How to build a safe Dividend Portfolio that pays 3% – 4% yield? (Singapore 2020)


For those of you who missed it, the past week saw us addressing a great query from a 25 year old reader who wanted to know how to invest his way to a multi-millionaire (it was a great query btw, do check it out here).

And just a couple days later, I received this fantastic comment from an older reader, with a slightly different problem on dividend portfolios. I’ve extracted it in its full glory below:

Hi FH, very sensible chap you are.  Since it is the end of the year, perhaps I can offer another scenario that is the exact opposite of the 25 year old just starting out in career one for you to consider and help your readers with.

I like your all weather portfolio and the Singapore version as well but if one is close to retirement and has a substantial portfolio of say $10M, then the Singapore version runs into challenges   That’s because for the bond part of the portfolio, one quickly runs into upper limits of how much one can put into CPF OA and SA as well as SSB.  What is left to invest in are SGS which has very low yield vs US treasuries and US treasuries which are subject to 30% tax withholding on interest, reducing return substantially.  

So this portfolio will not perform as well as Ray Dalio’s version which unfortunately works only for US residents not subject to the 30% interest tax withholding and who are not exposed to USD:SGD currency risk.  Since the bond parts of the portfolio account collectively for 55% of overall portfolio, it is important to get them right. 

The closest substitute I can find is to invest in Ireland listed corporate bond ETF instead but not sure it is the best alternative.  The other challenge faced with this overall portfolio is that yield from dividends and interest generated is not very high and this makes it hard to sustain retirement without drawing from capital.

Any suggestions? Can you pls make a suggestion for All weather portfolio for Singaporeans to retire on with yield from dividends and interest in 3-4% range assuming a $10M asset size for investment?  Thanks a lot and much appreciated!

Okay that’s a lot to take in.


Challenge… Accepted!

Basics: What is the thinking behind the All-Weather Portfolio?

Now the All-Weather Portfolio (check out the original article here) is one of the most popular portfolios on Financial Horse. I get a ton of readers of all ages writing in with queries on it. I guess there’s just something about an investment portfolio that does well in all economic situations that really appeals to investors.

But there are a couple of key points that I wanted to clarify regarding the All-Weather Portfolio. Let’s trace back to the original purpose of the All-Weather Portfolio.

Ray Dalio created this in response to a question posed by Tony Robbins on what he would create as an All-Weather Portfolio for the average US investor, that would do well in all economic regimes. And his response was the below:

And this is important because:

What does well all the time, doesn’t do particularly well any time

It’s important to point out that the All-Weather Portfolio is designed to do well in all economic situations. This also means that it’s not going to perform well in any particular economic situation. This is important to remember when you find yourself underperforming the S&P500. This is the portfolio working as intended.

US Investors have access to US Treasuries

The All Weather Portfolio allocates about 55% to bonds, split between Long Term US Bonds and Intermediate US Bonds. This works fine for US investors because you just buy US Treasuries (directly or via bond ETFs) and be done with it. As the reader pointed out though, this doesn’t work so well for Singapore investors because we’re paying 30% withholding tax on all bond distributions in the US.

Now there are people who argue that this 30% withholding tax doesn’t matter because you still enjoy the capital gains, but I really, really disagree with this. I think that when you’re buying long term US Treasuries that yield about 2.3% for the 30 year now, and you’re losing about 0.6% plus returns to withholding tax, that really impacts future returns.

Sure, a big chunk of returns from bonds, historically, came from capital gains. But going forward, I just don’t think that’s going to be the case anymore.

It’s simple math right. US Treasuries went from 10% to 2% over the past 30 years, triggering a 30 year bond bull market.

To achieve the same kind of capital gains over the next 30 years, means the US Treasury goes well into the negative territory (negative 5% anyone?).

Given what a disaster negative interest rates have been for Europe and Japan, I’m fairly certain the US is not going to replicate it. Instead, the next big move from the US in the next recession is likely to be inflation.

Think about it this way. Imagine you’re the US Government and you owe the bank (holders of US Treasuries) $10 trillion dollars. How do you solve that problem?

2 ways:

(1) Firstly you lower the interest rates, so that the interest you’re paying on that $10 trillion goes even lower, and you just keep rolling the debt over. That’s already been done which is why interest rates are so low.

(2) The second method, is to create inflation. Let’s say your GDP is $15 trillion, so the debt as a percentage of your GDP is 66%. If you create inflation (price of everything goes up but total amount of goods/services stays the same) and your GDP rises to $20 trillion, then congratulations your debt at $10 trillion is now 50% of your GDP. It’s the same thing that has been done all throughout history, ever since the Roman Empire and beyond, and I think it may play out in some form in the coming years. If so, this may spark global inflation, and wreak havoc on global exchange rates.

What does this mean for Singapore Investors?

What this means for Singapore Investors, is one of two things:

US Bonds are not appropriate because of withholding tax – 30% withholding tax is really painful, enough said.

Medium term returns may be limited due to inflationary pressures and depreciation in the USD – So the US Treasuries you hold may generate good nominal returns, but once you factor in inflation and exchange rates, the real returns may be poor.

Long story short, US Treasuries are not ideal for Singapore investors in the All-Weather Portfolio. What is the appropriate replacement?

Replacement for US Treasuries?

To answer it simply, there is no replacement for US Treasuries. This is important to understand.

US Treasuries are a very unique asset class. They are sovereign debt guaranteed by the US government, in a world where the USD functions as the global reserve currency, the Federal Reserve dictates global monetary policy, and where US Treasuries are the single most deep and liquid sovereign debt market in the entire globe.

There’s just no replacement to it.

Sure if you go back 100 years you could make a good argument that Gilts (UK Government Debt) are better than US Treasuries. Heck you could even make the argument that in 50 years time RMB sovereign debt issued by the China Government are superior to US Treasuries. But the year is 2020, and as at right now, there really is no sovereign debt on the planet that has similar qualities to US Treasuries. People have been trying to replace it for a while now, to no success.

If there is a global crisis tomorrow, investors are still going to flood into US Treasuries, end of story.

Once we understand that there’s no perfect replacement to US Treasuries, then our life becomes a lot easier. The question then becomes one of what do we replace the US Treasuries with, to create an All-Weather Portfolio for Singaporeans that fits our risk appetite and investment objectives.

The way I see it, there are 3 possible replacements:

  1. Singapore Savings Bonds and Singapore Government Securities
  2. Ultra-safe blue chip dividend stocks and REITs
  3. Accredited Investor Bonds

Singapore Savings Bonds and Singapore Government Securities

This is the most straightforward one.

But there are 2 big drawbacks with Singapore Savings Bonds. Firstly, there is no potential for capital gains (the price of SSBs don’t go up even when interest rates drop), which actually takes away a huge benefit of bonds in a portfolio. Secondly, as the reader pointed out, each person is capped at $200,000 each. You can use your spouse’s and children’s and parent’s accounts of course, but that probably still caps you out around $1 million plus. If you’re looking at a $10 million portfolio, this is not going to be enough.

This leaves us with Singapore Government Securities. And the main drawback here is poor liquidity. These things barely trade on the open market. So you can buy a chunk at issuance, but good luck trying to sell them on the open market in a hurry, especially if you’re offloading big amounts.

Ultra-safe blue-chip dividend stocks and REITs

The next one is more interesting. In recent years, I’ve noticed that ultra-safe blue-chip dividend stocks and REITs like Netlink or Mapletree Commercial Trust have been trading in line with fixed income. So when global interest rates fall, these guys go up in price (yield drops), and vice versa.

Which led me to think, would it be possible to replace bonds with these bad boys?

The thinking goes like this. Imagine that I only care abut the dividend yield, and I completely ignore the day to day capital gains / losses. This way, the only thing I need to focus on is the underlying free cash flow. As long as free cash flow is stable and healthy, my dividend is sound, and for all intents and purposes, this functions as a bond to me.

In a big financial crisis, the prices may initially fall, but as long as underlying cash flow remains sound, the market will eventually recognise the true value and rerate their pricing. And outside of a financial crisis style situation, they have price action that allows them to function like a fixed income proxy.

Now I get that these aren’t perfect replacements for US Treasuries. But we’re already recognised there’s no perfect replacement right? So it becomes a case of what is the least bad alternative, and I can think of a lot of worse investments than a dividend stock/REIT with ultra stable underlying cash flows.

Accredited Investor Bonds (Yield spread of no more than 1.5%)

The final one of course, is not available to all retail investors. But the scenario here envisions a $10 million portfolio, which means that investment products available to Accredited Investors come into play.

The main asset class this unlocks, is corporate bonds that are only available to Accredited Investors. The minimum investment is $250,000 a lot, so even with a $10 million portfolio, they need to be used sparingly.

Now as the Spiderman Movie loves to remind us, with great power comes great responsibility. Just because your private banker is pushing all kinds of great bonds to you, doesn’t really mean they’re great. I’m not going to go into a full discussion of how to evaluate credit risk here (there’s the FH Course for you if you’re interested), but I’ll just simplify it into a simple rule of thumb. If the yield spread (the yield on the bonds compared to the 10 year Singapore Savings Bond) is more than 1.5%, you’re taking on real risk, and you need to closely evaluate what you’re buying.

Of course, just because something is below a 1.5% yield spread doesn’t necessarily mean they’re safe, but it does eliminate a big portion of the risky junk bonds. In this category, you’re usually looking at bonds from Government linked companies, which are safe enough to be considered for current purposes.

Unless you have a fantastic relationship with your private banker though, it’s still going to be tough to get the high-demand bonds. The big GLCs usually like to place to institutional investors first, and only the scraps go to Accredited/High Net Worth Investors. But it’s still worth a shot.

How would I invest $10 million?

So back to the original challenge. How do I invest the bond component of a $10 million All-Weather Portfolio, as a Singapore investor?

For obvious reasons, this should not be construed as financial advice. Please do check with your financial advisor or stockbroker before making any investments.

The bond component is split into 15% intermediate term bonds, and 40% long term bonds.

15% intermediate term bonds

My 15%, or $1.5 million, will go into a mix of Singapore Savings Bonds (up to the limit I can get access to), Singapore Government Securities, and any other retail bonds that comes my way (like Astrea IV/V or Temasek bonds). I’ll also consider topping up some money into CPF if that’s still an option. Any intermediate term (10 year or below) Accredited Investor style bonds I get access to come under here as well.

At today’s prices, realistically, this works out to around 2% to 2.5% yield, depending on how aggressive I get with the accredited investor style bonds, and how much Astrea/Temasek Bonds I get.

40% long term bonds

And now here’s the controversial part. For the 40% long term bonds, I’m putting them into ultra-safe dividend stocks or REITs that have super high visibility over long term cash flow. Locating them of course, is the hard part, and is what the rest of this site is for.

For me personally, the ones that I like enough for this purpose are: Netlink Trust, Mapletree Commercial Trust, CapitaLand Commercial Trust, and to a certain extent, Ascendas REIT.

Blending the 4 in equal proportions, creates a portfolio with a yield of about 4.4% to 4.7%.

Blended Yield

If put the two portfolios together, 15% at 2 to 2.5% yield, and 40% at 4.4% to 4.7% yield, it works out a “bond” portfolio of about 3.9% yield.

Personally for me, I think that’s too much risk for the bond component of an All-Weather Portfolio. So what I would do, is that I’m going to mix some US Treasuries into the long term bond component to bring the down. If I keep 30% in the ultra-safe dividend stocks/REITs, and put 10% into a long term US Treasury bond fund like the TLT (about 2.25% net yield, 1.35% after withholding tax), the overall yield drops to about 3.4%.

But in doing so, I’m getting pretty large exposure to US treasuries, and all the qualities that comes with exposure to US treasuries. For me personally, I like the trade-off.

Financial Horse Dividend Yield Portfolio – For “Bond” Component of All-Weather Portfolio


Percentage of Total Portfolio





SSBs, SGS, Astrea/Temasek Bonds, Accredited Investor Bonds

2% to 2.5%



Blue chip dividend yield / REITs – Netlink Trust, Mapletree Commercial Trust, CapitaLand Commercial Trust, and Ascendas REIT

4.4% to 4.7



Long Term US Treasuries – TLT

1.35% (after withholding tax)






Closing Thoughts

Writing this post made me feel like a chef. You know, one part sugar and two parts butter, mix well and add eggs?

But I think the real point of this article is to illustrate that the real world is not perfect. Investing in the real world sometimes requires making do with the best tools that are available to us at that point in time.

With a bit of creativity, and reasoning from first principles, we can construct an alternative dividend portfolio to suit our own risk appetite and investment objectives. I talk about this in much greater detail in the FH Course, so do check that out if you’re keen.

But for me, my “Bond” portfolio now yields about 3.4% yield, while striking a good balance between safety and returns. Throw in a 30% exposure to stocks, some gold and commodities, and the all-weather portfolio may be on its way to some pretty decent returns.

And by decent, I mean average, because that’s what this portfolio is designed to do. ?

What do you guys think of my modified all weather portfolio? Share your comments below!

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  1. Hi FH, I saw CGS-CIMB has Bond CFD product which retail investor might be interested to look at to invest high grade coporate/govt bonds with only 20% margin and min investment of 50k

  2. One can consider corporate bonds and use margin to leverage the return through brokerages. Just need $80K to buy $250K bonds. Or one can use $250K with no leverage, 3 to 4% is achievable. Just be sure you know what you are buying.

  3. On the retiring with $10mil scenario, maybe you can construct another view where there is regular draw down on principal to yield the projected $400k pa. Gut feelng says trying to get 4% on $10mil and not touching the principal at any time might be more risky than a different portfolio mix with draw-down.

  4. Dear FH, thanks for taking the challenge and your detailed and comprehensive reply. It is great to be able to bounce ideas with an unbiased fellow investor. It is a sad reflection of the financial industry but the vast majority of so called financial advisers are interested only in pushing products for a commission and one cannot take them seriously.

    I will have to reflect further on what you wrote but my first impression is that substituting the bond portfolio with a “safe” REIT one is still quite risky. The reason being that if you look at correlations, REITs are ultimately very highly correlated with equity so they are still equity rather than bond like even though DBS Chief Investment Officer is starting to encourage people to think of them as bond alternatives given low bond yields. But if you look at how REITs fared in previous stock market crashes, even the most recent one in Dec 2018, they fall a lot. One may say that this doesnt matter as long as one holds and collect dividends but they may also raise cash through rights issues during these periods. Hence, while one can hold a higher proportion of REITs, think it is hard to hold enough to substitute for the bond part of portfolio without adding substantial risk and rendering this not an all weather portfolio.

    I would probably add a bit more REITs but also focus on Bond ETFs and add some high yield bonds together with investment grade bonds. While risk of default with high yield bonds is real, individual defaults are mitigated with an ETF and even in stock market crashes, they don’t drop as much as equity indexes or individual stocks. Accredited investor bonds don’t do that much They don’t yield a lot at the moment with exception of European bank AT1 perpetuals and risk is somewhat concentrated because of the 250K a pop stake.

    • Amazing, another really great comment!
      Just wanted to point out something I missed in the original article, it’s that if you buy the Treasuries direct (instead of an ETF), we won’t incur withholding tax as Singapore investors. There’s much more hassle with the execution of course, but it’s another viable path to explore.
      Actually writing this article made me realise that there really is no free lunch. The risk free rate right now is about 2%, so trying to build a “bond” portfolio that pays 3% to 4% annually requires taking on additional risk. If done via bonds, this will be credit risk. If done via equity or REITs, this will be equity style risk. Which is exactly what you’ve pointed out too.
      So it really comes down to a function of the low yield environment we live in today as engineered by central banks. To generate higher yield, it really comes down to higher risk, and deciding what kind of risk we want to take on, ultimately depends on our risk profile and our investment objectives.
      Truly truly amazing questions though, and I’ve learnt a lot from this too. Don’t hesitate to drop by (comment or email) if you have any other thoughts to share! It’s always great to have someone to bounce ideas off.
      Cheers, and Happy 2020 to you! 🙂

  5. Wait. I thought that if you invest directly in US Treasuries not through ETF/Unit Trust, the interest you recieved will be tax exempt. For some one with 10 Millions portfolio to invest directly in US treasuries should not be a problem.

    • Ah yes you are absolutely right. This would be another option – direct investment int he underlying US Treasuries. Good point and thanks for raising!

  6. I wasn’t aware directing investing in US Treasuries is tax free. Thanks for the info, I will look into it. How does one buy directly though?

    Couple more comments for FH.

    1. The so called risk-free rate being taught in all business schools around the world as being the rate of US treasuries has a US centric view given the textbooks for Corporate Finance were written by US professors. This may be true while the USD remains the world’s reserve currency but given how Trump is weaponising the use of the dollar, the world may eventually move to an alternative to maintain country sovereignty. Whether that is a new central bank coalition backed digital currency or something else, no one knows. But if and when it happens, there will be a sudden realization that the US is heavily indebted and with fewer central bank purchases, the USD will depreciate and thus the so called risk free US treasuries will no longer be risk free. It happened before with the pound and gold although the shift will take time.

    2. In your writings, you sometimes mention that it is riskier to buy assets other than Singapore and US ones. Not sure that is true. Over concentration in Singapore assets including one’s property is actually a meaningful risk in itself. Nothing is predictable in this world and currencies go up and down. So there is something to be said in having a more globally diversified portfolio.

    • Hmm the Irish domicile is to reduce withholding tax I presume? Not looked into them closely though, so can’t really comment unfortunately.

    • Yup it works. Yield is on the low side though, which is why it didn’t work so well in this scenario. Liquidity is terrifically poor too. 🙁

  7. I’m a little late here but Syfe has come up with a REIT+ portfolio that includes both REITs and Bonds (depending on the economic / risk climate). Any thoughts if this would fit in well with your suggestions?

    • Yeah I took a look at them, I thought the problem was that there isn’t really any value add from the Robo. One can simply replicate the portfolio himself and save the fees, and also have full control over what goes in (or out) of the portfolio. It also resolves the need of any needless auto-rebalancing from the Robo’s end.

  8. Hi FH,

    I think this is a very interesting article and certainly food for thought. However, I have a few questions regrading the allocation in you new ‘all-weather’ portfolio

    1. Wouldn’t it better to replace more of the bonds/Long-term US treasuries with ultra-safe blue-chip dividend stocks/REITs? In my opinion, Singapore’s blue-chip dividend stocks/REITs have an excellent dividend track record and the yield received is pretty impressive ranging from 4-6%. Even if their prices fluctuate, it wouldnt matter to you as you are merely just collecting the dividends. I feel it would significantly increase the overall yield of the all weather portfolio.

    2. Aren’t there many more bonds that pay a better yield than the bonds mentioned? I personally feel that a 1.35% or 2-2.5% returns on bonds is insignificant and it feels like you are not maximising your possible returns. For example, the bonds offered by fullerton fund management offer a 5% return (USD) albeit that it is slightly higher risk than the ones you mentioned.

    Overall, I feel that the all weather portfolio you have created is a tad too conservative and safe but it definitely works. If I were to create one, I would definitely allocate a larger proportion to ultra-safe dividend stocks to prop up my returns.

    What are your thoughts?

    P.S. I thoroughly enjoyed this article. Many of my friends have been discussing about what to include in an all-weather portfolio and I will definitely refer them to this article.

    • That’s a really good question. My thoughts:

      1) Sure, but you’ll be taking on equity risk though. It works if you’re building a yield portfolio where all you care about is the yield, but froma capital point of view, such a portfolio will have big volatility. So really goes back to your objectives.

      2) With the risk free at close to 0% now, to get meaningful yield, you’ll need to take on risk. So you’ll want to be very careful about the bonds you’re using. At a certain yield, I think the bonds are exposing you to equity like risk.

      3) Absolutely agree. The All Weather is designed to work well in all economic situations. But of course, it does not work well in any particular scenario. Depending on your risk appetite, it may make sense to include more risk by adding dividend stocks / REITs. 🙂

  9. Excellent article.
    For most people building a portfolio of SSBs would probably be a good idea, although at today’s rates they’re not very attractive. Back in 2018, it was a different story.
    Right now the 3 banks and better quality REITs still look like sensible long-term investments that deliver a reasonably reliable good income stream. For your high-interest component use your CPF special account.
    For an international growth component, long-term dollar-cost averaging into some ETFs (with low management expense ratios) like one of the simple S&P 500 index trackers, the VanEck MOAT ETF (MOAT) or Vanguard growth ETF (VUG) seem like simple ideas that should work well.

    • Agree with this. It is unfortunate but because of the yield environment we are in, investors are forced to go out the risk curve if we want to merely hedge against inflation.


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