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The Woke Salaryman Way of Investing (up till the first 500k)

We get questions on how to invest all the time, so we’d thought we’d write this article so our fingers won’t hurt typing answers on Instagram.

Maybe you find it useful, maybe you won’t. Who knows?

How we actually invest isn’t new at all, or incredibly sexy – it’s a modified version on Boglehead’s Three Fund Portfolio, which originated in the US.

Similar-ish articles on this can be read here, here, here, and here

 It involves investing in three types of things with a long term horizon of at least 20 years

  • A local index fund (STI-ETF)
  • A foreign index fund (S&P500, IWDA, VWRD)
  • Bonds

If the acronyms don’t make sense to you, don’t worry, we will explain later.

Why we invest this way

Efficiency

At this stage of life, you don’t have a lot of capital. When your capital is small, your investment returns are also small. Therefore the most efficient way to make money is through side-hustling and being good at your job, not spending six hours a week fussing over which stock to buy.

Trust us on this. Many of your investment gurus out there first made their initial capital through a high-paying salaried job, being self-employed, or starting a business.

This initial capital gave them the ability to take more risks and earn more money through investments.

Work on your initial capital first! We’d not touch active investing if we have less than $500,000 in our portfolio. This is why.

Simplicity

Compared to picking individual stocks, this is relatively easy to understand. Yes, there are many investors out there who claim to insane returns, but trust me, this takes either luck or insane effort.

A full time investor who also runs training courses lives and breathe stocks for a living. They spend hours doing research, and have absolute conviction to hold to their stocks when the market tanks.

The average person working in a non-investing role will not.

Affordable

What does a fresh grad have these days to put aside? $100 – $500? We’re inclined to pick stuff that doesn’t need a lot of money to start, also with relatively low management fees.

Level 1: The Local Index Fund 

The local index fund (in Singapore, it’s the STI-ETF – is the easiest part of the equation. The quickest way to get started on it is through a Regular Savings Plan.

All the local banks have an option: Click for OCBC, DBS, and UOB.   There’s also one through a broker, Philip Capital – this is what we use, but the platform is fugly.

  • For this investment, I put in some $500 every month.
  • If you are spending between $100 to $1000, you can’t go wrong with OCBC or DBS.

We’d expect there will be tons of pro-investorswealth managers, and financial advertisers who will tell you that you shouldn’t buy the STI-ETF. And some of these are valid. Some of these reasons are:

  • Historically, the STI-ETF doesn’t have as much growth compared to some other index funds.
  • Somewhat related to the first, lots of companies on the STI-ETF are no longer in the growth stage.
  • It’s not really truly diversified, as 40% of it is made up of financial institutions such as banks.
  • Invested only in Singapore.

These are valid points. But we do think you should still invest in it – why?

  • This is the simplest thing you can buy with relatively little knowledge without exposure to the risk of having a self-serving salesperson just trying to earn some commission off you. (Not saying all salespeople are bad, but you’d need some knowledge to identify salespeople)
  • Just investing in the STI-ETF alone would put you far ahead of someone who doesn’t invest at all.
  • It’s a small but important first step to take when investing in the stock market. You can learn from this, rather than not starting at all.
  • Once you get a rough idea of investing, you can go on to International ETFs

Well, that was a lot to take in. Now, take a deep breath.

Alternatively, If you absolutely refuse hate the STI-ETF, then you can also consider investing via S-REITS or a private property for rental income. The latter means that you buy a condo to rent out. Not live in it. 

Unlike other countries, Singapore’s future is pretty tied to its real estate market (simply because it’s a city, not a country).  The caveat for the latter is that the barrier to entry is high, and there are many set up costs involved.

Level 2: The International ETF

Singapore is a nice country, but it’s not exactly known for creating great companies. At least compared to countries like the US or China. So if you only invest in the STI-ETF, you will miss on some global growth.

That’s where International ETFs come in.

My take is that you can either invest in the US via an S&P500 tracker, or go broad with globally diversified index funds. Or some combination in between.

My preference is to allocate more funds to the US market, I believe that for most of our lifetime, the US will continue being the world’s de facto economic superpower, and it has this uncanny ability to attract the world’s best and most innovative companies.

Buying International/S&P500 ETFs

Buying International ETFs have more fees involved. So, to cut down on fees, you can:

  • Buy in bulk
    • Buy a large amount of ETFs, so the transaction fees only make up a small percentage. The amount we are looking at is at least $5,000 per transaction.
  • Buy when there’s a discount (Buy when the ETF prices are low/during a crash)
    • It’s tempting to wait for the EXACT LOWEST time before you buy something, but more often than not, you’ll miss it. It’s much better to just buy when you feel the price has dropped to a reasonable/affordable amount

As a whole LSE ETFs that hold US stocks are tax-advantaged for non American investors as they’re normally domiciled in Luxembourg and Ireland so dividends are taxed at 15% rather than 30%. 

A good starting list of S&P500 index funds are as follows:

Popular S&P 500 index funds include:

SPY  
IVV
VOO
CSPX 
VUSD 

Before you ask me which is best, all these have trade offs between fees, dividend withholding tax and liquidity.

They’re pretty much equal. For the sake of you not getting analysis paralysis, the one I’ve bought is CSPX.

A good starting list of ETFs that cover global stocks is as follows:

IWDA – captures all mid to large cap stocks in developed markets. No dividends. Large and liquid. 

VWRD – captures all mid to large cap stocks in developed and emerging markets, slightly higher expenses than IWDA, pays dividends.  This is a good for a single ETF portfolio.

EIMI / EIMU – captures all emerging market stocks from small to large. Has dividend and non-dividend variants.

There’s other flavors if one wants to dabble in debt securities, but this forms a good international portfolio

WSML – captures all small cap developed market stocks. No dividend.

How to buy:  Below $100,000, go Saxo, MooMoo, or TDAmeritrade. Above $100,000 do Interactive Brokers.

Level 2A: Invest through a roboadvisor 

If you find starting your brokerage account too intimidating, most roboadvisors have a portfolio that’s invested in a globally diversified portfolio.  Popular robos in Singapore are Stashaway, Endowus, MoneyOwl and Syfe.

Level 3: Bonds (Optional)

If you were in your 20s and 30s with your whole life ahead of you, bonds wouldn’t be the best choice to grow your fortunes, because growth and returns aren’t exactly sexy.

Plus, most Singaporeans already have CPF, which sorta behaves like a bond, although it is far less liquid.  The CPF Special Account actually guarantees 4% interest per year, which is amazing compared to any of the bonds out there.

However, if I had wealth I absolutely wanted to preserve, then I’d look into bonds. For example, if I suddenly made $1,000,000 off crypto and wanted to take some profit because I’d fear I might lose it all, I’d put $500,000 into bonds just secure $500,000 of wealth. 

Some strategies on how you might want to allocate bonds in your portfolio:

‘Your age’ play:  The traditional ‘balanced portfolio’ play. If you are 30, you can have 30% of your net worth in CPF. 40, 40%. 60, 60%. You get the idea. You can put the rest in higher risk investments such as Robos and Index Funds.

(Warning: Might be slightly outdated as people are living longer, most people have modified it to be riskier. One popular modification is ‘Your age – 10’)

The ‘Safety Net’ play: The 1M65 movement is based around this. First, you focus on securing your future retirement needs with CPF SA. After you’ve done so, you are free to take on higher risks in other investments – whether it’s business, trading, crypto, etc etc.

As part of Barbell strategy:  Put the majority of your net worth in safer investments such as CPF and bonds, then use the remaining to make risky plays into high growth, or speculative assets. 

A disclaimer:

This article is about how WE choose to invest.

It’s not the be-all and end-all. There are other ways to invest, but this is the one we feel most comfortable with. (We feel like we gotta say this upfront, because investing is like religion to some people – challenge them and they go bonkers).

It won’t help you get rich quick overnight, but we believe it’s a pretty efficient way to go about doing things – and a much better alternative to just sitting on your butt without doing anything.

Finally, we think it’s important that before you have invest need the following:

1) Pay off all your high-interest debt (above 4%)

2) Have at least six months of living expenses (I’d go up to a year)

3) Have to understand that you might lose money.

^ If you’re not any of the above, please don’t invest your money. You need to save first.

Stay Woke, Salaryman

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