Trying to Figure out How Much You Need to Retire

People who buy bonds and hold them to maturity will suffer opportunity costs when rates rise, but do not have to realize capital losses as they will receive par upon maturity if the issuer does not default. However in Singapore most bonds are sold only in chunks of $200,000 or larger. As a result many people look to bond funds as an alternative, but do not understand that bond funds do not hold to maturity and will thus realize capital gains/losses as interests rates fall/rise.

My personal view is that people buying bond funds today will either learn this the hard way when rates rise, or they will not learn at all, simply swearing off all funds as some sort of scam. From my past (and ongoing) experience, the level of financial literacy in Singapore is appalling.

The author of the original article is the General Manager of Fundsupermart.com, which sells funds. Readers can decide for themselves whether he has a conflict of interest in promoting bond funds without pointing out the interest rate risk embedded in such funds.

(12-06-2013, 04:15 PM)d.o.g. Wrote: People who buy bonds and hold them to maturity will suffer opportunity costs when rates rise, but do not have to realize capital losses as they will receive par upon maturity if the issuer does not default. However in Singapore most bonds are sold only in chunks of $200,000 or larger. As a result many people look to bond funds as an alternative, but do not understand that bond funds do not hold to maturity and will thus realize capital gains/losses as interests rates fall/rise.

My personal view is that people buying bond funds today will either learn this the hard way when rates rise, or they will not learn at all, simply swearing off all funds as some sort of scam. From my past (and ongoing) experience, the level of financial literacy in Singapore is appalling.

The author of the original article is the General Manager of Fundsupermart.com, which sells funds. Readers can decide for themselves whether he has a conflict of interest in promoting bond funds without pointing out the interest rate risk embedded in such funds.

Thanks. Mr. d.o.g.

Ah! Individual bond and bond fund. It's really not the same as stock and STF Index fund. Thinking both pairs in terms of safety of capital invest is parallel, is a big mistake. i may have thought in this way until i read a warning if you want to go into bond, buy individual bond and not bond fund. Bond fund can have many funny things happen to your capital invested. Hey! How about subprime CDO bonds as a product again?

(12-06-2013, 04:31 PM)Temperament Wrote: Ah! Individual bond and bond fund. It's really not the same as stock and STF Index fund. Thinking both pairs in terms of safety of capital invest is parallel, is a big mistake. i may have thought in this way until i read a warning if you want to go into bond, buy individual bond and not bond fund. Bond fund can have many funny things happen to your capital invested. Hey! How about subprime CDO bonds as a product again?

The key words is financial literacy IMO.

There are risks involved, and there are means to mitigate e.g. buying bond to maturity, and staggered approach etc.

I prefer equity over bond. A follower of Peter Lynch who believe more in equity than bond investment.

(12-06-2013, 04:57 PM)CityFarmer Wrote:

(12-06-2013, 04:31 PM)Temperament Wrote: Ah! Individual bond and bond fund. It's really not the same as stock and STF Index fund. Thinking both pairs in terms of safety of capital invest is parallel, is a big mistake. i may have thought in this way until i read a warning if you want to go into bond, buy individual bond and not bond fund. Bond fund can have many funny things happen to your capital invested. Hey! How about subprime CDO bonds as a product again?

The key words is financial literacy IMO.

There are risks involved, and there are means to mitigate e.g. buying bond to maturity, and staggered approach etc.

I prefer equity over bond. A follower of Peter Lynch who believe more in equity than bond investment.

i mean it is natural for most people to think since buying STI ETF is safer than buying individual stock , so bond fund should be safer than individual bond. You got diversification since both are funds. Which actually, it is like comparing apple to orange.

(12-06-2013, 08:06 PM)Temperament Wrote:

(12-06-2013, 04:57 PM)CityFarmer Wrote:

(12-06-2013, 04:31 PM)Temperament Wrote: Ah! Individual bond and bond fund. It's really not the same as stock and STF Index fund. Thinking both pairs in terms of safety of capital invest is parallel, is a big mistake. i may have thought in this way until i read a warning if you want to go into bond, buy individual bond and not bond fund. Bond fund can have many funny things happen to your capital invested. Hey! How about subprime CDO bonds as a product again?

The key words is financial literacy IMO.

There are risks involved, and there are means to mitigate e.g. buying bond to maturity, and staggered approach etc.

I prefer equity over bond. A follower of Peter Lynch who believe more in equity than bond investment.

i mean it is natural for most people to think since buying STI ETF is safer than buying individual stock , so bond fund should be safer than individual bond. You got diversification since both are funds. Which actually, it is like comparing apple to orange.

There is no one-fix-all guideline, and due diligent is always necessary for each investment.

In short, financial literacy is the solution. VB is playing its part in increasing financial literacy in investor community IMO.

(13-06-2013, 10:27 AM)CityFarmer Wrote:

(12-06-2013, 08:06 PM)Temperament Wrote:

(12-06-2013, 04:57 PM)CityFarmer Wrote:

(12-06-2013, 04:31 PM)Temperament Wrote: Ah! Individual bond and bond fund. It's really not the same as stock and STF Index fund. Thinking both pairs in terms of safety of capital invest is parallel, is a big mistake. i may have thought in this way until i read a warning if you want to go into bond, buy individual bond and not bond fund. Bond fund can have many funny things happen to your capital invested. Hey! How about subprime CDO bonds as a product again?

The key words is financial literacy IMO.

There are risks involved, and there are means to mitigate e.g. buying bond to maturity, and staggered approach etc.

I prefer equity over bond. A follower of Peter Lynch who believe more in equity than bond investment.

i mean it is natural for most people to think since buying STI ETF is safer than buying individual stock , so bond fund should be safer than individual bond. You got diversification since both are funds. Which actually, it is like comparing apple to orange.

There is no one-fix-all guideline, and due diligent is always necessary for each investment.

In short, financial literacy is the solution. VB is playing its part in increasing financial literacy in investor community IMO.

Indeed! For those who want to learn, they will learn no matter what. i learned it from some other "source" i can't remember where. You know i never tired of reading financial articles, for more than 35 years already. And VB is a place getting better since the day i joined. i think because Moderators and Administrator have been doing a good (better) job.
You can say reading about financial matters is my "hobby". So most probably i will be here for a long time.

I explored moving some of my money into retail bond funds as well a few years ago but gave up after I couldn't come to terms with the following issues:

1) Bond funds by definition invest in bonds. Unless the fund specialises in junks, the typical investment grade bond in SGD pays 2%-5% coupon dependent on tenure and credit strength. Most bond funds incur expense ratios of .8%-1.5%, that is like 20% to 50% of the interests paid to the manager. We haven't even talked about other miscellaneous charges like platform fees and upfront sales fee.

2) As it is in the interest of fund managers to increase their AUMs, most bond funds do not pay out regular income but instead reinvest any interests earned automatically. In a perverse sort of way that interest gets charged yet another 1-1.5% in management fees. It also means problems for you to unlock regular income as the only way to do that is to sell off small number of units regulary, that is prohibitively expensive for retailers.

3) Most fund managers do not hold on to the notes/bonds till maturity and instead market time and trade in and out as and when they like. Trading = Transactional fees, bid-ask spread losses, exposure to human error in judgement in addition to the underlying credit risk the investor signed up for.

4) Interest income is taxable. The effect can be significant especially if you are at the higher income bracket.

So are most unit trust funds. B4 you make any money you are down 1 to 5 %.

(12-06-2013, 08:06 PM)Temperament Wrote:

(12-06-2013, 04:57 PM)CityFarmer Wrote:

(12-06-2013, 04:31 PM)Temperament Wrote: Ah! Individual bond and bond fund. It's really not the same as stock and STF Index fund. Thinking both pairs in terms of safety of capital invest is parallel, is a big mistake. i may have thought in this way until i read a warning if you want to go into bond, buy individual bond and not bond fund. Bond fund can have many funny things happen to your capital invested. Hey! How about subprime CDO bonds as a product again?

The key words is financial literacy IMO.

There are risks involved, and there are means to mitigate e.g. buying bond to maturity, and staggered approach etc.

I prefer equity over bond. A follower of Peter Lynch who believe more in equity than bond investment.

i mean it is natural for most people to think since buying STI ETF is safer than buying individual stock , so bond fund should be safer than individual bond. You got diversification since both are funds. Which actually, it is like comparing apple to orange.

STI ETF should be more risky than individual stocks. Otherwise why would SGX put it under SIP and only those with experience, or guided by some qualified advisors, are allowed to trade. They do not put such restrictions to individual stocks. Unless I get it wrong...