Boglehead 3 Funds Portfolio | Why I chose VT and VOO for my regular savings plan?

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.

1. A domestic stock index fund: STI ETF or VOO
2. An international stock index fund
3. 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

1. 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/

Why you should think about Financial Independence

FIRE is a term that has been thrown around very frequently. FIRE stands for financially independent, retire early which seems like the ultimate dream/goal for many. Yes, I think everyone should know about this concept and think about reaching FI (being financially free). We all live with lots of worries everyday, money definitely weighs heavily on most people.

Being financially independent can open up doors for us providing us with many options and we can do things that we want without thinking about our next meal or whether can we afford the lifestyle we are currently having. For now, I work because I need the job that I currently have to pay the bills, daily necessities and to provide for my family as well. What if I can work with no more worries for those? I think I would be less stress if I knew that I didn't need the job to cover my daily necessities. I want to be financially free to do the things I like and spend time with people I love. But I might not retire early because I find work rather fulfilling, having colleagues and also feeling of accomplishment when you complete your daily tasks. But being financially independent is a goal that I am aiming for.

I watched this TedTalk by Lacey Filipich where she described how she was time-poor when she started work, thinking that things will not go on in her work if she ever took a day off and so she didn't ever took a day off. The turning point came for her when she became really ill and was bedridden for 5 weeks. It made her realised that her career was nothing much and it was the one causing her health to deteriorate. She took a break and got back to work falling into her old routine, then her sister commited suicide and made her start thinking again.

So most people work hard for 40 years then reach retirement where they move from being time-poor to time-rich but by then they would have become too old to enjoy the experiences that they might have wanted when they were younger due to concerns of health or energy. So instead, we could take mini-retirements throughout our lifetime and to do this, we can have a small business on the side which can fund it while we take these min-retirements.

Definitely, in a Singapore context, it is not easy because for most of us, our main job is really our main source of income and with mortgages and other bills, we might not be able to afford to take so many mini-retirements.

Taken from Why you should think about financial independence and mini-retirements | Lacey Filipich | TEDxUWA

So to be able to afford these mini-retirements, start investing and saving. So you can move from being time-poor to time-rich. InvestmentMoats is a great personal finance and investing website where I read him articles for information, he has an article which writes about the 11 stages of financial independence. He mentioned that the higher you go into the stages, the more useful wealth is for you.

I wouldn't go into the details as I believe that you can go over to his website where he has a very extensive explanation on it all. Link is below. Definitely, not everyone will reach level 10 and everyone will progress differently. This serves as a guide to see where you are at and which stage are you aiming for.

The 11 Stages of Wealth: Which Stage of Wealth are You at? | Investment Moats

What is really important is the mindset that you have, knowing that you have a goal for the money that you are saving and investing for will make you treasure them and not waste them away on unnecessary expenses. With 2020 being a crazy year filled with retrenchments and uncertainty, many have now realised the importance of saving for a rainy day, besides that, 2020 has made me realise how fragile life can be and I really want to enjoy my time without working till old age.

Having this mindset keeps me aware of my expenses and how much I am keeping aside, this provides me with a overall view of how long more I need to be financially free. For example, your hourly rate is $20/hour and this means a meal on a Sunday with your family amounts to 5 hours of your working hours, this does make your heart kinda ache as 5 hours of your hard work is gone in one meal. To be able to know of the FIRE concept and be able to pursue it means that you are privileged and I believe once you are aware that you are exchanging your time for money, you will want to move from being time-poor to time-rich.

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