Since I first posted a pseudo-guide on index investing with Standard Chartered, it has gone to be become the most popular post on this blog. I guess people are interested in content like this e.g. Bogleheads 3-Fund Portfolio In Singapore and would probably like to see more.
With the smaller board lot size of 100 units come 2015 (that’s like in one month’s time), now would be an excellent time to take a look at Singapore Exchange, and what we can do if our goal is to construct a basic, simple, no-frills, Bogleheads 3-fund portfolio. I would be using Standard Chartered Online Trading platform to illustrate this.
This post is meant for an absolute newbie investor to show how simple it is to start investing. I don’t emphasize too much on the choice of funds as my focus was on the simplicity of how fast and easy it can be done.
What Is Bogleheads 3-Fund Portfolio?
A three-fund portfolio is a portfolio which does not slice and dice, but uses only basic asset classes.
It would typically consist of three components –
- Domestic (Singapore) stock index fund
- International stock index fund
- Bond index fund
The majesty of simplicity, Bogleheads call it. The essence of the 3-Fund Portfolio is to use low-cost funds that represent the entire markets. Cash is not considered within the portfolio.
Domestic Stock Index Fund
We can choose between SPDR STI ETF (E3S) or Nikko AM STI ETF (G3B), both of which are exchange traded funds that track The Straits Times Index via physical replication. Physical ETFs replicate the return of the indices through the purchase of physical securities, whereas synthetic ETFs replicate the return through the implementation of total return swaps or other derivatives. Also, you may like to find out what is an exchange traded fund if you are not familiar with it.
Chosen Fund : SPDR STI ETF (E3S)
International Stock Index Fund
It is slightly more tricky when it comes to the International Stock Index Fund component.
At first glance, Vanguard’s Total World Stock ETF (VT) looks like a great option. [What is Vanguard?] Based on the official write-up, it covers approximately 98% of the world’s investable market capitalization and is suitable as a core holding. About 50% of the fund’s portfolio is invested in U.S. stocks, 40% in international developed stocks, and the remaining 10% in emerging-markets stocks.
However, the problem arises due to the fact that it is U.S. domiciled. As non-US, Singaporean investors, our dividends are taxed at a hefty 30%. I know because my dividends from Apple shares were subjected to the same treatment. Moreover, investments exceeding $60,000 are subjected to estate tax liabilities.
As an workaround, let’s take a look at Ireland-domiciled Vanguard ETFs instead which are not subjected to dividend withholding tax. However, I do believe that the dividends are withheld at source in the US at Irish treaty rates. Wait for me to get my dividends and I’ll post the outcome here at my blog.
Since we are interested in only global index funds, let’s take a closer look at Vanguard FTSE All-World UCITS ETF (VWRL) (tracks FTSE All-World Index) which is listed on the London Stock Exchange. From the fact sheet, looks like conceptually it is rather similar to Vanguard’s Total World Stock ETF (VT) apart from the fact that index it is tracking does not include small-cap companies.
Note that the trading currency is available in both British Pounds (VWRL) and US Dollars (VWRD). As the base currency of the ETF is in USD, this means that dividends will be distributed in USD, making the VWRD a slightly less hassle-free option.
Just to give you something to think about : If you want an alternative that is listed on the SGX, check out db x-trackers MSCI World Index UCITS ETF (tracks MSCI Total Return Net World Index) which is a non-physical replicated ETF.
Chosen Fund : Vanguard FTSE All-World UCITS ETF (VWRD)
Bond Index Fund
Left with the Bond component, a simple (but not necessarily the best) option is ABF Singapore Bond Index Fund (A35) which also happens to be the only Singapore Bond ETF.
While Andrew Hallam has suggested that Singaporeans has CPF money which could possibly be used as the bond component of the portfolio, do take note that CPF money is rather inflexible in the sense that it is subjected to various restrictions resulting in the possibility of being unable to be used for re-balancing when the need arises.
Chosen Fund : ABF Singapore Bond Index Fund (A35)
Asset Allocation For Bogleheads 3-Fund Portfolio
Now that we have decided on our three funds, an easy way to allocate assets is to use our age as the bond component, and split the rest evenly between the international and domestic stock component.
Assuming that my age is currently 30, a possible allocation can look like this :
SPDR STI ETF (E3S) : 35%
Vanguard FTSE All-World UCITS ETF (VWRD) : 35%
ABF Singapore Bond Index Fund (A35) : 30%
Standard Chartered Online Trading Platform
With your Standard Chartered Online Trading account, you should be looking at something like this after logging in.
e$aver Account (SGD)
This can be any account you set up with the bank to fund your trading activities. This account is externally accessible, meaning you would be able to transfer money here via POSB / UOB / etc. e$aver account is suitable for this purpose because it has no minimum deposit, no minimum balance, no lock-in period and no monthly fees.
Securities Settlement Account (SGD)
You need to transfer money into this account from your e$saver Account (for example) before you can make a trade.
FCY Securities Settlement Account (USD)
You need to transfer money into this account from your e$saver Account (for example) before you can make a trade for USD denominated shares / funds / etc, such as VWRD.
Securities Trading Account
This account shows the combined value of your holdings.
First, you would have to transfer money from your banking account e.g. e$saver into the settlement accounts. If you are transferring into your USD securities settlement account, you would be presented with the indicative exchange rate before the fund transfer is executed. By the way, the rates suck.
Next, you can place a trade for the 3 chosen funds e.g. E3S [SGX], A35 [SGX] and VWRD [LSE]. Client commission for SGX trades are 0.2% while other markets are at 0.25%. Even though you won’t be able to “find” VWRD to place it on your stock watch, you are still able to place a trade by keying in the stock code.
This means you will have to use a quick Google to grab the current price. Bloomberg is one such source. Also, I had looked in Bogleheads forums in which some investors revealed that the UK Stamp Duty is indicative only but not imposed.
Based on current prices, and assuming that you are able to trade in board lot size of 100 units, you will end up with something like this if you invest $10,000 at one go, following the asset allocation given in the above example of a 30-year-old investor.
That’s it, and we’re done! We have created a Bogleheads 3-Fund Portfolio in our sunny little island. No matter what country you’re in, and what nationality you are, I’m sure you would be able to find the relevant index funds or ETFs. Are you a Boglehead?
This post should be regarded with slight caution as it is written when the author is slightly intoxicated. Information shared here is based on my own personal experience and of course shall not be taken as advice on what you should or shouldn’t buy.
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