Questions from Newbie to investing

(29-08-2013, 11:01 PM)quantcall Wrote: min size for most of bonds is 250K USD, they are not for retail investors. but u may consider bond ETFs, which has a very similar return profile with a bond. anyway, i don't find bond investment is attractive at this moment.

My understanding from my broker who tells me also for sgs bonds the same minimum amt he would trade on my behalf on open market is 250k but never say usd or sgd.

However you can purchase new issues of sgs bonds minimum $1000 multiples thru your bank ATM.

http://www.sgs.gov.sg/Individual-Investo...v-FAQ.aspx

So the thing is the new issues that can bid or buy thru the atm would probably trade at abv par. While the one that everybody interested in buying on open market because of wild fluctuations and mispricing possibilities is in $250k lot sizes

(31-08-2013, 03:59 AM)d.o.g. Wrote:

(31-08-2013, 12:10 AM)Ferns Wrote: During high interest rate env, REITs will suffer, so it might be good to switch funds from REITs to bonds? Because during that time, bonds will be discounted too?

As to how high interest rates have to go before they stabilize, that is anybody's guess. But note that Singapore has experienced high interest rates before, when bank deposits earned 8% and housing loans cost 15%. So never say never. Calling a bottom (or top) too quickly can be hazardous to your wealth.

Singapore does not have an independent monetary policy. The SIBOR is dependent on the interest rates of the major countries which the Singapore Dollar is pegged to. If the interest rates of major countries goes up, Singapore will need to raise the interest rates as well.

When I first read about Bond-Stock allocation, I thought it was a nifty concept..... it looks simple enough, a simple rule to help us average out the risk thro' market bulls and bears...

But, when it comes to practice, for a small timer investor, I realised there're not too many choices for Bonds. Corporate bonds are mostly in tranches of $250k and those which are available in smaller $1k or $10k lots, are usually very illiquid... The alternative is SGS Bonds, but being "risk-free", the coupon rate is lower. In the past, it was a lot more troublesome as we have to buy / sell through the banks, altho' nowadays, I think it's a lot easier eg. bid for new issues via ATM, buy/sell via brokerage (like POEMS).

Anyway, I did start to practise, after learning fm forum (WS, grandfather of VB) on how to go about doing it...

It requires a lot of self discipline.... It seems like a lot of trouble to get vested in SGS Bonds and for such low coupon rates... When stock market is very bullish and money seem so easy to be made, the temptation is always very high to liquidate the Bonds to switch over.... This of course runs counter to the original purpose of Bond - Stock allocation...

However, if you're able to maintain this self-discipline to increase the Bond allocation during bullish stock markets (stocks valuation becomes rich), the benefit becomes very obvious when there's a major correction... In such times, you'll be glad to have this "extra" sum of money (if you sell the bonds) to now switch some back to stocks, at cheaper valuations...

To be honest, I wasn't very self disciplined... Perhaps my asset base was too small or I was too impatient / greedy, I never allocated more than 10% to bonds.... Still, I was always glad to have that "extra" 10% in bonds to liquidate when the crash / correction comes along. As it was troublesome to sell the SGS Bonds, I was "encouraged" to delay my actions to sell until the stock market got lower and I run out of free cash or stocks to sell (to switch)...

The above changed when I read Peter Lynch books and he showed examples on why it may not be necessary to have any Bonds - Stocks allocation... which I happily adopted... till today. But, that's another story...

I guess the lesson I have learnt is not Bond - Stocks allocation but a bigger lesson in Assets Allocation. Even amongst stocks, we can have different categories of stocks (again learnt from Peter Lynch books), which can help to mitigate the impact of market corrections.

In my own words and my own interpretation (from Peter Lynch books), a 100% allocation to stocks means, if stocks are well selected, we're trying to maximise our returns during bullish times, such that when averaged out with the -ve impact of the bearish times, we're still better off vs a Bond-Stock approach.

Lastly, I don't believe there's a one-size-fits-all approach. Each of us would do well to try and experiment to fine-tune till they find a "customised" approach that suits them best and this may even change thro' time as they age and their financial circumstances changes...

Happy Learning!

(31-08-2013, 03:42 PM)KopiKat Wrote: When I first read about Bond-Stock allocation, I thought it was a nifty concept..... it looks simple enough, a simple rule to help us average out the risk thro' market bulls and bears...

But, when it comes to practice, for a small timer investor, I realised there're not too many choices for Bonds. Corporate bonds are mostly in tranches of $250k and those which are available in smaller $1k or $10k lots, are usually very illiquid... The alternative is SGS Bonds, but being "risk-free", the coupon rate is lower. In the past, it was a lot more troublesome as we have to buy / sell through the banks, altho' nowadays, I think it's a lot easier eg. bid for new issues via ATM, buy/sell via brokerage (like POEMS).

Anyway, I did start to practise, after learning fm forum (WS, grandfather of VB) on how to go about doing it...

It requires a lot of self discipline.... It seems like a lot of trouble to get vested in SGS Bonds and for such low coupon rates... When stock market is very bullish and money seem so easy to be made, the temptation is always very high to liquidate the Bonds to switch over.... This of course runs counter to the original purpose of Bond - Stock allocation...

However, if you're able to maintain this self-discipline to increase the Bond allocation during bullish stock markets (stocks valuation becomes rich), the benefit becomes very obvious when there's a major correction... In such times, you'll be glad to have this "extra" sum of money (if you sell the bonds) to now switch some back to stocks, at cheaper valuations...

To be honest, I wasn't very self disciplined... Perhaps my asset base was too small or I was too impatient / greedy, I never allocated more than 10% to bonds.... Still, I was always glad to have that "extra" 10% in bonds to liquidate when the crash / correction comes along. As it was troublesome to sell the SGS Bonds, I was "encouraged" to delay my actions to sell until the stock market got lower and I run out of free cash or stocks to sell (to switch)...

The above changed when I read Peter Lynch books and he showed examples on why it may not be necessary to have any Bonds - Stocks allocation... which I happily adopted... till today. But, that's another story...

I guess the lesson I have learnt is not Bond - Stocks allocation but a bigger lesson in Assets Allocation. Even amongst stocks, we can have different categories of stocks (again learnt from Peter Lynch books), which can help to mitigate the impact of market corrections.

In my own words and my own interpretation (from Peter Lynch books), a 100% allocation to stocks means, if stocks are well selected, we're trying to maximise our returns during bullish times, such that when averaged out with the -ve impact of the bearish times, we're still better off vs a Bond-Stock approach.

Lastly, I don't believe there's a one-size-fits-all approach. Each of us would do well to try and experiment to fine-tune till they find a "customised" approach that suits them best and this may even change thro' time as they age and their financial circumstances changes...

Happy Learning!

Hi kopikat,

I was thinking thro what you say about having a 100% equity and using av down concept to even out the bear and bull. I guess this concept will also required the taking off money during bull years as ammo for bears av. But this require some luck, as we know, cheap can get cheaper and ex more ex. Assume we make handsome profits and we see valuation stretched, so we took money off table, but the market exuberance last for another 4-5 years then there is zero money collected during this period. Perhaps, the bonds interest is insignificant anyway. Just thinking out loud

(31-08-2013, 04:35 PM)Greenrookie Wrote: I was thinking thro what you say about having a 100% equity and using av down concept to even out the bear and bull. I guess this concept will also required the taking off money during bull years as ammo for bears av. But this require some luck, as we know, cheap can get cheaper and ex more ex. Assume we make handsome profits and we see valuation stretched, so we took money off table, but the market exuberance last for another 4-5 years then there is zero money collected during this period. Perhaps, the bonds interest is insignificant anyway. Just thinking out loud

His approach involves staying invested at all times and riding out bulls and bears. Refer to his examples in Chapter 3 of the book 'Beating the Street'. Sorry, hard to reproduce here

Edit : Found a site which summarises parts of that Chapter, but also provides some balance on Bond investing... (but very irritating background display)

https://secure.sgs.gov.sg/fdanet/SgsBenc...rices.aspx

30 year SGS bonds are now trading at about 3.5% yield to maturity
you should speak more to your stock broker, he can help you purchase it since its traded on the exchange, min is 10 shares per lot
for example 10 shares of 30 years bonds = about $900

there are also other stuff like CMA 3.8% and genting 5%, which you may wanna read up more about.

(31-08-2013, 05:08 PM)KopiKat Wrote:

(31-08-2013, 04:35 PM)Greenrookie Wrote: I was thinking thro what you say about having a 100% equity and using av down concept to even out the bear and bull. I guess this concept will also required the taking off money during bull years as ammo for bears av. But this require some luck, as we know, cheap can get cheaper and ex more ex. Assume we make handsome profits and we see valuation stretched, so we took money off table, but the market exuberance last for another 4-5 years then there is zero money collected during this period. Perhaps, the bonds interest is insignificant anyway. Just thinking out loud

His approach involves staying invested at all times and riding out bulls and bears. Refer to his examples in Chapter 3 of the book 'Beating the Street'. Sorry, hard to reproduce here

Edit : Found a site which summarises parts of that Chapter, but also provides some balance on Bond investing... (but very irritating background display)

I tried to read the link, but the background really is irritating, I gave up! Haha, but thanks for the explanation, makes things clearer.

I had the same thought as greenrookie, to sell as if I find that the stock is overpriced, but sometimes it can continue to remain that way for several years which means a loss of potential dividends and stuff. And that kinda becomes speculating right?

Having said that, isn't it possible to find other undervalued stocks when the one we're holding becomes overpriced? Then do a switch?

Don't know enough of stock market history to know if that is possible. (I just started reading like 1 month back!)

Or when a particular stock is overpriced, then usually most of them are overpriced as well?

Hee! Hee!
i think i have never buy any type of debt instrument because i use my CPF's OA & SA money as "BONDs". To use them in a Bear Market or a "can sleep at night" asset alllocation. Though only slightly more than 2.5% interest rate.
It's a good thing but there are some disadvantages too. As long as you leave your money there after 55 or up to 62, and beyond, CPF Board can move your OA or SA money to top up your MA until it reaches the maximum current limit. And the limit keep on increasing; i think every year. So there is really "No free lunch". Correct me if i am wrong.

Thanks everyone for the sharing so far. I've just finished reading the Sticky on "A Newbie Guide to Investing" and realised that some questions were already brought up there.

Sorry for creating this thread. Shall we bring further discussion over to that thread so that future newbies can get an all in one thread to find out more things?

Yeah using CPF part as the fixed income part of your portfolio can be a great idea
if got cash, good to put it at work in stocks, in the long run stocks will give you the best returns among all asset classes ^^