[Singapore] Portfolio allocation

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Topic Author
M201
Posts: 2
Joined: Mon Jun 10, 2024 12:56 am

[Singapore] Portfolio allocation

Post by M201 »

Hi all,
after reading the wiki pages and browsing around, it's time for me, as a newbie in this world, to ask your feedback regarding the choices I am going to make in terms of best allocation of my new portfolio I am trying to organise based on the followings:

Country of tax residence: Singapore
Living in Asia for 6y and expecting to continue living in Singapore for the next 2y at least
Home country Italy / plan to retire in Italy and potentially move for job opportunities in Europe in coming future.

Couple / no kids / 40 years old
Main source of income in SGD under Employment Pass (low six-figures)
Debts: nil
At the moment, I am doing yearly payments to a long-term retirement plan managed in Italy by Generali which invest 70% in bond and 30% in internal funds and I move approx 15% of my yearly income in EUR.

I have an emergency found in SGD currency that now became too big hence I decided to re-allocate part of my finance in setting a proper investment plan for the future retirement. Investment horizon 25+ years.
The approach is to keep the emergency fund in local currency capped at 6 months of actual expenses, move the rest of cash parked in that account to a new portfolio constructed as below and setting a recurring payment for implementation each quarter handled via IBKR (USD) based on the following draft idea:

60% equity / 40% bond

45% MSCI World index [SWRD]
5% MSCI Emerging Markets IMI [EIMI]
5% FTSE India 30/18 Capped [FLXI]
5% MSCI World Small Cap [WSML]

20% Local Singapore Government T-Bills
20% 0-3 Month US Treasury Securities Index [SGOV]

I would be interested in understanding if I should consider adding Singapore REITS at this first stage and improve diversification?
Is there any correction should I consider before starting?

I hope it makes sense to your eyes and look forward to hearing your comments?
Thanks! :D
jg12345
Posts: 483
Joined: Fri Dec 11, 2020 12:03 pm

Re: [Singapore] Portfolio allocation

Post by jg12345 »

Ciao!
Prima di tutto bene che ti fai queste domande.

Coming to proposed answers/reflections:
1) On your proposed portfolio, what is India doing there? it is already included in EIMI, so you're duplicating. I would also forget about small caps, but leave that up to you. So my suggestion is either
55% MSCI world
5% EM

or 50% MSCI world, 5% EM, 5% Small caps

I seem to understand there is no capital gain tax in singapore, so you want those to be Acc not Inc/Dist

2) for bonds, I would suggest global core bond aggregate AGGH

Unless... you are very likely needing the money in the short term. I see you say 2y at least and then going back to EU. If you have a better idea on the timeline, and reutnr entails buying property, then AGGH might not be for you and you would want a certificate of deposit.

3) The 60/40 for your portfolio sound reasonable at your age. You say the horizon is 25 years so you _could_ go 70-30 or even 80-20

4) I am slightly concerned about Generali. 70% bonds is way too conservative at your age. and 'internal funds' sounds fuzzy (and ultimately, expensive if they are the ones choosing the funds and they are generali funds). You are not asking about that specifically, but I thought I'd mention it.
glorat
Posts: 1061
Joined: Thu Apr 18, 2019 2:17 am

Re: [Singapore] Portfolio allocation

Post by glorat »

M201 wrote: Mon Jun 10, 2024 6:36 am 45% MSCI World index [SWRD]
5% MSCI Emerging Markets IMI [EIMI]
5% FTSE India 30/18 Capped [FLXI]
5% MSCI World Small Cap [WSML]

20% Local Singapore Government T-Bills
20% 0-3 Month US Treasury Securities Index [SGOV]

I would be interested in understanding if I should consider adding Singapore REITS at this first stage and improve diversification?
Is there any correction should I consider before starting?
Enjoy Singapore - if you have net savings despite the low cost of living then having zero capital gains and zero dividend tax is a wonderful thing. You seem to have managed to open an IBKR account here which is great!

To your questions... No to Singapore REITS as that will greatly *reduce* your diversification. (SWRD already has REITS in the right diverse proportions). FLXI is also redundant since EIMI has it. Going with SWRD/EIMI/WSML is perfectly fine. On the gonds side, local T-bills and Treasuries are also fine. I would prefer AGGG as that is more diversified, longer duration (so less correlation to equities) and, given you are going to be back to another country, less tied to SGD. AGGH is also reasonable if you definitely want EUR when you retire.

I don't know anything about Genarili but my likely correct guess is that it has higher fees than IBKR. I'd avoid putting more in at very least until you get back to Italy. (And at that point, tax optimisation matters, and maybe local funds help. I don't know)
Topic Author
M201
Posts: 2
Joined: Mon Jun 10, 2024 12:56 am

Re: [Singapore] Portfolio allocation

Post by M201 »

Thanks for your valuable insights, I try to reply and build on your comments:

The following gains in SG are not taxable:
- Gains derived from the sale of a property in Singapore as it is a capital gain.
- Profits or losses derived from the buying and selling of shares or other financial instruments (including digital tokens) are generally viewed as personal investments.
- Payouts from insurance policies as they are capital receipts.

Any investment I will do, I want to place it in ACC positions.

Regarding taxation, I think there is a way to explain to IBKR that eventually investment in BIL or SGOV in US are even not affected to any wht as well, but it seems it is a bit complicate to prove and obtain a reimbursement.

The reason I add FLXI might be biased on my job by operating in all AP markets; if I look at how CN and TW are performing, they are more conservative and a lot of uncertainty at the moment on how CN and TW will look like in the future, on the other hand I see traction and strong growth in India hence I would even opt to allocate my overall small percentage in emerging markets only on FLXI and exclude EIMI at all...They have same similar ER and different past performances, at the same time CN and around are more geopolitical unstable than India if I look the next 10y.
What do you think if I move away to EIMI and rebalance 50% SWRD + 5% FLXI + 5%WSML ?

It is still unclear to me to calculate the $ implication of having 3 positions like the above VS consolidating the same allocation only in 2 funds (let's say skipping WSML) by impact of ER and management fees in the long run. Less funds means saving in ER with IBKR or it's irrelevant?

I will exclude any REITS at the moment.

Yes, Generali is way more expensive in management fees, however at the moment is my landing spot to force me in moving EUR funds regularly into an Italian long-term product. Yes, their internal funds are managed by them which is not ideal, but I have flexibility in changing the portion of it. I will follow your suggestions to minimise the payments in that product but I still keep it alive.

Thanks!
jg12345
Posts: 483
Joined: Fri Dec 11, 2020 12:03 pm

Re: [Singapore] Portfolio allocation

Post by jg12345 »

M201 wrote: Wed Jun 12, 2024 6:35 am Thanks for your valuable insights, I try to reply and build on your comments:

The following gains in SG are not taxable:
- Gains derived from the sale of a property in Singapore as it is a capital gain.
- Profits or losses derived from the buying and selling of shares or other financial instruments (including digital tokens) are generally viewed as personal investments.
- Payouts from insurance policies as they are capital receipts.

Any investment I will do, I want to place it in ACC positions.

Regarding taxation, I think there is a way to explain to IBKR that eventually investment in BIL or SGOV in US are even not affected to any wht as well, but it seems it is a bit complicate to prove and obtain a reimbursement.

The reason I add FLXI might be biased on my job by operating in all AP markets; if I look at how CN and TW are performing, they are more conservative and a lot of uncertainty at the moment on how CN and TW will look like in the future, on the other hand I see traction and strong growth in India hence I would even opt to allocate my overall small percentage in emerging markets only on FLXI and exclude EIMI at all...They have same similar ER and different past performances, at the same time CN and around are more geopolitical unstable than India if I look the next 10y.
What do you think if I move away to EIMI and rebalance 50% SWRD + 5% FLXI + 5%WSML ?

It is still unclear to me to calculate the $ implication of having 3 positions like the above VS consolidating the same allocation only in 2 funds (let's say skipping WSML) by impact of ER and management fees in the long run. Less funds means saving in ER with IBKR or it's irrelevant?

I will exclude any REITS at the moment.

Yes, Generali is way more expensive in management fees, however at the moment is my landing spot to force me in moving EUR funds regularly into an Italian long-term product. Yes, their internal funds are managed by them which is not ideal, but I have flexibility in changing the portion of it. I will follow your suggestions to minimise the payments in that product but I still keep it alive.

Thanks!
1) on India/ FLXI: you do not know better than the market. I would never do that. but of course it's your money: if you want to believe you have better info and are better at analyzing info than the market and financial analyst trained to do it, with PhDs quant working for them, and amazing software and so on, so be it. I would stick to EIMI, and move away from FLXI
2) simplicity is to avoid that you make mistakes fidgeting with weights %, and so it's easier to 'keep the course' with less funds. The dollar implications are minimal (commissions, difference in TER)
3) good on reit
4) ok on Generali. I would ask that more money is going to equities at least, so you align your allocation to 60/40 rather than 30/70
5) on reimbursement from IBKR, you won't get it I don't think. But if you go ahead with AGGG or AGGH you are more diversified and they are Ireland Based UCITS which is exactly what you want. If you want a shorter term, then I would suggest just getting a shorter duration global aggregate (iShares Global Aggregate 1-5 Year Bond Index Fund) if you have access to it, or Eurozone similar duration ETF (as you plan to retire in Eurozone). Remember the nominal currency does not matter!
glorat
Posts: 1061
Joined: Thu Apr 18, 2019 2:17 am

Re: [Singapore] Portfolio allocation

Post by glorat »

Firstly, I agree with the advice jg12345 is giving.

I just want to comment on tax
jg12345 wrote: Mon Jun 10, 2024 2:54 pm I seem to understand there is no capital gain tax in singapore, so you want those to be Acc not Inc/Dist
M201 wrote: Wed Jun 12, 2024 6:35 am Regarding taxation, I think there is a way to explain to IBKR that eventually investment in BIL or SGOV in US are even not affected to any wht as well, but it seems it is a bit complicate to prove and obtain a reimbursement.
As noted, there is no any sort of tax on investments in Singapore. So it doesn't matter whether ETFs are Acc or Dist from a tax point of view. Pick the one that fits best for you - see wiki on this.

Rather than trying to hope IBKR knows about withholding tax on US Bond ETFs, my advices are
- Buying Singapore T-Bills through IBKR - I have no idea what will happen. Note that Singaporeans buying local government bonds get benefits but you may not. It would advise instead to go for USD T-Bills instead which are safer...
- Buying USD T-bills through IBKR - There is no withholding tax so fine. But it is difficult buy if you're not a fixed income export
- Buying Singapore bond ETFs through IBKR - Non-US so no withholding tax. But given the fees, I'd rather go for a US based ETF which leads to
- SGOV - Replace that with IB01 which is the Ireland domiciled flavour of short term treasuries. Being Irish domiciled, you avoid the potential of US withholding taxes (and potentially avoid the need for W8-BEN filing etc. too)

In short, Look at the iShares bond ETFs to see which fits your asset allocation. A mix of AGGG and IB01 would be very low cost and diversified
jg12345
Posts: 483
Joined: Fri Dec 11, 2020 12:03 pm

Re: [Singapore] Portfolio allocation

Post by jg12345 »

glorat wrote: Wed Jun 12, 2024 8:41 pm Firstly, I agree with the advice jg12345 is giving.

I just want to comment on tax
jg12345 wrote: Mon Jun 10, 2024 2:54 pm I seem to understand there is no capital gain tax in singapore, so you want those to be Acc not Inc/Dist
M201 wrote: Wed Jun 12, 2024 6:35 am Regarding taxation, I think there is a way to explain to IBKR that eventually investment in BIL or SGOV in US are even not affected to any wht as well, but it seems it is a bit complicate to prove and obtain a reimbursement.
As noted, there is no any sort of tax on investments in Singapore. So it doesn't matter whether ETFs are Acc or Dist from a tax point of view. Pick the one that fits best for you - see wiki on this.

To clarify, I did not suggest Acc as better than dist _only_ because of tax. It is true that with no tax on dividends and capital gains then the choice is irrelevant. However, I suggested Acc because I would prefer them [in a situation where tax considerations are irrelevant]. This is because Acc ETFs reinvest all dividends which 1) decrease risk of mistakes/fiddling when reinvesting interest/dividends, 2) saves time, 3) saves costs (commissions, bid ask spread). so I would prefer acc.

However, if OP has time, is very diligent in reinvesting dividends and 'stick to plan', commissions are very low, then yes, it's entirely irrelevant.

+1 on all the comments on bonds
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