Alvin first came across passive investing through Robert Allen’s book, Multiple Streams of Income by Robert Allen. It was after this book that Alvin took the first action towards investing. He researched and found that POEMS provided the opportunity for him to buy STI ETF on a monthly basis with as little as S$200.
The Hard Truth About Mutual Funds or Unit Trusts
Like many people, we have made some investment in unit trusts. The truth is, we have never made money in them. And we started to realise why:
Many people remember winners, and seek out the best managers. But how many failures we fail to see? If there are more failures than winners, isn’t it a higher chance you will pick a failing manager. Even a very successful and brilliant fund manager who had achieved annual returns of 17% for 30 years, lost his winning streak and lost everything…
Is the Financial Market Random?
Not only were the mutual funds costly to maintained (from your pocket), history has proven most of the funds are not able to beat the index consistently. And many academics account it to the randomness of market.
Asset Allocation Determines Your Investment Returns
In addition, academics found that asset allocation is the main contributing factor for your investment returns. You should plan your own portfolio at the strategic level. Stock picking is tactical and it does not make a vast difference to your overall portfolio even if you make a big gain. Hence, how would you structure your portfolio?
David Swensen, the famous fund manager for Yale Endowment Fund, wrote a book on asset allocation for the individual investor:
There are generally 4 economic situations (prosperity, deflation, inflation, depression) and Trevor Greetham explained it well with the Investment Clock – Investment Clock by Trevor Greetham
Why You Need to Stay in the Market?
If you cannot buy low and sell high, you should just stay in the market. This is because there is a heavy price if you miss the major market movements:
The other way to avoid timing the market is to do dollar cost averaging.
Alvin shared his dollar cost averaging performance during the 2008 Financial Crisis – My STI ETF Survived the Sub-prime Crisis
Are You Convinced About Passive Investing?
Andrew Hallam preaches passive investing. He is the author of Millionaire Teacher by Andrew Hallam and Alvin did an interview with him: Teacher turned millionaire through simple investing – Andrew Hallam, author of Millionaire Teacher
David Bach also preaches a simple approach to manage your finances, Automatic Millionaire by David Bach.
Epps also wrote about 7 Reasons for Using Passive Investing Strategy.
How to Start Your Passive Investing Strategy?
If you are convinced index investing is most suited for your situation, you would want to explore the index funds or index ETFs that are available in your country. Alvin have written a few posts on Straits Times Index Exchange Traded Fund which he bought on a monthly basis through POEMS Share Builder Plan. See the STI ETF Dollar Cost Averaging Performance.
There are two STI ETF offered in SGX. Which one should you invest? – Nikko AM vs StreetTRACKS STI ETF
How to Invest Without Worry? – Permanent Portfolio
Permanent Portfolio is the best kept secret in the investing world. Do you know why most people lose money in investing? They Buy High and Sell Low because of Greed and Fear. Greed and Fear are generated because of price volatility. Hence, investors who are not able to control their emotions should use a low volatility strategy. And Permanent Portfolio is the answer.
Harry Browne created this strategy in 1980s and it has performed well during booms and busts. He introduced the strategy in this book: Fail-Safe Investing by Harry Browne.
Craig Rowland, the author of The Permanent Portfolio, did a backtest of 40 years.
Alvin did an interview with Craig Rowland here: Championing the Permanent Portfolio as a fail-safe investment strategy – Craig Rowland
Epps and Business Times correspondent, Teh Hooi Ling, also did backtests on the Singapore Permanent Portfolio:
Teh Hooi Ling: Tracking the Singapore Permanent Portfolio
BFP also started tracking the Singapore Permanent Portfolio starting from Jan 2012 and it will be updated on a monthly basis. You can track the performance from this page: Singapore Permanent Portfolio Performance
How to Set Up Your Permanent Portfolio?
Are you interested to set up your own Permanent Portfolio? You can read more about the implementation in the following posts:
If you are not keen to start your own Permanent Portfolio, and would like to invest with Permanent Portfolio Fund Managers, here is a comparison of the funds: Comparing Permanent Portfolio Funds
Can You Beat the Index?
The last question we would like to ask is: “Are you able to beat the index by picking your own stocks or trading the market?” The STI ETF has average about 9% annual returns. If you do not track your performance, how do you know if you have beaten the index? Stop kidding yourself. You may beat the index in some years while under-performing in other years. On the average, did you beat the index? If not, why don’t you invest in the index? – STI ETF marks 10-year anniversary and averaged 9.01% annually
Jon did a good post about this: The importance of benchmarking your investments against the Effort Free Rate