Finance Smiths

Personal finance apprentices-in-training

Investments for Dec 2016

by //

I originally had this post titled “Purchases for Dec 2016”. But it sounded like the post is about consumer items that I purchased for the month of Dec 2016. Of which there were many considering the Christmas celebrations, dinners and gift exchanges. Happy and fun times!

Anyway, I changed the title to “Investments for Dec 2016”, just to make it sound more official and related to the financial assets purchased for the month of Dec 2016. As a follow up to my previous post on dividend income received in Dec 2016, I have also decided to reveal both my automatic and manual investments each month.

Automatic

POSB Invest-Saver

ABF Singapore Bond Index Fund (A35): 86 shares at S$1.145 per share

Nikko AM STI ETF (G3B): 32 shares at S$3.05 per share

Maybank Kim Eng Monthly Investment Plan

SPDR STI ETF (ES3): 97 shares at S$3 per share

OCBC Blue Chip Investment Plan

Nikko AM STI ETF (G3B): 498 shares at S$3 per share

Manual

Nil

Going forward from Jan 2017, S$1,800 will be auto-invested across three investment plans each month with a total fee of S$8. The aim is to keep the transaction cost to 1% or less of the investment amount each month.

Meeting portfolio targets for the year

by //

In Jul 2016, I did a End of Jun 2016 Financial Update post and set out goals for our net worth and asset portfolio. I’m happy to say that they have all been met at this time before 31 Dec 2016!

The monthly tracking of the figures on the relevant pages of the blog charts the progress well. I know it’s showing a lot of positive figures and percentages but that’s what happens when you have dual income and no kids. Most of the growth is coming from cash injections into the various portfolios as the markets have been quite flat for the second half of the year.

It’s a reminder to earn more income, spend less and push the spending multiple & savings rate upwards. More importantly, it’s motivation for us to keep working hard while we are relatively young. If I’m being honest, my wife and I have been feeling weary of work lately. It’s a crunch time for both of us and we are getting hammered every day.

We are still surviving but can’t imagine doing this when we are older and have kids. Hopefully we will be in a better position then to control our workload by relying less on our jobs for income. Anyway, here’s our performance against our targets as at end Nov 2016.

1. Net Worth

Target – S$100,000
Actual – S$176,105

Cleared this goal by a mile, which means I’m setting too low a target. This is after taking into account the fact that I have been steadily lowering the market value of our property due to the weakening property market.

I continue to underestimate the ability of our net worth to grow. The rate really does accelerate once you put your mind to it and apply the law of large numbers. The logic to us is simple. We have a limited work shelf life and our tolerance for long hours and high stress decreases throughout the entire time.

We navigated ourselves to jobs that have decent pay and manageable hours. It’s not about what we are passionate about since we have the rest of our lives to develop that. The focus was to maintain an acceptable rate of exchange between time and money at our jobs.

The work itself isn’t particularly exciting but we change roles and scope every few years to keep things interesting. Long-term career strategy is to learn and earn as much as we can until we get retrenched. Which might always happen sooner than we think.

2. ETF Portfolio

 Target – S$40,000
Actual – S$54,577

I increased the monthly amounts of automated investments into the Singapore ETFs and made some purchases of the new REIT ETF. That’s what allowed us to exceed the target by about S$15,000. My concern is that I have not made any new investments into international ETFs.

We have a significant overexposure to the local equity markets and will need to increase our investments in overseas equity markets. I’m hoping Smartly can help with this after it launches by us making regular contributions to an aggressive portfolio of international ETFs held with the robo-advisor.

Which brings me to a number of questions that I have for Smartly at the moment:

  • Can I specify the proportion/mix of the international ETFs? E.g. 40% developed equity, 30% emerging equity, 20% REIT and 10% bond. Or do I have to choose from a fixed number of portfolio types from conservative to aggressive risk allocations?
  • How frequently can I contribute to my portfolio? E.g. weekly, fortnightly or monthly.
  • What happens when I make my contribution? Some form of rebalancing of the portfolio?
  • Are the dividends/distributions reinvested automatically or can they be paid out?
  • How often can I change my portfolio proportion/mix or type?

3. Share Portfolio

Target – S$120,000
Actual – S$132,111

I averaged down on the telecommunication stocks due to price weakness and did little else but that was enough for us to exceed the target by about S$12,000. The share portfolio is expected to grow much slower than the ETF portfolio anyway.

4. Other Portfolio

Target – S$150,000
Actual – S$160,100

The surrender value of our wholesale life policies have been growing slowly and consistently but contributed little to us exceeding the target by about S$10,000. It was mainly due to our monthly savings that we allocated as investment cash.

5. Total Portfolio

Target – S$500,000
Actual – S$511,587

Meeting all of the above goals resulted in us exceeding our total portfolio target by about S$12,000. Our CPF balances have been growing quickly due to the employer and employee contributions from our jobs and as we used more cash to pay off our housing loan. It’s essential that we have retirement funds earmarked for spending when we actually stop work completely.

Regardless of whether we achieve financial freedom/independence, we would like to stay engaged and productive with some form of paid work. These retirement funds are for when we actually get old and no longer wish to engage in paid work. Purely for spending purposes.

As the monthly investment, spending and saving processes get more habitual and automated, my intention going forward is to make the entire thing self-sustaining. This means I need enough passive income to be generated and re-invested to grow the asset portfolio regardless of market movements.

And I only need to have enough salary to manage my expenses with no need for savings injection into the asset portfolio for it to grow. Maybe then will I engage in lower pay full-time or part-time jobs with less stress!

1% commission charges and updates

by //

Biggest news of this week is that Trump will be the next president of US. I didn’t take any positions before or after the polling day. The markets are especially volatile and my portfolio & investing strategy are designed to try and navigate times like these more calmly. Sometimes by staying out and doing nothing. I have just been fine-tuning the auto-purchases of the ETFs in the Monthly Investment Plans (MIPs). As it turns out, the auto-purchase of 1 share of the SPDR Gold Shares (O87) under the Maybank KE MIP did not happen again for the month of Nov 2016.

 Decided to stop this component of the Maybank KE MIP but only continue with the one for the auto-purchase of the SPDR Straits Times Index ETF (ES3). Made other changes such that these are the current auto-purchase constituents of the MIPs:
  • S$300 – ES3
  • S$600 – Nikko AM Singapore STI ETF (G3B)
  • S$100 – ABF Singapore Bond Index Fund (A35)

Which means that S$1,000 is auto-invested every month via the MIPs into local ETFs. Some in the first half of the month and the rest in the second half of the month. Purchase commission charges are at 1% of the invested amount i.e. I pay S$10 as fees every month for the MIPs.

I have to admit that this is high but acceptable to me when it comes to my dollar cost averaging strategy. Reason is simple – I expect to pay more when someone is doing the work for me. For the value cost averaging and dividend investing components of my strategy, I invest larger amounts and the commission charges drop to less than 0.50%.

I know I have to lower my transaction costs but I’m already doing that for the most part. The S$10 is not significant to me. I have already reduced our general spending slightly every month to make up for this S$10 so the net effect is zero. What’s important to me is the fact that I’m automatically diverting S$1,000 of my cash savings into Singapore ETF investments every month. In fact, when Smartly launches, I plan to divert another S$1,000 of my cash savings for the robo-advisor to allocate into an aggressive risk profile portfolio of overseas ETF investments every month.

Again at 1% annual fees initially before decreasing to 0.7% when the asset balance exceeds S$10,000. It could go down further to 0.5% if I decide to keep at it for several years. You see how the robo-advisor fee structure mirrors the transaction costs in my own portfolio?

It only starts to drop the more funds I can commit and the more experienced I become over time. This works for me as my preference is to spread out my investment cash through market cycles. It’s a slow and steady investing approach but the portfolio & strategy should weather market volatility and crashes more effectively.

Quick updates for the month of Nov 2016 so far:

  • My wife received her annual performance bonus letter and the amount is okay considering how tough the market conditions were for the past year. Not forgetting how bad the impact on the profits of her bank is due to that.
  • We will allocate the bonus when received into savings, spending and investments accordingly but I will not be reflecting the full amount on this blog.
  • Averaged down on REIT ETF, Starhub and Vicom this week.
  • Auto-purchases of G3B and A35 coming up in the next 2 weeks.