Folks,

In this thread, I provide the basic step to step approach on how to use US ETF to do asset Asset Allocation investing.

http://www.investopedia.com/terms/a/assetallocation.asp


The basic assumption here is the person has access to US brokerage and can any US stock including ETF.

https://personal.vanguard.com/us/funds/snap...ntExt=INT#tab=3

https://personal.vanguard.com/us/funds/snap...ntExt=INT#tab=3

The ETF to be used in this illustration are VT and BND.

If a person is convinced that they can time the market to buy and sell, this is not the approach that you want. This thread is for people that want a simple low maintenance approach to investing.

Dreamer

This post has been edited by dreamer101: Jun 10 2013, 06:27 AM

I have VOO bought in several tranches since 2008/2009, have returned ~80% to date. Management fees are rock bottom.

My opinion is that in developed market, index fund perform better than investment managers. For less develop market, investment fund managers is better since there is more market manipulation, insider trades, info leak etc etc.

Index funds are one of the many tools for portfolio management. In fact if one buys carefully, you can have a very balanced portfolio based on ETF. Also ETF is a great tool to buy obscure stocks, which is otherwise out of your reach. You want to buy Nigeria or Bangladesh Stock Index ETF.. you can do so....

This post has been edited by gark: Jun 10 2013, 10:05 AM

Folks,

In an asset portfolio, most of the return are determined by the stock versus bond ratio. So, for the first step of asset allocation is to determine the stock versus bond ratio.

This has to be decided by each individual. The followings are some of the guideline

A) The stock/bond ratio should be between 80/20 to 20/80. If you go above and below that ratio, you are talking too much or too little risk and do not get the optimal return.

B) Risk versus Return tradeoff.

1) If you take on higher percentage of stock allocation, your portfolio will be more volatile. You need to take the "50% test". Historically, stock can drop 50% of its value at any point of time. Can you stop yourself from selling when that happen??

2) Do you NEED to take risk?? If you have ENOUGH money, you do not need to take on higher percentage of stock allocation.

C) Age in bond rule -> A simple rule is to take you age and use that as your bond ratio.

D) All else fail, do a 60/40 asset allocation. Those are the standard ratio use by insurance company for their investment.

E) When in doubt, lower the stock ratio. The strategy only work if you can yourself from selling in a market crash. If you cannot sleep at night with your aset allocation, reduce you stock exposure...

F) Emergency fund is not part of your asset allocation. You need at least 3 to 6 months of emergency fund. You may keep longer if you feel your income is unstable.

Dreamer

u all use which US broker?

which US broker recommended to use?

i think the barrier is that if you are a small timer investor, the cost of trading is probably higher than the investment amount...but i might be wrong here...

but, i'm interested in knowing more on how to invest with US online brokers, especially on funds transfer/payment

jutamind,

The rule of thumb for trading cost is less than 1%. Assuming USD $10 per trade, that means the invest amount should be at least USD $1K.

Dreamer

Take a look at the ETF/Mutual fund performance, at MY mutual fund market also can get that kind of return.

why need the hassle to invest in US mutual fund/etf?

MNet,

1) VT invest on 4,500 largest companies in the world. It is highly diversified. It is protected against any single country failure like Malaysia. Annual expense = 0.19%

2) BND invest on the whole US bond market. Annual expense = 0.1%

Their costs and diversification is unmatched by offering in Malaysia.

<<MY mutual fund market also can get that kind of return.>>

3) Return is NOT the main goal of this approach. The main goal is Risk Adjusted Return with minimal expense and maintenance.

Dreamer

Folks,

Let's assume that you pick 60/40 at step 1. Your brokerage expense is $10 per trade and you have approximately USD $10K to invest. Furthermore, let's assume that VT is at $50 per share and BND is at $80 per share.

At 60/40, you will invest $6K at VT and $4K at BND.

For VT, you buy $6,000 / $50 = 120 shares.

For BND, you buy $4,000 / $80 = 50 shares..

Given that you trading cost is $10, you will invest the amount of at least $1K to keep your trading cost down.

Dreamer

+1

If buying US ETFs from here, subject to upkeeping charges. How do you deal with it? It will eat into profits yes?

kaiserwulf,

If you open an US Brokerage A/C online and buy the ETF through that A/C, what kind of maintenance charge are you referring to??

Dreamer

Dreamer,

Which online broker do you use? What's the commission rate and how to fund your trading amount?

jutamind,

https://forum.lowyat.net/topic/2027841/+2760

I use TD Ameritrade for stock trading. I am US Resident. Hence, I can invest on Vanguard directly without using ETF. You should ask people on above thread. I believe they either open the US A/C directly on line or open A/C on Etrade at Singapore.

Dreamer

Dreamer,
THANK YOU for starting this thread!

Good post. Always buy direct to keep costs low.

Looks like being a US resident is not in my target for a long time. Btw, how do taxes affect you if you are US resident compared to a non?

kaiserwulf,

Check out the US stock thread on tax issue. I am not familiar with those issues. I believe as a non-US resident, you may have additional advantage of not having to pay capital gain tax for your stock gain. And, your gain is not taxable by Malaysian government too.

<<Good post. Always buy direct to keep costs low.>>

That statement is not necessary true with Vanguard ETF. Vanguard ETF is actually lower cost than Vanguard mutual fund in most cases. The only difference is I do not have to pay trading cost to buy mutual fund versus ETF.

https://personal.vanguard.com/us/funds/snap...ntExt=INT#tab=3

Total bond market mutual fund expense ratio = 0.20%

https://personal.vanguard.com/us/funds/snap...ntExt=INT#tab=3

Total International mutual expense = 0.22%

Dreamer

This post has been edited by dreamer101: Jun 11 2013, 11:14 AM

Taken from investopedia.com:

The tax implications for a foreign investor will depend on whether that person is classified as a resident alien or a non-resident alien. To be considered a non-resident alien, a person must meet several guidelines. First of all, the person cannot have had a green card at any time during the relevant tax reporting period (e.g 2005) and cannot have resided in the U.S. for more than 183 days in the past three years, including the current reporting period. However, non-U.S. citizens who hold green cards and have been in the U.S. for more than 183 days are classified as resident aliens for tax purposes and are subject to different guidelines than non-resident aliens.

If you fall under the non-resident alien category and the only business you have in the U.S. is in investments (stocks, mutual funds, commodities) within a U.S. dollar-denominated brokerage firm or other agent, you are subject to the following tax guidelines. In terms of capital gains, non-resident aliens are subject to no U.S. capital gains tax, and no money will be withheld by the brokerage firm. This does not mean, however, that you can trade tax free - you will likely need to pay capital gains tax in your country of origin. In terms of dividends, non-resident aliens face a dividend tax rate of 30% on dividends paid out by U.S. companies. However, they are excluded from this tax if the dividends are paid by foreign companies or are interest-related dividends or short-term capital gain dividends. This 30% rate can also be lower depending on the treaty between your home country and the U.S., so it is important that you contact your brokerage firm to verify the rate. If you are a resident alien and hold a green card or satisfy the resident rules (183 days), you are subject to the same tax rules as any U.S. citizen.

Annual Expense Ratio (AER) of 0.1% or 0.2% is simply WOW!

In Bolehland these type of figures are dream only.

The lowest AER one can go in Bolehland is around 1%, that is by becoming agent on your own and reinvest your commission.

Xuzen

For those who are interested in ETF... but worry about trading cost and 30% withholding tax ton dividends there are ways to avoid this.

Buy offshore US ETF listed in SGX and HKEX, you will not be charged the 30% withholding tax since both countries have no tax on dividends. You choices are more limited, but you can still find the most of the more popular ETF's.

Also a lot of broker have commission free trades on US ETF, this might be able to offset your witholding tax. Then sell your holdings before dividend and re-buy ex-dividend once the price is adjusted. Otherwise don't bother (like me) as most US ETF dividend is <3%.

Or you can buy Offshore Vanguard funds , as non-US resident but the minimum purchase is $10,000.

This post has been edited by gark: Jun 11 2013, 02:47 PM

I hold VOO, Vanguard S&P 500 ETF, and my MER is 0.05%-0.06%....

This post has been edited by gark: Jun 11 2013, 02:42 PM

what's the difference between the same ETF but listed in SGX and HKEX? Arent they the same ETF but only traded in different currencies?

If we were to buy from SG/HK, what would be the cheapest to fund the trading account in SG/HK?

All of them listed is US, HKEX or SGX is traded in USD only.

Just the company structure is different, those listed in SGX and HKEX is offshore, so they are not subject to US tax.

how do you transfer RM to SG/HK for payment of these ETFs purchase?

By TT? Or you can buy through MY broker, but more expensive...

This post has been edited by gark: Jun 11 2013, 04:33 PM

MGM and Gark,

Thanks for helping out on this thread...

Dreamer

Folks,

Now, we want to go into step of how to invest additional money.

A) You have additional 1K to invest.

VT had went up $100, BND had dropped to $60..

So, VT @ 120 share = 120 X $100 = $12,000

BND = 50 shares @ $60 = $3000

Total = $15K

VT = 12,000 / 15,000 = 80%
BND = 3000 / 15000 = 20%

Your goal is to keep the fixed 60/40 ratio. Since the BND is below the targeted 40% ratio, you use $1K to buy BND 1000 / 60 = 16 shares @ $60 = $960.

Dreamer

You have additional 1K to invest.

VT had went down $25, BND had went up to $160..

So, VT @ 120 share = 120 X $25 = $3,000

BND = 50 shares @ $160 = $6000

Total = $9K

VT = 3,000 / 9,000 = 33% < 60%
BND = 6000 / 9000 = 67% > 40%

Your goal is to keep the fixed 60/40 ratio. Since the VT is below the targeted 60% ratio, you use $1K to buy VTI 1000 / 25 = 40 shares @ $25 = $1,000.

Dreamer

You have additional 1K to invest.

VT had went down $25, BND had went down $20..

So, VT @ 120 share = 120 X $25 = $3,000

BND = 50 shares @ $20 = $1000

Total = $4K

VT = 3,000 / 4,000 = 75% > 60%
BND = 1000 / 4,000 = 25% < 40%

Your goal is to keep the fixed 60/40 ratio. Since the BND is below the targeted 40% ratio, you use $1K to buy BND 1000 / 20 = 50 shares @ $20 = $1,000.

Dreamer

This post has been edited by dreamer101: Jun 12 2013, 07:05 AM

You have additional 1K to invest.

VT had went up $75, BND had went up to $100..

So, VT @ 120 share = 120 X $75 = $9,000

BND = 50 shares @ $100 = $5000

Total = $14K

VT = 9,000 / 14,000 = 64% > 60%
BND = 5000 / 14,000 = 36% < 40%

Your goal is to keep the fixed 60/40 ratio. Since the BND is below the targeted 40% ratio, you use $1K to buy BND 1000 / 100 = 10 shares @ $100 = $1,000.

Dreamer

FYI, the returns of those non-US -domiciled ETF are adjusted for the dividend tax withholding.

One may want to check for the tax treaty between the domiciled country and US.
For instance, Ireland-domiciled Vanguard S&P 500 (VUSA) is subjected to 15% dividend withholding instead of the normal 30%.

Another thing to take note is the estate tax imposed by US: Stocks are treated as U.S. gross estate and there's only $60k tax exemption for non-resident alien.

Folks,

We had gone through

1) Set an asset allocation ratio

2) How to invest extra money into that asset allocation.

Now, we are going into re-balancing. There are two common kind of rebalancing: time based and band based.

Let's start with time based. In this case, you pick a time to rebalance your portfolio to the fixed ratio. The most common time based rebalancing is annual rebalancing. You pick the same day every year to rebalance your portfolio.

For example, you are on 60/40. at November 1 every year, you will rebalance.

Let's assume that you have 200 shares of VT at $100 and 100 shares of BND @ $120.

200 X $100 = $20,000 of VT
100 X $120 = $12,000 of BND

Total = 20K + 12K = 32K

VT 20K /32 k = 62.5% > 60%
BND 12K / 32K = 37.5% < 40%

So, you need to sell 2.5% of your portfolio (32K) = $800 of VT to buy BND in order to get back 60/40 ratio.

You sell 8 shares X $100 of VT = $800 and buy 6 share x $120 of BND @720.

Dreamer

Hi, I recently found out that some brokerages are offering commission-free ETFs. Brokerages like Charles Schwab, Fidelity and TD Ameritrade. I think Ameritrade has the best choices of ETFs so far. I am only a student and don't have enough money to invest yet, but you guys might want to check it out. And if you are satisfied with their service, please let me know.

For anyone interested in asset allocation, I recommend William Bernstein's Four Pillars of Investing. You can get it from Amazon for $30 ($20 plus $10 for delivery. Assuming you only order 1 book). It's not as technical as his first book The Intelligent Asset Allocator which explains a lot about Modern Portfolio Theory, but Four Pillars teaches you a lot about market history and investor psychology (behavioral finance). It also explains why the finance industry sucks big time. As someone who was once an insurance agent, I can attest to that. Anyone got books to recommend for me, please let me know.

This post has been edited by JohnL77: Jun 13 2013, 03:23 PM

http://www.betterworldbooks.com/the-four-p...0071747059.aspx

JohnL77,

You can get that book used and cheaper whenever it is available on above url. Free shipping too.

Dreamer

Haha, thanks but I already have the book. Urm... I think Amazon is still cheaper? $30 vs $35.65 new. Plus, you can reduce the shipping cost for Amazon if you buy more than one book. (They charge a fixed $4.99 per order and $4.99 for every book. So if you order multiple books, that fixed $4.99 is spread amongst your books.)

This post has been edited by JohnL77: Jun 13 2013, 06:44 PM

JohnL77,

You do not get IT. That particular used book is not available at that web site at the moment. When it is available, you can get it less than $10 including FREE shipping worldwide.

Most used books in that web site sell for $4 with FREE shipping worldwide.

Dreamer

Oh... okok. I see. Nice.

This post has been edited by JohnL77: Jun 13 2013, 10:54 PM

Folks,

The other kind of rebalancing is called band based rebalancing. The most commonly used band based rebalancing is 5/25. In this case, the first 5 refer to 5% of the portfolio. And, the 25 refer to 25% increase or decrease.

Let's take a portfolio of 100K, the targeted % for asset A , B, C are 60, 30, 10. 5% of 100K is 5K.

For Asset A, for it to trigger the 5 rule, A has either to be lowered than (60 - 5) = 55 or higher than (60 + 5 ) = 65. For A to triggered the 25% rule, A has to be lower than ( 60 * 75%) = 45K or higher than ( 60 * 125%) = 75K.

For 5% rule, 55 < A < 65. For 25% rule, 45K < A < 75K

For A, given that the 5% portfolio rule is narrower than the 25% rule, A will be kept between 55 and 65. When A is below 55, you buy A. When A is above 65, you sell A.

Dreamer

Folks,

For asset B, the 5% rule, means that B has to between 25K and 35K. For the 25% rule, B has be between 22.5K and 37.5K. Given that 5% rule is narrower than the 25% rule, it will be trigger first. Hence, for 5/25, B is kept between 25K and 35K.

For Asset C, the 5% rule means that C has to be between 5K and 15K. The 25% rule means that C has to be between 7.5K and 12.5K. The 25% rule win.


In summary, for 5 / 25 rule and A/B/C of 60/30/10

55 < A < 65
25 < B < 35
7.5 < C < 12.5

If A, B or C cross those threshold at ANY time, they are sold or bought back to the targeted amount.

Dreamer

Dreamer,

Nice concept. Any statistical reason why this 5/25 rule should be followed? Do you know how to value average?

JohnL77,

<<Any statistical reason why this 5/25 rule should be followed?>>

This is the most common percentage and it works for most asset classes. The GOAL is to avoid trigger rebalancing too frequently but trigger enough to avoid a bubble to overload your portfolio and expose to high risk.

For example, with asset class like commodity, the band may need to be larger since they are a lot more volatile.

<<Do you know how to value average?>>

http://www.investopedia.com/terms/f/famaan...factormodel.asp

I do not understand what you are asking... But, according to FAMA French, exposure to Small Value stock asset class is useful and rewarding. So, if you are interested, you can add small value stock index as an asset class into your portfolio and follow the asset allocation model.

Dreamer

few questions:

1. can 5/25 rule be applied to unit trust funds?
2. if 5/25 rule is breached, instead of selling, can we use the rule to top up assuming that the underlying funds/ETFs are good and we have spare cash to invest?

I'm talking about this - http://www.investopedia.com/articles/stocks/07/dcavsva.asp. William Bernstein advocates it. I want to know if anyone practices it.

jutamind,


1) You could but Unit Trust Fund for this strategy. But, Unit Trust is lousy investment too begin with. ETF is 0% load and less than 0.5% annual fee. Unit Trust:-( :-(. I buy Public Bank Stock because PBB make a lot of money from people buying Unit Trust.

2) Yes, you cold do that. But, it may not be practical after a while. Please note that it is good to sell. You are "Selling High" and "Buy Low" at the same time. This rule prevent you from getting caught in a bubble. It is a GOOD THING. It keep you SAFE.


http://www.amazon.com/Value-Averaging-Stra...value+averaging

JohnL77,

I have this book and I read it. I consider it as too troublesome and not worth the effort.

I am not an optimizer. And, I do not need the BEST STRATEGY. My goal is to live my life and enjoy my money. It means spend JUST ENOUGH TIME on my investment.

Dreamer

This post has been edited by dreamer101: Jun 14 2013, 11:52 PM

Oooh.. you have the book. Hmm, disappointed to hear you say that. I wanna buy the book.

Which brokerage do you use? Please, what do you think about commission-free ETFs? What's the drawback?

Buy Public Bank Stock, hehehe.. good idea. Buffett also got rich by buying an insurance company.

Please can you share your portfolio? ^.^ Interested.

Oh, and I read a lot of bad reviews about Better World Books.... Anyway, the books I want aren't any cheaper there at the moment.

This post has been edited by JohnL77: Jun 15 2013, 12:12 AM

JohnL77,

http://www.investopedia.com/articles/mutua...tfindexfund.asp

VWENX, VGSLX, VFWAX, VTSAX, DFSVX, VBTLX

Approximately 65/35 portfolio.

I buy Vanguard fund directly..

<< Oh, and I read a lot of bad reviews about Better World Books.... Anyway, the books I want aren't any cheaper there at the moment.>>

Another cheap way to buy book is to buy a Kindle from Amazon and buy Kindle e-book.

http://ebookfriendly.com/2011/12/06/buying...road-checklist/

http://www.mobileread.com/forums/showthread.php?t=161093

Dreamer

This post has been edited by dreamer101: Jun 15 2013, 12:59 AM

"Another cheap way to buy book is to buy a Kindle from Amazon and buy Kindle e-book."

Hmm.. yes, one day.

0.o How do you buy Vanguard fund directly? They said foreigner cannot buy their fund. Please share. >.<

*EDIT: Oh, you are a US citizen. Admiral Shares. WOW. 0.0 So you do use Ameritrade. Do you enjoy their service? What's the cost of having an account with them?

*EDIT: Age as bond allocation... you are in your mid 30s?

This post has been edited by JohnL77: Jun 15 2013, 01:46 AM

You need to minus the mutual fund costs.

JohnL77,

<<IT: Age as bond allocation... you are in your mid 30s?>>

No. I choose not to use that rule of thumb...

<<So you do use Ameritrade. Do you enjoy their service? What's the cost of having an account with them?>>

Not quite sure. That A/C is for my play money. It is for trading some very speculative stock. It is less than 5% of my portfolio. In that A/C, I buy stock either give me 10X return or go down to zero.

Dreamer

JohnL77,

Actually, I should thank the person for contributing to my PBB profit...

Dreamer

They only charge you for trading, right? Are there account maintenance fees, something like that?

So how old are you? You seem like someone who is pretty much on path to his financial goals. I bloody hell hope I can qualify for Admiral Shares by the time I'm in my mid 30s. Lol.

Hahaha, perhaps there should be a mutual fund company index fund/ETF.

What's the weightings of your portfolio? No gold/precious metals?

*I'm especially interested in your small value weighting. Since Damodaran and Fama have proven that value stocks perform better, why don't value investors have a completely value index stock portfolio? Is that a good idea?

This post has been edited by JohnL77: Jun 15 2013, 04:39 AM

JohnL77,

<<They only charge you for trading, right? Are there account maintenance fees, something like that? >>

There is minimal amount that you need to have in order to avoid account maintenance fee. I meet that. Hence, I only pay for trading.

<<Hahaha, perhaps there should be a mutual fund company index fund/ETF.>>

VT and BND are ETF of Vanguard mutual fund. So, you have that...

<<What's the weightings of your portfolio? No gold/precious metals?>>

My wife has enough gold jewelry..

<< *I'm especially interested in your small value weighting. Since Damodaran and Fama have proven that value stocks perform better, why don't value investors have a completely value index stock portfolio? Is that a good idea?>>

VWENX aka Wellington Fund stock portion is focused on Large Value Stock.

DFSVX is Small Value focused. It is only 5% of my portfolio.

<<why don't value investors have a completely value index stock portfolio? Is that a good idea?>>

Too much of a good thing is a bad thing.. I believe in BALANCE. I tilted slightly toward value.

BALANCE let you win SAFELY In the long run.

<<I bloody hell hope I can qualify for Admiral Shares by the time I'm in my mid 30s. Lol.>>

Most admiral shares' minimum is only USD $10K.... That is not a lot of money...

Dreamer

Folks,

There is something FUNDAMENTAL and PROFOUND in asset allocation approach.

We know in investing, if you can buy low and sell high, you will make money. So, guess what we are doing so far in every step of the asset allocation process?? We are buying low and sell high.

A) We fixed the asset classes at fixed percentage.

B) When we investing with additional money, we invest on asset class that is cheaper as compare to other asset in our portfolio. If we follow the rule, we will always buy the CHEAPEST asset class at the moment in relation to our asset.

C) When we do annual rebalancing, we sell asset that exceed our allocation. That means we sell high. And, we buy asset that is lower in allocation. We sell low.

D) We do the same thing with 5/25 band rebalancing, we sell asset that is high and buy asset that is low.

Now, if you keep on sell high and buy low, you will make money most of time.

Yes, that is ONE situation that you will not make money. Aka, all THE ASSET classes went down at the same time. But, even in this case, you are limiting your damage by sell high and buy low in relative sense between your asset classes.

Dreamer

What's the minimum amount?

No no no, I meant, a fund that owns the shares of companies that own mutual funds like Public Bank.

"My wife has enough gold jewellery"

LOL.

$10k is RM30,000. Plus, $10k only lets you participate in one fund. Are there Vanguard funds that let you diversify without a minimum $50k? Anyway, not like I can take part, only option for M'sians are ETFs, I guess.

Btw, this is a great thread. Thanks for sharing what you know about asset allocations.

This post has been edited by JohnL77: Jun 15 2013, 12:38 PM

JohnL77,

<<What's the minimum amount?>>

Check their web site...

<< "My wife has enough gold jewellery"

LOL.>>

That is the actual statement from my wife when I was thinking of buying some gold (coin or jewellery) to hedge inflation. I am still trying to convince her to let me buy some silver coins.

<<No no no, I meant, a fund that owns the shares of companies that own mutual funds like Public Bank. >>

The largest mutual fund company is Vanguard.

https://investor.vanguard.com/about/why-invest-with-us

Your interests are the only interests we serve

<< Most investment firms are either publicly traded or privately owned. Vanguard is different: We're client-owned. Helping our investors achieve their goals is literally our sole reason for existence. With no other parties to answer to and therefore no conflicting loyalties, we make every decision—like keeping investing costs as low as possible—with only your needs in mind.>>

Vanguard is directly / mutually owned by the investors on the Vanguard fund and ETF. Vanguard is a non-profit. Hence, it has the lowest costs.

The other mutual fund companies are not good investment.

Dreamer

Folks,

Some other points about asset allocation:

1) You should use interest income and dividend income to rebalance your portfolio.

2) You could add more asset classes if you want to. But, for most of the studies done, stock / bond ratio has the highest impact of your portfolio return.

3) Each asset class should have 5% or more of your portfolio or else it has too little impact to matter.

4) Most popular asset class addition to the portfolio are REIT since it usually does not correlate to stock or bond. The asset class that does not correlate to other asset classes in your portfolio tend to provide better diversification and return enhancement.

Dreamer

I did contact them, they said no minimum balance is required.

"That is the actual statement from my wife when I was thinking of buying some gold (coin or jewellery) to hedge inflation. I am still trying to convince her to let me buy some silver coins."

I guess it's no laughing matter then. Lol.

What I meant was like what you said, Public Bank owns Public Mutual and if people still believe in Public Mutual then Public Bank will make more money. So there you should be an "index fund" that tracks the performance of companies that own mutual fund companies. But then again, it's silly to think that income from mutual fund companies alone will make companies like Public Bank a lot richer, right? Or is it not? Lol.

Yes, I know Vanguard is owned by the shareholders. I just read about it recently in The Four Pillars of Investing. Xuzen is hoping that mutual fund expenses in Malaysia will drop, but I think until we have an ownership structure like Vanguard, it will never happen.

But how long do you think this situation will last? Will there be a day when we don't realize that Vanguard has raised its fees because we've forgotten what they used to charge us?

So Dreamer, what do you think is the best way for Malaysians to invest in index funds/ETFs? Is it like what Gark said, open an account with a broker in Singapore because they don't charge withholding tax?

This post has been edited by JohnL77: Jun 16 2013, 03:21 PM

JohnL77,

<<Yes, I know Vanguard is owned by the shareholders. I just read about it recently in The Four Pillars of Investing. Xuzen is hoping that mutual fund expenses in Malaysia will drop, but I think until we have an ownership structure like Vanguard, it will never happen. >>

Why wait for that to happen when you can buy ETF directly?? Do not wait for world to change. Do what is best for you at any time.. Life is too short.

<< So Dreamer, what do you think is the best way for Malaysians to invest in index funds/ETFs? Is it like what Gark said, open an account with a broker in Singapore because they don't charge withholding tax?>>

You could do that but it is closer and more convenient to go to Singapore to check your A/C if you need to. But, I am not sure how big a deal withholding tax is. Is it only on the dividend??

You only pay tax if you make money. Sometime, a person can be "penny wise pound foolish" and do too much to avoid tax.

How much is the cost of buying fund from fund supermarket??

Dreamer

"How much is the cost of buying fund from fund supermarket??"

I don't know man.

William Bernstein disfavors ETFs. His outlook seems to have been kinder to ETFs since he wrote The Four Pillars compared to his stance when he wrote The Intelligent Asset Allocator, but he still prefers index funds. Why?

Hey, Dreamer, what books would you recommend reading?

And how is it like living in the US? What's your job there? Dude, have you seen monolithic domes? Round houses made of Styrofoam and concrete? I've been in love with these kind of houses. Not sure if it would be wise to build one.

JohnL77,

You are not US resident and you do not have USD $200K. So, buying fund directly is not possible. Hence, ETF is the only way to go...

<< Dude, have you seen monolithic domes? Round houses made of Styrofoam and concrete? I've been in love with these kind of houses. Not sure if it would be wise to build one.>>

You are too much of a city person. There are plenty of nice and beautiful places in USA. Live in a RV and tour all the national park all the times seem nicer.

http://en.wikipedia.org/wiki/List_of_natio...e_United_States

Dreamer

I just have this dream of having a monolithic dome in a green area surrounded by trees. Something like that. Lol. Travelling the world in an RV sounds good too. Is that what you do? Please don't tell me your wife doesn't let you do that.

Hey, what do you think about owning real estate? Jim Altucher doesn't like the idea, and I agree with him that it can be a drag.

JohnL77,

I owned VGSLX...

<<Hey, what do you think about owning real estate? Jim Altucher doesn't like the idea, and I agree with him that it can be a drag.>>

Who the hell is Jim Altucher?? How does that RELEVANT to you??

If you KNOW how to invest on Real Estate, it will work for you. If not, do something else..

There are many people that invest on many things and became very successful. But, they are not YOU. You need to know what will work for you and pick that.

If you asked the WRONG question, you will NEVER get the RIGHT answer!!!

Dreamer

No, I'm definitely going to own REITs as part of my investment. But taking a loan to buy a house... I have some doubts about that. Besides, you have this great idea of owning an RV. Do you live the dream?

I'd just like to hear your opinion on owning a house.

This post has been edited by JohnL77: Jun 17 2013, 01:03 PM

JohnL77,

<<I'd just like to hear your opinion on owning a house.>>

Owning a house to stay is an expense. It is not an investment. Now, as to buying rental property to earn income, I am not interested. It takes too much active involvement and I do not want that.

I believe doing rent versus buy calculation for my primary residence. If it costs less to buy, I will buy. Or else, I will rent.

Dreamer

Looks like we pretty much agree on this. I think REITs are the best way to invest in rental property. But I don't know anything about how to pick REITs. Any book recommendations?

Yes, I just read an article on Time mentioning P/R ratio, haha.

JohnL77,

Don't pick... VGSLX (mutual fund) or VNQ (ETF) is the REIT index fund for all the REIT in USA.

Dreamer

Folks,

In this approach, other than the effort to establish the A/C and transfer money, the amount of effort and intelligence required is minimal. You do not have to be SMART in order to get this to work. You just need to have a plan and stick with it.

This plan provides you with LOW COST and DIVERSIFICATION. You are investing on 4,000 to 5,000 largest companies in the world and 3,000 bonds in USA.

You just need to get started and re-calculate and invest when you have new money. You can do either

A) Annual rebalancing -> calculate every year.

B) Band based rebalancing -> calculate every week.

You can do this via Spreadsheet or pencil and paper.

Please note that any investment approach that require you to be VERY SMART probably will not work for a lot of people.

Dreamer

Folks,

The followings are my personal story / journey of how I come about to this investment approach.

The PROBLEM with adopting this approach is you have to admit that you are not very smart in term of investing. You cannot beat the average. You might be smart in many other different area but beating the market average is not what you can do.

10+ years ago I lost half of my life savings in stock trading. I got so scared of the stock market that I convert everything into cash except one S&P 500 stock index. After the crash, this stock fund survive. But, this is a lesson that I need to learn. I could not sleep at night during the crash. I have to sell everything in order to get a good night sleep.

As a result of this lesson, I searched and studied an approach that I have confident in and I can keep going even with a bad crash. And, this the approach that I settled in. I cannot know this approach works for me until I survive the 2008/2009 crash without losing my sleep.

Dreamer

Hi Dreamer,

Do you invest in ETF using DCA/VCA or as and when you want to invest?

jutamind,

I invest whenever I have extra cash. What I buy is based on which asset is below allocation. Normally, I invest on the increment of USD 1K.

Dreamer

Hmm.. yes, but what about global property? For some reason, I feel I should diversify.

Since bond yields are so low right now, wouldn't it be better to put your money in fixed deposit for say... 1 year or half a year?

"The PROBLEM with adopting this approach is you have to admit that you are not very smart in term of investing. You cannot beat the average. You might be smart in many other different area but beating the market average is not what you can do."

LOL, the average driver thinks he's better than other drivers. If some people can't understand what that means, this thread is not for them. Let's face it, the average IQ is 100. 1 or 2 standard deviations could mean you are much smarter or much dumber, lol.

Wasn't it Socrates who said, “I know that I am intelligent, because I know that I know nothing"?

"10+ years ago I lost half of my life savings in stock trading."

Today's episode of The Apprentice Asia was about day trading. This show is a bloody joke. I lost interest since the second episode. The task was to make a viral video and even though the losing team was a bit misguided, their video was interesting. The winning team's video was as boring as white bread. The worst part was, Fernandes called the losing team's video a disaster and he repeated that statement today. I feel Fernandes is just not committed. He said the producers persuaded him many times before he relented. The show is so bloody obviously scripted.

Where are all the winners of the US and UK series? They get a high paying job for one year and then they set up their own recruitment company. Because, you know, "if you can't do it, teach."

Sigh, a relative of mine took a loan on his house to day trade and we never saw that money again. I don't think he trades much these days, but he still reads newsletters and watches videos promising, "YOU CAN MAKE IT AS A DAY TRADER!"

I know a lot of butthurt traders will come here to defend themselves, but one thing about day traders, it's very rare to see someone fully disclose their trades. How much money did they start with? What did they buy? When? And most importantly, how bloody consistent was their performance? It's one thing to say, I beat the market this month, it's another to say, I beat the market every year for at least 10 years!

Also, saying you can make money by day trading isn't very objective and clear in telling people just how many people lose money day trading. Yeah, anyone can be rich, but not everyone. People need to learn what investing really means.

My believes are pretty much the same as yours, Dreamer. I believe the best investment is yourself. Improve your skills, start a business or work on your career. Investing should be simple and not get in the way of your business/career.

If you think you are some genius who can beat the market, then do it full time and most importantly, trade other people's money, not your own.

This post has been edited by JohnL77: Jun 20 2013, 04:58 AM

JohnL77,

<<Hmm.. yes, but what about global property? For some reason, I feel I should diversify. >>

https://personal.vanguard.com/us/funds/snap...&FundIntExt=INT

VNQI is international REIT ETF. However I am not convinced that it is good investment. REIT is not well developed all over the world. Hence, International REIT is not as diversified as you think.

<<Since bond yields are so low right now, wouldn't it be better to put your money in fixed deposit for say... 1 year or half a year? >>

You are doing market timing...

<< Also, saying you can make money by day trading isn't very objective and clear in telling people just how many people lose money day trading. Yeah, anyone can be rich, but not everyone. People need to learn what investing really means. >>

My uncles won the lottery 3 times. He can win money by gambling at Genting. But, I am not my uncle. There might be people that can make money by day trading. But, that is THEM and their ways. I know it is not for me.

Don't worry too much about what others do and do not do. Focus and execute your own plan for your life.

Know what is right for you.

Dreamer

Sorry, I don't really understand how investing in bonds work. Especially since retail investors cannot buy bonds directly in Malaysia. (Correct me if I'm wrong)

Haha, I'm just giving a warning to those who will heed. I especially don't want any of my friends or family to gamble their savings away. It would pain me to see that. (since I've already seen it first hand)

Your uncle is one of those coin flippers that has been destined to get heads all the time, lol.

Hmm.. should I own domestic REITS?

JohnL77,

BND is US bond index ETF...

<<Hmm.. should I own domestic REITS?>>

I do not invest locally except for PBB. Malaysia is TOO SMALL and it is totally dependent on the government. IMHO, Malaysia's economy will crash soon and may never recover. Anyhow, I do not believe in dependent on any single country to begin with.

Dreamer

What about the United States.

JohnL77,

What is the question??

A) Will USA crashes??

B) What happened if USA crashes??

I am diversifying across the world. I invest on 4500 largest companies all over the world.

Dreamer

Yes, will the USA crash? How much of your portfolio is US stocks?

JohnL77,

40%.

Dreamer

Hmm.. I think it's hard to say whether Malaysia will crash. Why do you think Malaysia definitely will crash?

What about the US? Don't you think it will crash? Or is it recovering now? Is it recovering for a crash?

40% of your entire portfolio or 40% of your stock portfolio?

This post has been edited by JohnL77: Jun 21 2013, 02:42 PM

JohnL77,

<<Hmm.. I think it's hard to say whether Malaysia will crash.>>

It is not hard. You just need to open your eyes and see.

<<Why do you think Malaysia definitely will crash?>>

The question should be in reverse. What makes you think that Malaysia can sustain itself??

<<What about the US? Don't you think it will crash?>>

http://www.shadowstats.com/alternate_data/...ployment-charts

US had crashed. TRUE UNEMPLOYMENT is 10+%.

<<Or is it recovering now? Is it recovering for a crash?>>

It is still in a crash.

<<40% of your entire portfolio or 40% of your stock portfolio?>>

40% of my entire portfolio.

Please note that stock market is not necessary a reflection of REAL ECONOMY.

Dreamer

40% of your portfolio means you are confident the US will recover?

I'm really on the fence on whether Malaysia will crash. But not recover? That's very pessimistic.

JohnL77,

<<40% of your portfolio means you are confident the US will recover? >>

1) USA is in a crash now. So, how does it feels?? 10+% unemployment and the country is still functioning..

2) You are confusing economy with stock market again. Corporate American is doing extremely well even though the economy is doing badly.

<<I'm really on the fence on whether Malaysia will crash.>>

3) What will prevent Malaysia from crashing?? Nothing..

4) BN / UMNO had won GE13. Nothing will improve over the next 5 years. It will get worse in exponential pace.

<<But not recover? That's very pessimistic.>>

Burma and Philippine were the richest countries in South East Asia during the 1960s. They NEVER recovered from their crash. It is NORMAL for the countries to NEVER recover from their crash.

Dreamer

Hmm.. I see your point. I hate how the tone of our conversation has shifted. This always happens when the topic has to do with politics. (I don't affiliate with any party)

When you say never recover from their crash, do you mean their economy or their stock market? I'm confused.

JohnL77,

Their economies.

Dreamer

I need to read more about market history.

Thanks for having the patience to answer all my stupid questions.

Was just browsing Vanguard's website. Wow, just wow, their expense ratio is just amazing.

Their Admiral Index Fund annual expense ratio is 0.05% p.a. and their fund size is USD 170 Billion. That means that their fee is USD85Million i.e., RM255Million p.a.

Let's take a big fund from Bolehland say PSF (Public Saving Fund). Its AUM is RM1.7 Billion and with a 1.5% annual expense ratio, the annual fee is a comparatively miniscule RM 25.5 Million.

No wonder Vanguard can charge so low AER, with an AER of only 0.05% is still beat the SH*T out of our Bolehland's largest mutual fund in terms of chargeable fee.

Being big is good.

Xuzen

It took a long time for Vanguard to get this big. If bolehland keep refusing to come up with a good index fund, the gap between M'sian investors and US investors will keep growing.

JohnL77,

There is no DIVERSIFICATION in KLSE. 50+% of KLSE is owned by GLC and GLIC. So, the government directly or indirectly owned 50+% of KLSE. Even if somebody come up a good ETF for Malaysia, I will not buy it.

There is NOTHING to prevent Malaysian investor to buy Vanguard ETF. So, why wait for Malaysia to do something when you can do it yourself.

Dreamer

xuzen,

Public Mutual is highly profitable. This is one of the reasons that I buy Public Bank stock. The only stock that I buy for Malaysia.

Dreamer

Reviving a slightly old thread here

I'm looking to do my monthly, regular investments via a selection of ETFs (in this case through TDAM)

Currently these are all comission/fee free so it's not an issue to add in small amounts ($200-300 worth) on a monthly basis, do these normally stay fee free for the long term? As it wouldn't be worth paying purchase charge each time if the amounts are small.

rjb123,

All ETFs have annual maintenance fee. You pay for those fee as long as you hold the ETF. So, check their annual maintenance fee before buying certain ETF.

Dreamer