Refining my Bogleheads approach - which ETFs to buy? (longish post)

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
Cyath
Posts: 29
Joined: Thu Jun 16, 2016 7:30 am

Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by Cyath »

I first posted here about half a year ago, I have been gathering data and refining my approach since then. Thanks to all who helped.

I currently earn about 4-6% with my current FA and setup, but I think I can do much better. (that's not a lot when you factor in the wrap-fee and other costs) I am a fan of the fire-and-forget Bogleheads approach and have read up on it.

The pertinent considerations for me are that my income is not stable (I freelance) I don't own any property and have no desire to ever start a family.

I'd like to have my funds split into two streams - one purely into capital gains/growth and the other to generate some passive income for me.

Based on my research, Vanguard ETFs seem to be a good bet for the above, with yields of 8-9% (some even go up to 10-11%, not sure how that is possible TBH)

Looking at (https://www.trackinsight.com/en/fund/VUAA and https://www.morningstar.com/etfs/xams/vwrl/performance) mainly. Also interested in date-time funds as a possible option.

However, when it comes to passive income it's not so simple. While there are ETFs that generate dividends (https://www.fool.com/investing/how-to-i ... dividends/) they don't earn as much as the above. My FA suggested trimming from the top where necessary instead of focusing on another income stream.

I would like to have some form of passive income though, because it's good to have something on paper to show when applying for rentals or other red tape situations. To that end, perhaps Vanguard ETFs that pay dividends? (there are some) Or maybe bond funds/bonds instead?

(I would rather not pay the 11% withholding tax if possible of course! and definitely nothing USA domiciled. exploring all options)

When I discussed this with my FA, he didn't have any strong objections to my strategy other than suggesting that perhaps his research team could make tactical changes to increase capital gains in the short-term and profit from market conditions. I was skeptical of that and I told him so - it's hard to outperform the S&P in the long-term.

This is quite long so I'll end it at this point while waiting for comments.

tldr; Bogleheads approach for income + capital gains, what funds?
User avatar
tre3sori
Posts: 460
Joined: Wed Jul 24, 2019 3:13 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by tre3sori »

To answer your questions it would be helpful to know, from where you are investing. From other posts it seems that you are living and investing in Singapore. Right?
The information provided is intended to be entertaining. It is not to be construed as professional advice. Use it at your own risk.
Valuethinker
Posts: 48741
Joined: Fri May 11, 2007 11:07 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by Valuethinker »

Cyath wrote: Tue Feb 06, 2024 2:45 am I first posted here about half a year ago, I have been gathering data and refining my approach since then. Thanks to all who helped.

I currently earn about 4-6% with my current FA and setup, but I think I can do much better. (that's not a lot when you factor in the wrap-fee and other costs) I am a fan of the fire-and-forget Bogleheads approach and have read up on it.

The pertinent considerations for me are that my income is not stable (I freelance) I don't own any property and have no desire to ever start a family.

I'd like to have my funds split into two streams - one purely into capital gains/growth and the other to generate some passive income for me.

Based on my research, Vanguard ETFs seem to be a good bet for the above, with yields of 8-9% (some even go up to 10-11%, not sure how that is possible TBH)

Looking at (https://www.trackinsight.com/en/fund/VUAA and https://www.morningstar.com/etfs/xams/vwrl/performance) mainly. Also interested in date-time funds as a possible option.

However, when it comes to passive income it's not so simple. While there are ETFs that generate dividends (https://www.fool.com/investing/how-to-i ... dividends/) they don't earn as much as the above. My FA suggested trimming from the top where necessary instead of focusing on another income stream.

I would like to have some form of passive income though, because it's good to have something on paper to show when applying for rentals or other red tape situations. To that end, perhaps Vanguard ETFs that pay dividends? (there are some) Or maybe bond funds/bonds instead?

(I would rather not pay the 11% withholding tax if possible of course! and definitely nothing USA domiciled. exploring all options)

When I discussed this with my FA, he didn't have any strong objections to my strategy other than suggesting that perhaps his research team could make tactical changes to increase capital gains in the short-term and profit from market conditions. I was skeptical of that and I told him so - it's hard to outperform the S&P in the long-term.

This is quite long so I'll end it at this point while waiting for comments.

tldr; Bogleheads approach for income + capital gains, what funds?
I think you are confusing Total Return with Dividend Yield when you write "earn".

Total Return = change in capital value (+/-) + dividend yield (always >= 0 although equity issuance can actually dilute this)

Most ETFs/ funds available in Europe pay maybe 5%. High Yield bond funds might pay more - but you will suffer losses over time due to companies going insolvent. Not much that I am aware of that pays more than 6% -- and I recommend against concentrated equity funds. Those high yields are usually paid by companies that are likely to cut the dividend, or in very low growth sectors. And it's a classic "crowded trade" -- all the Equity Income funds own the same few big stocks eg tobacco companies (BAT & Imperial).

Google the Neil Woodford debacle if you want to see what investors chasing yield did.
xxd091
Posts: 481
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by xxd091 »

Generating Income from a portfolio is certainly possible ie dividends and interest- but for consistent and increasing returns a rather larger portfolio is usually needed that the Total Return investment plan where you just sell shares/fund units as required while maintaining your desired Asset Allocation
Here in the U.K. a £100000 investment in a Total Return 60/40 portfolio should safely generate an “income “ of £3000+ pa -before tax -hopefully more if the stockmarket does well
Simplifying your portfolio eases your management and understanding of your finances ie have just one global equity index tracker and one global bond index tracker hedged to your local currency-this also reduces costs
Obviously saving as much as you can and living frugally are also key factors-both under your direct control
xxd09
Topic Author
Cyath
Posts: 29
Joined: Thu Jun 16, 2016 7:30 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by Cyath »

Yes I am a Singaporean citizen.
ost ETFs/ funds available in Europe pay maybe 5%. High Yield bond funds might pay more - but you will suffer losses over time due to companies going insolvent. Not much that I am aware of that pays more than 6% -- and I recommend against concentrated equity funds. Those high yields are usually paid by companies that are likely to cut the dividend, or in very low growth sectors. And it's a classic "crowded trade" -- all the Equity Income funds own the same few big stocks eg tobacco companies (BAT & Imperial).
THanks for your explanation and warning. How then should I best invest so that I can obtain some passive income? Or would it be better to go fully into growth and then "trim the fat" when needed for my expenses? (I believe doing so does not incur any taxes?)
Here in the U.K. a £100000 investment in a Total Return 60/40 portfolio should safely generate an “income “ of £3000+ pa -before tax -hopefully more if the stockmarket does well
Simplifying your portfolio eases your management and understanding of your finances ie have just one global equity index tracker and one global bond index tracker hedged to your local currency-this also reduces costs
Those look like good numbers. What funds would those be?

I would prefer to buy less instruments than more, but I find Singaporean stocks to be pretty bad in general. What kind of bond index trackers hedge to SGD?
xxd091
Posts: 481
Joined: Sun Aug 21, 2011 4:41 am
Location: UK

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by xxd091 »

I am afraid I cannot tell you of the funds available in Singapore but here in the U.K. I use Vanguard funds -maybe available in Singapore?
I personally use Total Return ie funds /ETFs are in Accumulation mode and the required number of fund/ETF units are sold once a year to top up a cash expense account for day to day living expenses
glorat
Posts: 1025
Joined: Thu Apr 18, 2019 2:17 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by glorat »

For the benefit of others, Singaporeans can invest in the full global range of ETFs, including UCITS domiciled in Ireland, using suitable brokers such as Interactive Brokers or Standard Chartered. There are no capital gains or dividend taxes.
Valuethinker
Posts: 48741
Joined: Fri May 11, 2007 11:07 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by Valuethinker »

glorat wrote: Sat Feb 10, 2024 9:09 am For the benefit of others, Singaporeans can invest in the full global range of ETFs, including UCITS domiciled in Ireland, using suitable brokers such as Interactive Brokers or Standard Chartered. There are no capital gains or dividend taxes.
Given US Estate Tax rules, they would be well advised not to use US domiciled funds?

Ok there is a dividend withholding tax drag - 15% on Irish domiciled funds. Not much can be done on that.

One simply takes the Vanguard global equity, or the Vanguard Global Developed Markets index ETFs, domiciled in Dublin.

On the bond side that's tricky because I don't know of any SGD hedged funds. But a mix of fixed income investments in SGD (such as bank term deposits) + a global government bond fund, USD hedged, probably gives a reasonable facsimile, given the likely sensitivity of the Singaporean inflation rate to the US one (so in the long run the currency moves should reflect that).
HKexpat
Posts: 139
Joined: Thu Dec 24, 2020 4:21 pm

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by HKexpat »

I'm not sure I understand the motivation for the passive income funds. If you apply for an apartment, do they really consider dividends as income but not look at net worth or capital gains? That would be strange, but I wouldn't be surprised if many landlords or leasing companies aren't particularly sophisticated and don't see how these are equivalent. If you want to see dividend income, you could pick VWRD, which distributes dividends, whereas VWRA automatically reinvests them (and is often preferred for that reason). Aside from that, they're identical funds. (VWRL is the same as VWRD but trades in GBP instead of USD. This doesn't make a difference since you have to exchange SGD to another currency either way.)
Topic Author
Cyath
Posts: 29
Joined: Thu Jun 16, 2016 7:30 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by Cyath »

It looks like the best course of action given the advice I've received here would be 1-2 Vanguard growth funds and then skimming off the proceeds once every 1-2 years for living expenses? I think I would be comfortable with that. My main concern is not getting dinged on the 15-30%.
I'm not sure I understand the motivation for the passive income funds. If you apply for an apartment, do they really consider dividends as income but not look at net worth or capital gains? That would be strange, but I wouldn't be surprised if many landlords or leasing companies aren't particularly sophisticated and don't see how these are equivalent. If you want to see dividend income, you could pick VWRD, which distributes dividends
There are all sorts of strange laws and quirks in different countries. I have considered retirement in Panama before, which requires you to show 1k USD a month in some form of passive income. Many other countries also have visas that are pegged to some form of passive income (I freelance so my income is not stable) It crops up more often than you might think.

Does VWRD distribute dividends in the form of payouts or is it reinvested? To be honest I just need the relevant authorities (visa, housing, legal etc) to be satisfied with my income, I'm not really that particular about it myself.
Topic Author
Cyath
Posts: 29
Joined: Thu Jun 16, 2016 7:30 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by Cyath »

Bump! Still eager to learn :)
glorat
Posts: 1025
Joined: Thu Apr 18, 2019 2:17 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by glorat »

Cyath wrote: Tue Feb 13, 2024 4:21 am It looks like the best course of action given the advice I've received here would be 1-2 Vanguard growth funds and then skimming off the proceeds once every 1-2 years for living expenses? I think I would be comfortable with that. My main concern is not getting dinged on the 15-30%.

Does VWRD distribute dividends in the form of payouts or is it reinvested? To be honest I just need the relevant authorities (visa, housing, legal etc) to be satisfied with my income, I'm not really that particular about it myself.
VWRD is a sensible choice. It pays a USD dividend typically 1.5% to 2% and the remainder of it is capital gains growth. Per https://www.morningstar.co.uk/uk/etf/sn ... 0P0000WA5N , annualised total return over the last 10 years is 11.45%

VWRD is Ireland domiciled so only pays 15% withholding tax on US stocks, compared to the usual 30% if foreigners buy ETF/stocks domiciled in US. This saving makes it a good choice.
Mors
Posts: 276
Joined: Wed Aug 16, 2017 10:06 am

Re: Refining my Bogleheads approach - which ETFs to buy? (longish post)

Post by Mors »

Check this is as well.

https://www.bogleheads.org/wiki/Investi ... _Singapore

A portfolio of a global tracker like VWCE, a small allocation in a local stock tracker like ES3 and a bond etf allocation in local currency like ABF Singapore Bond Index Fund 35 is a start.
Post Reply