I know I have written about the summary just last week, but just this week I found a good summary of the shiny thread compilation and I think the summary does a very good job in keeping investment simple, hence I am adding this post so that I can refer to it easily and here I am promoting it, do give it a read from the original thread in hardware zone here
(Shiny things have also written a book btw, I hope I can publish a book someday too, haha)
Tip 1: Long-Only Investing for Retail Investors
- Invest in Stock & Bond ETFs.
- For Singapore Stock & Bond ETFs, that’s ES3 & A35.
- Use [ 110 – your age ] for the Stocks: Bond ETF ratio.
- Remember to rebalance once every year. (i seldom rebalance though)
- Buy & Sell to bring your stocks & bonds to that [ 110 – your age ] ratio.
- Consider exposure in other markets, e.g.. S&P500, China Large-Cap ETFs, etc., for diversification & growth
- If an ETF shuts down, its assets get handed back to the shareholders.
- A 100%-equities portfolio is also a bad idea.
- STI’s more tightly linked with economies like China and Malaysia and Indonesia than it is with the US and EU.
- In the long run, an investor’s return is measured as earnings per share growth + dividends + changes in valuation(PE ratio).
Tip 2. Lump-Sum Investing / Dollar-Cost-Average?
- Consider dumping it all at once / in 3 portions.
- To minimize buying high, split into 03 parts.
- Invest 1 part each month, until you are fully invested.
- That way, if the stock goes up, at least, you bought some.
- If the stock goes down, you have the cash to buy more at discounted prices.
- Avoid making many trading transactions per month, as that amounts to a high trading fee.
- In my case, I use posb invest saver for the dollar cost average, while when I am trading I am will use the lump sum method
Tip 3. Why is investing in Gold silly?
- Gold is an unproductive asset, it does not provide dividends yield.
- It relies solely on capital gains.
- Physical Gold storage requires security expenditure & Paper Gold account requires a monthly expenditure.
- Investing in Gold = Shorting Interest Rates.
Gold / Cash / Long Bonds are direct/indirect bets that interest rates are going down. (interest rates set by FED )
- Over the long term, Stocks provide better returns than Bonds & Gold.
- 2-5% of your portfolio in Gold is acceptable.
Tip 4: Investment Horizon
- If you need the money within 2 years or so, it should be in cash.
- If you need the money within 5 years, it should be in cash/bonds.
- If you don’t need the money within 5 years, it can go into stocks, or ( even better ) the 110-minus-your-age stock/bonds mix.
Tip 5: About ETF Types.
- Invest in ETFs that actually holds the stocks/bonds that they claim, so that in events of distress, say, Great Financial Crisis, etc., the ETF would not vanish into thin air.
- there are many types of ETFs…Leveraged ETFs, Inverse ETFs ( Short ETFs ), Futures-Based ETFs… all have their own problems.
- Stick to Vanguard & iShares. Ignore everything else. Because they are ETFs that really hold the stocks that they target to be vested in.
Tip 6: Suggested Portfolio Mix.
- 110 minus your age in stocks; the rest in bonds; and 50-50 split between local and global stocks”
- Allocation to Singapore equities (including your ETFs, stocks, and REITs).
- Allocation to international equities (including DM and EM).
- Allocation to Singapore bonds.
- You can keep a 5% fun-money account around for that sort of punting.
Tip 7: When to rebalance your ETF?
- Doing it at the end of December is a bit silly because that’s when liquidity is at it’s absolute worst.
- “Markets are seasonal” sounds like witchcraft, but there does appear to be a bit of seasonality in the US markets.
- The old “Sell in May & Go Away” doesn’t have much validity, but re-balancing in November, after the end of the May-October seasonal weak pretty, is a pretty good idea if you want to have a slightly better chance of capturing the turning points in the markets.
- If you are re-balancing once a year, I would pick November.
- If you are doing it twice a year, May & November ( 6 months apart ) is a good idea.
- Rebalancing is done periodically regardless of economic situations and market conditions
Tip 8: Which broker to use?
- for SG stocks, use Stanchart
- All other local brokers(e.g DBS Vickers)They are expensive & charge imaginary fees, i.e. custodian fees(Refer to my previous post a few weeks ago for DBS Vickers fee)
- for US & other markets, use Interactive Brokers (IB).
- for US only, with Sg office, use TD Ameritrade (TD).
- Interactive Brokers is the absolute best.
Tip 9. BOOBY TRAP / made-in-USA IED.
- Using IB or TD, it is subjected to 30% US estate tax for accounts > US$65k.
- Buy a Term Insurance of 30% X [ US Portfolio Value – US$65k ], so that in the event you die… the term insurance offsets the 30% estate tax.
- If you are a Singaporean, consider taking up Aviva SAF term life, to defray the 30% US estate tax
Will continue at the next post!
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