The Bogleheads Three-Fund Portfolio for Singaporeans

With stocks suffering the worst week since the financial crisis, it may be time to start rebalancing our portfolios or invest some spare cash.

If you are thinking of selling off, you are probably too late already as mentioned in my previous blog post. So, stay strong and hold your position.

S&P 500, Dow Jones Industrial Average & Nasdaq for the past week

For those of us who yet to embark on their investing endeavours and are considering, this presents a good opportunity to start.

Really? Start investing when the markets are plunging?

Yes, because you can expect higher returns if you start at lower prices. When you are investing for the long run 10-20+ years, it matters less if your portfolio loses value in the next 6 months or year because, in the long run, it will eventually recover, as shown throughout history. Unless of course, if the virus were to wipe out mankind.

The most suitable investment strategy for the average investor is investing in lost cost index funds or ETFs.

The Bogleheads Three-Fund Portfolio

One very popular portfolio is the Bogleheads three-fund portfolio which is simple, low cost and well-diversified.

The portfolio consists of three basic asset classes:

  • Domestic index fund
  • International index fund
  • Bond fund

It was originally created for the US investor and it advocated using total market index funds which contain all stocks in the market from large-cap, mid-cap to small-cap stocks. Investing in an S&P index will only provide exposure to large-cap stocks.

Here as an example implementation using Vanguard ETFs

  • Vanguard Total Stock ETF (VTI)
  • Vanguard Total International Stock ETF (VXUS)
  • Vanguard Total Bond ETF (BND)

But because it is such a simple yet effective portfolio, many around the world had adopted it and adapted it to their home country.

So without further ado, let us evaluate the Singapore version of the three-fund portfolio as proposed by my fellow finance bloggers.

Note, this article is for education purposes only. You should do your own planning based on your own unique situation and ensure that you have adequate safety nets (low debt, insurance coverage and emergency fund) before starting your investment journey.

The Standard Singapore Three-Fund Portfolio

Based on the articles from Turtleinvestor, lazysingaporean, firepathlion the three ETFs to hold are:

  • SPDR STI ETF (E3S.SI) – Domestic
  • Vanguard FTSE All World UCITS ETF (VWRD.L) – International
  • ABF Singapore Bond Index ETF (A35.SI) – Bond

This is a good start. For the new investors, you can start here and determine the asset allocation acording to your risk appetite. For example, a 40% domestic, 20% international and 40% bond portfolio. You may ignore the rest of the article.

However, you feel more adventurous and want to try something different, read on!

The Limitations of Singapore’s Domestic Market

#1 Lack Of A Total Market Index Fund/ETF In Singapore

A US investor has many choices of total market index funds or ETFs where they have access to ~3500 stocks in the US market which includes all large, mid and small caps. Whereas Singapore investors only a choice of two STI ETFs which only includes the 30 largest stocks even though there are around ~800 stocks listed in the Singapore Exchange (SGX).

#2 STI Is Not As Diversified As US Indices

The top three Singapore banks make up 40% of the total STI index. So by holding the STI ETF, your three-fund portfolio will be heavily skewed to financials which can be very sensitive to market conditions. Whereas in US total market indices the sector mix tends to be more balanced.

#3 Singapore’s Small Market And Susceptibility to Global Trade

The market capitalization of Singapore is around 0.5% of the world’s market capitalization whereas the US market capitalization is 40% of the world’s market capitalization. Singapore’s small and limited population size also limits its domestic growth.

Furthermore, the Singapore economy relies heavily on global trade and is very susceptible to changing conditions or trade tensions. Preferably, an asset has to be uncorrelated to the other asset classes in your portfolio provide any meaningful diversification benefit.

Unfortunately, the Singapore market tends to be correlated to the international market. It means when international markets are not doing well, Singapore markets usually will not do well either.

So, with all those reasons in mind, I will propose several variations for the Singapore three-fund portfolio.

Note, I will propose ETFs from London with a ‘.L’ at the end of the stock symbol and from Hong Kong with a ‘.HK’ at the end of the stock symbol. For each proposed portfolio, I try to find the most tax efficient ETFs as possible.

Singapore REIT Three-Fund Portfolio

For this variation, I will forgo the STI ETFs and hold a REIT ETF instead. The Singapore Exchange (SGX) is becoming a more popular listing venue for REITS globally and locally. Maybe because Singapore investors really do love their REITs.

REITs provide the benefit of diversification and some indirect exposure to the small and value factors.

To keep my portfolio simple, I will only hold REIT ETFs and not individual REIT counters.

So we have three REIT ETFs listed in SGX: NikkoAM StraitsTrading Asia ex Japan REIT ETF (CFA.SI), Lion Phillip S-REIT ETF (CLR.SI) and Phillip SGX APAC Dividend Leaders REIT ETF (BYJ.SI).

Out of the three, I chose the NikkoAM StraitsTrading Asia ex-Japan REIT ETF because it has exposure to Asian REITs and not only those listed on the SGX.

Lion Phillip S-REIT is great if you only want to hold the best Singapore REITs. A lot of the Singapore REITs also have properties overseas so you will get some global exposure.

Phillip SGX APAC Dividend Leaders REIT ETF has more exposure to Australian REITs which is also another great country for high yield REITs.

So, I think any of the three are pretty decent so it is up to personal choice. And I realized they all have awfully long names for their ETFs.

Note: I also swapped the Vanguard FTSE All World UCITS ETF to the accumulating ETF (VWRA.L) instead of the distributing one (VWRD.L). They are the same ETF. The only difference is one will reinvest your dividends while the other distributes dividends.

So our three fund portfolio becomes:

  • Nikko AM Straits Trading Asia ex Japan REIT ETF (CFA.SI)
  • Vanguard FTSE All World UCITS ETF Acc (VWRA.L)
  • ABF Singapore Bond Index ETF (A35.SI)

China Domestic Three-fund Portfolio

My second variation is substituting Singapore for China.

So, instead of holding a domestic Singapore ETF, I would hold a China ETF instead because I believe China has more growth potential than Singapore. If China prospers, Singapore will prosper too. If China falters, Singapore will be affected.

This way, I pretend that China is my domestic market. The drawback is that China has a 10% withholding tax so, from a tax efficiency standpoint, a small portion of my returns will be eaten by the tax.

The Vanguard Total China ETF listed in HK gives exposure to this. Since you will be already holding you international ETF in USD, you could choose the USD option of this ETF (9169.HK)

  • Vanguard Total China ETF (9169.HK)
  • Vanguard FTSE All World UCITS ETF Acc (VWRA.L)
  • ABF Singapore Bond Index ETF (A35.SI)

Disclosure: This is my current portfolio.

Emerging Market Three-Fund Portfolio

This is another variation from my China Domestic Three-Fund Portfolio. China usually makes up a huge percentage of an emerging market index.

Emerging markets usually consists of China, India and other developing markets (South Korea is included too). So you get broader exposure.

A popular emerging market UCITS fund is the iShares Core MSCI EM IMI UCITS ETF (EIMI.L)

So the portfolio will look like this

For the Vanguard option, I could use the Vanguard FTSE Asia ex Japan Index ETF (9805.HK) listed in HK. So the portfolio will look like this:

  • Vanguard FTSE Asia ex Japan Index ETF (9805.HK)
  • Vanguard FTSE All World UCITS ETF Acc (VWRA.L)
  • ABF Singapore Bond Index ETF (A35.SI)

Small Cap Three-Fund Portfolio

Another variation is by including a world small cap index ETF. This is because the UCITS all world index ETFs (IWDA.L, VWRA.L) only include large caps and some mid caps

Example VWRL portfolio breakdown from Morningstar.com

Hence, you might want to include iShares MSCI World Small Cap UCITS ETF which has mid-cap and small-cap world stocks.

Example WSML portfolio breakdown from Morningstar.com

So the three-fund portfolio becomes:

  • iShares MSCI World Small Cap UCITS ETF (WSML.L)
  • Vanguard FTSE All World UCITS ETF Acc (VWRA.L)
  • ABF Singapore Bond Index ETF (A35.SI)

Two Fund Portfolio

Why stick to three funds when you can simplify it down to two funds? Skip the STI fund and just hold two funds instead.

  • Vanguard FTSE All World UCITS ETF Acc (VWRA.L)
  • ABF Singapore Bond Index ETF (A35.SI)

The FTSE All World Index or the MSCI World Index already includes Singapore large-cap stocks. So in a sense, by holding VWRA.L, you are already holding local Singapore stocks, probably in a very small percentage ~0.5%.

By choosing to hold a STI ETF separately, you overweight your home country much disproportionally higher than what it really is in the world.

Conclusion

There are many ways to modify the bogleheads three-fund portfolio for Singaporeans investors.

Due to our limited domestic market, limited STI index, limited ETF selections and susceptibility to global economy, we could skip the domestic market altogether and replace it with other options.

Sometimes, just a two-fund portfolio will just do fine.

The drawbacks with my variations includes harder implementation due to buying ETFs from different markets, currency risk and withholding taxes.

I hope by doing this, you will get some inspiration and come out with creative portfolios.

Please share any improvements or suggestions to my three-fund portfolio variations. and I would love to hear those.

Author: Fatty's Finance

Finance is like health. It becomes an issue if it is not well maintained. I want to help you get back in shape!

14 thoughts

  1. Thanks for sharing your thoughts on the 3-fund portfolio!

    Just a quick question, any particular reason why you went for Vanguard Total China ETF (9169.HK) denominated in USD instead of its RMB equivalent (83169.HK)?

    What are your thoughts on “diversifying” your international ETFs holdings with different currencies instead of holding them all in USD, to manage any foreign exchange risk?

    1. Hi Koala, the main reason I chose the fund denominated in USD is to keep it the same currency with the VWRA ETF which is also denominated in USD. It makes is slightly easier for rebalancing and calculatong returns from the investor standpoint. Because I only need to keep track of SGD and USD.

      That said, 45% of Vanguard Total China ETF is China A shares which is in RMB. So using the RMB equivalent might be more efficient in a sense you have less currency conversion needed. The second largest holding is in H-shares which is in HKD and it also has an equivalent – 3169.HK

      Although it is just a China only ETF, it also holds H shares, N shares, S shares denominated in HKD, USD and SGD. So there are plenty of currency risk in the underlying ETF. The fund manager will have to do the hard lifting converting RMB to USD, SGD to USD and HKD to USD. I just don’t see it as it is hidden from me. So the USD option might be the least efficient but I chose it anyway because I just want to keep two currencies instead of three.

      In my opinion, I will just keep two currency for diversification, one in SGD because I need to use it in my home country and the other in USD because it is the world’s reserve currency, so there is vested interest for countries in the world to keep USD stable.

  2. Hi! I am 22 years old, just starting to invest.
    Using the 110-Age rule, my Stock/Bond Allocation will be rounded off to 90/10.
    I have decided to mix your suggested portfolios to make a 5 fund portfolio consisting of
    SPDR STI ETF – ES3.SI
    iShares Core MSCI World UCTIS ETF – IWDA.L
    iShares Core MSCI AC Asia ex Japan Index ETF – 3010.HK
    Nikko AM Straits Trading Asia ex Japan REIT ETF – CFA.SI
    Nikko AM SGD Investment Grade Corporate Bond Fund – MBH.SI 10%

    What your recommendations on the % of each fund I should have?

    1. Hi Jasper! Wow, it is good that you have started investing at such a young age.

      For the %, there is no right way to mix it. It depends on why you chose to include the ETF in the first place. If you are bullish about the prospects of a certain ETF, then you should weigh more in it. If you are not sure which will do better then the easiest way is to equally weigh them:

      ES3.SI – 22.5%
      IWDA.L – 22.5%
      3010.HK – 22.5%
      CFA.SI – 22.5%
      MBH.SI – 10%

      Another way to go about this is to start at the determining your top-level asset mix first: Bonds to Stocks. Then move to Local vs International Stocks and subsequently Emerging/Developed, REITs/Stocks. I see you have already determined your bond to stock allocation of 10 bonds/90 stocks. What will be your local ETFs to international ETFs mix? You can choose to weigh more local if you are staying here for the long term, so maybe 54% local (60% out of 90% stock allocation) vs 36% international (40% out of 90%). So within local, you can choose ES3.SI, CFA.SI and weigh equally 27%, 27%. For international, you will include IWDA.L and 3010.HK. You might want to weigh developed market ETFs higher because they have lower risk. So within the 36% international mix, you can choose 24% IWDA.L (66% out of 36%) and 12% 3010.HK (33% out of 36%). So the final will be:

      ES3.SI – 27%
      IWDA.L – 24%
      3010.HK – 12%
      CFA.SI – 27%
      MBH.SI – 10%

      You may also refer to the core-4 portfolios by Rick Ferri https://core-4.com/classic-core-4-portfolio-allocations/. You can check out the aggressive portfolio that allocates 8% to REITs, 48% to US equities and 24% to International Equities and 20% to Bonds. Here REITs are treated separately as stocks as a separate asset class.

      If I modified the core-4 aggressive portfolio to your case. it could be 24% ES3.SI + 24% IWDA.L (equivalent to US equities), 18% CFA.SI, and 24% 3010.HK and 10% MBH.SI. I increased the REITs from 8% to 18% because your bond allocation is 10% instead of 20%.

      ES3.SI – 24%
      IWDA.L – 24%
      3010.HK – 24%
      CFA.SI – 18%
      MBH.SI – 10%

      There are many ways to allocate the portfolio. So it depends on how much risk you want to take or which asset you believe will give you the best future returns.

      That said, your portfolio seems a little complicated for someone who has just started due to: multiple currencies, multiple exchanges. It makes rebalancing process complicated. You might also incur additional costs in currency exchange. I usually keep my portfolios limited to two currencies (SGD and USD) to make it easier for me.

      Also, having a few more ETFs in your portfolio incurs more commission costs. Usually, you will transact above 10,000 per trade per ETF (varies from broker and different exchanges) in order to not incur the minimum trade commission cost. If you do have a huge initial capital then this costs isn’t such a huge factor. But if you have a small sum, just start with two (MBH and ES3) or three assets (MBH, ES3, CFA). Build them up first. Once you have amassed more capital, then you could start adding other ETFs or other currencies to your portfolio.

      I hope this is not too confusing.

      1. Thank you for such a detailed reply!
        I will definitely take your advice and focus on a few ETFs for the time being. Was thinking too much in advance.
        Probably something like this:
        ES3 30%
        IWDA 60%
        MBH 10%

  3. Hi,
    Thanks for the article as it is quite informative. As I am from Brunei, using this as a basis for my Non-US Investor Fund Portfolio helps as I can tie closely to your suggestions.

    Just wondering if you have looked into SWRD.L and what is your take on using SWRD.L as a replacement for IWDA.L?

    Thanks.

    1. Hi,
      Thank you, I am glad that you found it informative.

      I did not look into SWRD.L when I was writing this post. But yes, SWRD actually looks more attractive given that it’s expense ratio is only 0.12% vs iwda which is 0.20%. So yes, I would use SWRD since it tracks the same index as well.

  4. Thanks for sharing your knowledge with us. I am current researching for a global ETF and happen to chance upon the very popular Boglehead 3 portfolio which is really well thought.

    I really love the design of your Singaporean portfolio since it in cooperates REITS(which i really enjoy earning dividends from) into the boglehead 3 portfoilo. I personally am going able more “adventurous” and leaving the Bonds part for now since I have a long investment horizon.

    May I ask which broker do you personally use for investing in this 3 portfolio as well as the % distribution in each of them? Do you do a monthly DCA or purchase them quarterly or semi-quarterly ?

    Hoping to hear from you!

    1. Hi Curious,

      Personally, my portfolio is a bit messy. I started with FSM One and bought my Singapore bond ETFs and HK ETFs there. Then I applied for DBS Vickers to buy VWRA.L from the London Stock Exchange. I am not a fan of DBS Vickers though. I used it mainly to gain additional interest for my DBS Multiplier account. The interest back then (before COVID days) was pretty high. So ~40% FSMOne and ~60% DBS Vickers

      I did a lump sum investment to start my three-fund portfolio. I added to them every half a year to one year. I tend to accumulate very large amounts before investing to save cost.

      In the meantime, I do contribute monthly to a roboadvisor.

      1. thanks for you quick response.

        I am currently at a crossroads and hope you can shine some light on my dilemma.

        Should i go with a broker and accumulate VWRA.L or should i invest in a robo advisor?(Im currently holding some in SA but am thinking to switch to Syfe due to its lower cost)

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