How to Invest in Singapore with a DIY Bogleheads Retirement Portfolio

As people in Singapore get informed on how to invest, the days of financial advisers ripping off people are coming to an end. Why a Bogleheads portfolio, and how do you invest with one?

A Bogleheads portfolio is one which uses only basic asset classes — usually a domestic stock ‘total market’ index fund, an international version of this fund, and a bond (usually local) ‘total market’ index fund. It’s effectiveness lies in it’s elegant simplicity and comparatively predictable returns (hence superior performance in the mid to long term). Perfect for retirement fund building (read how to retire in Singapore, if you have not done so).

You first decide on percentage allocations to buy the funds (3 specific ones in the case of our FIRE Singapore portfolio). For example, depending on age, one may need 60% in fund A, 20% in fund B and 20% in fund C. The allocation between these 3 funds shift as you age.

The goal is to grow the portfolio aggressively to 25 times your desired annual income in the shortest time. Once the target is reached, we will live off 4% of the annual portfolio returns indefinitely. In addition, we have CPF LIFE to supplement our retirement income.

Importantly, you need to save a significant portion of income every month to pump into your Bogleheads portfolio. Sacrifices will have to be made on unnecessary luxury spending, but it will be worth it.

Invest in a Retirement ATM Machine That Never Dries Up

how to invest in singapore
Withdrawing FREE money from your retirement pot indefinitely, as long as you observe the 4% rule.

A properly-constructed portfolio gives a retirement income of around 3.5% – 4% a year (i.e. S$35,000 – S$40,000 for a S$1,000,000 portfolio).

This means you can ‘withdraw’ S$40,000 on the first of Jan every year, leaving a balance of S$1,000,000 for the process to repeat indefinitely. Of course, factors like inflation and varying performance come into play, but you get the picture. Also, some people may prefer to have more or less per month. It’s all about lifestyle expectations. A comfortable pot to build up to might be around S$1,500,000 (for a S$80,000/year retirement income) for most people.

Done right, this strategy creates an unlimited money ATM machine. Sounds like magic? If you’re not new to FIRE and have researched heavily on FIRE in Singapore, you’ll realise that this method is basically described in the book Rich by Retirement by shinythings in the Hardwarezone forums.

I highly recommend giving it a read, as it talks specifically on how to invest in Singapore. However, a lot of people do not take action because nobody tells them the exact steps to take (especially with re-balancing etc).

What is an Exchange-Traded Fund?

We all know that people buy stocks in companies they think will do well (to make money). The problem is identifying companies that will make you money! Other than time constraints, it is impossible to predict which companies these are.

An exchange-traded fund (ETF) solves this problem. A ETF that tracks an index is a basket of securities you can buy through a brokerage firm on a stock exchange.

Invest in the Singapore Market via the Straits Times Index (STI)

how to invest in singapore
Invest in the top 30 Singaporean companies with just 1 investment product (the STI ETF).

Instead of betting on a few big companies, why not invest in the top 30 companies in the SGX by buying just 1 ETF that tracks the STI (the Straits Times Index)? This effectively lets you invest in the Singapore market by buying just a single product.

An ETF holds all of the securities in a specific index (in the case of the STI, the top 30 companies in the SGX), with the goal of matching the performance of that benchmark as closely as possible.

Invest in the Global Market with the MSCI World Index (IWDA)

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Invest in over 1,600 global companies including Apple, Microsoft, Amazon and even Tesla in a single ETF!

Other than the STI, it is important to diversify into global stocks with the IWDA index fund (MSCI World Index), so as not to miss out on global economic growth. We don’t just want to invest in Singapore companies, while missing out on global economic growth.

Why Buy an Index ETF?

how to invest in singapore
It is obviously cheaper to buy a combo meal instead of each item individually.

When you buy an index ETF, you’re buying a bunch of stocks (or bonds) all at once, instead of buying each stock separately. This is fantastic, because you don’t have to think about picking individual stocks.

Think of ETFs as ‘fast food combo meals‘ that come with a burger, fries and a drink. It is cheaper and easier to buy a combo meal, than to buy the burger, fries and drinks separately.

By buying both the STI and IWDA, you effectively invest in both the Singapore market, as well as the global economy by buying 2 ‘combo meals’, saving you a lot of time and fees in the process.

Reduce Risk Through Automatic Diversification

how to invest in singapore
Stock ETFs comprising many companies reduce risk.

Statistically speaking, 50% of stocks must be below average, and 50% of stocks must be above average. Economies generally trend upwards. When the economy is doing well, most stocks are appreciating.

Hence, if you are broadly diversified via an broad ETF, you reduce the risk associated with gambling on a few stocks.

Protecting Your Portfolio Gives You Stable Gains

Stock picking gives you a temporary euphoria during lucky times, only for you to pay it all back in the long term.

Let’s say you were asked to choose between 2 bags. The first bag has 3 apples (stock picking), while the second has 300 apples (index fund).

Both bags were randomly filled with either fresh or rotten apples (each apple has a 50/50 chance of being fresh/rotten).

The risk of the first bag having 2 rotten apples (66% lousy stocks) is higher than the second bag having 200 rotten apples. Likely, the second bag contains close to 50% fresh apples.

Consequently, you are more likely to end up with good stocks, by having a big basket of companies (i.e. buying an index fund).

A Bogleheads Portfolio Removes Emotions

Irrational human emotions are your greatest obstacle to growing your wealth.

Bogleheads invest, gamblers trade. You need to recognise that nobody can predict short to mid-term market moves.

If you’ve traded stocks, the roller-coaster sensations of making (and losing) money would be familiar to you.

Chances are, most people do not know when to buy or sell, instead basing their actions on irrational thoughts like:

Irrational thought: ‘The stock price looks low, I think it’s time to buy.’
Problem: How do you define ‘price looks low‘? It is not rare for people to bail out to ‘cut loss’ after price drops 20%, only to feel a false sense of relief if price dumps further, or a sense of frustration when price recovers.

Irrational thought: ‘The stock price has risen a lot and it looks high! Price will be correcting soon. I should sell now to lock in my profits!’
Problem: Again, how do you define ‘price looks high‘? You may feel smart if price drops after you sell, but which new shiny stock will you chase and gamble your profits on next? Trading again and again, with no clear investment goal or exit plan is bound to have dire consequences.

Methodical & Stable Portfolio Growth With Zero Guesswork

Be disciplined instead of trying to outsmart the market.

Things are vastly different with the Bogleheads method. Our portfolio contains only 3 assets (the STI ETF, IWDA ETF and the Singapore Bond Index Fund) in calculated proportions for optimal diversification.

You are in a winning position with a Bogleheads portfolio because in general, the economy grows in the long term (barring events like World War 3 or some super-COVID that kills 50% of humans).

Since we are growing our portfolio, we do not worry about when to ‘buy low’ or ‘sell high’. In fact, we don’t even care about prices at all!

If the value of STI in our portfolio drops below our allocation, we simply buy more of it. STI and IWDA soaring like crazy, and bonds not doing great? Buy more bonds at a ‘discounted’ price! This way, we make sure we are always accumulating assets at ‘cheap’ prices.

Typically, when stocks are soaring, bonds become cheap (and vice versa). So, what do we do during a bull run when stocks do extremely well (making our stocks over-weighted)? We sell down our stocks (to the proper allocations), and use the profits to buy bonds (again, at ‘discount’ prices)! We call this rebalancing (these will be cover in other posts).

Recommended Reading

  1. The Bogleheads’ Guide to the Three-Fund Portfolio: How a Simple Portfolio of Three Total Market Index Funds Outperforms Most Investors with Less Risk
  2. The Bogleheads’ Guide to Investing

Ready to Build Your Own Bogleheads Portfolio?

Invest with confidence and a sense of peace with a Bogleheads Portfolio.

Continue to the next step in our journey on how to invest in Singapore without forking on expensive fees to finance and insurance companies.

2 thoughts on “How to Invest in Singapore with a DIY Bogleheads Retirement Portfolio”

    1. Hi Michelle, sorry that I just saw this. I prefer to do so on my own. I do use Endowus to invest my CPF OA in excess of $20,000!

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