Asked on 06 Feb 2020
What's the belief that underlies your investing strategy? Mine's in the answers below!
the simple things (updated on 05.08.2020)
shiny, shiny, some of my irrelevant ideas ...
(work in progress, can get updated)
DISCLAIMER (sorry): Complete losses possible with any strategy. This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this piece constitutes a solicitation, recommendation, endorsement, or offer by me.
If You needed only to read 2 single books on investing in Your lifetime, because of the authors honest, evidence based & balanced approach and clear words on how the mainstream finance industry still does damage to retail investors:
Burton G. Malkiel: A Random Walk Down Wall Street
... even better (You could use Google Translate):
Gerd Kommer: Souverän investieren mit Indexfonds und ETFs: Wie Privatanleger das Spiel gegen die Finanzbranche gewinnen
Burton Malkiel: created the concept of passive index investing to our advantage.
-to be completely free of debt
-to have emergency funds available anytime for several months (6-12 mo)
-to NEVER invest into or do the following (rationale: too risky and/or fees too high and/or too inefficient), take care:
Unit Trusts (Mutual Funds), Whole Life insurance or endowment plans, single stocks (though most of us hold some), options, bonds, structured products/derivatives, CFDs (contracts for difference), ETNs, commodities, currencies, cryptocurrencies, actively managed or „smart“ ETFs, leveraged/inverse ETFs, short selling stocks, margin trading.
-when investing seriously the invested funds should be left untouched for at least 5-10 years
… not much remains:
-priority: passive (in the good sense!) stock index ETFs & REIT ETFs
-physical gold (5-10% of assets, current times substitute for bonds as a means for stability, if any)
-property (via REIT ETFs or even property of one's own)
-to spend money for things one likes, though one better live healthy and eco-/animal-friendly. The material world rarely gives longstanding deep satisfaction.
-for ETFs: safe & cheap online broker (TD Ameritrade, Charles Schwab, POEMS, FSMOne, Standard Chartered, Saxo). Generally trading commission fees head towards zero, as evidenced in the U.S., where 0.00 USD has been reached since 2019, on 03.08.2020 TD Ameritrade Singapore branch cut trading fees for U.S. securities (stocks, ETFs) to 0.00 USD. Prelude to Singapore SGX trading fee abandoning ...
note: U.S. based brokers subtract 30% withholding taxes from all dividends (but not from capital gains), of those only 1 x 15% can be avoided by filling in form W-8 BEN every 3 years, if Your country negotiated a tax treaty with the U.S., which Singapore currently has not! When the U.S. domiciled ETFs (given all on www.etf.com) seem to be more diverse, the better choice for Singapore investors of ETFs that are distributing a significant annual dividend would be (if annual fees being similar) to select an Ireland domiciled equivalent version of any given ETF (screen through on www.justetf.com with Germany or UK selected as the header drop down menu on the website)
-You do not need a formal savings plan or a robo advisor, because with some reading and experience You can manage Your portfolio all by Yourself. Savings plans and robo advisors only create more fees and worsen Your total performance.
-whenever a currency conversion is involved, never do let Your online broker or bank do this conversion. Almost all of the brokers & banks charge a hefty currency conversion fee that does not appear directly visible on Your trade confirmation ! Do use instead services like TransferWise (currently the top cheapest, safe & fast & reliable; alternative: competitor CurrencyFair) to convert/send currency into Your own account, even within Your country and within Your brokerage account. Example: with Your Singapore broker You buy ETFs directly on the U.S. stock exchanges. But take care that Your bank, from which You are transferring Your due amount to TransferWise does not charge a hefty fee for outgoing money transfers that could eliminate the advantage of TransferWise.
Here these transfer service companies can be compared: https://www.monito.com/
-for physical gold: safe & cheap dealer (not a bank, they charge high fees up to 2%)
What to expect with well diversified passive stock ETF investing ?
There is no defined long-term annual performance % classification for 100% stock exposure for retail investors, can evolve, takes into account fees and real world investing mistakes (with gold and bonds added the % would even be lower). My averaged % per year numbers refer to Your total investing portfolio.
1-4%: realistic net return
5-7%: good (something that professional pension systems achieved for their clients over the last 10 years)
8-12%: excellent (something that the very best U.S. university endowment funds achieved over the last 10 years, like MITIMCo, Harvard's, Yale's). Disgression: MITIMCo staff are very smart and beautiful people, have even a book club installed. MITIMCo's reading list https://mitimco.org/read/
above 12%: not sustainable longterm over more than 10 years, or very very unlikely, particularly for retail investors.
ETFs general selection criteria:
-only passive stock indexing ETFs or REIT ETFs (no bond ETFs etc.)
(For the stock market there is good evidence by studies, that active managers cannot beat the market robustly over longer periods.)
ALWAYS READ THE ETF FACTSHEET: Within the 'fact sheet' pdf documents of Your ETF , easily retrievable on the internet, You will find the following essential ETF data:
-assets under management (AUM) should be high (more than 100 mio USD), otherwise the ETF could get closed by the parent company, because of non-profitability.
-total expense ratio (TER = annual fees) should be lowest possible (ideally less than 0.30%). See last chart on this webpage below !
-dividend handling modality: with 'distributing' ETFs all stock dividends are distributed as cash; with accumulating ETFs all dividends are automatically reinvested into the ETF. The latter modality seems more appropriate for ultra-longterm investing since re-investing of distributed cash would increase trading costs, or at least to more re-investing hassle.
-the indexes should be ETF replicated 'physically', not 'synthetically' (by SWAPs). Since SWAP replication is not legal with U.S. domiciled ETFs, this is a problem of Europe domiciled (UCITS) ones. Formally, according to the UCITS regulation, the counterparty risk is limited to a maximum of 10 percent of the fund’s assets. In practice, however, the risk is even more reduced by various security measures. The risk is thus minimized by daily swap reset, overcollateralization or the use multiple swap counterparties. I would still be cautious and buy only physically replicating ETFs.
-the ETF should ideally not lend stocks to other parties, even if this is widespread practice in the business.
-proven track record (excellent past longterm performance, ideally for already 5-10 years)
-to diversify (countries, asset classes, sectors) to mitigate risks (most ETFs are already well diversified), don't succumb to home bias.
Chart: 10 year performance singaporean STI ETF (ES3) versus U.S. S&P 500 index
-to not buy&sell, but buy&hold ultra-longterm instead.
Non-doing: this is the most difficult part for the beginning investor, who thinks high performance could be achieved only by frequent trading (buy & sell style), when the opposite is true. Advice: Plan to hold your bought ETFs for 20 years.
-to see dividends coming in seems nice, but possibly during the major part of Your investing horizon instead of the 'distributing' ones the 'accumulating' ETFs that reinvest all dividends into the ETF proper seem the better option when they have comparable TER fees
-believe it or not: with an ultra-long term Buy&Hold strategy it is completely irrelevant, when You are buying. Anyway to determine best entry/exit points is absolutetely impossible. So better invest just periodically ('dollar cost averaging'), monthly or quarterly or semiannually or even only once per year to have an appropriate lump sum (and thus low relative trade commission fees) is all O.K.
-to not (!) rebalance, letting winners run, most of the time
-to not panic when the markets are going down, the crashes will come, be patient then and don't sell, after few years the markets in the past recovered completely most of the time (see ultra-longterm chart of SP500 with big crashes visible ... but negligible for the longterm investor)
Attention: If Your selected ETFs distribute relative high dividends (more than 0.5% per year, roughly), try to buy the Ireland-domiciled UCITS version of the ETF (when available) instead of the U.S. version, because You loose 30% taxes with the U.S. domiciled ones. Balance the tax advantage however with the fact that U.S. domciled ETFs often have slightly lower annual fees. Because of their higher liquidity I feel that the London Stock Exchange and the German ones (XETRA) should then be selected for the trade.
If You'd like to enjoy the tax advantage of Ireland-domiciled ETFs, You should look for a cheap online broker with european stock exchanges exposure, for SG residents the following are possible online brokers with exposure to european markets in ascending order as to fees (% trading fee & minimum fee) as of 27.06.2020:
Interactive Brokers 0.05% 1.25 EUR
SAXO Markets 0.10% 10 EUR
Standard Chartered (SG based) 0.25% 10 EUR
Maybank Kim Eng 0.30% UK 20 GBP
KGI Securities 0.50% 70 EUR
OCBC Securities 1.00% 60 EUR
#1 single ETF strategy
MSCI World ACWI (SPYY, ACWI)
MSCI World (LCUW, IWDA, SPPW )
FTSE Global All Cap Index (VT)
still tilted much towards U.S. companies
honestly: maybe a single one of those mentioned above (or from #2) is all a retail investor needs as to very successful long-term stock investing.
#2 single ETF strategy with more upside potential and possibly more risk
SP500 (CSPX, VUSD, VOO, IVV)
#3 ‘balanced‘ global ETF strategy
50% SP500 (VUSD, VOO, IVV)
50% MSCI World ex-USA (VEU, VXUS, IXUS)
#4 U.S. / China codominance ETF strategy
50% SP500 (VUSD, VOO, IVV)
50% MSCI China (MCHI)
#5 focused ‘leader countries‘ ETF strategy
40% SP500 (VUSD, VOO, IVV)
20% China (PGJ, GXC)
10% S-REIT ETFs Singapore (Lion-Phillip S-REIT)
10% Switzerland (DBXS, EWL)
10% Sweden (OMXS, EWD, Avanza Zero, also: Investor AB, which is not an ETF but a stock, of a Sweden stocks holding company, gives high dividends too)
5% Germany (OXDA/DBXD, EWG)
5% Japan (EWJ, EUNN/IJPA/SJPA)
Note: The approaches #1 to #5 are all possible for a beginning investor.
But honestly: possibly a single IWDA (or CSPX) plus patience is all what is needed anyway as to stock investing.
The #6 following, is nothing, a beginner should try, when #1 to #5 are already risky enough.
#6 interesting ETFs with higher risk but past good performance (sector funds must be classified as risky because of less diversification and high volatility)
QQQ (not pure tech ETF)
ARKW (somehow these actively managed ARK funds seem to be successful, I don't know why ... maybe we must wait longer to evaluate the true longterm performance ...)
Hang Seng Tech Index (upcoming)
HK:3147 CSOP SZSE Chinext ETF (risky)
HK:3173 Premia CSI Caixin China New Economy ETF (risky)
HK:3181 Premia Asia Innovative Technology ETF (risky)
KSTR (upcoming, risky)
KFVG (upcoming, risky)
EWT (Taiwan, tech heavy)
Asia (ex-Japan) Technology:
ASX:ASIA (BetaShares Asia Technology Tigers ETF)
ARKG (caveat: risky & actively managed)
Nordic Technology focus Unit Trust (no ETF, actively managed mutual fund, risky):
TIN Ny Teknik (Sweden)
(management team has a special approach to particular companies and historically a very good performance, however it still has the potential disadvantages of actively managed mutual funds including much higher fees than ETFs)
Disclaimer: Think for Yourself.
All private opinions, total losses possible with any strategy.
... possible Superstar U.S. & China Quartet: VGT + CQQQ + XBI + KURE ... (?)
Interesting auto-updating chart, reflect well on ETFs longterm performance after the severe economical threat of the Corona Crisis (maximum prices level before crisis was on 19.02.2020), give recovery yet a bit of time, however some ETFs already climbed to all-time highs soon after this crisis:
There is no place for charisma in investing, only objective performance and integrity count.
Do You believe You realistically could beat the average market performance, f.ex., SP500 index by diligently (and time-consumingly) 'picking stocks' and market-time?
Then look here to evaluate the success over the last 10 trailing years of two of the most famous and 'successful' (???) living value stock pickers: Bill Miller Opportunity Fund (LGOAX) and Warren Buffet (BRK.A, Berkshire Hathaway series A stock). Both the fund and the stock interestingly do not distribute dividends, which the depicted cheap & large & successful Vanguard SP500 ETF (VOO) however does. These ETFs dividends are not included in the chart, so VOO is even more successful (and Bill Miller and W.B. even less so) than the chart could tell.
(sidenote: Warren Buffet himself concludes that something like VOO is the right vehicle for most investors. Integrity.)
Do you still feel, You can realistically be a successful 'stock picker' over long-term measured against an appropriate stock index when the mentioned 2 'role models' with all their professional research resources and staff fail to do exactly that ?
Walter Benjamin: "... The storm irresistibly propels him into the future to which his back is turned, while the pile of debris before him grows skyward. This storm is what we call progress."
See here an empirical chart of the performance of individual investors,
who buy & sell often, try stock picking, try market timing,
sell panically on stock exchange crises versus simple Buy & Hold
ultra-longterm passive SP500 investing:
What You lose in absolute terms over the years with only 1% or 1.5 % annual fees (as typical currently with unit trusts/mutual funds) You can see here. Think !:
20 more comments
23 Jun 2020
There are some great answers here, so I'll just link to this:
compound returns to nearly 62,000 global common stocks during the 1990 to 2018 period, documenting that the majority, 56% of US stocks and 61% of non-US stocks, under perform one-month US Treasury bills over the full sample. Focusing on aggregate shareholder wealth creation measured in US dollars, we find that the top-performing 1.3% of firms account for the $US 44.7 trillion in global stock market wealth creation from 1990 to 2018. Outside the US, less than one percent of firms account for the $US 16.0 trillion in net wealth creation.
Almost all the gains come from about 1.3% of stocks, so be careful what strategy you choose!
27 Feb 2020
Personally, my investment strategy will be to invest in Singapore blue chips companies who pays dividends consistently every year. I do not like to invest in ETFs as i do not have control over my portfolio. All the dividends gained will be reinvested in counters to compound over the years.
24 Apr 2020
Invest in yourself (can invest by doing better in your career, can invest on knowledge for investing asset.
use the cash to invest in something you believe (for non professional, investment is only a part of your life. Don't let it rule your life. ) Such as high yield and stable REIT. Blue chip stocks.
use other asset to invest, such as your CPF and house. I am comfortable to top up CPF for minimum 4% annual interest. For housing, invest with your limit, my belief is that housing is always for use first not really for speculation. But as house is quite a sizeable amount to spend / invest. So choose a house that is comfortable and mitigate the inflation of CPI.
Step 1: Build Cashflow
Step 2: Invest Cashflow into Cashflow Generating Assets
Step 3: Protect and Insure Assets
Step 4 : Repeat Step 1-3
A tree is an asset, the root's of the tree will determine whether the tree will survive. And I see the tree's roots as cashflow, which is the fundamental basis for a strong financial philosphy.
Click here to find out more about me!
Dividend Stocks and Dividend growth stocks
One for income and another for income and capital appreciation.
I make videos about interesting stuff at youtube here
11 Feb 2020