Can Your Portfolio Survive the Lost Decade? Mine Did (With Backtesting)!

In my previous post, I discussed using a 5.5% return to sustain a consistent drawdown for retirement expenses, primarily through investments in index funds or ETFs. In this post, I’ll dive into how I’m currently implementing this strategy as I prepare for my future retirement.

Since this is my retirement fund, ensuring its resilience during economic downturns is critical. For instance, it’s essential that the portfolio remains sustainable even during harsh periods like the "Lost Decade", a time when the return of the S&P 500 was Negative. To address this, I will be backtesting my portfolio against this worst-case scenario in market history. This helps me evaluate its performance during extended periods of low or negative returns, ensuring that my strategy is robust enough to withstand such challenges. I’ll also explain why this portfolio is particularly suitable for my retirement goals.

Do You Need $3M to Retire? Breaking Down the Numbers

In my previous blog post, I discussed key findings about retirement from the OCBC Financial Wellness Index 2024 report. These findings were also highlighted in local papers, where it was mentioned that retirees would need an estimated $1.5 million to $3 million to sustain monthly expenses of $6,000 to $12,000.

This is quite disheartening because based on the report below, Singapore has approximately 350,000 millionaires, which means over 90% of the population may fall short of this threshold. This raises a sobering question: Are the majority of Singaporeans destined to work indefinitely to sustain their retirement lifestyles?

Fewer Singaporeans Are Preparing for Retirement—WHY? : OCBC Survey 2024

The latest OCBC Financial Wellness Index reveals a concerning trend: the percentage of Singaporeans actively planning for retirement has dropped from 60% to 54%. This means that nearly half (46%) of respondents have not begun preparing for their retirement. 

Alarmingly, one in four Singaporeans only plans to start—or has just started—retirement planning in their 50s or later.

The Big Bond Question after Bessent to Treasury: Are the Tables Finally Turning?

After the recent lowering of interest rates, bond prices didn’t rise as many had expected. Instead, they dipped further, though they didn’t fall below previous lows. Since then, bond prices have remained relatively stable, neither surging nor collapsing. However, the appointment of Scott Bessent to the Treasury has brought new optimism to the market. Bond prices have started to respond positively, and will this marks the start of a recovery.

These 3 reasons Could Fuel the Continuation of the Chinese Stock Market Rally

Post-COVID, foreign investors significantly reduced Foreign Direct Investment (FDI) in China as shown in the chart below. However, as China has launched it's stimulus package to save its economy, these investors now face a "fear of missing out" (FOMO) on potential opportunities in the stock market and are returning as seen in the last week. But this will take time.

The Great Chinese Rally: A Buying Opportunity or Time to Exit?

What a remarkable week it has been. After my previous post(here) on taking a look at the Chinese stocks again, it rallied with great momentum for more than a week. I dont know it will rallied with such a momentum, if I knew, I would have thrown in the kitchen sink as well. 

As I mentioned earlier, these patterns tend to repeat: once the value becomes apparent, investors begin to take notice. Now, with the recent rally, many are questioning whether they should sell their positions—many of which have finally turned positive—or whether it’s a good time to enter the market for those looking to buy.

China’s New Stimulus: Is Now Time to look again at Its Stock Market?

China just introduced a new round of stimulus measures aimed at propping up its slowing economy, which has been hit by sluggish consumer demand, weak property markets, and external pressures like trade tensions. Many has been sceptical about investing in the Chinese stock market, as they still remember the regulatory crackdown beginning in late 2020, when authorities took sweeping actions that reshaped the landscape for some of the country’s largest and most prominent tech companies. Many have spoken on these risks, regulatory uncertainty and governance issues preventing them from investing into the Chinese stock market.

The S&P 500 powered ahead after the rate cut, can still buy?

After over a year of speculation and anticipation, the Federal Reserve has finally initiated its long-awaited easing cycle. In a decisive move, the Fed exceeded market expectations by slashing its benchmark interest rate by a substantial half a percentage point. This aggressive reduction signals a strong commitment to stimulating economic growth and mitigating potential risks in the economy.

S&P 500 Nears Historic High Before Fed Decision – Is It Time to Buy?

The S&P 500 index has been on a remarkable rise year on year even after the past corrections historically. As the index is approaching new high, this makes many wonder: Is it the right time to buy into the market?

The S&P 500 is reaching new highs thanks to strong economic growth, good corporate earnings, and easy money policies. Important signs like consumer spending, job numbers, and business investment are all looking good. This makes investors feel positive about the market.

US office reits on the uptrend, is it sustainable

Overall, Reits listed in SGX have performed well in view of the coming rate cut. Today, I want to look at the US office reits in particular, as they have been beaten badly due to low occupancy rate since Covid, and the property valuation affected by the high interest rate environment.

Prime US REIT (SGX:OXMU) (PRIME) 

1. Turn long (arrow) with surge in volume

2. And this candle closed up the gap down on the left

3. Price close above 20ma

Fed hinted rate cut may start in September, sparked breakout in these asset classes

Federal Reserve Chairman Jerome Powell signalled on Wednesday that a rate cut could happen in September, as long as there is no major change or upset from the economic data. Given this confidence, market is shifting to long term  US Treasury bonds and Reits.

And on Friday, US market tumbled on fear of possible recession and some reports are also expecting a bigger rate cut coming September.

Fortunately, a few months ago when the S&P500 and QQQ indexes were performing extremely well, and as part of re-balancing, I have sold off some and move them in tranches into the Bond etfs.

Here is how to receive $5000 for your retirement

 It seems $5000 is the magic number to live comfortably for retirement in Singapore, as I have seen a few posts on this, However, one needs to know that this amount will varies as it really depends on one's lifestyle and situation.

Anyway, given this amount, how then do you achieve it for your retirement?

Before I start, here are the assumptions:

• Attained Full Retirement Sum(FRS) at 55
• Opt for CPF payout at 65
• Sum of $408,000 invested in a ETF which gives a return of 8% or more at 55
• Retire at age 65.

The amount invested will be much lower if this is shared with your spouse. as not forgetting that your spouse will also have his/her CPF payout as well.

I have been buying these ETF since FED signalled no more rate hike

 Last night (Singapore time), the Federal Reserve kept its key interest rate unchanged and indicated that there will be one rate cute before end of this year. Now that there is clarity on the direction of the interest rates, what does one need to prepare so that he can benefit when the rate cut happens.

In this article by Schroders, both stocks and Bonds have significantly outperformed cash following the rate cut. If a recession does not ensue, stocks typically fare better than Bonds. However, in the event of a recession, Bonds generally outperform stocks. Since the initial rate hike, Bonds have faced substantial correction, but long-term bonds now offer attractive yields. In anyway, one should have a proportion of Bonds asset as part of the asset allocation of ones' portfolio. 

Fed leaves rate unchanged, what it means to us as investors

The most recent inflation data in the US exceeded last year's figures, aligning with market expectations that the May FOMC meeting would not announce a rate cut. As anticipated, the Federal Reserve Chair refrained from lowering rates and notably indicated that a rate hike is unlikely.

Given this insight from the Fed Chair, let's examine historical instances of rate hikes and their impact on the S&P 500 index when rates remained steady versus when rate cuts were eventually implemented.

Below is the chart from Forbes, 

In the chart, the historical rate hike cycles are depicted alongside the performance of the S&P 500 index during various periods when the Federal Reserve paused its rate hikes. It is observed that the S&P 500 exhibited predominantly positive returns during these pause periods before a rate cut.

Then the next question to ask, is the S&P500 now expensive? Below is the chart from gurufocus on the Shiller PE ratio of the S&P500.

As depicted in the chart, the S&P 500 has corrected to a level within one standard deviation (1SD). At this juncture, it is clear that the market is not offering cheap valuations.

Nevertheless, the market is unpredictable, echoing the sentiments of the late John Bogle, who emphasized the importance of staying the course in investing and adhering to a sound asset allocation strategy.

  

Should you invest in this fund that gives you 5% yield?

This ETF is targeting to be listed on 13May 2024, and the name of the ETF is 'LION-OCBC SECURITIES APAC FINANCIALS DIVIDEND PLUS ETF'. As indicated in the website, the ETF will be paying 5% dividend yield for the first 2 years. What will I be doing?

Let's look at what I like about this ETF:

1. Well known brand with LION-OCBC, and top financial institutions.
2. Decent 5% dividend yield for first 2 years, and if it can continue.
3. Predictable payout with quarterly distribution.
4. Diversify (almost equal weightage) across major economic countries such as Singapore, Japan, Australia, Korea, Hong Kong, Malaysia, etc.
5. Exposure to market (japan, korea, Australia) which is difficult to access for retail investors.

Now, what I dont like about this ETF:

1. Concentration in only Financial sector in these markets.
2. Most of the counters in the ETF are trading close to or at all time high.
3. How will the Fed rate cut affect this ETF.
4. Underlying index is paying a dividend yield of 5.91%.
5. From the ETF website it stated as a disclaimer that the distributions are not guaranteed.

For those who are happy with the 5% dividend yield, this is not a bad choice to have exposure to these markets.

For those who wants a little more and can wait, given that the underlying index has a past dividend yield range of 4.2% to 5.91%, maybe more attractive to enter when the yield is more than 5.5%.

Please do your own due diligence, this is not an investment advice.