Friday, 30 September 2016

Our annual spending multiples

I will be going on a 2 week holiday to Europe with my wife before starting my new job later this year. It's always good to have a break in between jobs just to relax and refresh myself. After my probation ends mid next year, we will probably head to the West Coast USA for another 2 week holiday to reward myself if I clear it or to console myself if I fail it.

I have mentioned before on my blog that travelling for overseas holidays is one of our main expenditure items. We enjoy both short and long haul holidays and plan to travel more while we still can as a Dual Income No Kids couple in Singapore. Who knows how long this will last.

However, it's not the fact that we just spent thousands of dollars on flights, accommodations and currency exchange that triggered this post. Admittedly, I was taken aback by how much our monthly expenses increased due to the travel spending.

Have you heard of the Wall Street Playboys blog? It's informative and insightful yet divisive and depressing at the same time. The thought process, logic and math are sound but I doubt the majority of people can follow their suggested roadmap and actions. Me being one of them.

I'm not their target audience but I do read the blog posts sometimes to pick up insights on how we manage our careers and finances. Their latest post on why savings rates are worthless and what real net worth is brought my attention to our lack of focus on the annual spending multiples.
I have been calculating our savings rate and assumed an average fixed percentage savings of 40% will be sufficient. I should have realised the need to link our savings and investments to our spending to test whether this assumption will hold.

I'm going to take a conservative approach and exclude our retirement assets consisting of the Central Provident Fund (CPF) funds in Singapore and Superannuation funds in Australia. Reason being we can't access the retirement monies now to manage any cash outflows and expenses. I know we can use the CPF - OA funds for housing expenses but will choose not to include it at this stage.

This is how I calculated our annual spending multiple at the end of each month: (Total savings and investments) / (Total expenses for the previous 11 and current months).

By the way, I have a new Spending Multiple & Savings Rate page on the blog to track the monthly annual spending multiples for 2016. This replaces the old Savings Rate only page.

According to the guidelines provided by Wall Street Playboys, 20x annual spending is rich, 10x annual spending is comfortable and 1x annual spending is disastrous. We are currently at 4.77x annual spending and it has increased from 4.20x at the start of the year. However, this suggests we are only at an average level of real net worth and not as comfortable as we thought.

Just when we think we are progressing. It still looks like we have a long way to go and our goal for now should be to get to 10x annual spending. At the very least, it will lower the possibility of a few significant negative events in our jobs and financial markets from wiping us out.

Wednesday, 28 September 2016

Maybank Kim Eng Monthly Investment Plan of S$500

It's mid week and I can feel my working pace slow down. The handover process has already begun and my workload should wind down even more as I transition out of the firm. The bad thing is that time passes slower and it feels longer to get to the end of each day.

The good thing is I have more time to review our investments before I hit the ground running in my next role. After increasing my POSB Invest-Saver monthly investment amount in the Nikko AM Singapore STI ETF (G3B) from S$300 to S$400, I had another look at the regular savings plan options.

Although I'm happy to wait for the launch of the Smartly robo-advisor platform to set up an equivalent S$500 regular savings plan in global equity and bond ETFs, I considered starting another regular savings plan.

No particular reason other than to transfer more forced savings into forced investments. Our monthly forced savings is at S$4,000 of investment cash and cash on hand now. This will become monthly forced savings of S$2,500 in investment cash & cash on hand and monthly forced investments of S$1,500 in ETFs.

I have to admit that three regular savings plans is not an efficient way to do index investing. I'm better off combining the S$1,500 into one regular savings plan to save costs. The thing is I like the idea of slow accumulation of different ETFs over time based on Dollar Cost Averaging (DCA).

I have sufficient cash for Value Cost Averaging (VCA) and dividend investing but they require a certain level of market timing. In my short investing experience, I have come to realise that it will take a long time to develop the required skills, discipline and temperament. This might happen eventually but most probably after making many mistakes.

I'm okay to take my time to learn but the regular savings plans will keep me vested in the markets in the meantime. Higher costs and lower returns is a price I'm willing to pay until I gain the requisite experience.
After reviewing the other regular savings plan options, I decided on the Maybank Kim Eng Monthly Investment Plan. Main reason is the extensive list of securities in multiple markets I can invest in. For now, I'm interested in these two securities with the following breakdown of the monthly investment amount of S$500:
  • SPDR Straits Times Index ETF (ES3) - S$400
  • SPDR Gold Shares (O87) - S$100

The orders submitted under the Maybank Kim Eng Monthly Investment Plan should be executed on the 8th of every month as long as it is a business day. If not, on the first business day after the 8th of that month. I just have to make sure there is sufficient cash in the KE Trade Prefunded Account before the 8th for the withdrawal to execute the orders. 

The Maybank Kim Eng Monthly Investment Plan would be held in my name while the POSB Invest-Saver is held in my wife's name. If possible, I would like the Smartly robo-advisor platform portfolio to be held in both my wife and my name as a joint account (will be our first one).

My wife and I generally do not like the idea of joint accounts and prefer to keep both of our savings and investments separate in individual accounts. She is okay for me to manage her money but any actions with those funds will require her authorisation.

I know I previously wrote about why we chose not to invest in a Gold ETF. However, I did mention at the end of the post that we might invest in the Gold ETF after the size of our ETF & Share portfolio has grown significantly.

I'm not saying that has happened. Clearly evident from the small S$100 monthly investment amount in the O87. However, I do think it's time to introduce a low correlation asset class exposure to better manage the recent and upcoming volatility.

I'm interested to see how this precious metals exposure plays out. Since it's still an ETF, I don't think I can count it as a form of alternative investments. I know there are seven common types of alternative investments:
  • Private equity
  • Direct investments in start-ups and private companies
  • Venture capital
  • Real assets
  • Hedge funds
  • Fund of funds
  • Private placement debt

These are for sophisticated investors and I doubt we will ever have enough capital and knowledge to gain access to them. It would make for a great topic to write about though and one can always dream.

Monday, 26 September 2016

Increase POSB Invest-Saver to S$400

The weekend is over. It was a great one but I now have to go through another week of work to get to the next weekend. Fascinating how time seems to slow to a crawl when you are sitting at your desk in the office on Mon morning looking at your laptop screen.

Anyway, I have been thinking about my previous posts on how we index invest every month and relevant FinTech startups for us. As much as I would like to integrate the Smartly robo-advisor platform into my ETF portfolio, it still has not been launched to date.

I understand it's a regulatory compliance issue and the Monetary Authority of Singapore (MAS) really should be moving faster on this. All that talk by the Singapore Government about encouraging the FinTech industry but regulations seem to be the main cause of delays again and again.

It's frustrating as an investor in Singapore not to have access to a robo-advisor platform when it has been proven to be such a fantastic wealth-building tool in US and Canada. Even worse when there is actually a product ready-for-launch and you are just waiting to access it. Can't imagine what it's like for the Smartly team.

However, I realised I have to be more efficient at deploying our investment cash. It's one thing to let our cash on hand build up as a buffer for emergencies & expenses but another to do that with our investment cash. Unless I am predicting a market crash in the near term (which I am not), that's just poor asset allocation on my part.
Hence, I have decided to increase the monthly investment amount of our POSB Invest-Saver in the Nikko AM Singapore STI ETF (G3B) from S$300 to S$400. In addition to the S$100 monthly investment in the ABF Singapore Bond Index Fund (A35), the total amount of S$500 is the most cost effective level before I have to start exploring other regular savings plan options.

There's a useful MoneySmart article that compares the various regular savings plan options (POSB vs OCBC vs POEMS vs Maybank Kim Eng). Have a read and you can understand why I'm reluctant to invest more than S$500 in the POSB Invest-Saver when there are cheaper regular savings plan options.

I know the increase of S$100 is not much but it will help to soak up some of the investment cash. Instead of starting another regular savings plan, I have allocated a monthly investment amount of S$500 for the Smartly robo-advisor platform.

The POSB Invest-Saver as a regular savings plan that offer exposure to the Singapore equity and bond markets will suffice. My objective is to set up the Smartly robo-advisor platform as a regular savings plan that offer equivalent exposure to the global equity and bond markets.

I hope the Smartly product is launched soon. As my wife and I get busier with work, especially after my job change, I would like to automate more of our investment processes.

FYI, we have been spending time with our friends and their kids over some weekends. It's been a good experience and precursor to what it would be like when we have kids of our own. But I have also noticed how little time the parents have to themselves in each day. It's more important to spend that time with each other to continue developing the relationship than on investment research and analysis.

Going forward, It will definitely help to have more of our investment processes automated so less actions are required on our part. Time to wait and see how this works out.

Friday, 23 September 2016

Changing jobs

I have held back from writing about this recent development in my professional life because it's quite personal and I wasn't sure how useful it would be on this blog. But I figured a change in jobs is a significant event because it can have an immediate and long-term impact on your salary income. Which makes this a personal finance topic.

Newsflash: I will be resigning from my current position in an accounting firm and taking up a new position in a bank. This means I'm finally joining my wife in the banking industry, which is something I never imagined doing.

I have always believed in employment risk diversification to reduce the possibility of both my wife and I being retrenched at the same time. Working in different fields and industries is a good way to achieve that. Protecting at least one source of salary income is a high priority for us to be able to navigate an economic downturn and recession.

So why have I gone against my risk diversification philosophy? I have considered all these factors that led to my decision and figured it would be a good reference point to check back on after working in my new job. Just to see how they played out.
1. Is the salary income higher?

I always knew salary incomes in the accounting industry are lower than those in the banking industry. And I could justify that by convincing myself that my technical skills and knowledge will increase at a faster pace. At some point in time, I will be able to catch up on the gap in the salary income and make up for it. Besides, I figured there was more room and scope for professional development in an accounting firm.

I have come to realise that this is not entirely true. I can say this because my wife and I entered into the banking and accounting industries respectively with similar academic qualifications, achieved the same professional qualifications and our career paths have diverted.

It's true that I picked up compliance and advisory technical skills and knowledge in an accounting firm. But my wife has also picked up specialist skills and knowledge in a bank. Neither is less valuable than the other. However, a lower starting salary and slower increase in salary due to a fixed promotion ladder has resulted in an ever increasing gap with my wife's salary.

I'm happy to have a wife that out earns me and I don't understand why society views it as an issue to be discussed. I could go on and on about the benefits of a higher earning wife but that's not the point of this post. What's important is that I start pulling my weight to address this salary gap. Not just for my wife but for myself as well.

I agree that money should not be the most important factor in a job. But it is one of the main employee motivation factors for me. The fact that I can be paid 15% more by making a lateral move from an accounting firm to a bank makes me wonder how much my lost earnings are from not having done so earlier.

2. What about the current job crisis in the banking industry?

This is a good question posed by my colleagues. Why move to the banking industry that is currently going through a job crisis with increasing retrenchment statistics? The problem for me is revenues are already declining in my current team and will eventually cause a restructure. I might as well deal with that problem now and move to an external role with demand for my skills and knowledge.

This actually answers the question above. It depends on which area of the bank I am moving to. If that division is in decline, I am going to run into the same issues eventually. However, if it's in a growing area such as regulatory compliance, there's potential for longer-term application of my expertise.

3. Would my professional development plateau?

I will admit that my professional development might stagnate. But it's very much up to me to decide whether that happens. The work environment in an accounting firm pushes you to learn but you have to push yourself to learn in a bank. It's easy to keep doing what you are doing and not pick up new skills and knowledge.

In short, there will be a greater learning inertia at a bank but I have to be active in overcoming it. Besides, failing to do will probably result in retrenchment so I might as well give it my all.

4. How does this fit into my personal finance goals?

One of my biggest weaknesses personally and professionally is that I get bored with what I'm doing quickly. This translates into me starting something and never finishing it properly. As you can imagine, doing that in your career can have disastrous consequences.

I have done my best to alleviate this by working in different aspects of the same field to keep myself interested in the job. But all these moving and jumping around in my job history will cost me in the long run for my career. Something my colleagues have made sure to point out to me.

This is what I have to say. Screw it. I only have one life and I'm going to learn as much as I can about as many things as I can until I find something that really fires me up. Actually, I might already have.

As a couple, our ability to generate salary income has contributed greatly to the growth in our asset portfolio. However, lifestyle inflation has eaten into our net worth by resulting in a large amount of liabilities.

The more I manage our personal finances on the assets, liabilities, income and expenses, the more I realise there's so much that I don't know. This is the case even when I am interested in learning about it. I can only imagine how much steeper the curve is for people who are not interested but still want to improve their personal finances.

I have to believe that what I learn and earn from my jobs will eventually result in me being able to contribute to improving the general personal finance management and education level of people in one form or another. This might result in me not having a traditional career path but I reckon it's something worth striving for.

Tuesday, 20 September 2016

Relevant FinTech startups for us

I'm a fan of the FinTech Revolution and I believe that FinTech startups will improve the quality of financial services provided to consumers. Before I go into any detail on specific ones that I find interesting and relevant, I should highlight that this is not a sponsored post.

In fact, none of my posts so far are sponsored. I have mentioned before that there are no plans thus far to monetise this blog. Besides, it's not self-hosted, has a basic design and there are no ads on it, which is not optimal for monetisation. Since I still rely on my full-time job for salary income, this is purely a hobby for now.

I'm exploring content partnerships but still find it too early to accept guest posts on my blog or even provide guest posts on other blogs. Besides, I like writing about how we approach personal finance & investments and other topics that interest me. However, the writing style is not likely to appeal to a wide range of audience.

The last post I wrote on FinTech as a topic was about my hopes for its development in Singapore. This was back in April 2016. Since then, I have been monitoring a few of the startups that I find relevant to us and discussed related topics in subsequent posts on:
  • Robo-advisors
  • P2P lending
  • Personal finance management
  • Government support on developing the FinTech industry

It's about time I provide more detail on why I follow certain FinTech startups or monitor the development of the industry at all.

1. Potential job or business opportunities

Since my wife and I work in the banking and accounting industries, we must remember that we are in the financial intermediary and professional services provider sectors. Which means our service industries rely on the growth & expansion of new & existing business industries.

It's important that we monitor business trends to assess their impacts not only for negative consequences on our jobs but also for potential opportunities. Make no mistake. The rise of the FinTech industry will probably result in the fall of certain divisions of the banking industry.

I doubt banks will ever allow themselves to become irrelevant in the new world but perhaps work with FinTech startups to tap into new growth areas. However, this also means some existing businesses of the banks will go into decline.

As for the accounting industry, reduced revenues from existing financial institutions will be offset by increased revenues from new financial institutions that will come under increased regulatory oversight and have more complex business service requirements.

That being said, the development of the FinTech industry in Singapore continues to be slow although the service demand by consumers and businesses are growing. Even though there are potential job or business opportunities in the FinTech industry, they can require transferrable skill sets that we have or completely different skills sets that we do not possess.

Perhaps we will only be consumers of services provided by FinTech startups for now. I will be interested to see whether we get more involved in the services creation aspect in the future. Definitely something to watch out for going forward.
2. Need for robo-advisor

It's become increasingly obvious that we are not allocating our cash efficiently. Our Dollar Cost Averaging (DCA) and Value Cost Averaging (VCA) strategies are effective but we are not deploying sufficient cash to make them work well.

We are probably too conservative and risk-averse despite having enough assets to be more aggressive. Fascinating how we let our emotions from feeling good about having more cash interfere with our logical objective to achieve higher returns since we have a long investment time horizon.

We will probably become more time-poor as we get older with additional family, work and social obligations. We have to implement an investing strategy on the side that is more automatic and allows us to deploy our excess cash.

We considered increasing our investment amounts for the POSB Invest-Saver but the high fees are a deterrent. Plus we would like to diversify away from Singapore equities since our jobs, property and a significant portion of our investment portfolio are already tied to the Singapore economy.

You can start to see how and where our needs are arising. A working couple that has some cash to invest but not enough to attract the attention of financial advisors and privilege or private bankers. And we refuse to believe that high fees and commissions are prerequisites for earning higher returns.

Enter the robo-advisors. Low cost, low minimum account online wealth management services that provide automated algorithm-based portfolio management advice without the use of human financial planners. The problem is what are the robo-advisors that are available to us here in Singapore.

The only relevant robo-advisor I could find for us is Smartly. You can refer to this post by Kevin (Turtle Investor) to know more about the progress on the launch of Smartly. Kevin also talks about how he can integrate a robo-advisor platform into his portfolio.

As for how I am planning to utilise Smartly, I will probably go for a high risk allocation of 80% global equity ETFs and 20% global bond ETFs. It would be even better if the selection of global equity and bond ETFs are entirely different from what I am already investing in using the Stan Chart online trading platform.

The fee structure is 1% for assets between S$0 - S$10,000, 0.7% for assets between S$10,000 - S$100,000 and 0.5% for assets above S$100,000. It's likely I will start investing with S$500 per month first i.e. S$400 for global equity ETFs and S$100 for global bond ETFs.

I'm okay to get hit with the 1% fee at the beginning since I intend to test the Smartly platform first. If it provides to be reliable, easy to use with a well-constructed portfolio to meet my requirements, I will increase the monthly investment amount over time. I'm happy to push even more funds into Smartly as long as it can prove itself as a viable option.

3. Need for personal finance management

We have a growing asset portfolio made up of real property, cash holdings, investments in shares, ETFs & bonds and retirement funds. We are finding ways to reduce our liabilities consisting of the housing loan, credit card debt, personal and property tax payable. Our income and expense types are also increasing with additional sources of income and lifestyle inflation.

Let's run through the various logins I have to do manually to check the balances and transactions:
  • Internet banking accounts of six banks to check my account balances, transaction histories, credit card statements
  • CPF to check my CPF balance and contribution history
  • Internet accounts of two bank brokerages and CDP to check my investment portfolio balances and transaction histories
After doing the above checks, I have to manually update the Google Sheet for the financial snapshot. Even though I build in tables and graphs to track the data over time for trend analysis, their capabilities are limited and quite static in nature.

It's one thing to collect data but another to analyse it. I can't really see the interaction between assets, liabilities, income and expenses, which is crucial to personal finance management. You cannot look at the results of actions to address one item in isolation as they affect each other. Understanding their relationships is key to overall improvement.

I also lack information on how well my efforts to balance the allocations of my asset portfolio between cash (investment vs on hand), real estate (property & REITs), shares (domestic vs international and industry sectors), ETFs (domestic vs international and geographical distributions) and bonds (corporate vs government) are working out. 

The only FinTech startup that I can find of relevance here is PiSight. Its flagship product PiMoney might provide a complete picture of our wealth and enable us to better manage our finances. It can apparently aggregate our savings, loans, credit cards and investments all in one place. I wonder whether PiMoney can provide insights or analysis on how we manage them as well.

For now, these are the immediate needs that we hope to address soon. After that, we might look into other FinTech startups such as MoolahSense that can provide alternative investment options like P2P loans. It's time we diversified our asset portfolio beyond real estate, equities and bonds.

Sunday, 18 September 2016

Increasing our net worth by S$10,000

On 15 Sep 2016, the Ministry of Manpower (MOM) released the quarterly Labour Market report. I'm not going to reiterate the statistics but will highlight these important points:
  • Unemployment rose further among residents aged 30 and above
  • For those aged 50 and above, unemployment rose for the fifth consecutive quarter
  • Unemployment rates among degree holders rose to their highest level since 2009
  • Highest second quarter redundancy since 2009

Professionals, Managers, Executives and Technicians (PMETs) like us should monitor the local labour market to pick up on trends like that. If the above does not light a fire under your ass to get your finances in order, then I guess only becoming one of those unemployment and redundancy statistics will.

It's easy to become complacent in our jobs. The Singapore Government keeps going on about transforming the country's industries, creating higher quality jobs and helping displaced workers through programmes such as SkillsFuture. These initiatives require a long time to take effect and might not be enough to reverse the labour market trends.

The way forward appears to be developing a technology-driven knowledge-based economy. Have you noticed the drive by the Government for Singapore to become Asia's Fintech hub? Just look at the new courses in Infocomm Technology (ICT) offered by education institution General Assembly (GA) in collaboration with the Infocomm Development Authority of Singapore (IDA).

My colleague from another division actually just resigned to do a career change by completing the 12 week Web Development Immersive course starting from Sep 2016 to become an entry level web developer. The tuition fee for a Singapore citizen like him is S$3,450 but the tuition fee for a non-Singapore citizen is S$11,350. That's a big difference and obvious incentive.

It's definitely an exciting new path for him but more possible in his scenario. Because he is young, only worked a few years in his first job at the accounting firm and has minimal financial & family obligations. Trying to make the same move when you are older, not as quick at picking up new knowledge in a different fast-paced industry with significant financial & family obligations will be much tougher.

Technology and automation will transform Singapore's industries but the high quality jobs created will be fewer in numbers and probably more suitable for the younger generation. Displaced workers from the older generation will struggle to be relevant in the new world.

We were raised with the notion that our peak earning years would be in the 40s to 50s. I reckon that's no longer true. It's probably in our 30s to 40s now and is becoming evident from the labour market statistics.

This means we have about 10 to 15 years until our earnings start to decline or even disappear. Let's assume the pace of technological advancement increases at an accelerating rate. We are now down to 10 years before we get impacted. Still think retirement is that far away?
It might come earlier than expected and not in a good way. The only question is how ready you are financially for forced early retirement. We worked the math for ourselves and figured we need to increase our net worth by at least S$10,000 every month for the 10 years.

Good news is we have already been achieving that target amount for the past 8 months. At a minimum, the S$10,000 increase of net worth in each month consists of:
  • S$2,000 of investment cash regardless of how much funds are invested
  • S$2,000 of cash on hand after spending on discretionary and non-discretionary expenses
  • S$4,000 of CPF employer and employee contributions
  • S$2,000 reduction in the mortgage liability

Bad news is it leaves us with little room to manoeuvre. And we ponder over questions such as whether we should explore interesting job opportunities at lower pay or potential business opportunities at the risk of delaying financial independence. Even the conflicting desire to leave Singapore and build a new life in another country (not Australia) but yet wanting to settle down and start a family in Singapore.

It's a win every month to get the S$10,000, which is a nice and round target number to hit. It represents a balance of meeting our personal & professional development goals vs the pursuit of happiness and job satisfaction. But I wonder whether the ever elusive life goal of finding fulfilment, meaning and purpose will tilt the scales towards the latter.

Friday, 16 September 2016

Have I been Value Cost Averaging

I was rereading my post on how we index invest every month and feeling pleased with myself about finally having a detailed post on index investing. I have always thought this is a suitable strategy for people who:
  • Are not interested in research and analysis of shares
  • Don't have time to build up knowledge on shares investing
  • Are okay to have the market rate of return on their investment portfolio

It's just a matter of doing the initial set up of the automated and manual processes to index invest every month and you are good to go. These are the major decisions to be made:

What I like about writing on my blog is I get to convey & defend my positions while challenging my assumptions. This is the case especially when I make mistakes since that's how I learn.

I have been going on for a while now about how I use the Dollar Cost Averaging (DCA) approach for index investing. This involves investing a fixed sum of money at regular intervals in index ETFs. Which is the case for my monthly POSB Invest-Saver investments in the Nikko AM Singapore STI ETF (G3B) and ABF Singapore Bond Index Fund (A35).

The problem is I don't invest a fixed sum of money at regular intervals for the rest of my Vanguard index ETFs and SPDR Straits Times Index ETF (ES3). I actually invest more when the prices of the index ETFs fall & less when prices rise and I called this a modified DCA approach.
Turns out the accurate term to describe this should be the Value Cost Averaging (VCA) approach. I have no idea why I have not heard of the VCA approach before but it's probably because I haven't been reading widely enough. I only recently came across it after reading related articles to the DCA approach on Investopedia.

Basically, the VCA approach involves making investments based on the total size of the portfolio at each point rather than investing a set amount each period. By investing more when the prices of the index ETFs are low, you can achieve higher returns over the same time period.

The VCA approach has a more active investing aspect to it while the DCA approach has a more passive investing aspect to it. Both approaches still help to minimise timing risk and I have been applying them to my index ETF portfolio.

I would be interested to see which approach works out better over the long run. It's going to be difficult to do so with my portfolio because both approaches are applied to different index ETFs. Besides, the amounts invested under each approach are different and there's also the matter of how disciplined I am & how well I apply them.

There's nothing quite like finding out I have been banging on about the DCA approach without realising I have also been using the VCA approach. It's humbling and a good reminder that there is so much to learn & always remember never to be full of yourself.

Wednesday, 14 September 2016

Feasibility of CPF Investment Scheme

I'm sure you should have seen this announcement on the news by now - Government to review CPF Investment Scheme: Tharman. This couldn't have come at a better time for me personally after having just discussed with my family last weekend about why I don't think the CPF Investment Scheme (CPFIS) is a good idea.

What is the CPFIS?

Firstly, CPF employee and employer contributions are only applicable for Singapore Citizens (SCs) and Singapore Permanent Residents (SPRs). If you have more than S$20,000 in your CPF - OA, you can choose to invest the excess under the CPFIS - OA.

Likewise, if you have more than S$40,000 in your CPF - RA, you can choose to invest the excess under the CPFIS - RA. There are restrictions on the amount of CPF savings you can invest and the investment products you can invest in.

Can you beat the benchmark rates of return?

Since you can only invest the excess CPF savings, these are the benchmark rates of return that you are trying to beat.
  • CPFIS - OA: 2.5% pa (i.e. interest you would have earned if you left your money in your CPF - OA)
  • CPFIS - SA: 4% pa (i.e. interest you would have earned if you left your money in your CPF - SA)
If you refer to the list of investment products on the CPFIS webpage and consider the long investment horizon (can only access CPFIS after reaching 55 years old), it becomes obvious that only a few of the investment products can achieve that.

Since your CPF savings are inaccessible for a long time, you have to remember that it's not good enough to beat the benchmark rates of return by a bit. It has to be sufficient to justify the risk you are taking by investing your CPF savings on your own and having it locked up for so many years.

Essentially, this leaves you with shares and property funds as the only viable investment products that can achieve such a superior rate of return. Let's forget about fixed income investment products and other investment products that will hit you with high fees.


You are not allowed to invest your money from CPF - SA in shares and property funds under the CPFIS - RA. If you are thinking of achieving it using ETFs, I reckon that's going to be tough. You can only invest in these two equity ETFs listed on the Singapore Exchange (SGX):
  • SPDR Straits Times Index ETF (ES3)
  • Nikko AM Singapore STI ETF (G3B)
These two equity ETFs only offer exposure to the Singapore economy and the next few decades are going to be difficult for us. It's not easy for Singapore to find new drivers of economic growth and there will be an increasing need to balance that with social growth.

Which is why you are better off sticking to the 4% pa on your money in your CPF - SA. Especially when there are no equity ETFs listed on the SGX that offer you exposure to the global economy.

Realistically, this means that your only option is to invest in shares and property funds using your savings from CPF - OA under the CPFIS - OA. Herein lies the biggest problem. It's difficult enough to work out the above by yourself. Just speaking to my family over the weekend showed me how CPF might not be a major financial planning consideration for most people.

The older group in their 50s and 60s can't do much anymore with growing their CPF savings. They just have to make sure they don't lose their CPF savings on bad investments and  spend their CPF Life payouts wisely.

The younger group in their 20s and 30s are focused on getting better jobs or achieving higher income. Not so much on whether their CPF savings are sufficient for retirement. Although this is starting to change as more young people become focused on early retirement and financial independence.

This means it's more likely for the middle-aged group in their 40s that start focusing on the adequacy of their CPF savings. That's actually the worst time to start investing in shares and property funds using their savings from CPF - OA under the CPFIS - OA.

This group has the highest financial obligations (mortgage, children's' education, car etc). They lack the time to learn about investments in detail and suitable strategies or approaches. Since they haven't practised and gained experience from investing smaller amounts of money in their 20s and 30s, doing so in their 40s with larger amounts of money and a lot more to lose can have disastrous consequences. 

Now you can see how easily it is to make losses from underperformance due to behavioural biases in investments. Because the majority of people investing under the CPFIS are going to do so for the right reasons and motivations but with so little of the required skills.

Who should participate in the CPFIS?

Even with the statistics provided by the Singapore Government that 80% of those who invested through the CPFIS - OA would have been better off leaving their money in the CPF - OA, most people believe they can be the other 20%. Or worst, they reckon the Singapore Government is lying to them about the statistics to keep their money in the CPF - OA.

You want to know who should participate in the CPFIS? It's people who have already built their own investment portfolio of such a size that it generates significant passive income such that they don't actually depend on the CPF for retirement. That's how you remove the possibility of underperformance from behavioural biases - by not needing the money at all so the long-term superior rate of return scenario can actually play out.

It's about time the CPFIS is reviewed. We now have sufficient data as evidence that the current form does not benefit the majority of people. We need to take actions to simplify and improve the CPFIS to increase the proportion of people who can beat the benchmark rates of return.

The suggested CPF Lifetime Retirement Investment Scheme (CPFLRIS) is a good start. The recommendation is to offer a few well-diversified products with a single administrator and be passively managed. Investors will also be discouraged from churning or frequently switching their investments.

If the CPFLRIS comes into effect, CPFIS can be gradually wound down as it is no longer relevant since both schemes have the same aims. Even for the CPFLRIS, there is no need to have a few well-diversified products.

Just one investment product with an expected return of 5.5% pa as an alternative to the CPF - OA and another investment product with an expected return of 7% pa as an alternative to the CPF - RA will do. The more options CPF offer, the more it's going to confuse people.

Which means the main thing CPF has to focus on is explaining to people the most important part of taking on more risk to achieve a higher return.

There are also benefits to risk pooling since everyone will have the same two alternative investment products. If CPF is worried about concentration risk, then it should not have been set up as the only retirement fund scheme for SCs and SPRs in the first place.  

Sunday, 11 September 2016

When to wish for an assets fire sale

It's already starting to happen. Every time the stock and property markets hit new highs, you get young working adults wishing for a market crash and fire sale in financial and physical assets. But we need to be aware these usually coincide with economic crises or similar crisis level events.

I have written before on this blog about why I prefer not to have a recession. It has far-reaching consequences on our jobs, skills, financial and personal lives. Even after planning for such severe events, I'm not confident we can benefit from the resulting fire sale in shares and properties.

Let's have a think about why this is the case. I will show you how people like us can be badly affected and our lack of practice in controlling our emotions can screw our carefully laid plans to "take advantage" of the fire sale.

This is from the perspective of young working adults. If you come out from this exercise still thinking you are ready for a fire sale, good for you. If not, you had better stop wishing for a fire sale and start wishing for more time to get ready.
1. Are you reliant on your salary income?

It's a simple question. Do you rely on your salary income to pay for your expenses? It doesn't matter whether you have an emergency fund to sustain your living expenses for a period of time.

Once you lose your salary income and start drawing down your emergency fund to manage your expenses, you let me know whether your investment risk appetite is still as high as before. Especially when the salary income is likely to be the highest or only source of income for young working adults.

It would be naive to think your job is not at risk during such a time or even worse that your job is recession proof. If you think you can wait it out until you find your next job, the bad news is this type of crisis level event causes structural changes in the economy. Your job might no longer exist or the salary is significantly lower.

Don't underestimate how quickly your skills and mental or physical health can decline in a period of unemployment. To pick yourself up and move forward requires considerable time and effort. Enough to drain your energy levels just to keep going much less think about investing in the stock and property markets.

2. Do you have a significant amount of investment cash?

Without a large amount of investment cash, you just don't have enough to inject into the beaten down stock markets to make up for the potential loss of salary income even if they subsequently rebound. You also won't have enough to make the downpayment for a distressed property.

Even with a significant amount of investment cash, have you thought about your funds deployment strategy and how well would you follow it? Young working adults have yet to go through a severe bear market with skin in the game. We were either not vested in the markets during the last one or had little cash to do anything then.

When the fire sale happens, how capable are you at investing your cash into the markets when your net worth is declining, your jobs are at risk or gone and your emergency fund is disappearing fast. Without a large enough buffer, you will hesitate to pull the investment trigger every time.

3. How vested are you in the markets?

Young working adults that have invested in the markets in the past few years have only been watching their portfolio values grow. That means you have not gone through a sustained period of time whereby your portfolio value has declined heavily and stays there. Still feel like throwing even more money into the abyss?

If you have not invested in the markets and are waiting for the big fall to do so, it's even worse. That just means you have no experience or idea on how to actually deploy your investment cash efficiently much less try to do so in a severe bear market. This lack of practice in controlling your emotions when investing is going to get you hammered by the markets.

4. Do you have to maintain an emergency fund?

Having to maintain an emergency fund (doesn't matter how small or big it is) just means you actually have expenses that will burn through your cash savings the moment you lose your job and salary income. You just won't be in the right frame of mind to take advantage of a fire sale knowing your emergency fund is getting drained.

5. How serious was the money talk in the relationship?

This is applicable to the young working adult couples. Have you had the money talk yet? If so, did both of you work out exactly what to do in the event of a fire sale? It's easy to talk about money when the financial plan is going well. You only realise the differences when things start to break down.

Young working adult couples are in a better position to take advantage of a fire sale provided they are in sync. Losing one source of salary income hurts less when you have another to keep both of you going. But both parties must work out what the investment plan is when the crisis strikes and markets start to freefall with everything else going wrong at the same time.

The 2008/2009 Global Financial Crisis is a good case study on how things can go wrong so quickly to blow up your financial and investing plans. One of the worst bear markets in history and more people had their wealth destroyed then gained wealth even after the subsequent rebound.

Generally, I found that these are the working adults who were able to really use it as a wealth-building opportunity:
  • Did not lose their jobs in the economic crisis or already had large sources of passive income to make the job loss irrelevant
  • Had significant amounts of investment cash to deploy in buckets as the markets tanked
  • Did not need to maintain an emergency fund because their monthly incomes were already exceeding expenses by a lot or there was no drain in the emergency fund at all
  • Been through at least one other severe bear market to recognise how bad it can get and how to utilise the investment cash effectively
Otherwise, what you are going to find more people doing is sell out of the markets to increase their liquidity position i.e. raise more cash whether to meet expenses or for peace of mind to feel safe.

Young working adults should focus on preparing for an assets fire sale and stop wishing for one. You need a lot more time than you think to get ready. Then maybe you will come out on top when it's finally here.

Friday, 9 September 2016

Why S$6,000 is our magic happiness income level

The longer I track our income and expenses, the more I start to realise that the most effective way of building wealth at our age is to increase income. Reason being the limits to how much we can reduce expenses by are greater than how much we can increase income by.

Increase Income > Reduce Expenses

At this stage, our savings rate is 40% i.e. monthly cash savings of S$4,800. To achieve a 10% reduction in expenses to boost the savings rate to 50% i.e. monthly cash savings of S$6,000, we will have to restructure our spending and lifestyle. This is a painful process and I don't see that happening unless there is a "trigger event" i.e. something drastic happens to force us to reduce our expenses.

By the way, a common suggestion is to cut morning coffees, work lunches, drinks and dinners. Based on our experience in the banking and accounting industries, this is not a good idea. My wife was the one who taught me this lesson on why that is the case.

She goes for coffees, lunches, drinks and dinners with her colleagues often. It's actually at these gatherings that important information such as upcoming retrenchment exercises, salary benchmarking and job opportunities get passed around informally. The better connected you are with your professional network, the less likely you are to get blindsided in your career.   

Which is why we are better off focusing our time and effort on increasing income. It also becomes obvious that as relatively young working adults, we have a much higher chance of increasing our salary income then looking for or building up other sources of income.

Without sufficient active income to drive our passive investments, we are not going to make much progress with increasing our passive income. Self-employment and freelancing usually involve cuts to our active income provided we find a way to scale the business upwards.

Realistically, our best option is to focus on increasing our salary income, which is something we have been working on for a number of years. However, I'm sensing a lot of inertia because we seem to have reached our magic happiness individual monthly income level for now of S$6,000.
Income vs Happiness

Have you heard of the income vs happiness graph? It basically shows how your happiness increases as income rises up to a certain point at which money won't make you any happier. This is essentially the magic happiness income level.

Of course, you would expect the graph to vary by country, city and individual. In our case, the individual magic happiness monthly income level is S$6,000. It is where we are right now and hence the inertia in striving for additional salary income. Let's walk through why this is the case.

1. Just enough responsibilities

We are essentially low level managers at this salary income level. There's just enough responsibilities to pick up skills from managing a small team. But not enough to overwork us and cause our stress levels to elevate.

2. Decent working hours

Consequently, our working hours are decent, usually 9am to 6 - 7pm every day from Mon to Fri. We have time and energy in the evening to engage in various social activities, exercise or have dinner with our family. Plus we don't work on the weekends because nothing is ever that important.

3. CPF contributions maximised

The monthly ordinary wage ceiling for CPF is S$6,000. Which means the employer or you will not be contributing any percentage of your monthly salary to CPF for amounts above S$6,000. Since CPF seems to think a person earning above S$6,000 don't need the additional contributions, I'm going to agree with them and stick around this level for a while.

4. Allows for family planning

We don't earn a high enough salary income to be immediate targets of retrenchment exercises. This lowers the impact of taking maternity and paternity leave if we decide to have kids. Yet the salary income is high enough to allow us to afford having kids financially.

We also get a certain level of flexibility in the planning of our workflows and schedules, which will help us adjust to having kids. Most importantly, we can both choose to continue with our careers even though the progression will be slower.

5. Low personal income tax rate

I know I keep harping on this topic but I really appreciate the low personal income tax rates here. After we factor in our CPF contributions and other tax reliefs & deductions, our individual monthly personal tax payment is S$150.

Let that sink in for a moment. Any idea how low that is compared to other global cities? This means that our time and effort spent in chasing for job positions, promotions and salary raises aren't being taken away by personal income taxes.

However, I will admit that Singapore has other wealth and consumption taxes that can hit us harder comparatively. But this is very much up to us to decide whether we purchase the items and assets (car, property etc) that subject us to these taxes.

6. Sufficient cash for savings and investments

It's true if you think we have become somewhat lazy from the considerations above. We have grown tired from all the planning and fending for ourselves that we had to do when moving to Melbourne, Sydney then back to Singapore. This is our time to recharge and rest.

Besides, S$4,800 is not a small cash amount to fund our savings and investments every month. This is not counting the S$4,500 that gets channelled into our CPF monthly for retirement purposes.

It's not a bad individual monthly income level  to get stuck and be lazy at. But I will let you know if this changes. After all, our income vs happiness graph is not static. It will change as we get older and our needs & wants change as well.

Wednesday, 7 September 2016

Review of our bank accounts

Do you remember my post about the three day work week? The interesting thing is that my manager returned from maternity leave and is now on a three day work week. This is unusual in an accounting firm where there are revenue and client pressures.

I get to see and understand first hand how the three day work week functions from the perspective of my manager who is on it and me as the colleague of such a working mum. To be honest, it has not been going well for my manager and tensions have been running high in the team lately.

These type of flexible work arrangements are more common in Australia than Singapore. I can see how it works there because people are more used to it and are generally okay to adjust their schedules & expectations around such arrangements. It's not easy but workable in Australia.

This does not appear to be the case in Singapore based on my observations. I would say it's a lot more difficult for working mums to be on flexible work arrangements because junior & senior colleagues and clients are not adapting their schedules & expectations. It looks like we still have a long way to go and I hope it's something we all strive towards to provide more support for working mums.

On a side note, it's tough being on a three day work week if you have demanding revenue and client responsibilities. This is the case even if you have a strong support team to meet those pressures (assuming it's not your own business because why would you want to be on a three day work week if so?!).

Which means the question is whether I am okay to accept less responsibilities and possibly do less value-adding work in exchange for a lower pay. I guess it still meets the requirement of having some form of professional and social engagement with lower stress levels.

I wonder how things will play out for my manager just to see whether the idea of the three day work week is even feasible in the long term in Singapore. Definitely hoping it works out for her!

Anyway, I reckon it's time for me to go back to the basics of personal finance since I have been writing quite a bit about investments recently. I did a series of posts on which bank accounts to use in Singapore as expense funds, emergency funds and investment funds. It's time for a review to see how they have been working out for us.
1. OCBC 360 Bank Account - Expense Funds

I have been increasing the balance in my OCBC 360 account recently from the cash position build up. Since I'm meeting the bonus interest requirements, I'm earning 2.2% pa on the total account balance with an additional 1% pa on the incremental account balance from month to month.

I don't actively research on other competing high interest bank accounts or enquire with the various banks. I find the more efficient approach is to follow the personal finance bloggers in Singapore and their reviews of the bank accounts. You can see a real-life application of the considerations and comparisons that way.

That's how I picked up on the BOC Smartsaver account. You can refer to this post from Jes on BOC Smartsaver vs OCBC 360. I seem to be reaching the same conclusion as Jes in that the OCBC 365 credit card is a strong motivator for why I will continue to stick to the OCBC 360 account.

Besides, I like OCBC's online banking interface the most. Given the high volume of transactions and bank transfers in my OCBC 360 account, it's easier to navigate them on a more user-friendly internet banking account.

2. UOB One Bank Account - Emergency Funds

It's not as easy to meet the bonus interest requirements but still possible even without the salary crediting component. Watch out on navigating the UOB One credit card because it's even more difficult. The effective interest rate I'm earning is 2.43% pa on the total account balance.

The volume of transactions and bank transfers in my UOB One account is low, which makes sense since I shouldn't be utilising my emergency funds so often. Plus after jumping through the hoops and hurdles to meet the bonus interest requirements, I'm happy to just leave the account as it is.

3. CIMB FastSaver Bank Account or Other Bank Accounts with Deposit Promotions - Investment Funds

Since I have reached the maximum balances (to qualify for bonus interest) of S$60,000 for the OCBC 360 account and S$50,000 for the UOB One account, the excess cash is usually parked in the CIMB FastSaver account. Interest earned at 1% pa.

Banks such as Stan Chart offer deposit promotions (usually for two months) on normal savings accounts to try and draw fresh funds. It's just a matter of transferring the excess cash into those accounts for the two months and withdrawing them out after the promotion ends.

I still have a POSB eSavings Bank Account but that's for the monthly withdrawal of cash funds for the POSB Invest-Saver and paying off the POSB Everyday Credit Card. Then again, I just keep about S$1,000 in the account because of the low interest rate on it.

Anyway, I might do a review of our credit cards in another post, especially when they are closely linked to the bank accounts we open in Singapore. Besides, it's always useful to re-evaluate whether any changes are required to our personal finance structure.  

Monday, 5 September 2016

How we use CPF for housing

I considered writing an Aug 2016 Financial Update post. However, not much has happened in the month since the Jul 2016 Financial Update. As long as the trend continues to be upward and positive, I'm satisfied with the progress.

I can provide a summary if it helps. The net worth has jumped more than the previous months mainly because of the performance bonus that I received. Our investment cash and cash on hand have increased by the same amount of S$4,000. Good to know this is becoming quite consistent.

The ETF and Other portfolios have risen slightly but the Share portfolio has dipped. There was a spike in the dividend income and a small increase in the interest income. This can be attributed to owning the ETFs and shares for a longer period of time that qualifies for the recent round of dividends and the recent build up of our cash positions.

That's enough talk about our assets. What I will try to do in this post is write about how we address our liability problem, specially the mortgage. I'm not worried about our personal and property tax liability because minimal changes indicate no significant drops in our salary income and apartment value.

As for the credit card liability, it should reduce slowly over time as we try to control our spending. However, I expect it to plateau eventually because it represents our costs of living and there is always going to be a minimum base level. Given how our savings rate is hovering slightly above 40% , I'm wondering whether this has already happened.

Anyway, these other liabilities pale in comparison to our housing loan liability. I have written related posts before on whether buying a private condo was a mistake and how we view our CPF  - OA to be used for housing instead of retirement.

The fact of the matter is we have a S$2,800 housing loan payment to be made for the private condo every month. No point debating whether we should have bought a HDB or whether the private condo is affordable. The key decision for us is what should be the split between CPF - OA and cash for the monthly housing loan payment of S$2,800. This is how we work it through.
1. What is our monthly allocation to the CPF - OA from the total employee and employer contributions?

S$6,000 (Individual salary) * 23% (Allocation rate) * 2 (Both of us) = S$2,760

As long as both of us continue to work, S$2,760 is credited into our CPF - OA every month.

2. Do we intend to rely on CPF - OA for retirement?

We intend to use the CPF - OA only for housing. This means that the funds in the account will either be fully used for the first residential property or a second property. Hence, we are not relying on the COF - OA for retirement.

3. Are we okay with a build up of CPF - OA as a form of emergency funds for housing?

Given how we were not working in Singapore for the first few years of our careers, our CPF - OA balances are small compared to our peers. Even if we use the entire allocation of S$2,760 to make the monthly housing loan payment of S$2,800, we would still have to draw down another S$40 from the CPF - OA. Over time, our CPF - OA balances will be wiped out, which is not good.

Therefore, we decide to build up our CPF - OA to have a buffer of about 1 year of housing loan payments (S$2,800 * 12 = S$33,600). This will require us to use cash in addition to the CPF - OA to make the monthly housing loan payment of S$2,800 for a while.

Besides,  if we are both retrenched, we figure it would take one of us about a year to find a new job to have new contributions flowing into the CPF - OA.

4. What is the current interest rate differential?

Interest rate on housing loan: 2% pa

Maximum interest rate on cash savings: 2.4% pa

Interest rate on CPF - OA: 2.5% pa

You can see how it would make sense to have the CPF - OA hold the 1 year emergency funds (S$33,600) for housing instead of a high interest savings account.

5. How should we split the cash and CPF - OA components of the housing loan payment?

The discussion above leads to this analysis of how much cash to use for the monthly housing loan payment of S$2,800.

We want to build up the 1 year emergency funds in the CPF - OA (S$33,600) quickly while we still have cash flow and no significant obligations.

Cash payment: S$1,800

CPF - OA payment: S$1,000

Total monthly housing loan payment: S$2,800

Monthly increase in CPF - OA: S$1,760

Estimated time to meet goal: 19 months (close to completion at time of writing)

Once we meet this goal, we are okay to adjust the proportion to use more of our CPF - OA for the monthly housing loan payment and just let the balance grow more slowly.

6. Is it okay to have the CPF - OA balances grow so slowly?

In our case, we are okay to have our smaller than average CPF - OA balances increase slowly because they are not meant for retirement. However, we do regular cash top-ups to our CPF - SA for tax relief and occasional transfers of the performance bonus from our CPF - OA to our CPF - SA.

This is to try and grow our CPF - SA at a quicker rate to make up for the slow growth rate of our CPF - OA. As you can see, we do quite a bit of analysis when it comes to using our CPF for housing as the considerations and actions can have implications down the road.

Thursday, 1 September 2016

How we index invest every month

I have written a number of index investing posts in the past few months - Start index investing, Choose equity ETFs & bond ETFs and Build an ETF portfolio. It was early days for the blog and I didn't write them in a lot of detail. Plus my first self-hosted blog got shut down one weekend (I never figured out what happened) and I was still feeling hesitant with my second attempt.

As I start to develop my interest in writing, the length of my posts has increased and I hope the additional detail/opinions have been useful. However, given my focus on the index investing strategy, I realised that I haven't really explained how we do it every month. This post should give you an idea of what we actually do to execute the index investing strategy each month.
1. POSB Invest-Saver

I included the link to the POSB website that provides detailed information on what is the POSB Invest-Saver. Here is a summary:
  • Regular Savings Plan (RSP) that allows you to invest into the Nikko AM Singapore STI ETF (G3B) and/or ABF Singapore Bond Index Fund (A35)
  • G3B and A35 are Exchange Traded Funds (ETFs) listed on the Singapore Exchange (SGX)
  • Via a monthly GIRO arrangement that can be applied for on internet banking
  • Minimum monthly investment amount of S$100
  • 1% sales charge per transaction for G3B and 0.5% sales charge per transaction for A35
Since my wife has a DBS/POSB ibanking account, it was easy to set up the monthly GIRO arrangement online for the POSB Invest-Saver to carry out these automatic transactions:
  • S$300 is withdrawn on the 12th for G3B (or the next business day if the 12th is a non-business day)
  • S$100 is withdrawn on the 24th for A35 (or the next business day if the 24th is a non-business day)
These will be the purchase prices for the POSB Invest-Saver:
  • Average purchase price calculated on the 13th for G3B (or the next business day if the 13th is a non-business day)
  • Average purchase price calculated on the 25th for A35 (or the next business day if the 13th is a non-business day)
Now that the Stan Chart Online Equities Trading Platform charges minimum brokerage fees, the POSB Invest-Saver has become an even better way to accumulate small numbers of these ETFs every month.

Essentially, the S$400 is our minimum monthly investment amount. It keeps us vested in the Singapore stock market and takes away the emotion from dealing with market volatility and timing. This is how we ensure our ETF portfolio continues to grow every year by having constant inflows that outweigh any drops in the value.

I have mentioned previously on this blog about using Google Sheets for personal finances and SGXcafe to track our Singapore share portfolio. After every transaction for G3B and A35, we update the Google Sheet and SGXcafe portfolio for the number of units bought, purchase prices (including transaction costs) and total number of units held. 

2. Dollar-Cost Averaging (DCA) using the Stan Chart Online Equities Trading Platform

We use this platform to invest in the SPDR Straits Times Index ETF (ES3) listed on the SGX and various global equity & bond ETFs listed on the London Stock Exchange (LSE).

Global Equity ETFs (LSE)
Global Bond ETFs (LSE)
You can see on the Portfolios & Asset Allocation page how I have grouped the ETFs into: Singapore Equity, Global Equity, Europe Equity, Emerging Markets Equity, Developed Asia Pacific Equity, US Equity, Singapore Bond and Global Bond.

If you click on the links above to the ETFs and look at the holdings of each ETF, you will notice an overlap in the holdings of some of the ETFs. This is caused by me trying to invest into each major geographical region and the whole world separately. I would have reduced the number of types of ETFs I was buying if I had another chance to reconstruct the ETF portfolio to simplify things. But I will have to stick to this set up for now.

In a month with falling stock markets, we purchase significant amounts of these ETFs every time the prices drop below our last purchase prices by 5%. We don't try to catch the bottom of the cycle, we just keep buying them on the way down. This is the expansion phase of our ETF portfolio where most of the growth actually happens.

When the stock markets are flat in the month, we purchase small amounts of the ETFs at around our last purchase prices since the prices are hovering around the same level. This is more of an accumulation phase for our ETF portfolio since there is still growth but at a much lower rate.

In a month with rising stock markets, we make minimal purchases of these ETFs at higher prices and are okay to sit out most times since they can exceed our last purchase prices by quite a bit. There is barely any growth in the ETF portfolio at all during this phase.

Subsequently, we update our Google Sheet and SGXcafe portfolio for purchases of ES3 and only the Google Sheet for purchases of the LSE ETFs. These updates again relate to the number of units bought, purchase prices (including transaction costs) and total number of units held.

I know applying the traditional DCA approach requires us to continue buying the same amount of ETFs regardless of market conditions. You could say we are applying a modified DCA approach with an element of market timing. 

Reasons are simple. We have a large enough investment portfolio that provides us with some passive income and jobs with decent salary income. This is how we can build our cash positions and wait because we can afford to.

By starting the index investing strategy relatively young with sufficient active and passive income buffers, we understand there are many more market cycles ahead of us. There is no need for us to rush and we just have to be patient for the buying opportunities to arise.

Why should we worry about cash being a drag on our portfolio returns when we have such a long investment horizon and the willingness & readiness to utilise it when required?

As you can see, our index investing strategy does require us to monitor the markets (just quick price checks on a weekly basis) since you sometimes get enough market movement to warrant investment actions on our part. It's not difficult to execute but requires the discipline to wait and be patient.

Which is why it helps to have professional & social activities to keep myself occupied. And even a personal finance blog to write about my interests and remind myself about our index investing strategy. This is also how we can ignore the noise from the financial news and not let them influence our investing decisions.