Bonds take lion's share of retiree's portfolio

Besides the 30 per cent allocated to equities, Mr Wang's simulated portfolio has 10 per cent in global exchange-traded funds, 10 per cent in real estate investment trusts and 50 per cent in bonds.
Besides the 30 per cent allocated to equities, Mr Wang's simulated portfolio has 10 per cent in global exchange-traded funds, 10 per cent in real estate investment trusts and 50 per cent in bonds.ST PHOTO:CHEW SENG KIM

Given his age and need for income, portfolio is kept conservative, with less in equities

This is the third part of our Save & Invest Portfolio Series, where The Sunday Times will feature the simulated portfolios of three real retail investors over the course of a year.

The series began a fortnight ago with 25-year-old Shona Chee and her simulated investment portfolio devised by a panel of four professionals from the CFA Society Singapore (CFAS). Last week, we featured Mr Getty Goh, 38, who is married with two young children.

The Portfolio Series will not involve actual money as it is intended only for illustrative and educational purposes. All three portfolios are limited to Singapore Exchange-listed instruments, to keep them easy to monitor, simple and accessible, as well as Singapore Savings Bonds, which can be bought via ATMs.

There will be similarities in the three portfolio holdings, but the allocation for each profile will differ, depending on the individual's risk-return objectives and preferences. The simulated portfolios are constructed for an ideal investment time horizon of five to 10 years.

The three portfolios, which went live on Jan 18, will be tracked by The Sunday Times each month until the end of the year.


Retiree Wang Moo Kee, 61, was a marketing manager at a multinational whose role included submitting three- to five-year plans to his senior management. He applied the same discipline when it came to planning his finances, the result of which is a comfortable albeit simple retirement now.

He told The Sunday Times that he used to tabulate items that he would need to spend on during his golden years, breaking them down into different categories of "minimal", "comfortable" and "luxury" lifestyles and forecasting the expenditure over five years. This spreadsheet was updated regularly as he drew closer to retirement.

He counts himself fortunate to be a saver and has maintained a simple lifestyle throughout. "I save a lot, about 30 per cent of my monthly pay when I was working and almost all of my yearly bonus. I don't spend on luxury goods because I don't believe in paying for brands and I hardly eat out at restaurants," he says.

"Before I was 50, my family and I hardly went for trips except for the occasional driving holiday to Malaysia, so we saved a lot. I also told my kids that they have to study in Singapore. As long as they study here, expenses will be low."

  • Save & Invest Portfolio Series

  • The Save & Invest Portfolio Series will feature the simulated portfolios of a young working adult, a married couple with two young children and a retiree over a 12-month period.

    It will guide retail investors in basic investment techniques and how to build a portfolio in accordance with their financial goals and risk tolerance. This initiative involves the Singapore Exchange collaborating with CFA Society Singapore and MoneySense, the national financial education programme.

His wife is still working and he has four children, aged 16, 19, 26 and 28. The family lives in a 2,900 sq ft 99-year-leasehold terrace house in the Jurong area that Mr Wang bought for $900,000 in 1997. It is now worth about $1.7 million. He recalled that the $4,000 monthly mortgage instalments for his house were "quite scary". He paid off his loan in 2009.

Before that, he owned a five-room HDB flat in Bukit Purmei that was bought for $130,000 in 1979 when he got married. It was sold in 1997 for $480,000.

He keeps his expenses to the minimum, spends time reading at public libraries, does taiji at the community centre three times a week and cooks for the family. His silver Toyota Isis MPV is also paid up. Mr Wang expects to reduce his monthly expenses of $3,000 once his two youngest children start working.

He became interested in share investing 20 years ago, partly because he wanted his money to work harder for him instead of getting eroded by inflation. His portfolio is valued at about $50,000 and he owns shares like CapitaLand, DBS and Wing Tai. He buys only when the market crashes and he analyses annual reports and financial figures like price-earnings ratio and dividend yield.

"I set an exit plan. I will sell when the stock goes up 10 per cent to 20 per cent. Last time, I buy and don't sell, which was a mistake," says Mr Wang.

He had a bad experience in unit-trust investing at age 40 when he lost 70 per cent of his stake in a fund. Mr Wang sold all his unit trusts five years later.

He is not a fan of insurance as the yields are low. The only whole-life plan he has was bought when he was in national service.

After setting aside $50,000 as emergency funds and parking some cash in fixed deposits, Mr Wang has an investable sum of $400,000. He has around $80,000 in his CPF Retirement Account, which he will draw down at age 65.

In the event that his nest egg is depleted, he is prepared to sell his house and downgrade to an HDB flat.



Given Mr Wang's age and strong need for income, his portfolio should be conservative. This means less of his savings would be parked in riskier assets like equities and more in bonds. The CFAS advisory panel said: "A moderate 30 per cent equity will allow him to have stable growth and dividend income from blue-chip stocks."

Besides the 30 per cent allocated to equities, Mr Wang's simulated portfolio has 10 per cent in global exchange-traded funds (ETFs), 10 per cent in real estate investment trusts (Reits) and 50 per cent in bonds.

Like Ms Chee's and Mr Goh's portfolios, each domestic equity in Mr Wang's portfolio is kept at 5 per cent to 10 per cent to diversify concentration risk. Reits are included to provide decent yields and are a hedge against inflation while global ETFs provide diversification from the domestic market.

The panel noted Mr Wang's indifference to gold, but felt that having a small allocation to precious metals would help in diversifying the portfolio.

"The high bond allocation will give him stable income with little principal risks," said the panel.

Little risk and stable income with bonds

Like Ms Chee, Mr Wang told the advisory panel that he wants some exposure to the healthcare sector, so Raffles Medical is one of six domestic shares in his portfolio.

Panellist Phoon Chiong Tuck noted that the choice of retail corporate bonds available in bite-size lots of $10,000 or less is fairly limited in Singapore.

However, the list is likely to grow this year, given the upcoming framework that allows issuers to do away with the need to issue a prospectus - which requires time and effort to prepare - to offer bonds to retail investors. It will also be possible to break up bonds into denominations of as low as $1,000.

"The short list of bonds poses two problems - the lack of diversification, and the related problem of being forced to the riskier issues if one wants to spread the credit risk around several issuers," said Mr Phoon. "The portfolio of bonds selected for Mr Wang reflects the better credits offering a decent yield."

There are two bank perpetuals in Mr Wang's simulated portfolio.

Mr Phoon said the bank perpetuals, which are trading above par, still offer a good yield of 3.5 per cent to 3.8 per cent. However, they run the risk of being called prematurely before their first call dates due to some clauses in the prospectuses that give the banks this right.

The panel thinks the banks are unlikely to do this and would redeem the bonds on their first call dates. The bank perpetuals are offered in minimum sizes of $10,000, so they may not be accessible to smaller portfolios wanting diversification.

The panel cautioned that not all perpetual securities are the same. Investors should note that there is no fixed date for redemption - when the company will return the initial investment to the holder - for some perpetuals.

So if investors want to get their capital back, they will have to sell their bonds on the open market, but the spread or difference between the buying and the selling price is likely to be fairly large.

Another risk is that these perpetuals may fail to make their regular payouts or choose to defer payouts. Still, the distributions are cumulative for some perpetuals, which means investors are entitled to any missed distributions, plus interest on those payments, during a future payout.

As perpetuals rank higher than ordinary shares, dividends on perpetuals must be paid first before dividends can be declared on ordinary shares. As local banks like DBS and OCBC have good track records of paying dividends on ordinary shares, retail investors are assured that they will pay dividends on the perpetuals.

There are a number of bond ETFs on the Singapore Exchange (SGX). These offer exposure to specific bond markets or indices. The panel has selected the iShare JP Morgan USD Asia Credit Index as this offers exposure to an index made up of a diversified pool of issuers that includes sovereigns, investment-grade as well as high-yield issuers that have issued debt in US dollars.

At the appropriate time, investors keen on more risk can switch into the high-yield version of the ETF (ishares Barclays Capital USD Asia High Yield Bond Index ETF). There is the element of US dollar risk implicit in the ETF as the underlying bonds are US$-denominated.

Mr Phoon added that retail investors can look beyond what is available on the SGX - to bond unit trusts, for example. Like ETFs, these offer exposure to an area of bonds through a diversified portfolio.

The panel is targeting annualised returns of 4 per cent to 6 per cent a year for Mr Wang's portfolio.

•The first seminar on the Save & Invest Portfolio Series is on Feb 20 from 9.30am to noon at SGX. Please visit to register. Meanwhile, you can check out for a tutorial on ETFs.

•Please send your queries on this series to

A version of this article appeared in the print edition of The Sunday Times on January 31, 2016, with the headline 'Bonds take lion's share of retiree's portfolio'. Print Edition | Subscribe