A number of investors I know of started their investment journey from the local financial markets, like equities and bonds listed in the Singapore Exchange (SGX), Singapore Savings Bonds (SSB) and the local bank fixed deposits. Some had ventured on to overseas markets while others stayed put.
Coming from another angle, I know of a handful who began with foreign financial markets, in particular the United States (U.S.) markets. Again, some had “returned” with SSB and a mix of securities from SGX, while others just remained vested overseas.
There are many reasons why the above preferences happen. Some say it is due to familiarity, while others say one side provided more returns than the other. Whatever the rationale, it is up to the individual to decide, but for The Bedokian Portfolio investor, it is good to go glocal, i.e. local and global, due to the following reasons.
I have constantly rambled on diversification, and besides doing it at the asset class level (the highest order), we could also do it at the regional/country level (the next lower order). Take for instance equities; at any given time, the stocks and shares of a region/country may perform better or worse than their counterparts in another region/country, even though they belong to the same asset class.
A good example would be the Asian Financial Crisis back in 1997-1998. The markets that were affected, like Thailand, Malaysia and Singapore, got hit at various degrees, while the U.S. and European markets remained business as usual.
Foreign exchange (forex) is a double-edged sword; it could amplify your gains if your overseas investment appreciates in price and the forex rate goes up, but it could be a real bummer if both the price and forex go downwards. This is the main risk of investing overseas, but if you look the other way it could present higher potential returns.
Both the price and forex going up is a good textbook example of a gain, but it does not work in the real world all of the time. As long as this equation (share price gain > forex loss) holds true, then it is a worthwhile investment. For example, on 2 Jan 2009, the closing price of Berkshire Hathaway Class A (BRK-A) shares was USD 99,9901 and the USD/SGD exchange rate was USD 1 to SGD 1.45252. Fast forward to 29 June 2018, the USD/SGD exchange rate went down to USD 1 to SGD 1.362153 but the price of BRK-A shot up to USD 282, 0404.
This was brought up by an acquaintance and was not featured in my ebook. Imported inflation is defined as “inflation due to an increase in the price of imports”5. As most of our raw materials and consumer products are imported, an increase in the foreign price and/or the depreciation of our forex rate might cause imported inflation.
This is somewhat related to the forex section above. Imagine a factory here required a widget from the U.S. to make a gizmo, and assuming a fixed USD/SGD forex rate, an increase in the price of the widget in the U.S. would naturally increase the manufacturing cost of the gizmo. Similarly, if there is a change in forex rate and more SGD is required to change for USD, the cost of the widget and subsequently the gizmo go up, too. Viewing it on a macro scale, all these price increases may contribute to the overall inflation of the economy, ceteris paribus.
I had stated in The Bedokian Portfolio that the global portion would be between 10% and 30%, spread across the equities, REITs, bonds and cash asset classes6. If you decide to retire locally, it is good to have a portfolio that is based on local monetary terms, but investing overseas will bring about the advantages of diversification and forex, as well as to mitigate against the potential effects of imported inflation.
And do not forget, due diligence and analysis are still required when you venture overseas.
1 – Nasdaq. BRK-A Historical Stock Prices. https://www.nasdaq.com/symbol/brk-a/historical (accessed 1 July 2018)
2 – Monetary Authority of Singapore. MAS Exchange Rates https://secure.mas.gov.sg/msb/ExchangeRates.aspx (accessed 1 July 2018)
3 – Exchange-Rates.org. Singapore Dollars (SGD) per US Dollar (USD). https://www.exchange-rates.org/history/SGD/USD/T (accessed 1 July 2018)
4 – Yahoo Finance. BRK-A. https://sg.finance.yahoo.com/quote/BRK-A/?p=BRK-A (accessed 30 June 2018)
5 – Investor Words. Imported Inflation. http://www.investorwords.com/15442/imported_inflation.html (accessed 1 July 2018)
6 – The Bedokian Portfolio, p109-110