This is an account of how I work out my SRS investment for 2023. It also corresponds to Dave Ramsey’s Baby Step 4 – Invest 15% of Your Household Income in Retirement.
The Supplementary Retirement Scheme (SRS) is a Singapore government-led initiative to help Singaporeans prepare for old age by building their retirement nest in advance. SRS complements the Central Provident Fund (CPF) and is voluntary. It offers attractive tax benefits as contributions are eligible for a dollar-to-dollar tax relief, up to a personal income tax relief cap of S$80,000 per Year of Assessment. However, early withdrawal incur penalties and the terms are fairly complicated.
I have been contributing to my SRS account for the last couple of years mainly for the tax benefits. I didn’t spend too much time thinking about how to invest it. Truth be told, I kept mixing it up with my CPF contributions.
For the last couple of years, I placed a bulk of the funds in Endowus. It was doing okay except the account value submitted by UOB Kay Hian to my SRS account and the account value in Endowus vary greatly. The difference isn’t in cents. It is in thousands.
I know the information kept by Endowus should be the accurate amount but this is not reflected in my bank statement so it is annoying to have to figure out the difference whenever I update my financial records.
On top of that, I also did not like the recurring management fees. It is not as high as other platforms but it still seems high to me for something ultra passive like an SRS account.
I decided to bite the bullet and spend some time to study and get a better understanding of SRS, its advantages and disadvantages, and work out my SRS investment strategy and build my own SRS portfolio.
My ideal SRS portfolio should have:
- An appropriate time horizon which is long term since I can’t touch my SRS monies without penalties.
- An annual yield of at least 4%
- A set-and-forget mechanism as I do not want to monitor my portfolio too frequently.
The Limitations of SRS
The type of investment instruments are limited:
- Endowment insurance plans – this type of saving-cum-insurance products are good for people who can’t save on their own. For people who are great savers, it is really not necessary.
- Unit trusts – the recurring cost of investing is high and their performance have been lacklustre of late.
- Shares and ETFs listed in SGX – The Singapore Stock Exchange is such a small market. (https://www.sgx.com/campaign/etf-investing-srs)
- Singapore Government Securities – The higher interest rates lately made this more attractive.
- Structured Deposits – I am staying away from this.
- Time Deposits – This is good for the short term. I’ll park money I need to use in the near future in time deposits just to earn extra interest. It is therefore not quite suitable for SRS.
Another limitation is 100% tax for early withdrawal amount + 5% Penalty Fee. The Singapore Government has set the official statutory retirement age at 62. If the SRS contributions are withdrawn before that, penalties apply.
In conclusion, I can only invest in shares and ETFs listed in SGX and Singapore Government Securities with a mid to long term time horizon.
Finding the SRS Investment Portfolio
My next questions are:
- What Singapore shares and ETFs to buy
- What the allocation should be
I looked at the following portfolio strategies.
The Permanent Portfolio
The permanent portfolio was constructed by Harry Browne with the objective of creating a safe and profitable portfolio in any economic climate. Browne stated that a portfolio equally split between growth stocks, precious metals, government bonds, and Treasury bills would be an ideal investment mixture for investors seeking safety and growth.
In the Singapore context, the permanent portfolio is likely to look like this:
- Local Stocks: STI ETF (ES3) – 25%
- Bonds: Singapore Government Bonds (30 years) – 25%
- Gold: SPDR Gold Shares (O87) – 25%
- Cash – Time Deposits – 25%
Dr Wealth did a simulated Singapore Permanent Portfolio that started on 3 Jan 2012 with S$100,000 capital up till April 2018.
The Lazy Portfolio
The Three Fund Portfolio or the Lazy Portfolio is a simple strategy for lazy ETF investors. All you need to do is to pick three types of ETFs that give you exposure to the local stock market, the international stock market and the bond market.
In the Singapore context, the lazy portfolio is likely to look like this:
- Local Stock Market – SPDR STI ETF (ES3) or Nikko AM STI ETF (G3B) or iShares MSCI Singapore ETF (NYSEARCA: EWS)
- Bond Market – ABF Singapore bond fund (ABF)
- International Stock Market – ??
I didn’t find many examples of lazy portfolios using Singapore stocks and ETFs. A good international market ETF is especially difficult to find. There is also no back testing studies that I can fall back on (I’m not good at doing this on my own). Many investors had complained about the slow growth of STI ETF. I don’t see how a long term portfolio consisting of the STI ETF can be profitable.
So, using the lazy portfolio for my SRS investment does not seem like a good idea.
Dogs of the STI Portfolio
Dogs of the STI is based on the Dogs of the Dow investment strategy.
“Dogs of the Dow” attempts to beat the Dow Jones Industrial Average (DJIA) each year by leaning portfolios toward high-yield investments. The general concept is to allocate money to the 10 highest dividend-yielding, blue-chip stocks among the 30 components of the DJIA. This strategy requires rebalancing at the beginning of each calendar year.
Alvin Chow from Dr Wealth explains it for the Singapore context in this video:
I found something I think applies well to my SRS investment. The strategy is quite straightforward:
- Buy the top 10 STI stocks by dividend yield and review the ranking each year
- Sell those that fall off the scale and replace them with those whose yields have gone up significantly
I did some extra work by looking at their P/B and P/E ratios. I did a basic calculation of stock price based on the 5Y P/B ratio to see if the current price is higher or lower. My assumption is that if the current price is lower than the price based on the 5Y P/B, then the stock is considered reasonably priced. My final list has only 8 stocks. I’ll allocate 12.5% of my investable amount to each of the 8 stocks and REITS according to the equal weight rule.
I just found out that Hong Kong Land Holdings is not available for SRS. My list is now down to 7.
Buying and Tracking the Dogs of STI Portfolio
I decided to use FSMOne to buy my SRS portfolio mainly because they currently have lower fees. Their desktop platform and mobile app are quite user-friendly too. I have no issue linking my SRS bank account to my FSMOne account.
As of end Feb, I only managed to purchase 6 of the stocks/REITS. Maple Industrial Trust is trading above the price I want to buy it at. They are:
- BUOU Frasers Logistics & Commercial Trust
- BS6 Yangzijiang Shipbuilding Holdings (https://blog.seedly.sg/yangzijiang-sgx-bs6-guide/)
- C38U CapitaLand Integrated Commercial Trust
- M44U Mapletree Logistics Trust
- AJBU Keppel DC Reit
- F34 Wilmar International Limited
I decided to use Yahoo Finance to track this portfolio. I can see the performance of the portfolio at one glance. They have a new feature that can also track dividends. Looking forward to seeing records of the dividends collected. Kaching!
Their fundamentals view also let me see information on the dividends such as Ex-Div Date and Div/Share.
Share prices of 4 out of 6 stocks are lower than my purchase prices although the performance of BS6 Yang Yangzijiang Shipbuilding Holdings has been surprisingly good. Together with the dividends collected, the portfolio is about 10% up.
The aim of this exercise is to figure out my SRS investment strategy and construct a portfolio that has:
- An appropriate time horizon
- A annual yield of at least 4%
- A set-and-forget mechanism
I think I have done that using the Dogs of the Dow strategy tweaked to suit the Singapore context.
Disclaimer: I’m sharing this for my own financial education and memories. No one should treat this as financial advice. I’m neither qualified nor experienced.
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