominated in Singapore dollars and consequently does have single currency risk. That doesn't mean CPF SA is a bad thing -- not at all! You address that currency risk through currency diversification, as always. You can also do fancy things like hedge that risk if you wish through a technique called (what else?) currency hedging, but most people have no need to get fancy. VWRL is one example of how you can diversify, but there are many others.

[JR8]

I'm pondering whether you know a lot about the subject, but are losing veracity by expressing it in super-over-simplified terms 'for the thickos': Or, whether you know nothing, have perhaps read a book and think you know it all, but are getting most of it wrong

Anyway, perhaps a reminder what the original point of the discussion was might help keep a focus?

[Wd40]

The topic is about foreigners like us holding SGD based investments, whether in cash or CPF. And the resultant worry about SGD's possible depreciation.

Regarding whether CPF is safe or not, is only an academic discussion for most of us as we are not PRs

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[BBCWatcher]

The topic is about foreigners like us holding SGD based investments, whether in cash or CPF. And the resultant worry about SGD's possible depreciation.

OK, five points:

1. When you buy any asset you own the asset, not the currency you used to buy that asset. So if you buy shares of Apple (AAPL) traded on the New York Stock Exchange, and you used Singapore dollars to do it, once you own the shares you have about 1% or less Singapore dollar-based exchange risk, i.e. the share of Apple's valuation that depends on the value of the Singapore dollar relative to other currencies. If Singapore dollars suddenly become less valuable relative to other currencies then practically nothing will happen to the value of Apple except that its valuation expressed in Singapore dollars will almost perfectly zoom up in equal and opposite fashion to compensate. (Only a tiny fraction of Apple's total global business depends on what happens in Singapore.)

A lot of people think when they buy an asset with a particular currency they still own that currency. Wrong. They own the asset, not the currency. If you buy 100 shares of British Telecom using Singapore dollars, and I buy 100 shares of British Telecom using U.K. pounds, we both own 100 shares of BP. We no longer own the cash we used to buy those shares.

If we buy 100 shares of StarHub, to pick another example, we're not diversifying away from Singapore dollars very much. StarHub's value as a business is fairly highly correlated with the value of Singapore dollars relative to other currencies. Not perfectly correlated, but more highly correlated than BT and Apple. But we still own StarHub, not Singapore dollars. To pick yet another example, if we buy shares in ICICI Bank we own that asset, an asset that is highly (but not perfectly) correlated with Indian rupees. So you can pick assets with various currency correlations, as you wish.

2. Currency risk is a bigger personal risk if you're holding assets (such as cash) that are perfectly or highly correlated with a particular currency and if you will be supporting a particular lifestyle in some other currency. For example, if you spend 8 years working in Singapore, building up some cash savings in Singapore dollars, but your plan is to move to Chennai and retire there, then you would have some personal financial risk associated with currency because most of your future lifetime spending will be in Indian rupees, not in Singapore dollars. If the plan is to stay in Singapore and retire in Singapore, then it's reasonable to be less worried about the value of, say, the Indian rupee relative to Singapore dollars. Analogously, you shouldn't care about the future prices of wine if you don't consume alcohol.

3. If I've just described you or somebody like you, that Singapore is a temporary stop in your life's journey, then the simplest way to mitigate currency risk is to dollar cost average into another currency. For example, if you can afford to save S$200/month, and you want to increase your Indian rupee cash holdings, then shift S$200/month into Indian rupees. (This assumes low fixed transaction costs. If the fixed costs are high per transaction, adjust the plan and convert less often, but still use a fixed dollar amount.) In months when the Indian rupee is expensive you'll automatically buy fewer of them, and in months when the Indian rupee is inexpensive you'll buy more of them. This works quite well.

4. ....Or, if you want particular assets, then buy those assets, directly, in as low cost a way as possible. If VWRL is what you choose, fine, buy it through the same dollar cost averaging method. Then, when you're retired and want to start drawing down your VWRL investment, sell the same number of shares per month (or per quarter, or per half year) on a fixed, programmed schedule. Dollar cost average in, sell the same fixed number of shares on the way out. This assumes also that you have no particular, special, legal insight into valuations, and most people don't.

5. If you want to get fancy you can, through currency hedging techniques. But that's not something you do without at least 6 figure (Singapore dollar) amounts of wealth, and perhaps not even then.

[ecureilx]

This thread has become NSFW. Tapatalk keeps showing a woman's tummy ... who did what ?

[Wd40]

The topic is about foreigners like us holding SGD based investments, whether in cash or CPF. And the resultant worry about SGD's possible depreciation.

OK, five points:

1. When you buy any asset you own the asset, not the currency you used to buy that asset. So if you buy shares of Apple (AAPL) traded on the New York Stock Exchange, and you used Singapore dollars to do it, once you own the shares you have about 1% or less Singapore dollar-based exchange risk, i.e. the share of Apple's valuation that depends on the value of the Singapore dollar relative to other currencies. If Singapore dollars suddenly become less valuable relative to other currencies then practically nothing will happen to the value of Apple except that its valuation expressed in Singapore dollars will almost perfectly zoom up in equal and opposite fashion to compensate. (Only a tiny fraction of Apple's total global business depends on what happens in Singapore.)

A lot of people think when they buy an asset with a particular currency they still own that currency. Wrong. They own the asset, not the currency. If you buy 100 shares of British Telecom using Singapore dollars, and I buy 100 shares of British Telecom using U.K. pounds, we both own 100 shares of BP. We no longer own the cash we used to buy those shares.

If we buy 100 shares of StarHub, to pick another example, we're not diversifying away from Singapore dollars very much. StarHub's value as a business is fairly highly correlated with the value of Singapore dollars relative to other currencies. Not perfectly correlated, but more highly correlated than BT and Apple. But we still own StarHub, not Singapore dollars. To pick yet another example, if we buy shares in ICICI Bank we own that asset, an asset that is highly (but not perfectly) correlated with Indian rupees. So you can pick assets with various currency correlations, as you wish.

2. Currency risk is a bigger personal risk if you're holding assets (such as cash) that are perfectly or highly correlated with a particular currency and if you will be supporting a particular lifestyle in some other currency. For example, if you spend 8 years working in Singapore, building up some cash savings in Singapore dollars, but your plan is to move to Chennai and retire there, then you would have some personal financial risk associated with currency because most of your future lifetime spending will be in Indian rupees, not in Singapore dollars. If the plan is to stay in Singapore and retire in Singapore, then it's reasonable to be less worried about the value of, say, the Indian rupee relative to Singapore dollars. Analogously, you shouldn't care about the future prices of wine if you don't consume alcohol.

3. If I've just described you or somebody like you, that Singapore is a temporary stop in your life's journey, then the simplest way to mitigate currency risk is to dollar cost average into another currency. For example, if you can afford to save S$200/month, and you want to increase your Indian rupee cash holdings, then shift S$200/month into Indian rupees. (This assumes low fixed transaction costs. If the fixed costs are high per transaction, adjust the plan and convert less often, but still use a fixed dollar amount.) In months when the Indian rupee is expensive you'll automatically buy fewer of them, and in months when the Indian rupee is inexpensive you'll buy more of them. This works quite well.

4. ....Or, if you want particular assets, then buy those assets, directly, in as low cost a way as possible. If VWRL is what you choose, fine, buy it through the same dollar cost averaging method. Then, when you're retired and want to start drawing down your VWRL investment, sell the same number of shares per month (or per quarter, or per half year) on a fixed, programmed schedule. Dollar cost average in, sell the same fixed number of shares on the way out. This assumes also that you have no particular, special, legal insight into valuations, and most people don't.

5. If you want to get fancy you can, through currency hedging techniques. But that's not something you do without at least 6 figure (Singapore dollar) amounts of wealth, and perhaps not even then.

Great advice! I am personally doing Point 3. since the last 2 years. I save about 3.5K a month and I accumulate it for 3 months, until it becomes about 10k and bam convert it to INR and open a fixed deposit in INR that yields 8% per annum. INR is a depreciating currency so that 8% kind of takes care of the depreciation.

Out of the almost 7 years that I have been here, 1st 3 years I converted every month. Then in 2012 and 2013 I just accumulated SGD here as INR was sinking like a stone then. But net net if I look at it, even if I had kept all my SGD for last 7 years, I wouldn't have lost/gained a lot of money in INR terms. May be +/-10%?. It would be interesting to do some calculations and what if scenarios But I dont have a lot of my remittance data. I wish I had kept those records.

[BBCWatcher]

IMHO you should be doing some of #4 also if you're saving for retirement or some other long-term purpose. #3 is really for short-term or at least medium-term savings purposes (and traditional remittance purposes), such as saving for a down payment on a home in another country.

[Wd40]

I didn't exactly do #4, instead did some lump some investments into Indian mutual funds at various points, usually closer to the peak. I do believe in asset allocation. Currently my allocation is 35% Indian equity mutual funds, 65% Indian fixed deposits, 0% real estate. Although the ratio looks opposite to what it should be, quantumwise my equity allocation is huge as my savings rate is very high for an Indian wanting to retire in India. Also my risk taking ability is very limited because sometimes I get these wild thoughts of retiring early, at the age of 40( I am 36 currently), especially when I have a bad day at work

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[earthfriendly]

Great point. One should dollar cost average, not just when entering into an investment instrument. Remember to do the same on the way out too.

[BBCWatcher]

Currently my allocation is 35% Indian equity mutual funds, 65% Indian fixed deposits, 0% real estate.

Clearly you're very heavily biased toward Indian investments, so India's financial fate is thus your financial fate, too. I don't recommend betting entirely or predominantly on one country, even if you're planning to retire in that country. Consider Japan, for example. Japan's Nikkei 225 stock index hit an all-time high of nearly 39,000, on December 29, 1989. As I write this it's about 16,600, down about 57% from its all-time high. Granted, you'd be doing better than that if you yen cost averaged in Japanese stocks over decades, and also because some of those stocks paid/pay dividends. Also, there has been very little inflation in Japan. Even considering all that, it would not have been good taking a bet only or predominantly on Japan, even if you never left Japan. And Japan's economy is the third largest in the world, even today (China passed Japan well after 1989), while India's is the 7th. There's a bit more risk in being smaller, other things being equal.

One reasonable approach might be to shift, via rupee or Singapore dollar cost averaging, into something like VWRL. (VWRL is one possibility, but it's only an example. Note that VWRL includes a fraction of Indian companies, roughly in line with India's position as the 7th largest economy in the world. But mostly it's not Indian. The biggest fraction of VWRL would be invested in U.S. headquartered medium and large size companies, but that's no surprise since the U.S. is the largest economy in the world.) You could decide how much that should be as a percentage of total assets, but I think 0% is the wrong answer.

OK, after that, I'd take a look at whether your investments are low cost. What is the total management fee on those mutual funds? VWRL is about 0.25% per year, excluding trading costs, currency exchange costs, and any taxes. (VWRL itself pays some foreign taxes, internally. The fund issues annual reports describing those foreign taxes it pays on the dividends and gains, and ordinarily those foreign taxes are creditable in your domestic income tax system -- for example, if/when you're subject to Indian income tax. For instance, when VWRL receives a dividend on General Electric stock, it pays a 15% U.S. tax before crediting that dividend back to the fund.) It's not at all uncommon for Singapore's unit trusts to charge 2% or more per year, or about 10 times what something like VWRL charges. This is a huge difference, of course. Taking a quick look at India's financial markets (something I haven't done before), it looks like the index fund market in India is quite poorly developed right now. There are several index funds in India that track domestic Indian stock indices (e.g. NIFTY). But I haven't been able to find ex-India index funds available on Indian financial markets, much less low cost ones. So it's quite difficult to diversify internationally through something traded on an Indian exchange, it would appear. If you want to reduce your exposure to India from near 100% to, say, "only" 80% then it looks like you'd have to go offshore to do it well.

I say "near" 100% because some Indian companies that you own, through your mutual funds, are multinational companies, e.g. Tata. Their success depends in part on what happens to their businesses outside India. So you're not 100% all-India, not quite. But you're nearly that. That wouldn't be my preference. (See above re: Japan. Many Japanese companies do substantial business outside Japan, too.)

If you're planning an early retirement then yes, you'd be skewed the way you are toward less volatile assets. That said, you might still want a bit of international-ness particularly since the rupee can be volatile, and many retirees still take trips abroad to ski, visit the Grand Canyon, or whatever and still care to some extent about other currencies. I love the low cost "target" index funds, as I mentioned, but unfortunately that seems to be a U.S.-only thing in their extremely well developed financial markets. (Maybe somebody is going to revolutionize investing for the great and growing Indian middle class and introduce low cost "target" lifecycle index funds to India.) Some Indian banks offer foreign currency denominated fixed deposits, but those seem to be high cost offerings on average. Maybe there's a low cost international bond index fund available? Let's see.... Yes, there are: VECP, VETY, VGOV, VUCP, and VUTY. Those are Vanguard's non-U.S. exchange-traded index funds, traded on the London Stock Exchange. They all charge 0.12% management fees annually, so that's quite excellent. (Only beaten by Vanguard U.S.) There are three government bond funds (U.S. dollars, U.K. pounds, and Eurozone) and two corporate bond funds (U.S. dollars and Eurozone). The government bond funds are obviously safer/less volatile/lower yielding than the corporate bond funds. You'd have to look at the other roundtrip costs I mentioned to decide whether it makes sense to Singapore dollar cost average into such funds, but there you go.

No, I don't get commissions on any of this stuff. Nobody does, as far as I know. Vanguard, the company, is owned by its investors -- it's a mutual society organization, much like a co-op. I'm using them as an example and not necessarily recommending them.

[Wd40]

There are indian mutual funds which invest globally and quote in INR although underlying assets are not INR:

http://www.moneycontrol.com/mutual-fund ... assic=true

However the tax treatment is different. These are taxed, while mutual funds which invest in Indian equities are exempt from taxes if they are held for more than 1 yr. This is why international funds are not so popular in India, but yeah, it's something I should consider. I was just too much gung ho on India, until now.

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[PNGMK]

I don't know about Vanguard... I know people who are still negative in it from the 90's.