Saturday, 9 July 2016

Should we change our asset allocation?

We are planning a trip to Italy in Oct 2016 and should be flying into Florence and out from Rome. The last time we travelled to Italy was in Jun 2008 and it was part of a three week Europe trip. We really enjoyed our time in Italy and can't believe it's another 8 years before we go back!

This time round, we should be visiting the other areas such as Tuscany and Amalfi Coast instead of the major cities. It gives us something to look forward to so we can get through the next few months of work!
Anyway, after my end of Jun 2016 financial update, I started thinking about our asset allocation. At this stage, it consists of the following asset types in decreasing order by % value:
  • Domestic Real Estate (Singapore Apartment) - 25%
  • Domestic Equity (Singapore Shares and ETFs) - 20%
  • Domestic Cash (SGD) - 20%
  • Domestic Fixed Income (Singapore Bonds, Retirement Funds, Wholesale Life Policies) - 20%
  • Foreign Cash (AUD, USD, GBP and EUR) - 10%
  • Foreign Equity (Foreign Shares and ETFs) - 5%
    The Portfolios & Asset Allocation page on my blog only captures a portion of our total assets but not the entire amount. Besides, I only just worked our % asset allocation above and have never considered it from the perspective of asset classes distribution before.

    After doing the calculation, I realise a significant portion of our total assets is tied to the domestic markets. I guess this is normal in the initial stage of any wealth-building journey as you first accumulate assets in your country of living before you start thinking about investing overseas. In fact, our 15% of foreign markets exposure is mainly due to us having lived & worked in Australia for a few years and in a small way our recent efforts to invest in ETFs listed on the LSE.

    What's interesting for me is whether there is a need for us to diversify our asset classes and between domestic & foreign markets further? For a working couple like us that has only built up a bit of wealth, I'm not sure whether this is something we should even be considering now given how the current asset class distribution seems to address our needs sufficiently.

    I was thinking about foreign real estate but it might cause an overexposure to real estate since we already own REITs in addition to the apartment in Singapore. With interest rates expected to increase in the future, I might only consider adding more real estate exposure then.

    If we are to include other asset classes, what exactly should we be looking at? I could invest directly into gold and silver, which I presume is a form of alternative investments. To be honest, I have only ever considered investing in a Gold ETF and even decided against that. I have always hesitated against investing in precious metals due to my lack of knowledge but this might be a good opportunity and time to do so.

    Another option is private equity/fund investments but we don't have that kind of capital. Investing into crowdfunding for SMEs is a more possible option. However, I worry about the risks involved when investing through crowdfunding platforms such as the much higher possibility of the company defaulting on its payment.

    Perhaps we can contribute capital directly into small businesses set up by friends or family that have potential for growth but that's provided I can even find such opportunities. Alternatively, we can set up a small business and invest in ourselves but I have yet to come up with any ideas.

    Or we can just wait for a robo-advisor to set up shop in Singapore and invest in an alternative investments portfolio managed by them. I still have no idea why it's taking such a long time for robo-advisors to come to Singapore especially when we are trying to be a Fintech hub.

    This might be a premature discussion in our current situation and the best way forward for now is probably to build up our foreign markets asset exposure while adjusting the allocations. However, I reckon at some point in time in our future if we can continue to grow our asset portfolio, this issue will surface again. Hopefully I will have a better idea then!


    1. Hi TFS,

      I personally think a 15% exposure to foreign stocks in too little. I prefer to keep around 35% in foreign stocks, and diversify them by buying an international stock index. Around 65% as domestic investments is good enough, as our living expenses are also correlated to the Singapore economy. Cheers!


      1. Hi LS,

        I reckon a 15% exposure to foreign stocks is too little as well. I have been trying to increase it by buying the foreign ETFs and agree that 35% is a good target to hit.