My portfolio aims for 50% local 50% international – Yours?

In the last few days, 2 blog topics caught my attention – one is about investment outside Singapore, particularly into the US markets and the other is about entering (Or not) the market when everyone is fearful.

The first topic was posted by SG ThumbTack Investor on 14-Sep: To Infinity & Beyond? Nah!

The second topic was posted by BULLy The BEAR on 13-Sep: Sometimes, It’s Wise To Be Fearful When Others Are Fearful and a related one by Uncle8888 on 15–Sep: Can You Afford To Be Greedy When Others Are Fearful?

All three are very enjoyable to read and at the same time, provide good insights that prompt reflections.

Let’s talk about the first topic first in this blog.

Unlike many of our seniors, the investors of our generation have the privilege and means now to access foreign market easily via our local friendly brokerages like Philip Securities and Maybank Kim Eng Securities. Buying and selling of the shares of US companies is now only a click away.

Furthermore, the cost of trading foreign shares has come down drastically. The popularity of global/regional/thematic index ETFs, many with low <1.0% annual fees, means that we don’t even need to do intensive research on individual companies. We just need to do simple research on the country and/or believe in the outlook for a particular industry, then we can just buy into them directly. The risk (and return) is lower if we buy ETF.

However, should we transfer all our local investments into global investments then?

In my opinion, while we should diversify out of Singapore, especially when we now have the means and capability to do so but we should not put everything into one basket. There are still merits to hold Singapore shares.

Personally, I would like to keep 50% of my investment in the local Singapore market.

Why … you may ask?

I feel that since I live here, earn my salary here, spend most of my money here and own my property here, I would want to have a significant part of my investments locally so that it can match the local inflation and economy dynamics. By doing so, I feel that I would lower the risk of my investment and I can sleep better at night versus having all (100%) of my investments overseas and worry constantly about forces that I may not be aware and/or be able to detect or monitor.

Some of the obvious perils in investing in overseas companies are:

1. I may not have (or It needs a lot of effort and/or time to gain) in-depth knowledge of the foreign market operations, rules and regulations around listed companies (especially around corporate governance)
2. I am not familiar with those foreign companies and difficult to do proper research on them (sometimes English may not be the business language for that company)
3. I will have to take on foreign exchange risk and it is not uncommon to hear about forex changes that can potentially wipe out all the capital gain
4. I will have to pay withholding tax on capital gain and/or dividend distribution (For example, we will have to pay 30% withholding tax on dividends received from US companies)
5. I may not be able to detect and then react to changes in the law that alter the business environment of those foreign companies
6. I may find it difficult to monitor, keep track of and trade foreign companies due to time differences. I need my sleep 🙂

Hence, investing is not all rosy. It is hard work, harder in my view when compared to investing locally.

Every trade in the financial market carries its own risk. Venturing overseas may give you a higher gain but it comes with its own set of risk and challenges. You need to be able to stomach that.

For me, 50% local and 50% international seems like a good target to aim for. Furthermore, many of our local companies are investing overseas as well and hence, I do have international exposure in that respect. I will leave to those highly paid professional C-Suite full time managers to manage those risks and exposures.

My portfolio is still very much Singapore-weighted. But I have been increasing my holdings of Hong Kong and US companies steadily. Their combined valuation is now about 20% of my equity portfolio. Hopefully, it would reach 50% in the not too far future.

And I don’t think I would add companies from any other countries into my equity portfolio

That’s for equity … in contrast my index portfolio is one where I adhere to my 50% local 50% international guidelines closely.

How about you?

Do you invest in overseas companies? Do you set a % guideline for local versus international holding?

Hope to hear from you.

I will touch on the second topic in my next blog … hopefully tomorrow.

With regards,

Warriortan