Finance Smiths

Personal finance apprentices-in-training

Coming out of hibernation

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It’s been more than a week since my last blog post. I have been busy with work, shopping for stuff for CNY & our upcoming ski trip to Austria and some personal commitments. We are trying to reorganise certain parts of our weekly routine as my wife gets busier with work from her new appointment. She got the promotion and now heads a small team. The job comes with a salary increase but at the cost of a higher daily stress and pressure level.

Things certainly get more difficult as you progress upwards in your career. My wife is still learning how to manage the situation and trying to get on top of her busy schedule. It’s good that she’s relatively young because I can see how much tougher this would be if she has to do it when she’s older. Can you even imagine dealing with this while having or with kids?

I’m doing what I can to support my wife so she only needs to focus on settling into her new role for now. My job is more stable with a manageable workload at this stage. But it’s looking like my scope of work is about to expand this year as I take on more stuff to prepare for my own promotion route. Let’s not forget about how our family planning for kids fits into all of this.

Anyway, life is a never-ending struggle to balance everything that matters to you. Nothing new there. But it has been an exciting week for the markets. I exited most of my big equity positions the week before and was overweight in cash. The correction in the markets offered me an opportunity to re-enter the markets and reduce my cash allocation. I decided to take advantage of the dip by manually transferring some funds into my robo-advisor accounts and buying these 2 x Vanguard LSE-listed ETFs:

  • Vanguard FTSE All-World High Dividend Yield UCITS ETF (LSE: VHYD)
  • Vanguard FTSE Emerging Markets UCITS ETF (LSE: VDEM)

Clean and simple approach to pushing more cash funds into the markets effectively. However, the strategy only works over the long term if I become more aggressive on future dips and crashes. Because I only manually invested about S$1,000 this time round. Which is not a lot when compared to the rest of my cash balances. I hesitate on making big investments during market corrections and bear markets because I keep waiting for the significant drop after that.

My automatic investments (standing instructions to transfer funds into robo-advisor accounts and monthly investment plans) ensure that I have somewhat taken a bigger position than I otherwise would have. Which means I need to be more efficient going forward when manually loading up on my equity positions so I don’t get stuck with investment cash that I haven’t utilised well.

Locking in gains and increasing cash holdings

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I sold out of my positions in Vicom (SGX: V01), Sembcorp Industries (SGX: U96), Nikko AM STI ETF (SGX: G3B), Phillip APAC REIT ETF (SGX: BYJ) and Nikko AM REIT ETF (SGX: CFA) today. Main reason was to lock in my gains from the recent bull run and increase my cash holdings.

But I kept my monthly Dollar-Cost Averaging (DCA) amounts of S$1,300 in the STI and REIT ETFs. As well as the weekly funds transfers of S$300 into the robo-advisor accounts. Just in case we go on another bull run in 2018 and somehow end the year higher than where we are now.

By reducing my monthly investment amount to S$2,500, I remain vested in the equity markets but no longer have a significant position in them. Especially when I am exiting the remaining individual stock positions every time they become profitable.

There’s no particular motivating factor behind this move. I’m happy with the gains I have achieved so far with my first serious venture into the local and global stock markets after returning to Singapore in 2014. It hasn’t been a disastrous experience and I was able to turn a profit from the past 4 years.

As I continue to restructure and simplify my portfolio, it has become easier to manage as a result. Less stuff to monitor with a more automated approach to investing. It’s an interesting space to be in with my cash holdings rising faster than I can re-deploy them. After all, I just don’t see the point of accumulating even more equities at these pricing levels.

Besides, it’s come to a stage where I’m happy to mostly spectate for now. I don’t need to invest aggressively because I’m still generating salary income and don’t plan to rely on passive income & portfolio drawdowns yet. I still have time to wait and see whether better investment opportunities come up down the road. I also don’t have any early retirement plans because my initial target is another 10 years later in 2028.

Even then I doubt I would ever fully retire if I can help it. I like the professional and social engagement that work offers. Not necessarily in a corporate environment, though being in the office is probably the more straightforward path for me. I enjoy meeting new people and working with colleagues on projects & advisory work.

The big question for me now is that by taking such a large position in cash, I’m essentially betting on my ability to market time the next bear market. That’s when I hope my Value-Cost Averaging (VCA) skills can activate in time. But I wonder whether it’s such a bad thing to be holding more cash. I always thought having more options was a good thing.

I suppose it comes down to what I do with the cash holdings. I keep documenting down what I’m thinking when I make major moves like that because I want to see whether this works out when I get to look back in the future. In the meantime, I shall continue to be consistent with my approach every month. Work, earn, invest, save then spend.

Rebaselining DCA

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I was corresponding with a reader over Facebook when I got asked this good question. Should he lower his monthly Dollar-Cost Averaging (DCA) investment amount for now given the current high pricing levels of the equity markets and subsequently increase it when the prices come down? My advice was that it’s a good idea since that keeps you vested in the equity markets but doesn’t raise your average purchase price as quickly while allowing you to lower it more efficiently.

That’s when I realized I have been doing the opposite of my advice. In my effort to utilize more of my cash holdings, I have been investing more every month but with the way equity markets have been climbing, this has been averaging up my purchase price consequently. Unwise because I don’t actually need to invest more now since we are still employed with salary income and not in a rush to achieve financial independence.

Besides, the more effective way to accelerate wealth-building is to invest more during downturns and bear markets to wait for the subsequent recovery. Not the other way around. Which is why I’m rebaselining my DCA. I have just sold quite a bit of my STI ETF holdings and lowered the monthly DCA investment amount. I won’t call it rebalancing because that would actually require me to invest even more of my cash holdings. Rebaselining is a new word I learnt from my workplace.

Its application seems to fit what I’m trying to do now. By selling some of my STI ETF holdings, I lock in the gains I have achieved so far with them. By restarting at lower monthly DCA investment amount, I don’t average up my purchase price as quickly. But having more room to increase my monthly DCA investment amount during downturns and bear markets allows me to lower the purchase price faster.

I’m starting to see how DCA cannot be applied in isolation as a set and forget strategy. This limits its usefulness especially when you don’t adjust the investment amounts according to the market swings. You have to make changes according to the market cycles. It works even better when you lock in the gains along the way. And I just found out from selling my STI ETF holdings through the bank monthly investment plans and trading platforms that it’s not as difficult as I thought it would be. Online trading has come a long way and it’s more convenient when your equity holdings are not custodised with the Central Depository (CDP).

Summary of STI ETF (SGX: G3B and ES3) sell transactions in Jan 2018

Sale proceeds: S$33,850

Profit amount: S$3,500

Profit percentage: 10%

Look out for my revised lower DCA investment amounts from next month onwards. It’s still the usual purchases for Jan 2018 since the changes are only going to take effect from Feb 2018 onwards. This also means the cash component of my portfolio is going to increase further. And I will be even more overweight on cash holdings. But since I’m in no rush to invest, I might as well take my time and wait it out for better opportunities.