SRS investment options

[malcontent]

Lots of people have what is called a “mad money” account on the side for their own stock picks. While I can see the appeal, it is too stressful for me. Even a 4 digit loss can really bother me. But when I’m in the broad index, I feel safety in numbers; a large 5 figure or even 6 figure drop… doesn’t bother me in the least, I sleep like a baby.

[Wd40]

I guess that you probably could consider a robo's costs analogous to the costs that you incur when you buy or sell ETFs through your trading app. Not necessarily the same cost, but analogous.

I find it very hard to believe that robos can be as cheap as the ETFs they are building your portfolio with, they have to get a cut somewhere, or else it wouldn’t be worth it for them.

Maybe they are analogous with some local ETFs that have higher expenses than the overseas ETFs they are using? But then, I invest overseas ETFs myself, so it’s back to my first argument.

The other thing I don’t like about robos (and any other advisors for that matter) is they way over complicate things… I’m sure this means more transactions for them, but I don’t like complexity. It just doesn’t add value. It is a well known (but little talked about) fact that advisors use complexity as a way of justifying their fees - despite it not doing you any good.

If there is one thing I’ve learned over my nearly 30 years of investing, it’s to keep things real simple. My only regret is not realizing this sooner.

You got it right. Robos are okay for people who are starting out and don't want to deal with FX, bid ask spreads etc.

Regarding SRS, there are limitations, so we just need to choose what is the best available. I would skip robo for SRS and pick and pick a unit trust that closely matches an index fund.

There are lionglobal infinity acwi and s&p500 index funds. Both dollardex and fsm offer it. They are slightly higher expense ratio, but for the simplicity they offer I think they are okay.

[smoulder]

You got it right. Robos are okay for people who are starting out and don't want to deal with FX, bid ask spreads etc.

Regarding SRS, there are limitations, so we just need to choose what is the best available. I would skip robo for SRS and pick and pick a unit trust that closely matches an index fund.

There are lionglobal infinity acwi and s&p500 index funds. Both dollardex and fsm offer it. They are slightly higher expense ratio, but for the simplicity they offer I think they are okay.

Why not the SPY ETF? What's your take?

[Wd40]

You got it right. Robos are okay for people who are starting out and don't want to deal with FX, bid ask spreads etc.

Regarding SRS, there are limitations, so we just need to choose what is the best available. I would skip robo for SRS and pick and pick a unit trust that closely matches an index fund.

There are lionglobal infinity acwi and s&p500 index funds. Both dollardex and fsm offer it. They are slightly higher expense ratio, but for the simplicity they offer I think they are okay.

Why not the SPY ETF? What's your take?

You mean S27? It is a good choice as Malcontent explained, I am not sure why Singaporeans are not so keen on this especially the ones I interact in the money mind forum. They are all behind the local REITs or banks or the newly list HK tech etf.

But yeah it is a good choice for your US equity allocation if you want to do it via SRS.

But if you want to have an SG allocation it is better to use SRS for the SG allocation and use Irish domiciled London listed UCITS ETFs for their tax efficiency, for the US allocation.

So to summarize, you have to decide your asset allocation mix 1st and then choose which is the best place to buy each asset class. For example if you plan to buy REITs, it is better to use SRS to do that and use your cash account to buy global ETFs.

[singaporeflyer]

What is your view on entering investing in SP500 ETF (VUSD) at current levels? Intention is to hold for 5-8 years at least.

[malcontent]

You got it right. Robos are okay for people who are starting out and don't want to deal with FX, bid ask spreads etc.

Regarding SRS, there are limitations, so we just need to choose what is the best available. I would skip robo for SRS and pick and pick a unit trust that closely matches an index fund.

There are lionglobal infinity acwi and s&p500 index funds. Both dollardex and fsm offer it. They are slightly higher expense ratio, but for the simplicity they offer I think they are okay.

Well said Wd40, you definitely have look at your portfolio as a whole… leverage SRS based on best investment options available to SRS accounts that still fits with your overall portfolio goals.

For me personally, I do not wish to overweight SG equities in my portfolio, and with a market cap of just $0.6b versus the entire world at $95t, it means 0.6% allocation in my portfolio (I’m currently at 0.5%). This is why I view S27 as my best SRS investment option that fits my portfolio objectives.

Another thing I like about S27, because SRS has the option to withdraw securities instead of cash, when the time comes I plan to transfer from SRS to CDP, then do a cross border CDP to DTC transfer to a US broker like TDA/IBKR to sell as SPY, so at least when I sell, I’ll enjoy low/no commissions, tight spreads and better exchange rates.

[malcontent]

What is your view on entering investing in SP500 ETF (VUSD) at current levels? Intention is to hold for 5-8 years at least.

I see a few questions embedded in this.

Q: What is an appropriate holding period for investing in equities?

A: I recommend a minimum 10 year time horizon for equities, but 15 or more is preferable. This is based on historical returns.

Q: What should my allocation to US be?

A: Around 50% of your portfolio would be a neutral weight based on global market cap valuations; whether you over/under weight is up to you. The US market itself covers a great deal of portfolio diversification needs, because of the variety of industries covered and the global operations of the companies involved.

Q: When should I get in?

A: Market timing is a risk you can manage by dollar-cost averaging, but if you have funds available to invest today, the odds are against making a higher return by waiting. Trying to buy on dips or time the bottom is notoriously difficult and usually backfires. It is generally best to invest as early as possible, as soon as you have savings available for that purpose, ignoring the price and just sticking to a disciplined approach on a regular date.

[smoulder]

You got it right. Robos are okay for people who are starting out and don't want to deal with FX, bid ask spreads etc.

Regarding SRS, there are limitations, so we just need to choose what is the best available. I would skip robo for SRS and pick and pick a unit trust that closely matches an index fund.

There are lionglobal infinity acwi and s&p500 index funds. Both dollardex and fsm offer it. They are slightly higher expense ratio, but for the simplicity they offer I think they are okay.

Why not the SPY ETF? What's your take?

You mean S27? It is a good choice as Malcontent explained, I am not sure why Singaporeans are not so keen on this especially the ones I interact in the money mind forum. They are all behind the local REITs or banks or the newly list HK tech etf.

But yeah it is a good choice for your US equity allocation if you want to do it via SRS.

But if you want to have an SG allocation it is better to use SRS for the SG allocation and use Irish domiciled London listed UCITS ETFs for their tax efficiency, for the US allocation.

So to summarize, you have to decide your asset allocation mix 1st and then choose which is the best place to buy each asset class. For example if you plan to buy REITs, it is better to use SRS to do that and use your cash account to buy global ETFs.

Actually when I look through the cpf allowed investments, the Lion's infinity 500 looks like a better fit there. Based on what I read and the suggestions here, I'm probably leaning towards S27.

Also, those are some great points you made there.

[Wd40]

What is your view on entering investing in SP500 ETF (VUSD) at current levels? Intention is to hold for 5-8 years at least.

Malcontent has given very good answers. I would recommend read the book The four pillars of investment by William Bernstein and spend some time on Bogleheads forum. You need to have the right perspective of what to expect from equities and other asset classes and the concepts of asset allocation. What you can control and what you cannot control and how to react to market situations etc.

William Bernstein is like God for me if you want to under risk and returns and you need to read his book. There is no short cut to this. The pdf is available online, you can just Google for it.

[Wd40]

You got it right. Robos are okay for people who are starting out and don't want to deal with FX, bid ask spreads etc.

Regarding SRS, there are limitations, so we just need to choose what is the best available. I would skip robo for SRS and pick and pick a unit trust that closely matches an index fund.

There are lionglobal infinity acwi and s&p500 index funds. Both dollardex and fsm offer it. They are slightly higher expense ratio, but for the simplicity they offer I think they are okay.

Well said Wd40, you definitely have look at your portfolio as a whole… leverage SRS based on best investment options available to SRS accounts that still fits with your overall portfolio goals.

For me personally, I do not wish to overweight SG equities in my portfolio, and with a market cap of just $0.6b versus the entire world at $95t, it means 0.6% allocation in my portfolio (I’m currently at 0.5%). This is why I view S27 as my best SRS investment option that fits my portfolio objectives.

Another thing I like about S27, because SRS has the option to withdraw securities instead of cash, when the time comes I plan to transfer from SRS to CDP, then do a cross border CDP to DTC transfer to a US broker like TDA/IBKR to sell as SPY, so at least when I sell, I’ll enjoy low/no commissions, tight spreads and better exchange rates.

Bogleheads have done this simulation of what would be a good ratio of local Vs international. Have a read it is very interesting.

https://www.bogleheads.org/blog/2020/03 ... ld-part-3/

It is a 3 part series. They compared 100% local Vs 100% international and how it turns out for various countries. Main theme as always, you cannot predict which country will do well in the future. But they look at worst case scenarios for example if you were from Italy 100% international would be awesome and 100% local would be disastrous. If you were from Sweden 100% local would be awesome and international would only pull you down but it is hindsight bias.

So they eventually came up with a reasonable middle ground of 20% overweight to local. In my case my retirement location is India and if you ask Indians they would all say you must put 100% in India given its high growth. But if you go by MSCI allocation I should put only 2.6%. Clearly 2.6% is too low and 100% India allocation is too high for me. So I chose 30% India allocation and remaining international and in that international I am overweighting Asia ex Japan. So it will look something like
30% India
30% Asia ex Japan
40% ACWI.

[malcontent]

I think the question of overweighting is a tough one. There are so many things to consider, depending on the country in question.

Singapore is a good example, the industries represented are very limited, several of the companies in the STI 30 are not even tied to the domestic economy or local currency, and several are not even of local origin, you’ve got a Thai beverage company, a Chinese shipping firm, and several Hong Kong conglomerate listings (many with ties to one another). I honestly don’t see any good reason to put much into an ETF indexed to the STI 30, but it’s a popular strategy here nonetheless! The STI index was around 2,400 when I arrived here in 1996 and it’s not much higher today, 25 years later.

As for overweighting, a good rule of thumb I have come across is 5% - you can basically add 5% of just about anything to your portfolio without adding significant risk. This is where the “no more than 5% in gold” recommendation comes from, if you really want to add it (even though nobody recommends it) limit it to 5%.

But of course, to each his own. I am heavily overweight in US equities at 85%, but it’s a potential retirement location for me. I invest zero in Japan & Europe, I’ve tried in the past, even after many years (even more than a decade) they always badly underperform and I just don’t like the fundamentals… high taxes and and aging population.

[malcontent]

Actually when I look through the cpf allowed investments, the Lion's infinity 500 looks like a better fit there. Based on what I read and the suggestions here, I'm probably leaning towards S27.

CPF is one of the best vehicles to house the non-equity portion of your portfolio. Just look at how poor bond yields and fixed deposits are right now. Even 2.5% is a great yield, but if you have room to do OA to SA transfers to earn 4%, even better. By treating your CPF as the non-equity side of your portfolio, it can allow you to deploy more cash to equities on the non-CPF side, this combination can maximize your overall portfolio return on investment.

[smoulder]

Actually when I look through the cpf allowed investments, the Lion's infinity 500 looks like a better fit there. Based on what I read and the suggestions here, I'm probably leaning towards S27.

CPF is one of the best vehicles to house the non-equity portion of your portfolio. Just look at how poor bond yields and fixed deposits are right now. Even 2.5% is a great yield, but if you have room to do OA to SA transfers to earn 4%, even better. By treating your CPF as the non-equity side of your portfolio, it can allow you to deploy more cash to equities on the non-CPF side, this combination can maximize your overall portfolio return on investment.

That's a good point. I was actually thinking of just investing from the OA.

By the way, the other discussion on US vs non US. You guys have probably read a lot more than I have but my 2c is that investing in the US is really all you need. As you pointed out, many of the top companies are really world leading multi national corporations which sell products and services across the globe. The other point is that at least for the foreseeable future, much of the world's economy is tied up to the US economy.

Wd40, back in India, my best performing ETF is not tracking the nifty or the sensex (which have actually performed quite well over the past few years and especially since March 2020), it is a rarely spoken about ETF which tracks the nasdaq 100.

[malcontent]

I can understand the desire to have some home country bias in your portfolio, and maybe a minimum 5% up to a maximum 20% extra (on top of the % of global market cap) is a good guideline. I’m obviously exceeding 20% with my 85% exposure to US, it’s something I need to think about - it is not as if there aren’t any good European and Japanese firms to invest in.

With regard to sector specific exposure like Nasdaq 100, I don’t believe it is necessary because broadly diversified ETFs already cover it. For example, at the moment my exposure to technology stocks is 30%. What I do about once a year is check the % of industry exposure of each ETF and multiply it by the amount invested in each one, then divide that against my total equity portfolio balance. So when I see technology stocks beating the rest of the market, I can rest assured that I’m getting my fair share of that too.

[smoulder]

Unfortunately, there's no S&P500 tracking ETF in the Indian markets - the closest is the nasdaq 100. But we are digressing - that was just a comment about my portfolio outside of my Singapore accounts - eventually I will cash out the others and move the money to Singapore.