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Building a globally diversified portfolio via ETFs for (idiots)

LAST UPDATED: OCT 8 2021.

For many financial bloggers, fees are a sore point.

I don’t necessarily share that view – If you don’t want to construct your portfolio on your own, then you’re going to have to pay someone to do it for you. 

That said, the larger your portfolio, the higher those management fees become.

That’s why the bigger your portfolio, the more you’ll potentially save if you handle it yourself. 

Of course, creating a ‘D.I.Y’ portfolio doesn’t mean having to read financial statements and invest in specific companies. There are plenty of ETFs these days that can do the job for you for a relatively low cost. 

Here’s our own little crash course into building a simple portfolio yourself without investing in individual companies. 


If you only want to buy just one thing

VWRA. 

This is the ticker symbol of the Vanguard FTSE All-World UCITS ETF USD Acc. This ETF represents the ENTIRE global stock market. Buying this means you’ll be exposed to the risks, and growth of companies all over the world. 

Do note though, buying VWRA only means you’re only buying stocks, not other asset classes such as bonds, property, crypto, precious metals etc. So it’s diversification across geographical regions, but not across asset classes.

 

You can buy this, close this window and be done with this article. 

Of course, I know you won’t. Most people who read this blog want a little more detail. So here we go.

Alternatives: VWRD, then VT (in that order of preference). We like VWRA because it reinvests all the dividends given by the constituent companies back into the fund (and thus shows a higher fund price). This is objectively better than its dividend-paying twin VWRD for Singaporean investors because the foreign dividends you receive are taxed at 30% and this can put a real damper on your returns.

 

Investing in the US Market 

When most mainstream (American) media says “how did the market do”, they are referring to the performance of the S & P 500 index, which tracks the largest 500 US companies. 

They do not mean the Singapore, China, London, Japan or Malaysian markets. Not even the above mentioned total global stock market. 

When Warren Buffett says ‘time in the market, not timing the market, he’s talking about the S&P500.

When people say ‘the market always goes up, eventually’, they are typically referring to the S&P500. 

You get the idea. 

Much about the research surrounding ETFs as the most efficient way of investing is also based on the US market.  All these facts make it a compelling investment.

To get invested in the S&P500, we suggest Singaporeans take a serious look at CSPX (Ishares Core S&P 500 Ucits Etf USD (Acc) ETF). 

This ETF tracks the S&P500, but is based in Ireland. We chose this because after accounting for taxes, management costs, it’s still the lowest cost investment vs it’s alternatives – ( IVV, VOO, SPY, in that order of preference)

 

Investing in the China market 


The recent dip in Chinese stocks has scared many investors away because of fears of regulatory risk. 

However, we’d like to point out that this has always been the case – since the very beginning the country opened its stock market. The companies have grown richer, but nothing has changed. 

In addition, we believe that China’s long term goal is to position itself as an alternative to the United States with both soft power and military hardware. 

This cannot be done without economic vibrancy and innovative companies. 

While the regulatory risks are very real, the immense potential for China as a rival superpower to America makes it hard to ignore. 

Just don’t invest too much in it, and you’ll be fine.  I have slightly below 10% of my holdings in China, and don’t intend to exceed 20%. 

Investing in the China market is slightly more complex; passive investing isn’t that huge there. As such, we’d opt to either pick your own stocks or buy a fund with active management. 

Broad option: MCHI (iShares Core MSCI China ETF) is arguably the closest thing to the SP500 there is for the Chinese market. If you take on a traditional passive investing approach, this is what you’d do.  

Focused option: If you just want to buy into the most successful 80 Chinese companies, instead of the broader market, you can opt for the new Lion-OCBC Securities China Leaders ETF.  This ETF invests in 80 companies across 12 industries – tech, financials, consumer goods etc.

Tech-focused option. KWEB (KraneShares CSI China Internet ETF) is another ETF that’s popular amongst Chinese investors. The fees for this fund is relatively high at (0.76%), but the performance since its inception speaks for itself.  

Also worth considering Lion-OCBC Hang Seng Tech ETF if you want to invest directly in the companies, instead of during an American Depositary Receipt (ADR). 

Investing in the Singapore market 

Singapore’s small stock market is often derided by many younger financial bloggers, and it’s seen as the ‘boomer’ thing to invest in, but I would not write it off so quickly. 

The equivalent of the United States’ CSPX here is to invest by buying the local index; the STI-ETF.

Investing in the STI-ETF is super accessible,  and has very little fees; each local bank will have its own ‘regular savings plan’ that you can start investing in. 

However, as with other non-US markets, the notion that passive investing works here remains to be seen. 

However, what is worth including in the Singapore segment of your portfolio are different asset classes.

Private/commercial real estate: It’s far easier to buy and manage property here, than say – Australia or the UK. Expensive though. 

S-REITS: If you can’t afford private property, or don’t want to foot up the massive 12% Additional Buyer Stamp Duty to own one more property other than your HDB, then REITS are a decent alternative. 

These include:

 

  • Lion-Phillip S-REIT ETF
  • Nikko AM REIT ETF 
  • Phillip SGX APAC Dividend Leaders REIT ETF.
  • Syfe REIT
     

Note: Singapore-REITS might sound like they are Singapore only, but many Singapore REITS own properties overseas. Parkway LIFE REIT, for example, owns nursing homes in Japan. 

REITs (or REIT ETFs) are also a wise choice to buy in Singapore because you don’t get taxed on those dividend payouts unlike with foreign funds/shares.

Fixed Income (or so called ‘lower risk’) Products: We like to have a part of our portfolio that generates money for you, when stocks go through periods of slump. 

These include: 

  • CPF SA (Not an ETF but worth considering, due to guaranteed 4% p.a)  
  • Bond Funds – Nikko AM ABF and Nikko AM SGD Investment Grade Corporate Bond ETF

It is very important to note that while these are seen as ‘lower risk’ products, they do carry some risk themselves. The main one is inflation risk – if the fixed returns (i.e 2.5%) is unable to keep up with the depreciation of money. The second is lock-in risk – you can’t withdraw your CPF gains willy-nilly.

As you might have guessed, you won’t get rich quick from this approach

Our approach to investing has always been consistent. 

More often than not, long-term wealth does not come from miraculous investments that return 500% in a month. 

Therefore, the approach mentioned above doesn’t try to go for maximum returns. Instead, it tries to achieve moderate growth while diversifying to reduce risk.

Instead, it comes from making good income from your job, staying invested and living below your means.

To use a gaming analogy, your income will be the carry. Your investments will be your support – to protect your networth against inflation, while also enabling you to earn passive income. 

Don’t be fooled. Stocks, funds, crypto, property and ETFs are great. But the best investment?

It’s ultimately still yourself.

Stay woke, salaryman

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