Finance Smiths

Personal finance apprentices-in-training

Investing more during the China triggered crypto crash

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China ordered its major FIs to stop facilitating digital currency transactions and it triggered a crash in the crypto markets. My response has been to dollar cost average down my crypto positions in Ethereum, Bitcoin, Binance Coin, Matic and Cardano. I’m still making losses on my crypto portfolio as a whole but I will continue to invest in it if prices keep sliding. Its value is still less than 5% of my total investment portfolio and I view it as a separate asset class. Just like any other asset class, a good time to invest is when its market is crashing.

This is what I did with the equities portion of my investment portfolio last year during the Mar 2020 Covid market crash and it has paid off so far. However, I have to admit I was taking bigger positions with the stocks and ETFs then. Just because equities is a more mature asset class that I’m familiar with and they are not as volatile. Plus I had more time to plan, think and react when navigating the equities market. As I’m still learning about cryptos, it’s difficult for me to take big positions in them given the volatility. Especially when there’s not as much time to plan, think and react when navigating the cryptos market.

Market crashes are an unforgiving test of my nerves and preparedness. Whether I have set aside a sufficient amount of warchest and how well I use it to average down on my current positions or start new positions. Questioning my instincts and the security of my main income source (i.e. salary from my job) in a recession in relation to the spending buffer or emergency funds I have set aside for my family. Looking back at what went right and what went wrong after the market crash in itself can be a painful self-evaluation experience.

At this time, it feels like a learning journey for me in navigating the cryptos market crash. Unlike the equities market recovery that usually correlates with improvements in business and economic conditions (or loose monetary policy and quantitative easing for that matter), I’m still trying to make sense of the factors that can generate a cryptos market recovery. Or should I take a more holistic and long term view on this and build this asset class position up every time there’s a market crash. Just because it helps to diversify my investment portfolio.

20% withholding tax on distributions from my Irish domiciled ETFs

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I took Friday off and have just been celebrating my birthday and Father’s Day with family & friends over the long weekend. It’s nice to know dining in will resume from tomorrow onwards but in groups of 2 and not 5. May arrange a dinner just with my wife to celebrate my birthday by ourselves. Gyms will also be reopening so it would be good to get some variation in my exercise activities. Work from home is still the default arrangement and I look forward to the time when we can head back into the office at least for a few days each week.

Anyway, I decided to write about this topic because I have yet to figure out whether something or nothing has changed. The value of our Irish domiciled ETF holdings is the biggest position in our investment portfolio. I chose to invest in them via our Stan Chart online equity trading accounts because there was 0% withholding tax on the distributions from these Irish domiciled ETFs. This is what I remember and now in the process of confirming whether this is the case for my past distributions from the Irish domiciled ETFs.

Reason being I recently received corporate action emails from Stan Chart providing more information on the upcoming Jun 21 distributions from my Irish domiciled ETFs. I was surprised to see a 20% withholding tax being applied to them. I started to ask myself whether this was always there, meaning my previous understanding of 0% withholding tax on the distributions from Irish domiciled ETFs was wrong and nothing has actually changed. Or something is different and the 20% withholding tax on these distributions are being applied for the first time.

I decided to read the corporate action emails from Stan Chart in more detail (used to just browse through them quickly). Turns out they don’t facilitate the granting of reduced Double Taxation Agreement (DTA) withholding rates on distributions. My guess is because Stan Chart uses an omnibus account structure with their global custodian and they don’t collect sufficient documentation from each client to be able to facilitate the granting of reduced DTA withholding rates on distributions. Does this mean that I shouldn’t be paying the 20% withholding tax on distributions from my Irish domiciled ETFs and now need to find a way to claim a refund on them from the relevant tax authority?

I asked my Stan Chart RM about this and I have one because of my privileged banking relationship with them. His reply was that Stan Chart doesn’t provide tax advice and I should refer to the relevant documents (or seek tax advice myself) on why a 20% withholding tax has been applied to such distributions. This is not helpful at all but I expected it. Working in a bank the past few years has taught me an important lesson that everyone should know and remember. No matter what banks say and do, they will rarely put the interests of their clients/customers above their own interests.

You know what’s the best part about this. I work in the taxation field (both in practice and industry settings) and can be considered somewhat of a tax advisor. The irony of this situation has not been lost on me. While I’m not a specialist in international withholding tax matters, I’m annoyed and frustrated at myself for not being able to work it out. After all, I have been reading up on the topic but I’m having trouble applying the concepts to this live issue. Looks like I’m going to have to ask around my peers that are international tax specialists for assistance.

Liquid Assets Monthly Update

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Looks like we are going into Phase 3 Heightened Alert from Monday and the tightened Covid restrictions should hopefully start to loosen more gradually from there. It would be good for us to be able to start dining out, going into the office and meeting up with friends & colleagues outside again. Anyway, this is a short update on a change from monitoring my net worth to liquid assets instead. I no longer think it’s useful to track the monthly progress of our net worth just because it doesn’t capture the essential information of our wealth-building journey.

It’s more important for me to understand how the different components of our liquid assets interact, their proportion relative to each other and their progress every month. Allows me to see the effectiveness of our investing strategy and whether changes need to be made. On my Google Sheet, I have changed the monthly net worth update tab to a monthly liquid assets update tab. Split by the various aspects of Cash, Securities (i.e. Stocks, Bonds and ETFs), Robo-Advisors, Cryptos and CPF-OA along with a sum total at the top. I have also changed my blog page from net worth to liquid assets to reflect this.

I want us to focus on growing our liquid assets base and not get side-tracked by lowering our liabilities. The latter is kind of fixed already since it depends on the lifestyle we choose. We would only change our lifestyle if something happens to our jobs i.e. income source. So we don’t see major changes to our liabilities until that happens and there’s no point tracking its impact on our monthly net worth. Might as well keep our focus on what’s critical for building our wealth.