Portfolio Restructuring

Over the past few months, there has been some changes to my investment portfolio mainly due to a need for cash in the near future.

I stick to the following allocation for my liquid assets:
Say if I have $50,000 in invested amount, I will target to have at least another $25,000 in opportunity fund plus at least 6 months' worth of my monthly expenses.

Morgan Housel has this plan to deploy the opportunity fund which I think is a good guide to follow:

The last 10% drop in STI occurred earlier in January this year, and the next one might happen sometime end of this year.

Earlier this month, I have also fully liquidated all my unit trusts and slowly sold some of my STI ETF to meet my asset allocation requirement. In addition, the reallocation involves increased investment in individual stocks for higher potential returns.

I also stopped the Decision Moose strategy sometime in July. As I only invested a very small amount in it, I find that the time and effort spent to track and monitor its performance is not worth it.

The fully divested unit trust portfolio performance over the past 2+ years has a CAGR of 5.98%. Nothing fantastic about it.

As of now, I am left with the following investment holdings:

1. A basket of stocks consisting of REITS, STI ETF and companies listed both local and overseas for both growth and dividend yield.
2. Permanent Portfolio made up of US ETFs.

Permanent Portfolio Jul 2014 Update

The gains of my Permanent Portfolio has breached 10% mark for the first time in July due to the rally of bonds, and made possible by my previous 2 rounds of buying this asset class at depressed prices.

One of the wonders of this strategy is that you can buy asset classes at depressed prices and still sleep soundly at night. I can comfortably ignore news regarding when US will cut its bond-buying programme, rising interest rates etc.

Performance chart shown below is in USD terms, with cash dividends after deducting the 30% witholding tax taken into account. (All 3 asset classes except Gold pays dividends)

Security Selection

In one of the first few posts of this blog, I highlighted the superiority of "Asset Allocation" compared to "Market Timing" and "Security Selection".

The reason against Security Selection is that most of us, myself included aren't half as good as Warren Buffet, who has a flair for analysing businesses. However, during the start of this year, I began investing in specific companies again, as I believe I have found a group of people who can analyse companies with reasonable success and accuracy.

My first encounter with this group/company was around 2011 where I attended one of their preview talks with a friend. As both of us were still studying back then, we did not have much capital to enter into their programme. Fast forward to 3 years later in early 2014, we happen to meet this group in another investment talk by chance, and they were talking about the same strategies they told us back then. The advantage we have of course, is that we were able to verify if those companies they identified 3 years back did well today. The answer is a definite yes. So during this talk, we decided to invest in additional companies mentioned by them, justified both by quantitative and qualitative reasons.

In April, both my friend and I finally decided to enter into their programme to learn their methods of analysing companies. Personally, the methods used can be found generally in Value Investing books/websites. However, the more important reason is to have access to the list of companies they themselves are evaluating, from which I can make my own decisions based on their analysis. Most of us simply to not have the time to do to filter quality companies ourselves.

As of now, I have stopped my monthly contribution to unit trusts to accumulate my opportunity fund. Will "sell in May and go away" situation arise this year? Seriously... no one knows.

How long should you take to repay your CPF housing loan

I chanced upon an interesting article in one of the blogs I follow, ASSI. The argument is that you should take your time to repay your housing loan.

The example used is a $100,000 HDB loan. Say you have $100,000 in your CPF account, should you pay the full $100,000 loan in one shot or take 10 years to repay it fully?

Take 10 years to pay (amortization)
The monthly repayment will be $947.25. Assuming your monthly CPF OA contribution is this amount for the next 10 years., your CPF will not have any net loan deduction for this 10 year period. The ending CPF balance at the end of 10 years is $126,877.

The total interest paid is $13,670

Empty your CPF account and pay the full loan amount of $100,000
You decided to save on the interest payment of $13,670 and pay the full amount upfront. The blogger argument against this method is that although you save $13,760 in interest payment, you would forgo the $28,008 that you would have accumulated if you pay the loan over 10 years.

Well, I found out the last point is not entirely true. Even after you have emptied your CPF account. You CPF ending balance is $126,638, which is almost the same if you have not paid one lump sum in the beginning. Details of the calculation is shown in this spreadsheet.

OCBC 360 savings account

I couldn't believe it when I saw the advertisement for this savings account offered OCBC. You get 3.05% interest p.a. on up to $50k of the amount in your savings account.

For those who wonder if 3.05% is high, consider the following,

1. Matches close to the average inflation rate in Singapore. It's no longer valid to say that your savings get eroded away due to inflation by leaving it in the bank.
2. Higher than all the time deposits' interest that I know of, has no lock-in period and requires a minimum balance of just $3000 (the fall below fee is even waived for the first year).
3. Interest is close to the dividend yield of the STI index.
4. Matches some of the high grade corporate bonds. A recent example is Capitamall Trust bond which was 2.8 times oversubscribed, has a 3.08% coupon payment, and maturity period of 7 years.
5. The interest rate is risk-free, as the first $50k deposit is guaranteed by the Singapore Deposit insurance Corporation (SDIC).

The requirements to get the 3.05% interest rate are

1. Credit at least $2000 of your salary monthly
2. Spend $400 on OCBC cards monthly
3. Pay any 3 bills online monthly

If you meet the above 3 requirements, it's a no brainier to open this account immediately. I wonder how long such a good deal will last.

Permanent Portfolio Mar 2014 Update

Next month, it'll be the time again to re-balance my own implementation of Permanent Portfolio. I wanted to create a chart showing the performance of my own strategy. However, using Net Asset Value (NAV) of the portfolio can't work as it will keep increasing whenever I increase my investment amount during re-balancing.

After much thought, I feel the best way is to present it in the form of percentage gain/loss over time. The drawback is that additional investment will cause the percentage gain/loss to decrease, as the same absolute gain/loss amount is divided by a larger portfolio value. However, I couldn't think of a better alternative.

Anyway below is the chart updated till 14th March 2014:

I started this strategy around June 2012 and re-balance the portfolio amount every month until Oct 2012, when I decided to just balance once every 6 months, i.e. April and and October every year.

It is close to 2 years now and as shown by the red line above, it is kind of boring. I suppose the strategy will only start to outperform when it goes through a full financial cycle, i.e. stocks drop and gold/bonds rises (hopefully) in value. I'm patiently waiting...

Market Timing by Decision Moose

A few weeks back, I revisited a website which I had forgotten about. The website advocates investing in any one of the 9 asset classes through ETFs at any one time. The website tells you what and when to buy and switch among the 9 different asset classes. The ETFs are listed on the NYSE and they are:

1. Cash or Money Market Fund
2. Long-term zero coupon Treasury Bonds (EDV)
3. Large cap US Stocks (SPY)
4. Small cap US Stocks (IWM)
5. Gold Bullion (GLD)
6. Europe 350 Stocks (IEV)
7. Latin America 40 Stocks (ILF)
8. Japan stocks (EWJ)
9. Asia Pacific ex-Japan stocks (AXJL)

The historical record of this strategy speaks for itself here. I decided to invest a small amount buying European equity (IEV) after the website recommended a switch on 7th February 2014.

I have to reiterate that for a hassle-free way of investing, buying low cost index funds (ETFs) on a long term basis is the way to go. However, it is very boring process. Hence, I am also trying out different strategies like Unit Trusts (keeping transaction costs to a minimum), Permanent Portfolio, and this Market Timing method by Decision Moose. And maybe five to ten years down the road, will ditch the lowest performing strategies.