What We’ve Learnt This COVID19 – Using US Stocks To Boost Overall Portfolio Gain

Recently I have been thinking a fair bit about our portfolio structure.

There are two types of portfolio: growth portfolio, and dividend portfolio.

As the name suggest, growth portfolio consists of high growth stocks but the downside is that, these stocks don’t pay out dividends. Dividend portfolio on the other hand, are made up of dividend paying stocks like REITs, which is great especially for Singapore investors looking for REITs as a source of passive income.

Over the past 1 – 2 years since we really started to chart our financial goals, we have been actively buying Singapore stocks which are paying out decent dividends. This is because we are aiming towards an eventual S$5000 monthly passive income in the future so that we can retire reasonably well.

When we look at our portfolio composition late last year to even today, our Singapore stock holdings almost double our US stock holdings.

While that is good news and all, when we look deeper into the returns of the Singapore stocks versus the US stocks, our Singapore stocks, inclusive of the dividends, are not giving even the near levels of returns we are seeing from our US stocks. Most of our returns made from the market since the onset of our investment, is actually from our US stocks holdings.

So we hypothesized that we should shift our mindset from holding Singapore dividend stocks to holding US growth stock instead. This will give us better returns in the long run.

To check on this, we took a look at the public portfolio shared by users from Stocks Cafe, and we found very interesting findings.

Here’s a look at the top performing portfolios (3 years timeframe) shared on Stocks Cafe, sorted by their % return.

Source: Stocks Cafe

To see what are the similarities of these top performing counters, we took a look at their individual portfolios to see how much of these investors invested in the US market and what are the overweight stocks that they are holding on.

When we dig deeper and look at their individual portfolios, here’s what we noticed.

  1. Of the 23 counters which made >30% returns in the past 3 years timeframe, 61% of them invested in US stocks.
  2. The top 2 performing investor jpf and zhengkang, and Cosmicpubes (lol), had over 85% of their stocks in US holdings.
  3. For the top 13 best performing investors, they either made money through US stocks, or if they had invested in AEM, an electronics manufacturer who counts companies like Intel as their largest client.

The common denominator seems to be that, one should have a combination of US stocks to boost the returns of his or her overall portfolio. JPF, the investor with the best performing portfolio, has a 52.47% YTD returns and a 570.06% all time returns, and 85% of his portfolio is made up of US stocks.

So to be in the top 10 on the list, you need to either invest in US stock market, or invest in AEM.

This is definitely easy for us to point out in hindsight, because over the past decade, the theme had been technology, internet, and computer chips. We think this theme is still going to be around for another 5 – 10 years.

Investing in US market also makes a lot of sense because big global companies have bigger addressable market and can continue to climb in value – thus one may end up holding multi-baggers.

I think that gave us some affirmation to the returns on our portfolio: if we have more US stocks in our portfolio, there is a high chance that our portfolio will outperform a portfolio without US stocks.

Hence moving forward, we will be looking at shifting our equity allocation to more US stocks so that our long term returns will be better than what we have now.

Our current allocation:

PortfolioSingapore HoldingUS Holding
Mr Budget$84,806.08 (60%)$57,855.33 (40%)
Mrs Budget$64,139.80 (76%)$20,025.90 (24%)

Ideally we should swap the percentage around to probably 60 – 70% US stocks and 30 – 40% Singapore dividend stocks.

For friends and family who have been asking us what to invest in, normally I would ask them to allocate some towards the US market too instead of just investing in the SG market.

This is because it is a bit unrealistic for us to think that we can beat the returns of the STI index or Singapore fund managers out there by just spending minimal amount of time choosing to invest in a few Singapore counters. We are better off just investing in robo / the STI index.

However, if we were to invest in the US market or have a US-SG hybrid portfolio, there is a very high chance (61%) to beat the Singapore index.

Happy investing!

Also Read: What We’ve Learnt This COVID19 – Price Levels, Selling And Coffee Can Portfolio

Looking to invest via Syfe? You can use our referral code: SRP6X8B8Y when you create an account.

We would both get $10 to $100 depending on your first deposit amount, and you’d receive your bonus within 5 business days.

The Current Market Crash Pushed Our Retirement Goal Back By 3 Years, And It Might Get Worse

So the market dived another 8-10% or so yesterday. 

Every retail investors is probably mass selling and taking profit off their positions now.

There were reports that trading firms are overwhelmed and true enough, when I log into Vickers, I couldn’t even connect to my account. This truly is a once is a decade / life time event.

I wouldn’t lie, when the market crashed, it has been emotionally testing – its painful to refresh my app to see the market prices.

So earlier today, I went ahead to do a quick number crunching to see the impact of a further 20% drop of my equities towards my retirement / S$1M goal projection.

Here’s a look at the previous projection with the following assumptions:

  1. US Equity – Monthly Contribution with an overall portfolio growth rate of 8%
  2. SG Equity – Monthly Contribution with an overall portfolio growth rate of 5%
  3. Syfe – Monthly DCA with an overall portfolio growth rate of 5%
  4. Annual EPF and CPF contribution at current level.

According to the earlier projection, excluding our properties and mortgage, we should

  1. Hit a net worth (Equities, Cash, CPF) of S$1M at end 37 years old, or in December 2025
  2. Hit a liquid net worth (Equities, Cash) of S$1M at 42 years old, December 2029.

However, as the market plunged this week, we now have to add new numbers into our projection model. 
What we did was:

  1. Update our projected 2020 numbers by entering current portfolio number
  2. Add a further 20% drawdown to all our current equities position
  3. Stop our US, SG, and Syfe Investment contribution for this year

Based on the 3 new parameters, here’s the updated impact towards the 1M goal.

Based on the table, just by adding a further 20% drawdown on our equity position and stopping our investment this year, our S$1M net worth (ex property and mortgage) goal is pushed back from December 2025 37 years old to December 2026 38 Years old. 

If we exclude CPF (liquid net worth), the impact is even bigger: our S$1M goal is pushed back from December 2029 42 Years old to December 2032 45 years old, a good 3 years goal push back!

Which means now, if everything stay constant, I have to work for another 3 years just because the market crashed.

Of course, while this is bad news, we also acknowledge that the growth rate once the market recovers will hopefully be able to counteract the current decline in our portfolio and hence move our current target back on track. 

This exercise paints a good picture for us to see the impact of the current equity drawdown on our portfolio, and to really reassess our portfolio resilience. 

Currently our cash level is the highest it has been since the past 2 years as we manage to sell some stocks before the second wave of crash. Hence we will be accumulating our war chest and deploy them when situation show more signs of stabilisation. 

I feel like there will be a further 20-30% drawdown in the market because we have yet to see the domino effect of the global virus situation – ie the housing and credit crisis. 

So things will probably get worse, as we also have a significant exposure in properties.

You can also read about our horrible experience not being able to sell our stock via DBS Vickers: Earlier Today I Experienced Every Investor’s Worst Nightmare – Unable To Sell My Stock

Like our Facebook Page for more articles like this: Mr Mrs Budget

We Care Less About CPF Life’s Rate Of Return, More As A “Forced Savings” For The Compound Interest

Recently Mr Budget received a comment from a reader (thank you! We love reading them!) commenting on the CPF scheme.

Ronald shared his views that I should do a calculation on the CPF Life annuity scheme to see if it is a fair deal before committing so much into CPF, after all CPF contribution is a one way street – once you put in the money, you can only see it more than 25 years later.

That prompted Mr Budget to do some digging. 

Many in the financial space will be familiar with Kyith’s work from Investment Moats, and we are also big fans of his.

Kyith always use data to support his articles, and when we dug deeper into his archive of works, we found that he calculated the returns of CPF Life, which saved us the trouble of doing the calculation ourselves.

In case you are unfamiliar with the CPF Life scheme, at age 55, CPF will automatically create a new Retirement Account (RA) for you. The source of the RA account come from both your OA and SA account. For us, we foresee that we will be able to hit the full retirement sum, which is at S$181,000 now. 

Here’s the internal rate of return Kyith simulated based on the following parameter: Computed in December 2018, at age 55, a total of S$180,000 is transferred to the RA account.

Source

As Kyith rightfully pointed out, the IRR and amount disbursed changed according to the age you pass away. 

For Mr Budget, I foresee I will be able to live until 65 – 70 years old, hence the IRR for the basic plan will be between 3.97% to 4.33%, with me getting back between S$275,112 to S$313,526 from the S$180,000 CPF retirement scheme.

Of course, there are a lot of moving parts in calculating the IRR and amount received as the government will raise the basic retirement sum over time and they might also adjust the payout amount, but at this point we can only hope that Singapore has our best interest in mind, and that we can only plan based on current data.

So the question is, are we happy with the returns? I’d say we are quite happy with the results as it is quite rare for us to be able to find a guaranteed annuity giving this rate of return, especially since we expect our risk profile when we are older to be significantly lower than what we have today.

Of course, knowing the payout only paints part of the picture.

The reason why we actively contribute to the CPF account is also we see this as part of a forced savings so that we can really see compound interest in the works when we are older.

Here’s Mr Budget’s projected CPF with the following parameters: constant CPF contribution from employment as well as annual S$7,000 RSTU scheme, at an annual interest of 3.5% (instead of 4%).

YearAgeStart of Year CPFCPF ContributionCPF InterestEnd of Year CPF
201729$0.00$14,370.65$347.46$14,718.11
201830$14,718.11$25,624.74$1,029.86$41,372.71
201931$41,372.71$36,730.00$3,063.91$81,550.48
202032$81,550.48$33,640.00$4,031.67$119,222.15
202133$119,222.15$33,640.00$5,350.18$158,212.32
202234$158,212.32$33,640.00$6,714.83$198,567.15
202335$198,567.15$33,640.00$8,127.25$240,334.40
202436$240,334.40$33,640.00$9,589.10$283,563.51
202537$283,563.51$33,640.00$11,102.12$328,305.63
202638$328,305.63$33,640.00$12,668.10$374,613.73
202739$374,613.73$33,640.00$14,288.88$422,542.61
202840$422,542.61$33,640.00$15,966.39$472,149.00
202941$472,149.00$33,640.00$17,702.61$523,491.61
203042$523,491.61$33,640.00$19,499.61$576,631.22
203143$576,631.22$33,640.00$21,359.49$631,630.71
203244$631,630.71$33,640.00$23,284.47$688,555.19
203345$688,555.19$33,640.00$25,276.83$747,472.02
203446$747,472.02$33,640.00$27,338.92$808,450.94
203547$808,450.94$33,640.00$29,473.18$871,564.12
203648$871,564.12$33,640.00$31,682.14$936,886.27
203749$936,886.27$33,640.00$33,968.42$1,004,494.69
203850$1,004,494.69$33,640.00$36,334.71$1,074,469.40
203951$1,074,469.40$33,640.00$38,783.83$1,146,893.23
204052$1,146,893.23$33,640.00$41,318.66$1,221,851.89
204153$1,221,851.89$33,640.00$43,942.22$1,299,434.11
204254$1,299,434.11$33,640.00$46,657.59$1,379,731.70
204355$1,379,731.70$33,640.00$49,468.01$1,462,839.71
Mr Budget’s CPF Projection

If all things stay constant, Mr Budget should be able to hit S$1,000,000 in his CPF by age 49. That is really quite a lot, and from the table, you will see that every year, the interest received is getting higher and higher, and we earn the magical interest on interest.

To be honest, we have yet to enjoy the benefits of compound interest especially in our current bank account because we are always moving our cash around. Our cash in bank will also be depleted every time we have a new milestone in life.

Hence CPF in a way is really our “forced savings” portion of our portfolio, for us to really see the effects of compound interest. There is probably no other ways we can clearly see this manifested in our lives other than CPF because we tend to move our funds around, and that’s always the case for Mr Budget.

By age 55, after setting aside the basic retirement sum, Mr Budget can also withdraw the rest out for usage. 

We confirmed that we can withdraw the rest of our CPF based on the CPF withdrawal Q&A on the CPF website.

CPF example of withdrawal computation

Of course, this is the idealistic projection because there are many unforeseen things that could happen:

  1. Government might change certain rules with regards to CPF withdrawals or interest rates.
  2. Mr Budget might lose his job or have a pay cut
  3. Mr Budget may need money for his child expenses, hence the annual contribution will be reduced by S$7,000
  4. Mr Budget passes on before 65 years old.

If Mr Budget really passes on before 65 years old, then the S$180,000 would not be worth it. By then, money wouldnt matter anymore to me haha.

So to Mr Budget, the main reason for the annual CPF top up is basically leveraging the CPF to get an annual 4% interest rate so that we can see a compound growth over the next decade and we can enjoy the fruits in the future. The annuity portion of CPF life is really just a small reason why we actively contribute to CPF. 

And hopefully the government don’t introduce big changes to the CPF scheme over the next 30 years! 

Also one last note, this post is not to show off the CPF amount, because the truth is, the same compound interest applies to everyone, and if most people chart their CPF projection, they will most probably get similar graphs.

It’s to share our thinking behind why we contribute regularly and to visualize (in numbers) compound interest in the works. This is also not any investment advise as Mr and Mrs Budget is just 2 regular working PMET trying to make sense of our financials and to plan for the future. 🙂

Like our Facebook Page for more articles like this: Mr Mrs Budget

What Is The Ideal Stock Amount To Buy For The Brokerage Fees To Make Sense

One of the questions that I asked myself last time was that, what is the ideal position size for me in order for the fees to make sense. I tried googling this and couldn’t find any answers. 

This was a concern to me because there are sayings that the fees could kill you and even if you manage to identify a good stock, you will end up not making money after paying for the fees.

So how much stock should I buy in order for the returns to not be diminished by the fees?

So I thought it will be good to calculate and journal this down so that this can be a good future reference. 

For calculation purposes, we will be using the fees charged by our default brokerage DBS Vickers.

For DBS Vickers, here are the various fees imposed when you buy or sell a stock via their stock brokerage:

DBS Vickers Fees as of 13th December 2019

With this in mind, we draw out the various fees if we were to buy stocks worth between S$1,000 to S$10,000. Here’s the resulting table:

From the table, if you buy S$1000 worth of stocks, the total fees for you to buy and sell the stock will be S$54.36. What this means is that the stock will have to go up by 5.44% for you to breakeven.

Similarly, if you buy S$2000 worth of stocks, the total fees for you to buy and sell the stock will be S$55.21. For you to break even, the stock will now only need to go up by 2.76%.

Based on the table, you will see that, the more you buy, the percentage gain on the stock for you to break even will drop.

From the table too, it seems like the ideal position to be S$6,000, for you to enjoy a breakeven cost of 0.98%, which is less than 1%.

If you buy S$8,000 worth of stock, the stock will only need to increase by 0.68% for you to breakeven.

When Mr Budget first started buying via DBS Vickers, his average position was around S$2,500 to S$3,000. This is without the knowledge of the percentage needed to breakeven. Hence if you see Mr Budget’s portfolio, the stocks in which are in the S$2,500 to S$3000 positions are those that were bought more than 1 year ago. 

For now, our average position size is around S$4,000 to S$5,000, and if we are confident in the counter, may go up to S$6,000 to S$8000.

Hopefully we will be able to increase our position size to around S$8,000 to S$10,000 per counter in the future, so that the fees will be negligible.

What is your average position size? 🙂

Like our Facebook Page for more articles like this: Mr Mrs Budget