So I received this very interesting question from a FH Premium subscriber:
Hi,
Thanks for your financial blog, think it’s one of the most relevant and best out there for me. Thumbs up.
My Background: Mid 30s with 2 young kids, living in a HDB. Own a car. No investment property. New job monthly salary is 13 – 15k SGD per month. Annual is about 230k per year after including bonus.
Current portfolio:
Cash: 25k ish in banks or money market funds
SRS: 20k in Endowus 100% equity portfolio.
Stocks: 5k in a mix of the Syfe 100% equity and Syfe China growth
REITS: 15k in Syfe REITS+
CPF SA: 125k
Total Investments (excluding House and Car): $190,000
Anyway, I need some advice/direction on asset allocation.
1) Should I include my CPF SA and SRS when thinking of asset allocation? If I include them, means I would need to pump more into equities in next few months. If don’t include, feels weird to exclude them seeing how they are a large part of my current portfolio, albeit illiquid.
2) Based on my profile below, what should be my target allocation?
3) If barbell strategy, to include CPF SA? Where should REITS Be?
The biggest question I had – That’s not a lot of savings for a $230,000 a year income
Well looking at the above.
The biggest question I had.
Was that for a guy in his mid 30s, earning 230k a year.
To be brutally honest, his total investment size of $190,000 did seem to be on the low side.
So I asked about it, and this was the response:
Well, I have been underpaid for awhile (my previous role only paid 100k+ annual after including bonus) due to personal choice of wanting to have fully remote work so I can spend more time with the family.
My wife earns quite a bit less than my income (have to factor this into the equation)
Past few years also had major expenses with the birth of my second child, BTO (+renovation)
Prior to that, rented a condo for a couple of years (so the cost adds up 🙃) as we did not want to stay with in laws after marriage.
During the crypto bear market, I lost a lot of money (FTX, anchor protocol, weak diamond hands).
Made me learn the importance of custodians, asset allocation and sizing for high risk investments.
Well, with major expenses out of the way now, I am ready to be smarter with my new income. Hope it ain’t late to start now. Your blog and any general thoughts would really help!
Not Financial Advice
Just to be clear, I amended the fact pattern above slightly from what was given to me, to protect the privacy of the subscriber.
So any resemblance to anyone you know is probably just a coincidence, and for obvious reasons this is NOT financial advice.
Is this too late? It’s only too late when you’re dead?
Before we start, I wanted to address the elephant in the room.
If you’re in your mid 30s, it most definitely is NOT too late to start saving / investing.
Let’s run some simple numbers.
Assuming the $230,000 a year salary.
Let’s just be conservative and say the wife earns about $70,000 a year, which gives us a nice round number of $300,000 a year in household income.
And let’s say you’re looking at $50,000 – $100,000 a year in expenses.
That means you’re looking at anywhere from $200,000 to $250,000 a year in savings after that (depending on how frugal you are with expenses).
If you invest $200,000 a year at a 7% return – how much do you have at 55?
Let’s assume you’re starting with the $190,000 investment portfolio.
Invest an additional $200,000 a year for the next 20 years (until 55).
And the investments grow at 7% a year.
How much do you have at 55?
You may not believe it – but the number is a mind-boggling $9.5 million.
Yes, I know there are a million exceptions to this.
Maybe the investments underperform.
Maybe you lose your job and can’t invest $200,000 a year.
Maybe expenses go up.
But big picture wise – it’s fairly clear that the answer is that is not too late to start.
Even if you miss the target above by a mile, you’re still looking at well into a couple of million.
Lesson here – the best time to start is yesterday.
The next best time? Is today.
What are the questions from the subscriber?
Let’s address each of the 3 questions from the subscriber:
- Should you include CPF-SA and SRS when thinking of Asset Allocation?
- What is the “ideal” target allocation?
- How would I approach this? Hypothetically?
Should you include CPF-SA and SRS when thinking of Asset Allocation?
Visualised, this is what the current portfolio looks like.
And I’m going to say without a doubt that yes – CPF-SA and SRS should be factored into the asset allocation.
Otherwise you’re just flat out ignoring 75% of the portfolio, which makes zero sense to me.
How to think of CPF-SA or SRS? From an asset allocation perspective?
If you’re in your mid 30s, and the CPF-SA is locked up for another 20 years minimum, and it’s parked in CPF-SA earning 4.0% (and not invested in equities).
Then probably the “right” way to see it is like a long term government bond, with no capital gains potential.
It’s kind of like a weird hybrid cash instrument where you are guaranteed a 4.0% return (with no capital gains or loss).
And yet it’s locked up for 20 years.
So I would park this under the cash/bond asset class.
Of course if you decide to invest the CPF-SA in stocks, then it should be viewed as stocks instead.
For SRS, it’s more simple in that it’s tied to whatever you’re invested in.
In this case the SRS is invested in stocks – so this counts as stocks.
| Asset Class | Amount |
| Cash | 25,000.00 |
| SRS | 20,000.00 |
| Stocks | 5,000.00 |
| REITs | 15,000.00 |
| CPFSA | 125,000.00 |
| Total | 190,000.00 |
What is the “ideal” asset allocation?
Then we get into the hard(er) question.
What is the “ideal” asset allocation?
For obvious reasons this depends on individual risk appetite, which I have no clue on.
If his job is not stable, then he probably wants to dial back on risk.
If his job is an iron ricebowl, then maybe he can afford to go higher on risk.
This needs to be a decision made by each individual.
But at a high level, there are 3 big asset classes based on risk/growth potential:
Highest Growth potential? Also highest risk?
- Crypto
- US Tech stocks
- US mid – small cap stocks
- Commodities (maybe)
- China stocks
More “Stable” (debatable I know)
- Singapore Stocks
- Singapore REITs
Yield / waiting for opportunity
- Cash – T-Bills, SSBs, Fixed Deposit
- Bonds
How would I approach this? Hypothetically?
Like I said, I don’t know anything about the investor’s risk appetite.
So I’m just going to share, how I would approach this, if this were me.
Do you want to be an active, or passive investor?
Probably the biggest question is to ask if I want to active invest, or if I want to passive invest.
If you’re passive then maybe you just dollar cost average into an all world index for the next 20 years, and be done with it.
But for me – with all the macro volatility this decade, boy I am definitely going to be active investing.
How would I approach this? Hypothetically?
If this were me?
I think I might go with a 80/20 equity-cash/bond split.
And use an asset allocation something like the below:
| Asset Class | Percentage | Allocation |
| Crypto | 10 | 80 |
| US Tech | 30 | |
| US mid – small cap | 10 | |
| Commodities | 10 | |
| China | 10 | |
| Singapore Stocks | 10 | |
| Singapore REITs | 5 | 20 |
| Bonds | 5 | |
| Cash | 10 | |
| 100 |
Elaborating on the thought process for the asset allocation?
But I’m not going to deny that an asset allocation like that is probably on the high risk side, and may not be suitable for everyone.
Which are the key asset classes to build wealth?
The way I see it – if I’m in my thirties with 2 household salaries that generate good cash flow.
I actually want to take on more risk in my investments – to try and build wealth aggressively.
Especially without an investment property – so I decided to run an 80% equity exposure and a 20% cash/bond exposure.
Within the 80% equities.
Yes I know that US Tech and Crypto are very high today, so risk management is going to be crucial.
But over the mid to longer term, especially if we get a good buying opportunity after a big sell-off.
I still see those 2 segments as key wealth generators.
Follow Financial Horse to avoid missing any post!
What about everything else in the portfolio?
The rest are mainly diversifiers.
US mid – small cap stocks as a play on the strength of the US economy.
Commodities as an inflation hedge (and I actually like commodities again after the selloff).
China on a potential policy bottom and more stimulus in 2025.
Singapore Stocks / REITs – as a diversifier, and also because as a Singapore investor you cannot afford not to have SGD asset exposure.
What about cash/bonds?
I parked REITs as a pseudo-bond in the above, which I know not everyone will agree with me on.
My view is that if you stick to blue chips with solid underlying cash flow, in some ways you can treat it like a bond product.
But no doubt it carries equity style risk in a market sell-off, so nobody is saying to park all your emergency funds in REITs.
You do still want the usual T-Bills, UOB One, Singapore Savings Bonds and so on.
This was meant as how I would invest in my mid 30s with a high risk appetite and solid, stable cashflow from employment.
And hence I adjusted the asset allocation accordingly.
So high level that’s how I’m seeing it – and individual stocks / REITs I am keen on are shared on the FH Premium.
BUT timing wise – you need to take into account current market conditions
Just to caveat that the asset allocation above is more of a mid – longer term asset allocation.
If you’re active investing, you absolutely need to be think about current macro conditions, and market prices – and make changes to the asset allocation accordingly.
Here’s the chart for Bitcoin for example – at an all time high.
Would I put as much money into Bitcoin today, as I would have last year?
Probably not.
But if Bitcoin falls 50% from here, would I be putting 10% of my portfolio into Bitcoin?
You get the idea.
Meanwhile the S&P500 is also at all-time highs.
While valuations are at the higher end of historical ranges.
Now of course none of this is useful from a timing perspective.
But it does give you some idea of where we are in the cycle, in that things are not necessarily cheap, and that you do need to be careful of downside risk given current valuations.
This assumes avoiding drawdowns – this is not easy to achieve in markets?
Note also that the calculation I ran earlier – which results in $9.5 million after 20 years.
That’s assuming a smooth 7% compounded return over 20 years.
In reality that’s a lot harder to achieve than it sounds.
If you have a bad year like 2020 or 2022 and you’re down 30%.
You need a lot of future gains just to make up for that 30% loss.
Closing Thoughts: With active investing – risk management is key
So if you want to active invest, there’s probably 2 key rules to live by.
First – is that you want to be aggressive in cutting losses.
Determine the price at which your thesis is wrong, and don’t be afraid to take the loss.
In my experience – this is probably the biggest difference between the great investors, and the average investors.
The great investors have no problem admitting they are wrong, and taking a 10% loss.
The average investors hold on for too long, and before they know it they are sitting on a 40% loss – wiping out their gains elsewhere.
Secondly – you want to watch your position sizing.
Size your positions big enough that you make serious money if you are right.
And yet not so big that if you are wrong, you’re going to lose the house.
Know when to bet big, and when to cut losses.
This one is much easier said than done.
You can see my full portfolio breakdown (including what I am invested in and position sizing) on FH Premium, with weekly updates on the changes I make to my portfolio.
This post is written on 29 Nov 2024 and will not be updated going forward. My latest views on markets, my Stock watchlist and full Personal Portfolio, are shared on FH Premium.