I have moved towards index investing since end 2019 because of work commitments that take up too much of my time. It has been a good choice so far, with both my Vanguard 500 Index Fund ETF (VOO) and Vanguard Total World Stock Index Fund ETF (VT) in the green, although my STI ETF and Tracker of Hang Seng Index which I bought for a short period is in the red.
I was really interested in entering the US market as I want to grow my capital and also have more exposure to the different markets. I came across the Bogle-head 3 funds portfolio and in that is a very simple investment strategy in which basic asset classes are used.
- A domestic stock index fund: STI ETF or VOO
- An international stock index fund
- A bond index fund
In the case of Singapore, a domestic stock index fund can be SPDR Straits Times Index ETF (ES3) or Nikko AM Singapore STI ETF (G3B).
An international stock index like Vanguard Total World Stock Index Fund ETF (VT) but it is listed in the US stock market hence it has the 30% withholding tax on dividends which most people avoid and instead they go for London Stock Exchange (LSE) where there are ETFs listed that attempts to achieve a similar goal of VT but are domiciled in Ireland, which removes the estate tax concerns and reduces the dividend withholding tax rate to 15%.
A bond index fund like ABF Singapore Bond Index Fund (A35). And with that proportion, decide your asset allocation between the bonds and stocks. Following the asset allocation, you can rebalance once or twice a year by seeing if the stocks/bonds portion differs to your original asset allocation and buy/sell some of the stock or bonds.
Asset Allocation
- Age in bonds so for example, I am 25 years old this year and so should have 25% in bonds.
When I was first exposed to the 3 fund portfolio, I liked how it was simple and so easy to implement. Definitely on my end, I wasn't really interested in STI ETF as I bought it at $3 plus and it was one of my first investment when I started the POSB Invest saver which I am no longer continuing with. Since then the growth hasn't been attractive though the 3% dividends is nice when it comes in. So I decided to explore an international stock index fund. I came across VT and look through the ETF details on the Vanguard website and got particularly interested.
VT
Some key points of VT:
- Invests in both foreign and U.S. stocks
- Has high potential for growth, but also high risk; share value may swing up and down more than U.S. or international stock funds
- Expense ratio of 0.08%
- Appropriate for long-term goals
More information in video.
VOO
Vanguard S&P 500 ETF (VOO) tracks the performance of the Standard & Poor's 500 Index. It tracks the 500 largest US companies and is a gauge of overall U.S. stock return with an expense ratio of 0.03%.
More information in video.
With all the information that I was presented with about VT, I found it to be something that I am willing to buy monthly and slowly only recently did I start adding VOO as well into my regular savings plan. I am currently not buying any bonds and so I am actually not building a 3 fund portfolio as my RSP amount is still rather small. I do understand that dividends are eaten up by the 30% withholding tax as it is a US stock, I am not so concern about it currently and I want to have a RSP that is automated.
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References:
https://investor.vanguard.com/etf/profile/VT
https://www.bogleheads.org/wiki/Three-fund_portfolio
https://investor.vanguard.com/etf/profile/VOO
https://www.firepathlion.com/the-bogleheads-3-fund-portfolio-for-singapore-firewalkers/
Since you're still young, it's ok to accumulate stock etfs rather than bond etfs. Perhaps just maintain 10%-20% of your overall in cash for opportunistic buys e.g. when markets have dropped 25+%.
ReplyDeleteYour emergency fund should be maintained separately.
Re 30% wht, it applies to companies domiciled in US. So for VT about half of the constituent stocks are not subject to wht.
Another thing is that many S&P500 companies pay quite low dividend yields, so the wht has lesser impact. The trend for the past 10 years has been more buybacks than giving dividends.
Thanks for the suggestion, definitely building up my side cash (war chest) considering the volatility nowadays. Always good to have spare cash to deploy when needed
Deleteireland etf dividend withholding tax offer tax efficiency and broader global exposure with lower withholding taxes, making them an attractive option for investors.
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