My Portfolio Transition Experience

A few of my friends and acquaintances had asked me about my experiences during the transition from trading to investing, in which I had shared, very briefly, in the “About The Bedokian” page of this blog. In this post, I will describe more about my journey and what were the main steps that I took during then.

 

It All Began With A Nap

 

I love to take weekend afternoon naps, which normally last between 30 minutes and one hour, to rejuvenate myself for the later part of the day. I remembered it was a Saturday in the beginning of 2013, where I had my usual short slumber. Around 15 or 20 minutes into it, I suddenly jolted up and began to ponder on two important questions: Do I have enough to retire? Do I have enough for my kids’ education?

 

Whilst I have had (and still have) long term savings in the form of endowments and education funds, I was thinking to myself can I do better in growing our monies. At that time, I was doing some trading in the stock market, and although I was quite alright with it, I felt my inherent skill sets and knowledge were not suitable for it. Later on, I started to look at the investment side of things, got convinced and did not turn back from there.

 

The Quest For Knowledge

 

I graduated with a degree in economics and management, and part of my subjects learnt were economics (ok, duh…), the various aspects of management and a subject in elementary accounting. These underlying competencies served as background information as well as a springboard to understand more, which helped a lot in shortening my learning curve. I also held a polytechnic engineering diploma that enabled me to have a train of thought in a systematic and logical way. These traits allowed me to have a holistic and macro view of things, and it greatly assisted my learning journey to come.

 

I started off by reading up material from different sources; for online, there were forums, blogs and videos. Offline reading included books, business newspapers and magazines. Here are some of the materials that I had referenced, in no particular order and not exhaustive:

 

Online

• Investopedia (https://www.investopedia.com)
• ETFdb (https://etfdb.com)
• Bloomberg (https://www.bloomberg.com)
• Investment Moats (https://investmentmoats.com)
• Dividend Warrior (https://dividendsrichwarrior.blogspot.com)
• A Singaporean Stock Investor (http://singaporeanstocksinvestor.blogspot.com)

 

Books

• All the Dummies Series books on investment
• All About Asset Allocation by Richard A. Ferri
• The Permanent Portfolio by Craig Rowland and J. M. Lawson
• The Intelligent Investor by Benjamin Graham
• One Up On Wall Street by Peter Lynch
• Handbook For Stock Investors by Goh Kheng Chuan
• Building Wealth Through REITs by Bobby Jayaraman

 

I trawled through the above (and some more others) to gain as much know-how and information that I could, and I am still reading new materials to gain additional insights. I also re-read past books and articles to do an “unlearn” so that I can pick up fresh perspectives and points that I may have probably missed out earlier.

 

The Holistic View

 

I believe in the grand scheme of things (or so-called macro view), since everything and everyone are interlinked to one another. The economy and the financial markets are no exception to this concept, and this led me to the idea of managing investing on a portfolio basis, with different asset classes making up the investments.

 

Along with the above came the importance of diversification. We need to know that in times of booms and busts, some asset classes perform better than others, and with diversifying (and the accompanying characteristic of rebalancing), we could ride out the cyclical waves of the economy and markets with some gains or not-so-much losses.

 

The Actual Transition

 

Having said much about the theoretical and strategical aspect, it is time to delve into something more operational. As at the time when I had that fateful nap, I still held some share trading positions, one dividend counter, and I also went into other asset classes such as the Genting 5.125% Perpetual bonds and silver bullion. For the remaining part of 2013 and early 2014, I was reading up and researching, finding the ideal portfolio mix, selling counters which did not fit me and buying those that did, all at the same time, like a project with planning, executing and post-review all done at once.

 

It was not a clean start, which was why I came up with Bob (see here) as a sample to demonstrate, in real time, an actual Bedokian Portfolio at work.

 

And Finally The E-Book And Blog

 

A lot of effort and thoughts went into the formation of the Bedokian Portfolio, and in early 2015, I had decided to pen down the knowledge and information gathered during that period into a journal for my family, which evolved into an e-Book after I had decided to share what I know and learnt. After I had done up my e-Book, I started this blog as a continuation to document and share my views, opinions and tips, while continuing to read-up and learn more. After all, learning is a continuous journey.

 

Cheers!

Inside The Bedokian’s Portfolio: Apple

Inside The Bedokian’s Portfolio is an intermittent series where I will reveal what is actually inside our investment portfolio, one company/bond/REIT/ETF at a time. In each post I will talk a bit about the counter, why I had selected it and what lies ahead in the future.

 

For this round, I shall talk about one of the most iconic technological lifestyle brands in the shape of a bitten fruit. Yes, you guessed it, Apple (ticker: AAPL).

 

Tech And Lifestyle Giant

 

From its garage days when it was first founded back in 1976, Apple is now a tech giant that provides a huge ecosystem comprising of its hardware (MacBooks, iPhones, Apple Watch, etc.), software (Mac OS, iOS, etc.) and content (Apple TV+). Other than being a technological company, Apple had developed into a lifestyle one, too. Owning and using an Apple device is seen as hip and a form of status symbol, and the products’ good design further strengthened those impressions. However, not all Apple users chose it simply because they wanted to be seen with one, but perhaps for other reasons such as better specifications and ease of use.

 

Why Apple

 

From my investment strategy research back in 2013/2014, I had identified four counters that a U.S. market newbie can start with, and Apple was one of them (on top of the S&P 500 ETF and Berkshire Hathaway which I shared earlier). I viewed Apple as one of the leading representatives in U.S. technological innovation and being one of the global brands with a huge loyal following. 

 

Outlook

 

Apple was seen as revolutionary in their approach to products and services, but it gradually turned to evolutionary as the initial “wow” factor was fizzling out. They are fighting their competitors on multiple fronts; on hardware (against HP, Lenovo, etc. for computers and Samsung, Huawei, etc. for mobile devices), software (versus Microsoft and Android) and services (Spotify for music, Netflix for content, etc.).

 

Since the first quarter of Apple’s fiscal year 2012, the mobile hardware segment, i.e. iPhones, had dominated its revenue source, ranging from 40-ish to almost 70 percent¹. In the past there were countless mobile phones touted as the “iPhone killer” but none had really made its mark. However, serious challengers had risen in recent years, such as the recent Samsung Galaxy S20, and these models could sway swing users of iPhones. Depending on the proportion of the swing on a macro scale, this may cause income fluctuations for Apple.

 

Still, the user base is substantial; according to an Apple press release in early 2020, there were about 1.5 billion installed base of active Apple devices². Using a rough assumption, if we equate one device for each user, that translates to about 20% of the current world population.

 

Nevertheless, we can never doubt the strength of Apple as a brand. A number of brand ranking sites placed the company among the top few, if not first, of their lists. Coupled that with user loyalty (e.g. the Apple fans) and the earlier-mentioned lifestyle icon, it will be around and relevant for at least the next decade.

 

Disclosure

 

Bought Apple at: 

USD 94.25, June 2014

USD 96.00, August 2014

USD 99.41, September 2014

USD 93.20, April 2016

USD 149.36, January 2019

 

Disclaimer

 

 

1 – Share of Apple’s revenue by product category from the 1^st quarter of 2012 to the 2^nd quarter of 2020. Statista. 3 Jul 2020. https://www.statista.com/statistics/382260/segments-share-revenue-of-apple/ (accessed 18 Jul 2020)

 

2 – Apple Reports Record First Quarter Results. Apple. 28 Jan 2020. https://www.apple.com/newsroom/2020/01/apple-reports-record-first-quarter-results/ (accessed 18 Jul 2020)

Managing Your Passive Dividend Income

The Bedokian Portfolio’s mantra is “passive income through dividend and index investing”. During the portfolio building phase, staying the course of dividend and index investing (peppered with some growth and value styles if you deem fit) through the ups and downs of the markets is correct; some years you will get more, others you may get less. However, if you are presently at the passive income phase, and with down periods such as the ongoing COVID-19 situation, your dividend income stream will definitely be affected one way or another (assuming you have no other forms of income stream).

 

Though I have yet to reach the passive income stage, I have a plan in place to execute it. The plan involves knowing exactly how much you would have in the coming year, so in lean years like this, I would not be caught off guard. In other words, I need not worry on the lesser amounts of dividends I am getting this year, and I will be less worried next year because I knew how much I am going to have.

 

So, what is the secret? It is pretty simple actually. The dividends that you are getting this year is going to be your next year’s income.

 

To practice this, you would have to start on the day that you have decided to convert your portfolio into a passive income machine. Or, if you want to continue working, to step down from the rat race and do a job that you really like, without pressure. And no, that “day” is not going to be your last working day, but it is the day which you decide to quit in exactly one year’s time. In this 365-day (or 366-day if leap year) duration, your income is from work, while the dividends collected from your portfolio will form up your next year’s income (instead of going into the cash component of the portfolio). After the year is done, you quit and start to treat last year’s dividends as your current year’s pay, while this year’s dividends will be next year’s pay, and so on.

 

The main advantage here is that you will suffer less from income shock, since you knew how much you will be having. A year’s head start gives you ample time to plan ahead and decide if you should live lean (e.g. forego an overseas trip or a big purchase), drawdown further from your portfolio and/or take up some gig or job stint to cover the shortfall. On the investment front, if last year was a bumper crop and this year is down, you can make use of your last year’s enlarged dividends to buy undervalued securities in the bear market to enlarge your portfolio.

 

For those who had begun their dividend income journey, I believe you already have a plan in place and it could be working well for you. However, if you decide to shift to the method above, then the “work income” for the initial year may need to be drawn from your portfolio if you are currently not working or the work income is not enough to supplement it.

 

To formalize your dividend income further, you may want to implement the concept of a monthly pay by dividing the total amount by 12, treating it as a salary to be drawn every month. Since most of us are/were salaried employees, it could reinforce prudent spending and savings (and investing) that we were so used to, even if we are really not working.

Straits Times Index And Real Estate Investment Trusts

On 4 June 2020, FTSE Russell, Singapore Press Holdings (SPH) and Singapore Exchange (SGX) had announced in their quarterly review that Mapletree Industrial Trust had replaced SPH as a constituent of the Straits Times Index (STI)¹. The changes will be applied after business hours on 19 June 2020 and will be effective on 22 June 2020. 

 

What caught my eye in the same article was the STI reserve list (the next-in-line substitutes should the current constituents are to be dropped in the next review), and out of five listed, four are real estate investment trusts (REITs). There were already five REITs in the STI, and with this impending change, there are going to be six.

 

For the Bedokian Portfolio, as well as the other investment portfolios, the STI served as the representative of the Singapore equities asset class. Depending on your school of thought on asset classes, some viewed REITs as a separate one due to physical properties being a standalone asset class, and REITs are a hybrid of physical properties with equities characteristics (a view that I am holding). There are others who viewed REITs as a subset or sector of equities and hence they are treated as such. Therefore, seeing the number of REITs on the STI reserve list, we may need to relook at how to position your Bedokian Portfolio if you view REITs as a separate component and use the STI only for equities.

 

The STI-REITs Overlap

 

Using data from the SPDR STI ETF, one of two ETFs listed in SGX that track the STI (for information, the other is the Nikko AM Singapore STI ETF), the weightage of REITs only (property sector companies are not included) is about 11.91%². Factoring in the balanced Bedokian Portfolio (35% equities, 35% REITs, 20% bonds, 5% commodities and 5% cash) and extrapolating the 11.91%, a swing of 4.17% (35% x 0.1191) would favour REITs from equities, making it an equities-REITs ratio of 30.83% : 39.17%, and we have yet to add the incoming Mapletree Industrial Trust. This meant that inadvertently, your Bedokian Portfolio is overweight on REITs, even if you have equal portions of STI ETF and REITs (see Fig. 1).

 

Fig.1 

 

With Singapore becoming a REITs hub and mergers happening (or happened) between REITs, this asset class (or sub asset class) will become a major ingredient in the STI recipe. The proposed merger of Capitaland Mall Trust and Capitaland Commercial Trust (both are in the STI) would create a vacancy in the index, and it is likely going to be another REIT coming in (assuming the reserve list remains the same). This may cause our portfolio balance to be lopsided much more to the REITs end.

 

It is OK if you choose to leave it as it is or if you agree on the viewpoint that REITs are equities. If not, there are two main ways on bringing the balance back:

 

#1: Buy More STI And Reduce The REITs

 

In order to mitigate the overlapping of REITs into equities as shown in Fig.1, a reverse overlap can be done as shown in Fig.2. To do this, we need to buy more STI ETF and less REITs until to the point where the actual weight is more or less equal with each other. This, to me, is the easiest for passive investors but there is the additional hassle of checking periodically the actual holdings of the STI ETF that you are invested in (whether the SPDR or the Nikko AM one) to see if the allocation is in sync or not.

Fig. 2

 

#2: Core-Satellite Approach

 

The concept of the core-satellite in the Bedokian Portfolio is where ETFs that represent the various asset classes form the core while individual securities form up the satellite. The inclusion of individual securities will dampen the overlap issue (see Fig. 3) since you can dictate the types of securities you can hold. Assuming your ratio for the core and satellite is 50:50, on the weightage level, the swing to REITs will be less pronounced at 2.08% (35%/2 x 0.1191), which is not so significant in affecting the equities-REITs balance. In this way you can continue to have that allocation or make some fine adjustments between the core and satellite numbers to manage the swing.

 

Fig. 3

If you are a passive investor and analysing companies is not your cup of tea, then you can replace the individual securities part with regional/country/sectoral ETFs instead, as long as they are under the equities category. There are tons of such ETFs available from the major stock exchanges in New York and London, and SGX has a variety, too.

 

Stay safe, stay invested and stay diversified.

 

1 – Straits Times Index (STI) quarterly review. FTSE Russell. 4 June 2020. https://www.ftserussell.com/press/straits-times-index-sti-quarterly-review-9 (accessed 16 June 2020)

 

2 – SPDR Straits Times Index ETF. State Street Global Advisors SPDR. Month-End Holdings as at 31 May 2020.https://www.ssga.com/sg/en/individual/etfs/library-content/products/fund-data/etfs/apac/holdings-monthly-sg-en-es3.xlsx (accessed 16 June 2020)

 

References

 

Ground Rules. Straits Times Index v2.5. January 2020. https://research.ftserussell.com/products/downloads/Straits_Times_Index_Ground_Rules.pdf (accessed 16 June 2020)

 

Zhen Hao, Toh. In Singapore, REITs Are Becoming More Important Than Ever. Bloomberg. 24 Feb 2020. https://www.bloomberg.com/news/articles/2020-02-22/singapore-s-reit-hub-ambition-pays-off-with-most-foreign-ipos (accessed 16 June 2020)

 

Bob And Staying Long Term

If you do not know Bob, he is our sample investor who started off passive investing through ETFs following the balanced Bedokian Portfolio allocation (35% equities, 35% REITs, 20% bonds, 5% commodities and 5% cash, see here) starting from 1 Jan 2017. He rebalances his portfolio every six months with SGD 5,000, usually at beginning January and end of June. After close to 3.5 years, as at 9 June 2020, his overall time weighted returns are at 13.11% (based on calculations from StocksCafe) to date.

We had seen the fall and subsequent rise of the equities’ and REITs’ prices between end February till now, and some of us may have entered during the lows of end March. Notwithstanding the concerns on the disconnect between the markets and the economy in general, you may have wondered if Bob had bought in during that down-down period, he would be getting a better bargain than at his scheduled upcoming rebalancing date of 30 Jun 2020. As an active investor, naturally I would have felt a sense of waste and opportunity cost imposed, but we know emotions are a no-no in the world of investing and trading, so we just looked back, sigh and moved on (I called this moment “the one that got away”, but honestly I did get some counters on the cheap during that period). 

For Bob, since he is only looking at his portfolio once in a while, I guess he may have other more pressing concerns during this time, such as worrying for his job, the safety and well-being of his family and coping with the isolation and boredom resulting from the circuit breaker measures. Of course, Bob might have heard from his social media channels and friends about the stock market, and the fear and opportunities that come with it. Probably he is just taking it in his stride and believe in the long term.

The Long Term

And this is precisely what I am going to talk about. Investing is meant for long term, and by my definition it is a period of at least 10 years. Ups and downs, peaks and troughs, are part and parcel of the market and economic cycles, and over the long term you are likely to get overall positive returns. During the timeframe of Jan 1994 to Dec 2019, using the balanced Bedokian Portfolio with U.S. based asset classes, a USD 10,000 investment, rebalanced annually, will return USD 50,145 (inflation adjusted). If we look at the 10-year rolling returns, it resulted in a range between 4.92% and 11.58%, with an average of 8.36%¹.

Let us stretch a bit longer using only U.S. equities and 10-year treasury bonds (60%/40% respectively), from Jan 1972 to Dec 2019, an initial USD 10,000 (rebalanced annually) will return USD 130,424 (inflation adjusted) and the 10-year rolling returns were between 3.32% and 15.69%, averaging at 10.29%². The figures were considered not bad, as there were a number of economic crises in those years besides the all-too-familiar Dot Com Bubble and the Global Financial Crisis (e.g. 1973 Oil Crisis, 1987 Black Monday crash, etc.).

When you look at the graphs and charts of equities, REITs or maybe bonds, first by the day, then by the week and the month, the peaks and valleys are pretty obvious, but if you continue to zoom out by a year, then five years and then ten, chances are you will see an upward slope, generally. This is what you want to achieve for your portfolio; the gain in price and value. These are made possible because of two important and simple factors: the inherent growth of the economy and the power of compounding. 

Using the world’s gross domestic product (GDP) as an indicator of economic growth, since 1961 till 2018, annually it had always been a positive percentage growth with the exception of 2009 (see Fig. 1)³. If this GDP is an investible financial instrument, you can see the compounding effect work over the years.

Fig.1 - World GDP growth (annual %), 1961 - 2018. Source: World Bank

Therefore, in investing, stay calm and long term, and be diversified.

1 – Statistics from Portfolio Visualizer (www.portfoliovisualizer.com), using Backtest Asset Allocation. 35% US Stock Market (equities), 35% REITs, 20% Total U.S. Bond Market (bonds), 5% Gold (commodities), 5% cash. Starting year of 1994 was selected as it was the earliest year with REITs data.

2 – ibid. The U.S. Stock Market and the 10-year Treasury bond were selected for the equities and bond components respectively, since these two contained data from 1972, which was Portfolio Visualizer’s earliest data point year.

3 – GDP growth (annual %). The World Bank. https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG?end=2018&start=1961&view=chart (accessed 9 June 2020).

The Economic Machine Analogy, Dimension And Degree

I like to use the analogy of the economy as a huge, 3-dimensional machine with billions or trillions of parts working together, something like a complex system of gears and rods of various sizes moving it along. The parts are made up of anything and everything that is related to the economy; countries, industries, businesses, mom-and-pop shops and individuals like you and me. It can endure some kinks here and there, and the machine itself is dynamic whereby if some parts are damaged or gone, it will tune itself to suit the current situation. The economic machine would require one important item that enables it to run smoothly, and it is a lubricant called liquidity. The lubricant oils the machine at many different points, and in turn cascades down to other parts, like a champagne pyramid.

The global crash of 2008/2009 was a liquidity crisis, during which there was not enough lubricant to oil the entire machine, due to being leaked off somewhere (e.g. sub-prime bubble). The subsequent “friction” caused some parts to be damaged, and consequentially affected other parts, too, on a wide scale. The introduction of quantitative easing, reduction of interest rates and other fiscal and monetary measures brought the much-needed lubricant back to restart the machine engine.

In the COVID-19 situation, to put it simply, the machine had simply stopped due to the lack of demand and supply in some quarters, mostly attributed to guidelines and regulations of curbing the spread of the virus through lockdowns or other means. This stop is causing other parts to either slow down or halt, too, and if this scenario persists, it does not bode well for the machine. Governmental responses include the tested-and-tried lowering of interest rates, easing of credit crunches and loan payment deferments, payouts to affected individuals, etc. These initiatives are at least trying to make the parts move at its minimum acceptable speed. 

Dimension And Degree

I would like to introduce the concept of the double Ds and they are dimension and degree. It is a very useful framework especially if you are an active investor and adhere to the associative investing idea (mentioned here).

Dimension is the way on how and where you look at things, and sometimes they look different if you viewed them from different locations; e.g. the number ‘6’ looks like a ‘9’ if you stand the other side, and the scenery seen from your bus/car/train while going to work is not the same as the one when you are coming back home. If we equate the economic machine as a car, you can see the car doors from the side, not from the front, but you can see the headlights and the doors if you stand in between the front and side. Seeing things from different dimensions enables you to have different perspectives, and with them your decision making would be clearer.

Degree is how far you are looking at from the point of origin, and it is also important when you are looking at the markets and economy. Going back to the machine, if a part moves, others will move, too. However, the move does not go in a linear fashion, but instead all around as long as there are links in between (remember, it is a 3D machine). It is like tracing your family tree, where most people would just go up to their parents, then grandparents, and so on, in a line. A more thorough method is to branch out your other family members, like your uncles, aunts, cousins or even their in-laws. I understand that it is exhaustive to go that far and you may lose your focus, so stop at a level where it is deemed not to have an adverse impact on your original prospect.

Guesstimate, a term which I like to use in my analysis, is an estimated guess to “see” the future, using known information and knowledge at your disposal to have a sense of what are the possible outcomes. Using the dimension and degree context mentioned above, you can have a hunch on what would be the market direction and the state of the economy, and/or knowing the upcoming growth areas and trends, by imagining the movements of the machine parts and see how it goes from different angles. Though we cannot really tell what is in store for us, a guesstimate is much preferred over a wild stab-in-the-dark guess.

There are some tools on how to visualise all these dimensions and degrees, but first thing is to get some papers and pens or markers. Mind maps, SWOT (Strengths, Weaknesses, Opportunities, Threats) matrices and Michael Porter’s Five Forces are some of the tools you can use, along with thought processes such as lateral and contrarian thinking which might help to give fresh insights on your analysis. In all aspects, having an open mind is key.

Investing My CPF With Endowus

This is an affiliated post with Endowus. All views, opinions and research expressed herewith are solely mine. The intended audience of this post is for individuals who are below 55 years old. Disclaimer applies.

Over the course of the past few years, I had achieved two of my personal financial milestones, and those were the clearance of my home mortgage loan and hitting my Central Provident Fund Special Account (CPF SA) to the full retirement sum (FRS). The next step in my overall (read: lifetime) financial strategy would be maximising my gains and returns in the CPF Ordinary Account (OA).

We all know that the CPF OA returns an interest rate of 2.5% per year (and 3.5% per annum for the first SGD 20,000), but if we are able to invest with a diversified portfolio in the financial markets, we are likely to get higher returns over the course of 10 years, which is my bare minimum for an investment period. For instance, even considering the recent fall of the markets due to COVID-19, the balanced Bedokian Portfolio using U.S. based securities for the 10-year period of 1 May 2010 to 30 April 2020 would have an inflation adjusted compound annual growth rate (CAGR) of 6.3%¹. Even for the basic 60% equities / 40% bonds portfolio in the same timeframe returned an inflation adjusted CAGR of 6.77%².

I had started implementing my Bedokian Portfolio with the CPF OA (you can read up on how to do it here: Part 1 and Part 2), but there are limits imposed on the investable amount for shares (35%) and gold (10%). Though Exchange Traded Funds (ETFs) are not part of the abovementioned limits (with the exception of the SPDR Gold ETF), you can only choose from (currently) four, all of which are focused on the Singapore market. Therefore, to invest my CPF OA in overseas markets, I would have to look for another financial instrument. 

This is where unit trusts come into the picture (I understand that there are investment-linked insurance products, or ILPs, that has unit trusts, too, but I want to keep this post purely investment-related). They are professionally managed products and have a wide range of exposures ranging from asset classes to regions and individual countries. Although I am not against unit trusts (they are good investment vehicles in some cases), the major gripe I have with them is their high total expense ratios (TER) (as compared with ETFs). On top of the annual management fee (mostly around the range of 1.5% and above for equity unit trusts, based on the list here), there is still the one-time initial charge or front end load fee.

Enter Endowus

About eight to nine months ago, I stumbled upon Endowus on the Internet, and I believe they were (and still are) the only robo-advisory platform that can invest your CPF monies (they can invest in your cash and Supplementary Retirement Scheme savings, too). Through their selected funds (CPF approved, of course), I am able to invest my CPF OA in the international markets at a lower TER than if I had invested them myself, due to Endowus rebating 100% of the trailer fees. Being a robo-advisor, they could do a rebalance of the unit trust funds in the portfolio back to your desired allocation. For all these, Endowus charges an access fee of 0.4% of your assets under advice per year, quite a reasonable rate among all robo-advisors. 

With the above plus points, I decided to go for it by investing an initial SGD 10,000 with monthly injections from my CPF OA into the portfolio. 

My experience of setting up the Endowus account was pretty straightforward, but you need to have some information at hand, such as your CPF investment account (CPFIA) number. If you do not have this yet, go to either DBS, UOB or OCBC to open one (you can only have one CPFIA, no multiple accounts are allowed. Please read up on the prevailing charges and fees from each bank before settling on one). Also, an account with UOB Kay Hian will be opened, as the funds purchased under the Endowus platform are transacted by and custodised with them, in your own name. For my case, I used my UOB Kay Hian brokerage account number during the registration.

After the Endowus account had been set up, you are ready to go. The platform will ask for your investment goal (“general wealth accumulation”, “my retirement (coming soon)” and “a significant purchase (coming soon)”), risk tolerance for the goal (“preserve my capital”, “grow my capital by taking some risk” and “maximise my returns by taking greater risk”) via dropdown menus, and a slider for “worst 12-month percentage loss I can tolerate for my investment” for the latter. 

I chose my investment goal as “general wealth accumulation”, risk tolerance of “grow my capital by taking some risk” with 35% percentage loss tolerance, and I was recommended a 60%/40% equity/bond portfolio with the following funds, their focus (condensed from Endowus website) and their portion in percentage:

Equity Portfolio (60%)

• Lion Global Infinity U.S. 500 Stock Index Fund: The U.S. S&P 500 index. This is a feeder fund to the Vanguard U.S. 500 Stock Index Fund (24%).
• Natixis Harris Associates Global Equity Fund: Invests in companies whose shares are trading at a substantial discount to its intrinsic value (18%).
• Schroder Global Emerging Market Opportunities Fund: Invests in companies especially from emerging markets such as China, Korea, Brazil, etc (9%).
• First State Dividend Advantage Fund: Focused on Asia ex-Japan based companies that have potential dividend growth and long-term capital appreciation (9%).

Bond Funds (40%)

• Legg Mason Western Asset Global Bond Trust: Primarily on high quality debt securities from Singapore and major global bond markets such as G10 countries, and Australia and New Zealand (16%). 
• UOB United SGD Fund: Money market and short-term interest-bearing debt instruments and bank deposits, majority from China and Singapore (12%).
• Eastspring Investments Singapore Select Bond Fund: Consisted of Singapore government, quasi-government and investment-grade debt securities from outside Singapore (12%).

The funds are well diversified, besides the obvious diversification of asset classes; there are regional (U.S., Asia-Pacific), state of the economy (developed, emerging), investment style (value investing and growth) and the type of fixed income (short-term, investment grade, etc.).

My Experiences So Far

Overall it is a seamless experience, but that is what robo-advisors are all about; you just contribute the amount needed and they will do the selecting, transacting and rebalancing automatically. If you want to make some changes (e.g. changing the monthly contribution), you can do it on their platform, which to me it is easily navigable and user friendly. You will be informed via email a few days before the scheduled deduction from your CPF OA for the monthly investment, and when the investment is done.

More on the user interface, you can view the breakdown of the equity and bond sector allocations and their top 10 holdings, something like what you see on a unit trust fact sheet, the difference being this information are from all of the underlying funds in your Endowus portfolio, not just one. I also find the interactive goal projection chart interesting as it showed, based on their simulations, the range of possible outcomes for your portfolio. 

Conclusion And Caveat

Before jumping in on the CPF investment bandwagon, you will need to do a self-review of your CPF commitments, if any. A lot of people used CPF OA for their home mortgage payments, and some for funding their children’s education. Being also one of your major retirement schemes, you have to consider if you are able to hit the future basic retirement sum (BRS), FRS or enhanced retirement sum (ERS) to facilitate the eventual CPF-Life payouts. It is important to note that investment is long term (at least 10 years in my definition), so do plan ahead carefully and know what you want.

Past performances of the funds stated in this post do not guarantee future results.

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1 – Portfolio Visualizer (https://www.portfoliovisualizer.com) Backtest Portfolio Asset Allocation. Balanced Bedokian Portfolio of 35% equities, 35% REITs, 20% bonds, 5% commodities and 5% cash using their representation counters VTI, BND, VNQ, GLD and CASHX respectively (accessed 20 May 2020).

2 – ibid. 60/40 equity/bond portfolio using VTI and BND respectively (accessed 20 May 2020).

References

Investment Products Included Under CPF Investment Scheme (CPFIS). Jan 2020. https://www.cpf.gov.sg/Assets/members/Documents/CPFISInvestmentProducts.pdf (accessed 20 May 2020)