Building a Bogleheads Investment Portfolio using Endowus Fund Smart

Endowus has introduced a new platform for us to personalise our own portfolios if you wish outside of their advised portfolios. 

They have an article about it here.

This even applies to their cash management solution (Cash Smart). For that instance, I would think you might only go for this solution if you really just want the Fullerton Cash Fund only.

Some ways on how Fund Smart can be used:

• 1 Fund Portfolio such as the strategy by various financial bloggers in the US where they just dollar cost average (DCA) into the S&P500 Index ETF or a Global Stock Market Index ETF. Endowus offers Lion Global Infinity Series funds, such as the US 500 Stock Index (wrapper fund around Vanguard S&P500 ETF) or Global Stock Index (wrapper fund around Vanguard Global Stock Index Fund) if you want to do so.
• Specialised Investing options, such as Muslims can invest into the Templeton Shariah Global Equity Fund, which is Shariah Compliant.

Just a quick reminder that the above funds mentioned can be used to invest your CPF as well.

I was looking at the long list of funds and wondered for myself, are there alternatives that are simple?

I then remembered John Bogle and index investing early on in my investment journey.

He actually has a following which the group calls themselves “Bogleheads”.

Their concept is to use low cost passive managed funds which perform well in most market conditions. They keep the number of funds are kept to a minimum to make it easy and cost effective to rebalance, maintaining the same asset allocation.

The default setup would be a 3-fund portfolio, which consists of 3 parts:

• A Local Stock Market Fund
• A International Stock Market Fund
• A Bond Fund

The purpose of the local stock market fund is to provide you with a portion of your portfolio that is not impacted by foreign currency fluctuations. Thus, the local stock market fund should be in the currency of the country we spend our money, in this case, Singapore Dollars. This is due to the fact that if the Singapore Dollar falls in value, we have a pool of investments that we can depend on that has not dropped in value.

For the Singapore market, the best option we have is the STI ETF offered by SPDR and Nikko AM.

However, I would point out that the STI ETF has poor diversification, concentrating in the banks (OCBC, DBS and UOB), Singtel and property shares. Indexing works in the US because of growth and diversification in the companies present there.

So in this post, I skip the 3-fund portfolio in favor of something similar to the 2-fund portfolio.

In the past, we needed low cost brokerages such as Standard Chartered to buy in regularly (manual) and revisit the portfolio yearly to rebalance to our original allocation (also manual). Although the funds we selected have low fees, but the brokerage fees can be quite painful as we incur them when we buy in regularly and when rebalancing.

Now, with Endowus Fund Smart, we can automate it, leaving us more time to do the things we love.

The portfolio comprises of 2 parts:

• A International Stock Market Fund
• A Bond Fund

International Stock Market Fund

The International Stock Market Fund is meant to provide you with exposure to public companies from around the world. The idea would be to get funds that hold as many public companies from as many countries as possible (both developed countries like U.S. and developing countries like China); as the world economy grows, so does our portfolio. Plus, we won’t have to care about which country will come out on top in the future (U.S. or China) because we own both.

So what are our options?

I made a quick list of funds from their full list below that offered global coverage at a reasonable cost:

Let’s take a look at each option.

Infinity Global Stock Index Fund:

This is the closest you can get to indexing as this fund is actually a wrapper fund around the Vanguard Global Stock Index Fund. The fees are slightly more expensive because Lion Global has an added layer of fees on top of the Vanguard low fees though.

Dimensional World Equity Fund:

This is another passive fund but instead of using the index methodology to decide the composition, Dimensional uses evidence/factor based approaches to construct their own fund.

Dimensional funds were actually the low cost funds that came much earlier before Vanguard was all the rage, just that they do not market it as much and are available through their advisors only. You can read more about Dimensional from a post by Kyith here.

Dimensional Global Core Equity + Emerging Markets Large Cap Core Equity funds:

This is another idea to have more flexibility in blending Developed and Emerging Markets exposure in your portfolio to fit your risk appetites and market themes, if any.

With both of them, you will only be missing the developed markets small-cap companies from this group, which the former two above probably wouldn’t cover much. 

Interestingly, the fees are slightly lower too (at least based on my tinkering below).

Those who are believers in index investing yet point out against other passive strategies, wouldn’t indexing be just another set of factors, purely focused on capitalisation and free float?

Bond Fund

Next is the Bond Fund. The role of the bond fund in the portfolio is to provide stability to your portfolio.

Bond prices are generally affected by the interest rates set by central banks all over the world (such as Singapore’s MAS) which changes infrequently and more predictably. This results in a more stable and less prone to price swings compared to stocks. Also, bond prices generally move in the opposite direction of stock prices.

So this means that when stock prices fluctuate or fall significantly in recessions, the bond fund portion helps to reduce the impact by moving in the opposite direction as the stock fund. That being said, bonds tend to return much lower compared to stocks (1-2% for bonds compared to 7-8% for stocks after inflation). Due to this, most investment advice tend to recommend adding more bonds to your portfolio as you age to reduce volatility, which unfortunately comes at the cost of reducing returns.

So what’s available for us?

Similar to the stock fund, we want to reduce risk by diversifying having them in Singapore Dollars to mitigate foreign exchange risk. Alternatively, there are currency hedged versions of bond funds which reduces unwanted effects of foreign exchange which can be used too.

Not much to say about the choices except that the former two are Singapore bonds (mostly) and the latter two are bonds from all over the world, but having currencies hedged to the Singapore Dollar.

Portfolio Allocation

So now that we know which funds, next is to have a look at suggested allocations.

For starters, when we are using 2 funds (an International Stock Fund and a Bond Fund), we can use the following usual combinations:

For the case where we are using 3 funds by using the Developed plus Emerging Markets Stock Funds and a Bond fund, using the idea from Taylor Larimore, we get something like this:

Note that I avoided pairing both LionGlobal Infinity US500 Index and Global Stock Index funds together because of concentration risk from the United States.

Okay, now for the “fund” part.

Comparisons of the Different Portfolio Combinations

One feature of Endowus Fund Smart is the ability to simulate the combination you have tried on top of putting your risk tolerance. It is like their advised portfolios. Pretty cool.

Whether your DIY portfolio matches the risk tolerance you set or not, the interface will prompt you. Good thinking on their part.

Maybe the only improvement I would suggest would be to provide a questionnaire to determine your risk tolerance rather than just a slider bar.

I tried tinkering around with pretty much all the combinations I mentioned above and I thought I would share my results.

Note that portfolios are much more than just returns, fees and 1 year worse/best returns. Please do your own due diligence.

So let’s start off with the 2 funds combinations:

LionGlobal Infinity Global Stock Index Fund and Eastspring Singapore Select Bond Fund

 

LionGlobal Infinity Global Stock Index Fund and UOB United Singapore Bond Fund

 

LionGlobal Infinity Global Stock Index Fund and Dimensional Global Core Fixed Income Fund

 

LionGlobal Infinity Global Stock Index Fund and PIMCO GIS Global Bond Fund

 

Dimensional World Equity Fund and Eastspring Singapore Select Bond Fund

Dimensional World Equity Fund and UOB United Singapore Bond Fund

 

Dimensional World Equity Fund and Dimensional Global Core Fixed Income Fund

Dimensional World Equity Fund and PIMCO GIS Global Bond Fund

 

Now for the 3 fund combinations as we discussed above:

Dimensional Global Core Equity+Emerging Markets Large Cap Core Equity Funds and Eastspring Singapore Select Bond Fund

 

Dimensional Global Core Equity+Emerging Markets Large Cap Core Equity Funds and UOB United Singapore Bond Fund

 

Dimensional Global Core Equity+Emerging Markets Large Cap Core Equity Funds and Dimensional Global Core Fixed Income Fund

 

Dimensional Global Core Equity+Emerging Markets Large Cap Core Equity Funds and PIMCO GIS Global Bond Fund

Conclusion

Some thoughts looking at the results above:

• UOB United Singapore Bond doesn’t seem to be a good way to pair in the above fund combinations to reduce volatility yet it doesn't give much upside either.
• LionGlobal Infinity Global Stock Index Fund doesn't seem as good as the Dimensional options, probably due to the wrapper which increases fees.
• Eastspring Singapore Select Bond Fund seems to be good at reducing volatility somewhat, might really help in stability for those who are more risk adverse.
• Dimensional Global Core Equity+Emerging Markets Large Cap Core Equity Funds seems to produce a better result at a lower cost than the World Equity Fund, especially in a heavy equity position.
• Overall, it seems like Dimensional Global Core Equity+Emerging Markets Large Cap Core Equity Funds combined with PIMCO GIS Global Bond is a good place to start. We can start with traditional 60:40 stock bond ratio from conventional wisdom and adjust based on our risk appetites from there. 

You can start here by signing up via this link. 

Note that if you sign up using my link, I will get a small referral fee. There is no extra charge to you, in fact, you will get $10,000 advised fee free for 6 months (about $20 savings), it is not much but hey, $20 saved is $20 earned :)
This is not a sponsored post.

Related Posts:

• My Experience investing my CPF OA using Endowus
• My Case of Investing the entire CPF OA to take lower risk with high overall returns
• My Proposal of helping my dad invest his CPF OA and cash to allow him make his money last longer during retirement