“Know what you own, and know why you own it.” — Peter Lynch
Investing can be a pretty lonely journey. You listen to rumor all the times. People are predicting the direction of the market. Some black swan events happen occasionally. You can be clueless and lose your concentration.
My USD-denominated portfolio is mainly invested in US index funds which are listed in London Stock Exchange.
During this Covid 19 pandemic, the market is volatile. Business are shutting down. Unemployment rates are at historical high in the States.
Life can be pretty stressful for a lot of us especially those who lost their jobs.
I still hold on to my principle of index fund investing- I allocated my USD portfolio into three different assets/funds. I stay on course no matter what happens!
Three assets/funds portfolio
1) S&P 500 index fund ( VUSD) ( Equities/Stock index Fund)
2) Total World ( International) Index Fund (VWRD)– combination of 56% US stock and the rest from other countries ( Japan, China etc).
3) Bond Market Index Fund- US Treasury Bonds ( VDTY)-99.9% US treasury bond
For these three funds- I have allocated 65% in VUSD, 20% in VWRD and 15% in VDTY. I am thinking of going higher into VUSD but at this moment, these are the percentages of each asset in my portfolio.
Why those percentages?
Jack Bogle, founder of Vanguard opined that international exposure is not necessary and investors only need to concentrate in the US stock market. As a non-American investor ( if you live in Asia Pacific region or in Europe), I think a little exposure to international stocks is crucial.
If you look at the efficient frontier for US and International stocks, combination of 60-70% US stock combined with 30-40% of international stocks seem to be a perfect combination for the best return.
My equities/stock index fund is about 76% US stock with 24% international combination. I am happy with this and I am sticking to it.
You need a bond market Fund
Putting aside some money in a bond market fund is of paramount importance unless you are very young. I have 15% in my bond ETFs and this acts as a buffer during market sell down and the best thing, VDTY pays you dividend every month!
During big bear market correction, I would buy more equities index funds and adjust my portfolio accordingly to the target percentages mentioned above.
Re-balance your portfolio yearly
You have to re-balance your portfolio every year and at times when there is big market movement ( I do it when there is upward/downward movement of >10%). Portfolio re-balancing would reduce your exposure risk to the market volatility.
Some index fund investors I know actually put 100% in equities fund. It is feasible if you are still working and having cash flow every month.
You can change your asset allocation
There is no fixed rule, if you find 85/15% allocation is too volatile and high risk, you can change your combination to 70/30 or 60/40%. You can adjust this along the way while on your journey to FI ( financial independence).
I am thinking of reducing my bond exposure to 10%. Due to my SGD denominated portfolio has almost 100% in equities ( mainly Singapore REITS and banks), I am pretty comfortable to have higher % in bonds in my USD portfolio.
How about you?
I would like to hear from all my readers what are your combination percentage? For Asians especially Malaysians and Singaporeans, I think the above asset portfolio is doable. Put your MYR,SGD in your EPF and CPF as much as possible and invest the rest in US stocks.
#Addendum Dec 2020- I have changed my strategy a bit in my USD-denominated portfolio by buying more world index funds, please read my post HERE!
VWRD has 56% US Equity. 56%*20%=11.2%. The math put you to 76.2% US equity (65%+11.2%), 8.8% Ex-US equity (20%-11.2%), and 15% Bond. I think you are 89.6% US equity and 10.35 Ex-US equity, not “76% US stock with 24% international combination”. Maybe I am wrong…
I am guessing OCF is similar to the Expense Ratio in the US. I believe you pay premium (0.22% of OCF for VWRD) for this 56% US equity, whereas you can just buy VUSD for 0.07% OCF. It does not seem like you can find Ex-US equity EFT. Will you be able to buy UK, Europe, Japan’s ETF separately for the rest of 8.8 equity%? You get lower fee that will benefit you over the long term.
Jack Bolge is definitely my hero.
Dear Nasi Lemak,
Actually you are right!! VWRD consists of 56% US stock, that puts me into owning actually 89.6% of US stocks and only 10.4% of ex-US stocks. Unfortunately I am unable to find other Vanguard alternatives in London Stock Exchange unless I am happy with iShares EIMI ( emerging markets) ETFs. The expense ratio is only 0.18% for iShares EIMI as compared to 0.22% for Vanguard’s VWRD but I am obsessed with Vanguard! Vanguard’s VFEM which consists of>50% Chinese stocks has rather volatile performance last few years and was just listed in 2013.I will do more research in it and consider VFEM in future.
At this moment,I am pretty happy with 10.4% of ex-US stocks.
Thank you Nasi Lemak for pointing that out!
What about these 3? You will cover UK, Europe and Japan (all first world), and still get cheaper OCF. Then you can achieved 76% US stock with 24% international combination. I would assume you will only balance one or twice a year.
VERE – 0.10% OCF – The Index is a widely recognised market capitalisation-weighted index of stock market performance of European developed countries, excluding the United Kingdom, that is comprised of the stocks of large and mid-cap companies in that region.
VJPA – 0.15% OCF – The index is a free-float-adjusted market-capitalisation index that is designed to measure equity market performance of large- and mid-cap companies in Japan.
VUKG – 0.09% OCF – The index is a capitalisation-weighted index of 100 UK companies.
Great blog. Mind to share what is your target or historical bond returns? Our epf 5-6% can we consider that as bond or should that be considered equity since epf invest a lot in our local market.
Dear Old Friend,
The historical return of the bonds market is boring, at most 2-3% per year but you have peace of mind due to very low volatility.I think EPF invests in a combination of bonds, stocks and likely ETFs and index funds as well ( in what combination? I am not sure). For me, I treat EPF money like a fixed deposit with good interest rate.If you are keen to invest in the Malaysian market, EPF is doing the job for you, don’t bother yourself anymore buying Malaysian stocks!
Hi, I’m glad I chanced upon your blog. Learnt so much from it. I have a question, if EPF is generating more interest, why are you investing in bonds?
Also, can we make contribution to EPF voluntarily even if we are no longer in employment? (But a member of EPF). Thanks
Dear Grace Lee,
Thanks for your comment. I don’t buy bonds in Malaysia, what I am holding is Singapore bonds ETFs, I think I am too much exposed to equities ( stocks- mainly REITs and bank stocks) in Singapore, therefore I am slowly increasing my bonds holdings in Singapore to mitigate my risks. Yes, you can do a voluntary contribution to EPF to a max of MYR60k per year even you are no longer in employment. I will suggest max up your EPF contribution if you are still building up your wealth before retirement.
Thank you for your reply. Would you say that the EPF dividend is more handsome than ASB? I’m now in two minds as to contribute 60K per annum on ASB or EPF.
Your dollar cost averaging strategy on ETFs sounds attractive too. (I just finished reading Little book on Common Sense Investing).
Dear Grace Lee,
I never had experience investing in ASB, but I suppose they are equally good as EPF if not better. Yes I love ” Little book on common sense investing” too.
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Dear Dr Goh,
What is the minimum amount that we should invest in VUSD and VWRD so that we can save some cost by using IB?
Dear Mr. Looi,
In your IB account, you need to choose the tiered commission system to save your purchasing cost. The minimum commission of purchasing ETFs-VUSD and VWRD in London stock exchange is USD1.9 per transaction. For me, I buy about USD1k ( about 16 shares of VUSD or 11 shares of VWRD at current price) every time so that the transaction cost is about 0.19%. Try not to spend more than 1% on transaction costs. Buy and accumulate and hold forever! I literally mean FOREVER!!
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Hi Dr Goh,
Great post as always! I am a new follower but I have read so many of your posts at one sitting. Would love to learn your thought process on screening ETF, e.g. how do u determine whether an ETF has strong potential and what are the factors u looking at etc.
Dear JJ,
Thanks for visiting my blog. Haha, I only know two ETFs- S&P500 index fund and Total World index fund. For S&P500, you have a few options- whether you want the ETF denominated in USD, GBP, or Euro and whether you prefer an accumulating or a distributing fund. I opted for VUSD- denominated in USD and a distributing fund. For the Total World index fund, I opted VWRD which is again denominated in USD and a distributing fund. I choose these two due to the diversification and past records. I prefer distributing because of thinking I can just survive on the dividends when I retire without worrying about what to sell later ( even though it is unrealistic because the dividend yield is less than 2%!).I do not look at other ETFs.
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Dear Dr Goh, if I choose accumulating etfs (VUAA, EIMI, IGLA) will IBKR charge a commission every time the dividends are reinvested?
Dear Johan,
No IBKR won’t charge a commission, the tax will be deducted at source. So you will not notice anything when the dividends are reinvested.
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