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THE KNOW: "I'll invest when the market crashes"

October 6, 2018

No one likes to be the schmuck who invests at the peak, only to watch their investments tumble the next day. But is that worse than sitting in cash?

TAKEAWAY OF THE WEEK
Why waiting for markets to crash before investing is a losing game

With Wall Street’s longest bull run on record, many readers have asked if they should wait to invest.

No one likes to be the schmuck who invests at the peak, only to watch their investments tumble the next day, and month, and perhaps years.

Meet Bob, the investor we all try not to be. He’s the worst market timer in the world and only invests right before the market crashes.  

(Case study from A Wealth of Common Sense, adapted by endowus)

  • He started investing at the end of 1972 with $100,000,  right before the US market fell almost 50% over the next year.
  • He then invested $100,000 in 1987 (after 15 years of saving), right before the market lost over 30%.  
  • His bad luck continued: He invested $100,000 at the end of 1999, just to see the market lose half its value again.
  • His final investment before he retired was made in 2007, where he invested the $100,000 he had been saving since 2000.  The markets delivered him another >50% loss.

Poor Bob was also unlucky in life.

At the beginning of 2009, after the markets were down 51% since his last investment, Bob was on a ski vacation and had a bad fall. He needed to have a hip replacement, and when he got home, found that his house had burned down.

Bob looked to his investment portfolio and was surprised to discover that he was actually a multi-millionaire - $2.44 million to be exact. He made 6.1x his money despite his terrible luck with a 7.98% annualised return (IRR).

Thinking about inheritance, Bob did not touch his hilariously poorly timed investments and instead decided to live with his children and claim insurance for his hip replacement. As of end September 2018, Bob’s holdings would be worth $11.8 million, 29.6x his initial investment, with a 10.28% annualised return (IRR).

Bob wasn’t such a schmuck after all. He saved diligently and never panicked, which allowed the power of compounding to work for him.

In fact, Bob did a lot better than many of us. According to JP Morgan’s Guide to Markets, the average investor had a 20-year annualised return of 2.6% as of June-end 2018, likely due to speculation and poor investment behaviour.

Market timing is the holy grail of money-making - who doesn’t want to buy low and sell high?  But it is impossible to get right consistently. You’re investing for the next decade or two, not the next month or year.  When the powerful financier J.P. Morgan was asked what the stock market would do next, his answer was “It will fluctuate.” Look at the long-term trajectory of the markets rather than short-term fluctuations.

It’s about time in the markets, rather than timing the markets.

If you hold cash for long enough, you will eventually see markets decline. But you’re betting that you know when the markets are near a peak or trough, and that the pullback will compensate you for the close-to-zero return you’ll get sitting in cash, and that you’ll have the discipline to put money back to work when it falls by a certain level, even if everyone else is taking it out.

Pundits have been predicting for years that a market crash is right around the corner. They’ll eventually be proven right because that’s how markets function. Worrying about investing at the peak of the market is distracting you from what you should really be thinking about: positioning yourself in the markets for the long-term to have the greatest chance of success.

If you enjoyed reading this article from The Know, you can subscribe to our weekly newsletterFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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THE WORLD IN VIEW

Business 

The tyranny of the U.S. Dollar (Bloomberg)

Generation gap: Established firms try dancing to a millennial tune (The Economist)

Why 5 percent remains a glass ceiling for female CEOs (Bloomberg)

Markets

Market timing is hard (A Wealth of Common Sense)

Asian sovereign funds carve out more room for alternative assets (Institutional Investor)

Yale invests in crypto fund that raised $400 million (Bloomberg)

Singapore

Asia-Pac family offices outperform global average (Business Times)

Capitalism, politics and despair: Banyan Tree’s Ho Kwon Ping goes on the record (Channel News Asia)

Longform

Why technology favors tyranny (The Atlantic)

Podcasts

Too little, too much: How poverty and wealth affect our minds (NPR // 50 mins)

Good to Know

How Binance became world’s largest cryptocurrency exchange (SCMP)

Kava-no: Brett Kavanaugh’s own testimony disqualifies him from America’s highest court (The Economist)

Skyscrapers too pricey for bankers are full of crypto startups (Bloomberg)

Zao Wou-Ki’s monumental triptych sells for $65 million at Sotheby’s record-setting sale in HK (Artnet)

The art of the elevator pitch (Harvard Business Review)

Mongolia: 40 years of Asia travel and nothing had prepared me for it (SCMP)

Employers are looking for ‘Influencers’ within their own ranks (The Atlantic)

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An inconvenient truth - tax on US-listed ETFs.

September 29, 2018

Tax, if not careful, can shoot low-cost investing in the foot.

“In this world nothing can be said to be certain, except death and taxes.”
- Benjamin Franklin
TAKEAWAY OF THE WEEK
Why US-listed ETFs are not necessarily cost efficient for you and me.

If you are like us, cost-conscious and a non-US person, US-listed ETFs are probably a bad idea. A caveat to this is that we are by no means tax experts, but we do understand the enormous effect of cost on investment returns. For this reason, tax cannot be ignored.

Yes, they are liquid, “cheap”, heavily marketed, used by robo-advisors all over the world, and in general great products...but not for non-US persons.

This may strike you as a surprise, but there are taxes that simply cannot be ignored, changing the “cost” quite drastically, especially when the ETF invests in non-US assets.

Let’s say you want to have exposure to emerging markets. The lowest cost, “cheapest” exposure you can get is Vanguard’s US-listed VWO, which has an expense ratio of 0.14%. VWO is so popular that it now has over US$80 billion in assets.

VWO also has a ~2.5% dividend yield, and therein lies the problem. As a Singapore or Hong Kong-based investor with no US tax treaty, there is a dividend withholding tax of 30% levied at the fund-level because it is a US-listed ETF, even though its underlying assets are not in the US.

Furthermore, if your country of residence does not have tax treaties with the underlying countries where these dividends are sourced, your effective dividend withholding tax could be even higher (underlying country tax plus the 30% US-imposed tax on top).

For reference, here is the list of countries that have tax treaties with  Singapore and Hong Kong, which may only get your tax down to 30% in the best case.

The “cheap” 0.14% expense ratio ETF has now grown to a cost of at least >0.85%. This ETF has now become pricey.

That is not even the end of it. Let's say you are holding a basket of US-listed ETFs when you pass away. No matter where those ETFs were invested, your US-listed assets (ETFs included) would be legally subject to up to 40% draconian US estate tax.  As an example, if you lived in Singapore and had $1,000,000 in a US-listed ETF that only invested in China, you would be liable to pay an estate tax of up to $400,000 to the US government. That does not seem right at all.

Thankfully there is a better way for us non-US persons to invest: UCITS.

UCITS (Undertakings for Collective Investments in Transferable Securities) began in 1985 as a regulatory framework to make cross boarding distribution of investment funds in the EU and beyond compliant, transparent, and with stronger protections for investors.

Today, there are thousands of UCITS funds listed by global fund managers such as Vanguard, Dimensional, Blackrock, PIMCO, etc., making their strategies available to global investors in a more tax efficient manner. Sticking with the emerging markets example, Vanguard’s emerging markets UCITS fund and ETF have a cost of  0.27% and 0.25% respectively. As compared to the US-listed ETF, they are far cheaper, taxes considered.

When investing in funds, there are three levels of taxes to consider:

  1. Portfolio-level: this is tax due by the fund for holding, receiving dividends/income on the underlying securities. This is generally the same for UCITS and non-UCITS funds.

  2. Fund-level: this is tax due by the investor to the fund depending on fund structure. For US-listed ETFs, this is 30% on income and dividends unless your country has a tax treaty with the US, which Singapore and Hong Kong do not. For Ireland UCITS funds and ETFs, this tax rate is zero.

  3. Investor-level: this is dependent on each investor’s individual tax status, typically based on your country of residence. For those of us individual investors in Singapore, this is zero.

At the end of the day,  it may be hard to avoid owning any US-listed securities in your portfolio. The US makes up over 50% of the MSCI All Countries World Index, which is one of the most widely used benchmarks for global equity portfolios. The liquidity and depth of the US market may trump the potentially onerous tax obligations, but there are alternative structures such as UCITS funds and ETFs that you can consider to get the exact same US exposure in a more tax efficient manner.

Tax, if not careful, can shoot low-cost investing in the foot.

You may be forgiven for not knowing about the implications of US withholding tax like so many others, but if some of your hard-earned savings are taken by the US tax authorities without you knowing it, then ignorance is definitely not bliss.

If you enjoyed reading this article from The Know, you can subscribe to our weekly memoFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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THE WORLD IN VIEW

Business 

Masayoshi Son, SoftBank, and the $100 billion blitz on Sand Hill Road (Bloomberg) 

China and America may be forging a new economic order (The Atlantic)

Is China’s infrastructure boom past its peak? (The Economist)

Markets

Don’t take asset allocation advice from billionaires (A Wealth of Common Sense)

Your reaction to big market events depends on whether you lived through it. (Of Dollars And Data)

How the yuan sets the tone in currency markets (The Economist)

Singapore

Low cost portfolios get you a headstart, says endowus (Business Times)

5 reasons why the world's tech firms are moving to Singapore (Forbes)

Why Facebook bet US$1 billion on Singapore data centre (SCMP)

Longform

Mohamed A. El-Erian: Nine lessons from the Global Financial Crisis (Bloomberg)

The LeBron James of short-selling talks Ponzinomics (Institutional Investor)

 Podcasts

How to stop being a loser (Freakonomics // 60 mins)

Good to Know

Hong Kong billionaire offers ‘Nobel Prizes’ with double the money (Bloomberg)

The untold stories of Paul McCartney (GQ)

Amazon wants to be in every room of your house (Slate)

A shocking number of killers murder their co-workers (The Atlantic)

Everything you know about obesity is wrong (Huffington Post)

The Nissin instant noodle story: From garden shed to national treasure to outer space (SCMP)

Would perfect memory be a burden or a superpower? (Gizmodo)

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Do Crazy Rich Asians only invest in real estate? 

September 14, 2018

Owning real estate has been heralded as the ‘best’ way to grow your wealth. But is it really better than investing in the market? 

TAKEAWAY OF THE WEEK

Unless you’ve been living in a cave, it’s probably safe to say that even if you haven’t watched Crazy Rich Asians, you’ve heard about it. It’s both a depiction of the life of the 0.1 percent and a marketing coup for the Singapore Tourism Board. The Youngs are absurdly rich, and one of the most opulent symbols of their wealth is the matriarch's family mansion at Tyersall Park. It’s an over-the-top, sprawling home in Peranakan style, and so secluded that it can’t be found on Google Maps.  

Owning real estate, or in this case, a mega-mansion, has always been a status symbol in Asia. It’s heralded as the ‘best’ way to grow your wealth, and if all else fails, it’s a fixed asset and roof over your head. Many of the real ‘Crazy Rich Asians’ have indeed built their fortunes on real estate. But is it really better than investing in the market?

You would think that Hong Kong real estate blew stocks out of the water, but this is a misconception.

We always hear wonderful 'get rich' stories on fabulous property purchases, but looking back at the data, they were more likely just fabulous acts of holding on.

Here are some things to think about when investing in property:

  1. Leverage - This is perhaps the largest driver of outsized equity returns in owning real estate, and also the biggest trigger for the 2008 Global Financial Crisis. If you pay $250,000 for a $1 million property, and the value goes up by 10% ($100,000), you have effectively made a return of 40% on your initial investment (excluding any interest costs etc). It’s quite unlikely you will lever your investment portfolio 4x. Remember, leverage is a double-edged sword that will also amplify your losses in a downturn.

  2. Liquidity - Stocks are far more liquid than real estate investments, and prices are transparent. You can buy or sell stocks anytime during market hours, and you can see the bid/offer spread on your screen. You can list your property for months without any buyers, or perhaps the best ‘offer’ for your property is vastly different from the last transacted price. However, the ease of trading stocks also means that you are more prone to poor behaviour and the whims of your emotions. It’s far easier to sell off your investment portfolio in a panic - all you need is a few clicks. You can’t really sell a property in 5 minutes.

Real estate forces you to behave as a 'good investor' given its frictions. Imagine if you had the same frictions when it came to investing in the stock market?

  1. Diversification - Adding real estate as an asset class to your overall investment portfolio can offer diversification benefits. However, unless you are in fact a Crazy Rich Asian who can afford properties in different cities around the world, it’s difficult to diversify within your real estate investment. For most of us, buying one property will make up the majority of our net worth. It’s much easier to diversify when you invest in stocks - you can buy shares of a globally diversified fund with thousands of holdings with just a small amount of cash.

  1. Income - Both stocks and real estate investments can generate steady income from dividends and rental income respectively. There are different risks involved: dividend payouts are not guaranteed, and the amounts are subject to the underlying company’s discretion. Rental yield is subject to supply and demand dynamics of the real estate market, and there can be periods when your property can’t be rented out at all.

  1. Holding and transaction costs - There is a cost to holding real estate - you have to pay maintenance fees, utility bills, insurance, property taxes and more.  It’s also more hands-on work - you have to deal with leaking aircon units, clogged bathrooms, and pest infestations in the garden. Transaction costs are also much higher for real estate - Singapore property agents on average charge 2%  to broker transactions, and there are additional stamp duty costs.

Investing in real estate should rightfully lead to higher returns because you should be compensated for the illiquidity and transaction costs, but that is not always the case. There was a study done entitled “The Rate of Return on Everything, 1870-2015”, where researchers looked at 16 advanced economies over the past 145 years. They adjusted the returns for inflation, included dividend income for equity returns and rental income for residential real estate returns.  

Source: Bigger Pockets

There are real estate tycoons and stock market tycoons.

Both real estate and publicly traded securities  are better investments than staying in cash, and both have a place in your portfolio and in your life. Owning properties is the Asian dream but there are alternatives to think about before just the diving in.

If you enjoyed reading this article from The Know, you can subscribe to our weekly memoFollow us on LinkedIn or connect with us on Facebook as we bring you financial insights from endowus.
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THE WORLD IN VIEW

Business 

Who is the man taking over as chairman of Asia's biggest company? (SCMP)

Opposites attract: NGOs and money managers unite (The Economist)

Singapore plans new bill to attract more of world's millions (Bloomberg)

Markets

We’re living in what may be the most boring bull market ever (Bloomberg)

Warren Buffett's biggest wins and fails (Visual Capitalist)

Do you know how much you're paying when you invest via regular premium insurance plans? (Business Times)

Singapore

China, Japan are Malaysia's priorities: Anwar. But Singapore? (SCMP)

Singapore orders return of first batch of pilfered 1MDB money (Bloomberg)

Longform

How Led Zeppelin came to be (Rolling Stone)

Podcasts

Malcolm Gladwell: Do more choices make us happy? (TED // 12 mins)

Good to Know

Elon Musk’s brain isn’t like yours (Bloomberg)

Japanese, Haitian, and now a Grand Slam winner: Naomi Osaka’s historic journey to the U.S. Open (Washington Post)

China, the birthplace of fake meat (The Economist)

What happened to Fan Bing Bing, China's most famous actress? (NY Times)

Technology is creating an ideal of beauty that literally doesn't exist (The Economist)

Finally, a cure for insomnia? (The Guardian)

JP Morgan is gamifying credit scores (Business Insider)

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Spoilt for choice: ETFs vs Mutual Funds

September 7, 2018

Selection, strategy and portfolio construction aside, how do we answer the initial question: ETF or mutual fund (aka. unit trust)?

TAKEAWAY OF THE WEEK

You walk into a restaurant, get seated, and you’re handed a book. It’s the menu masquerading as an encyclopedia  - page after page, there are so many items to choose from that you can’t decide what to order.

From menu items to dating partners to investment options, we think that the more choices we have the better. The truth is, too many choices often leads to decision paralysis.

Asset manager giant Blackrock, for example, offers 342 U.S listed ETFs alone. They have 92 U.S. equity-focused ETFs slicing and dicing the market in every which way. A more obscure one we found on the list: iShares North American Tech-Multimedia Networking ETF.

ETFs have become synonymous with passive index funds, but this is a great misconception.

Adding to the permutation of possibilities, there are many financial services firms now offering portfolios of ETFs they have selected, then actively trading those portfolios, creating a whole new can of worms.

Selection, strategy and portfolio construction aside, how do we answer the initial question: ETF or mutual fund (aka. unit trust)?

Both ETFs and mutual funds pool investors’ money, which becomes part of a fund that invests in different assets. Both can be great tools to help you build a diversified portfolio with just a single investment, but there are important differences between them that you should understand before you decide which investment is right for you.

Do you want to trade frequently?

ETFs are priced and traded on stock exchanges throughout the day, just like stocks. You can set price limits or market orders when you trade ETFs. Depending on the liquidity of the ETF, the bid/ask spread can be narrow or very wide. In contrast, units of mutual funds are invested or redeemed directly with the fund management company via a bank or broker. The price (or more commonly referred to as NAV) is set once a day, and everyone who puts in their order before a set time each day will have the same day-end NAV.  

For a long-term investor, the intraday liquidity of ETFs is of little importance. Trading at NAV versus unsuccessfully trying to time the market and potentially paying more than what the underlying assets of the ETF are worth is comforting.

You should want to pay less in fees.

People look at ETFs and think “cheap!”, but this is not always the case.

You pay a brokerage fee to trade ETFs. Depending on your broker, this could range from a few dollars to over 0.50% on your investment amount.

For mutual funds, depending on your distribution channel, fees can vary widely.  The lack of transparency has given mutual funds a deservedly bad reputation. You need to read the fine print and ask your broker exactly what fees are involved: There is an upfront sales fee, and potentially wrap fees, brokerage fees, switch fees, and redemption fees. Worst of the lot is hidden trailer fees embedded into the fund, which are essentially sales commissions paid on a recurring basis by the fund manager to the distributor (Read "A Dictionary on Mutual Fund Fees" here). These fees can take a massive bite out of your returns so you should not blindly accept them.  

We at endowus are greatly opposed to these complicated layers of fees and misaligned incentives, which is why we charge a transparent and low all-in access fee (no additional sales fee, brokerage fee, rebalancing, or wrap fees) and we never take kickbacks from fund managers or anyone else for that matter.

Though the expense ratios of ETFs are generally lower than mutual funds, this isn’t always the case. There are mutual funds (such as those offered by Dimensional Fund Advisors) that provide additional value such as efficient implementation, and therefore generate returns at costs comparable to ETFs.

For example, let’s look at 2 UCITS funds, which are more tax-efficient for the non-U.S. person. Dimensional's World Equity mutual fund invests in almost the entire world with over 10,000 securities and has a fee of 0.50% p.a. Blackrock’s iShares All Country World ETF, on the other hand, has under 1300 securities and a fee of 0.60% p.a. Furthermore, Dimensional’s fund has a share-class denominated in SGD,  which means that you would avoid unnecessary foreign-exchange related costs that you might have to incur if you are a SGD-denominated investor trying to invest in foreign-listed ETFs.

This is your hard-earned money. Do the work and look hard. There are solutions out there that suit your needs.

Admittedly choosing the right mutual funds can take more work: fees are not as transparent, fund manager selection can be difficult and time-consuming. This does not mean you should write them off across the board and just accept that ETFs are the only way to go, as there are ways to access the best-in-class mutual funds.

We think the right way to build your portfolio is to take a more holistic view and first determine your asset allocation and risk tolerance, then select the investments as a way to express that view. We’re agnostic between using ETFs and mutual funds to build our portfolios. Rather, we believe in taking an evidence-based approach to finding the best instruments available for your portfolio.

View on endowus.com
THE WORLD IN VIEW

Business 

The best mutual funds for investors: Cheap and boring (Barrons)

Passive, aggressive: Asset managers get involved in the companies they own (The Economist)

How to retire in your 30s with $1 million in the bank (NY Times)

Markets

The world has not learned the lessons of the financial crisis (The Economist)

Dear investor, that cocky voice in your head is wrong (WSJ)

Singapore

Facebook to build $1 billion data center in Singapore (Fortune)

How Uber, valued at billions, was sent packing by a start-up in Singapore (Channel News Asia)

Longform

The real Goldfinger: the London banker who broke the world (The Guardian)

How AI-generated music is changing the way hits are made (The Verge)

Podcasts

How I built this with Guy Raz: WeWork (NPR // 53 mins)

Good to Know

These are the world’s laziest nations (Bloomberg)

Who needs democracy when you have data? (MIT Technology Review)

Why you should surround yourself with more books than you'll ever have time to read (Inc)

Robinhood, the zero-fee stock and crypto trading app, is planning to go public (Fortune)

Images of the destruction left by Typhoon Jebi in Japan (The Atlantic)

5 minutes that will make you love classical music (NY Times)

Are 'swipe left' dating apps bad for our mental health? (BBC)

The avocado toast index: How many breakfasts to buy a house? 

 Source: BBC
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Who doesn’t like good value? 

August 29, 2018

Value comes in various forms and not just when you are buying sneakers. The same logic can be applied to investing in stocks. 

“Price is what you pay. Value is what you get.”
- Warren Buffett

TAKEAWAY OF THE WEEK

Common Projects. Maybe we are out of the loop but they were/are all the rage. They are a pricey acquisition at US$400 to US$500 for a pair of sneakers, but they are good looking and a statement.

Let’s forget for a moment that they are overpriced. What if I told you that you could buy them discounted for US$174 on MATCHESFASHION.COM. Given the typical price elsewhere, this offer is ‘value’.  You pay less and extract the same utility from this splurge as if you paid the full price, assuming they have your size and colour preference.

Value comes in various forms and not just when you are buying sneakers. The same logic can be applied to investing in stocks. One should have greater exposure to companies that are cheaper than their intrinsic value and how the market is pricing them. Having increased exposure to value companies, defined by Nobel-Laureate Professor Fama and his partner Professor Ken French as a relatively low price-to-book ratio, has been proven to outperform across markets and over long time periods.

By how much?

Value minus growth returns in global markets through history 

In US dollars. Fama/French data library

As far back as we can see across all the markets, this phenomenon has existed.

  • US market since 1928: Value beat growth 56 of 90 years with an average annual outperformance in returns of 4.9% over the period.

  • Developed markets ex-US since 1975: Value beat growth 26 of 43 years with an average annual outperformance in returns of 5.6% over the period.

  • Emerging markets since 1989: Value beat growth 15 of 29 years with an average annual outperformance in returns of 4.6% over the period.


The outperformance of value over growth is meaningful and pervasive across markets, but there is no telling when it will come.


As you can see on the graphs, there is no predictable pattern to when the value premium comes and goes, and its magnitude. Anyone who tells you they know when value will outperform or underperform is delusional.

Be humble and patient. Trust an evidence-based approach to investing and know that in the long-run, holding broad exposure to value companies in your portfolio will pay off handsomely.

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THE WORLD IN VIEW

Business 

The challenge of giving away $1 billion (Bloomberg)

How to reform the world’s biggest piggy-banks: Singapore offers a model (The Economist)

China’s consumption downgrade: Skip avocados, cocktails and kids (NY Times)

The world is turning away China’s cash (Bloomberg)

Markets

High fund expense ratios put Singapore retail investors in a bind (Business Times)

How an investment legend is trying to beat Yale (Institutional Investor)

Singapore

Singapore's homeowners have 99 problems - and the lease is No 1 (SCMP)

Crazy Rich Asians isn't actually that crazy (Bloomberg)

Longform

Dating in the digital age (The Economist)

Podcasts

How to be happy (Freakonomics // 37 mins)

Good to Know

The billionaires and the guru: How a family burned through $2 billion (Bloomberg)

The great Chinese art heist (GQ)

What happens when we work non-stop (BBC)

The problem with buying cheap stuff online (The Atlantic)

How one of Wall Street’s biggest insider trading cases was cracked in 1980s Hong Kong (SCMP)

Inside the very big, very controversial business of dog cloning (Vanity Fair)

How cities trick you into better behaviour (BBC)

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In case you missed this product launch

August 22, 2018

On 18/8/18, we introduced our first product, endowus Black. A holistic solution suitable for your core investment portfolio. 

 

18.8.18: Introducing endowus black

Low cost, evidence-based investment portfolios built on best-in-class institutional share-class funds by Dimensional Fund Advisors and PIMCO.

GET EARLY ACCESS
Readers often ask us how we invest our own money.
Our response: with difficulty.

As you know by now, we feel strongly about a few things:
 

Fees

Keep them low and aligned to your interests. Anyone advising you should not be incentivised to churn your portfolio or be paid by anyone but you (i.e. they should not be getting any kickbacks in the form of hidden trailer fees or charging you sales fees).

Read more in our articles: A dictionary on mutual fund fees (22 Jun 18)Mutual funds investing - What are trailer fees (8 Jun 18)The million dollar bet (8 Sept 17)
 

An evidence-based approach

Some may think we are overly academic in our approach - we think it is a responsible way to invest our money. There are investment strategies that luckily ‘work’-out, and there are strategies that are proven to work. We strive to implement the latter by understanding sources of risk and return that are tested across markets and cycles so we can best position ourselves to succeed in the long-run, only taking calculated risk compensated by appropriate returns. Exposure to the size, value and profitability risk premiums, expressed by Nobel laureate Eugene Fama and his partner Kenneth French in their three-factor model, is an example.

 

Holistic advice

Investing is emotional. It’s your money. Putting your money to work in a way that suits your risk tolerance and financial goals is crucial to your behaviour and therefore monetary success. Furthermore, do not ignore important details like tax-efficiency, currency-related expenses, and trading costs. 

Read more in our articles: Warren Buffett invests like a woman (20 Apr 18)Be still, my beating heart (9 Feb 18)We are all above average (31 Aug 17)

Combining these elements into a core investment portfolio we can trust, understand, access and track is not a straightforward journey.
Our own struggles drove us to create endowus a year and a half ago with a simple mission: Leverage technology to make the best financial advice and products accessible to all of us.

Fast forward: we hold a financial adviser’s license issued by the Monetary Authority of Singapore and have built a passionate team of problem-solvers, bringing together decades of experience at leading global financial institutions and technology companies. Companies we have worked for include Goldman Sachs, Morgan Stanley, UBS, Blackstone, Nomura, HSBC, Wilmar, Grab, Kakao, Path, Singtel, SP Services, Visa and more. Our diverse expertise and experience in asset management, private banking, family office, investment banking, engineering and consumer technology have prepared us to better serve you.

 


Today, we would like to introduce you to our first product, endowus black.

A holistic solution suitable for your core investment portfolio: low cost, diversified, evidence-based, SGD-optimised portfolios built on institutional share-class funds by Dimensional Fund Advisors and PIMCO. These funds are typically only available to large institutions like sovereign wealth funds and pension funds but we have found a way to make them available to you.
 

GET EARLY ACCESS

Now available to Singapore's Accredited Investors and coming soon to retail investors.

We believe in knowledge and transparency. You should never feel like you are not in control or do not understand how your money is managed. We will present you with the data you need to make informed decisions so that you are empowered to prepare better for your financial future.

We can all retire as multi-millionaires

August 17, 2018

It may feel almost too overwhelming to think about saving a million dollars for retirement, especially when it’s still decades away.

TAKEAWAY OF THE WEEK

You can’t just wake up one morning and decide to run a marathon. You set yourself a series of smaller goals before you can get there - from dragging yourself out of bed every morning to train, to building up your stamina and adding more miles to each run.

The same philosophy can be applied to saving for retirement. It may feel almost too overwhelming to think about saving a million dollars for retirement, especially when it’s still decades away.

Time matters.

Time is your biggest ally here in building up a retirement nest egg. Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” Here is what setting a series of smaller savings goal can get you:

Age 22: You’ve just entered the workforce with a monthly salary of $3,400 and two months of annual bonus (median salary for fresh graduates in Singapore). You save 24% of your salary (average savings rate in Singapore) and have made the smart decision of investing your savings into an 80% stocks and 20% bonds portfolio.

Age 29: By diligently investing your savings every month, you have now reached your first small goal of saving over $100,000.

Age 40: You have just hit the $500,000 mark.

Age 47: Congratulations! You are now officially a millionaire.

Age 60: The effects of compounding have snowballed. You have now saved over $3 million.

Age 65: It’s time to enjoy the fruits of your labour - you can retire with a nest egg of over $4.5 million. Assuming annual inflation rates of 3%, this is equivalent to ~$1.26 million in today’s money. For Singaporeans, this excludes what you have in your CPF, where you have been saving 37% of your monthly salary until you were 55. Imagine how much more you could have to spend in your retirement if you had invested part of this.

This assumes your annual salary increases 3% per year and annualised long-term returns of ~7% per annum for your 80% stocks and 20% bonds portfolio. Returns in any given year are far from average, but we are investing over the long-term. As a reference, the average annualised returns for the S&P 500 since its inception in 1928 is ~10%.

There’s a nifty math shortcut to see approximately how long it will take to double your portfolio - just divide 72 by your rate of return. I.e. if you can earn an annualized return of 7.2% on your portfolio, you will double your money every 10 years.

Doubling your money every 10 years by taking some market risk is totally doable.

Unfortunately, you can’t just wake up one morning and decide to be a millionaire today, a year later, or even 5 years later. Your get-rich-quick plan probably isn’t going to materialize. We have written about the impending pension crisis and how we should all prepare better for our retirement. (You can read about it here).

Start small. Start early.  

Harness the power of time in the markets and the snowball effect of your money working for you.

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THE WORLD IN VIEW

Business

Camp rich: Big banks try to hook heirs for a lifetime (Bloomberg)

The price of vice: “Sin” taxes are less efficient than they look (The Economist)

How Facebook went so wrong so fast (Bloomberg)

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How Malaysia’s 1MDB fund scandal reaches around the world (Bloomberg)

Germany's 'China City': how Duisburg became Xi Jinping's gateway to Europe (The Guardian)

How to make friends, according to science (The Atlantic)

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The wild inner workings of a billion-dollar hacking group (Wired)

 China's bike share graveyard 

Source: SCMP

18.8.18: A Proper Introduction

August 17, 2018

Today, we would like to introduce you to our first product, endowus Black. A holistic solution suitable for your core investment portfolio. 

 

18.8.18: Introducing endowus black

Low cost, evidence-based investment portfolios built on best-in-class institutional share-class funds by Dimensional Fund Advisors and PIMCO.

GET EARLY ACCESS
Readers often ask us how we invest our own money.
Our response: with difficulty.

As you know by now, we feel strongly about a few things:
 

Fees

Keep them low and aligned to your interests. Anyone advising you should not be incentivised to churn your portfolio or be paid by anyone but you (i.e. they should not be getting any kickbacks in the form of hidden trailer fees or charging you sales fees).

Read more in our articles: A dictionary on mutual fund fees (22 Jun 18)Mutual funds investing - What are trailer fees (8 Jun 18)The million dollar bet (8 Sept 17)
 

An evidence-based approach

Some may think we are overly academic in our approach - we think it is a responsible way to invest our money. There are investment strategies that luckily ‘work’-out, and there are strategies that are proven to work. We strive to implement the latter by understanding sources of risk and return that are tested across markets and cycles so we can best position ourselves to succeed in the long-run, only taking calculated risk compensated by appropriate returns. Exposure to the size, value and profitability risk premiums, expressed by Nobel laureate Eugene Fama and his partner Kenneth French in their three-factor model, is an example.

 

Holistic advice

Investing is emotional. It’s your money. Putting your money to work in a way that suits your risk tolerance and financial goals is crucial to your behaviour and therefore monetary success. Furthermore, do not ignore important details like tax-efficiency, currency-related expenses, and trading costs. 

Read more in our articles: Warren Buffett invests like a woman (20 Apr 18)Be still, my beating heart (9 Feb 18)We are all above average (31 Aug 17)

Combining these elements into a core investment portfolio we can trust, understand, access and track is not a straightforward journey.
Our own struggles drove us to create endowus a year and a half ago with a simple mission: Leverage technology to make the best financial advice and products accessible to all of us.

Fast forward: we hold a financial adviser’s license issued by the Monetary Authority of Singapore and have built a passionate team of problem-solvers, bringing together decades of experience at leading global financial institutions and technology companies. Companies we have worked for include Goldman Sachs, Morgan Stanley, UBS, Blackstone, Nomura, HSBC, Wilmar, Grab, Kakao, Path, Singtel, SP Services, Visa and more. Our diverse expertise and experience in asset management, private banking, family office, investment banking, engineering and consumer technology have prepared us to better serve you.

 


Today, we would like to introduce you to our first product, endowus black.

A holistic solution suitable for your core investment portfolio: low cost, diversified, evidence-based, SGD-optimised portfolios built on institutional share-class funds by Dimensional Fund Advisors and PIMCO. These funds are typically only available to large institutions like sovereign wealth funds and pension funds but we have found a way to make them available to you.
 

GET EARLY ACCESS

Now available to Singapore's Accredited Investors and coming soon to retail investors.

We believe in knowledge and transparency. You should never feel like you are not in control or do not understand how your money is managed. We will present you with the data you need to make informed decisions so that you are empowered to prepare better for your financial future.

Don’t worry - you can still undo some of these retirement planning mistakes

August 10, 2018

Some decisions are more important than others. Time is of the essence and you don’t really get a second chance once you hit retirement.

“Experience is the name everyone gives to their mistakes.”
 – Oscar Wilde

TAKEAWAY OF THE WEEK

We’ve all been there - bad haircuts, poor fashion choices, regretful hookups. For the most part, we’ve put these poor decisions behind us, even if Facebook continuously reminds us of these “memories”.

Some decisions are more important than others. When it comes to planning for retirement, the earlier you start, the better off you will be. Time is of the essence and you don’t really get a second chance once you hit retirement.

Here are some retirement planning mistakes to avoid:

1. Not having a plan

The sad reality is that we probably spend more time planning our next vacation than planning how we will live (and pay for) the last three decades of our lives. One in three working Singapore adults is not planning for his or her retirement, according to a survey by Nielsen. Figure out, reasonably and roughly, the cost of your desired lifestyle in today’s money. Write it down. This is a good place to start.

2. Not starting early

Life gets in the way - you have a mortgage, kids’ education, bucket list holidays to pay for. We get it. We are not telling you to cut down on spending. But you should implement your investment plan so that you benefit from your most valuable and finite asset of all - time. It's no surprise that 66% of retirees in Singapore wished they had started planning for retirement earlier. Don’t play catch up - start early and let time be on your side. Read more in our article here.

3. Not investing intelligently

Investing poorly will do you more harm than good, and probably make some brokers and salespeople happy along the way. Diversify, keep your costs low, and be mindful of the level of risk you are taking. Though markets have historically rewarded investors who have stayed invested over the long-term, we are our own worst enemy. If you invest more aggressively than you can stomach, you will struggle to stay invested when markets inevitably turn against you, and most likely buy high and sell low. Hoarding cash is also a poor idea as inflation will slowly but surely eat away at your wealth. A Blackrock survey concluded that Singaporeans rely too heavily on cash in their investment portfolios, which creates a significant gap between current holdings and financial goals.

Form a long-term investment plan with an asset allocation that is appropriate for your risk tolerance, review it regularly and keep track of your progress towards reaching your goal. If this all sounds too overwhelming, find a financial advisor that can help.

If you are based in Singapore, we at endowus, a MAS-licensed financial adviser, can help. Get in touch here.

An alarming 65% of retirees in Singapore do not expect their savings to last throughout retirement. (Source: Channel News Asia) You want to be sailing off into the sunset or hitting birdies at the golf course in the last decades of your life. Not struggling to pay your bills and worrying about outliving your retirement savings.

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THE WORLD IN VIEW

Business

Cheques and balances: Silicon Valley gets queasy about Chinese money (The Economist)

The expensive education of Mark Zuckerberg and Silicon Valley (NY Times)

Fintech frenzy: Hype or reality? A closer look at 6 key sectors (Fortune)

Markets

SoftBank weighs the largest public listing ever (Bloomberg)

The hedge fund 100: Quant funds excel — at asset gathering (Institutional Investor)

Singapore

Singapore's existential issue (NY Times)

HK loses to Singapore as start-up venue (SCMP)

In pictures: Happy National Day Singapore (Channel News Asia)

Longform

Why aren’t there more Indra Nooyis? (The Atlantic)

What have we done? Silicon Valley engineers fear they've created a monster (Vanity Fair)

Podcast

The Curious Investor: Silly things investors do (AQR // 18 mins)

Good To Know

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The cognitive biases tricking your brain (The Atlantic)

The world of ‘Crazy Rich Asians’ is as crazy in real life (Bloomberg)

What the best nonprofits know about strategy (Harvard Business Review)

The complex art of apology in Japan (BBC)

Apple's path to a $1 trillion market capitalization

Source: Visual Capitalist ​

What keeps you up at night? It really should be the global pension crisis

July 26, 2018

In 2050 the world will have a $400 trillion dollar shortfall in providing income to its old age citizens. That’s a really scary thought.

"We are more disturbed by a calamity which threatens us than by one which has befallen us."
- John Lancaster Spalding

TAKEAWAY OF THE WEEK

When I was growing up, the biggest threat to our future was the seemingly imminent nuclear war between the Cold War antagonists - the United States and the Soviet Union. After the fall of the Berlin Wall, we moved onto the threat of melting ice caps in the North Pole, huge earthquakes and tsunamis engulfing major cities and nations, and a meteor eventually wiping out humanity. We have lived with the fear of an unknown event that will end humanity for as long as I can remember. However, the biggest impending threat isn’t some environmental disaster like an earthquake or a meteor strike, nor is it the threat of a nuclear war breaking out. It is the global pension crisis.

An ageing population driven by longer life expectancies and lower birth rates has caused the dependency ratio – the ratio of retirees to active labour force – to move steadily higher across the world. In 1950, 10% of the working population was 65 or above in the world’s largest economies. Today, this number is 25%. By 2050, it will be 50%.

Imagine working your entire life as a responsible citizen. You retire at age 65, and many of your friends slowly leave the workforce as well. You have worked hard and are promised a retirement income from your government or employer. You are now 75 and have just been told that the tap has run dry. You and your friends will now have to start living on one-third of what was promised until you die. The cost of living and healthcare have been increasing, but you cannot go back to work and you do not want to be a burden on your children. Your lifestyle and healthcare suffer as you live out your life.

Despite people living and staying physically active for longer, there has been no change in the official retirement age, which ranges between 60 and 65 around the world. As a result, many public and private pension plans are increasingly under-funded and will fall short of supporting the ageing population. Pension systems now have to pay benefits for two to three times longer than for what they were originally designed. There are three main sources of income during retirement: government-sponsored pensions, work or occupational pension plans, and personal savings. We are seeing increasing shortfalls across the board from all three sources of future income.

A 2016 Citibank report showed the 20 largest OECD countries alone have a $78 trillion shortfall in its public pensions, equivalent to 1.8 times the value of these countries’ collective national debt. Private pensions are not much better: the US has an 82% funding rate ($3 trillion shortfall) and the UK has a 68% funding rate ($1 trillion shortfall). The companies comprising the S&P 1500, the most profitable companies in the United States, have pension schemes that are underfunded to the sum of $286 billion. (Source: Mercer)  

Remember that this is only the crisis facing the richest parts of the world.

By 2050, the total gap in global pension funding (including the two most populous countries in the world - China and India, which face the same long-term problems) is predicted to be a staggering $400 trillion. This is roughly five times the size of the global economy today.

Source: World Economic Forum

These structural challenges are exacerbated by economic trends such as job displacement and income pressure from technological advances, and in turn that people may not be able to save as much. This is further hampered by the extended period of low interest rates that have dampened returns and income. In fact, an OECD report showed that people retiring today can expect half the income of those who became pensioners at the start of the millennium.

While Singapore has arguably one of the best-funded public pension programs in the world, the Central Provident Fund (CPF), it will fall short of providing a secure retirement income for everybody. CPF is a defined contribution pension scheme with one of the highest savings rates in the world, a major employer contribution component, and also has a government guaranteed yield that sets a floor to returns. However, the bulk of the savings will sit in the Ordinary Account, generating a guaranteed 2.5% return, which clearly will not be enough to fund long-term retirement income needs. While Singaporeans are blessed to have the CPF as a backstop, most people will need to supplement their income in retirement from other sources such as personal savings and private pension plans. It is already more common to see people working in their old age to supplement income. The median income level of the 60-65 years age bracket is surprisingly also below that of the 20-25 year age bracket in Singapore.

We must and can take steps to better prepare for our financial future. This includes improving financial literacy through education or greater use of technology and automation to improve the process. Through these efforts, we can help people develop a long-term retirement income plan, especially from a younger age. This is critical to our survival, not only individually, but as a society.  Yes, nuclear war or a meteor strike is scary, but imagine living in poverty for 25 years after retirement. Imagine the whole world reaching 2050 with a $400 trillion dollar shortfall in providing income to its old age citizens. That’s a really scary thought.

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THE WORLD IN VIEW

Business

Taxes aren't the biggest threat to your inheritance. Family squabbles are (CNBC)

How to rescue the WTO (The Economist)

Everything about private equity reeks of bubble. Party on! (Institutional Investor)
Disney, economic gravity and vibranium physics (Redef)

Markets

The right place, the right time: 5% outperformance from 1960-1980 made less money than 5% underperformance 1980-2000 (Of Dollars and Data)

Maybe the future of fund management isn’t so bleak (Bloomberg)

Singapore

Singapore hack is a speed bump for $9 trillion industry (Bloomberg)

Why are Hongkongers obsessed with Singapore, even as they shun their own government? (SCMP)

Singapore's top 50 tycoons get 11% richer (Business Times)

Longform

Why Elon Musk is hard not to like (The Economist)

The man who captures criminals for the DEA by playing them (New Yorker)

Podcast

Lessons from Richard Branson, Tony Robbins, Ray Dalio, and other icons (Tim Ferriss // 63 mins)

Good To Know

A 4-day workweek? A test run shows a surprising result (NY Times)

Loss aversion at work or why soccer makes its fans unhappy (Bloomberg)

The vindication of cheese, butter, and full-fat milk (The Atlantic)

Amazon’s Alexa and Google Home show accent bias, with Chinese and Spanish hardest to understand (SCMP)

The big business of being Gwyneth Paltrow (NY Times)

It's hard to underestimate the influence that Google Maps has had on the world (The Irrelevant Investor)

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Source: The Cheddar