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MoneyOwl's Investment Philosophy:

Enough At The Right Time

We invest to better our lives and to protect our future. While investing carry market risks, not investing also means a less financially secure life because of inflation and unexpected events. We therefore invest over time, to have enough for the most important things in life, when we need it.

For our core life goals, like future retirement, we invest in capital markets – stocks and bonds – for long-term real return. We prioritise sufficiency of return and reliability of return, over maximisation. To achieve this, we focus on getting the right portfolio asset allocation in which we can stay invested.

We stay globally diversified. We do not try to time the market. We always keep the cost of investing low, as a dollar of cost is a dollar of return lost and compounded. Once we have set up the investments for our core goals, we may put a small portion of money we are prepared to lose altogether, towards investing in things we like.

Four Core Life Goals

1. The Right Strategic Asset Allocation

Asset allocation refers to the mix of asset classes in our portfolio. Each asset class has its own return and risk characteristics, and different correlation with other asset classes. Multiple studies have shown that 90% of variability of portfolio performance is dependent on asset allocation.
Because we emphasise reliability, MoneyOwl uses capital market instruments, especially stocks (also known as equities) and bonds, to form our solution sets. Capital markets have rewarded investors with long-term, above-inflation return. This is borne out in evidence of the history of the markets.
In a stocks-and-bonds portfolio, MoneyOwl views stocks as the main driver of robust return, while bonds help dampen volatility while providing some return of their own – the value of a pure stock portfolio would be much more volatile than that of a balanced portfolio comprising both stocks and bonds.
The right portfolio is one that addresses the investors’ required return (need to take risk), time horizon for that goal (ability to take risk) and tolerance (willingness to take risk) – such that we would be able to stay invested through its fluctuations, and not sell prematurely and turn a temporary decline into a permanent loss.

MoneyOwl has an Investment Risk Profile Tool on our website to help users assess their risk ability and willingness, and recommend a suitable investment portfolio with a corresponding mix of stocks versus bonds. Click here to assess our tool.

2. Diversification

We recommend investing in a globally diversified selection of stocks and bonds according to the recommended asset allocation. Diversification, known as the only “free lunch” in finance, reduces unsystematic risk in our portfolios.
Diversification also allows an investor to always hold the securities of the best performing global companies or entities of the day and benefit from its returns. In a globally diversified portfolio, we accept the average return of the market, as sufficient to meet our goals.
In executing a diversified portfolio, we recommend market-based funds such as passive indexed funds, either unit trusts or exchange-traded funds (ETFs), which are indexed to a global benchmark:
- For stocks: The global benchmark can be the MSCI All Country World Index (MSCI ACWI) or MSCI World Index, or equivalent. The S&P500 and other large broad-based US indices are also options, as the US companies in their index have globalised businesses. Global equities should remain unhedged in terms of foreign currency, as the currency exposure provides potential diversification benefits.

- For bonds: We can use the Bloomberg-Barclays Global Aggregate Bond Index (AGG) which represents global investment grade bonds, or the World Global Bond Index (WGBI). As bonds are a volatility dampener, we use investment-grade bond indices. The bond funds should be SGD-hedged, as currency volatility is higher than that of bonds. If global SGD-hedged bond funds are not available, we can consider a Singapore-only, high quality bond fund or government bond fund

3. Staying Invested

The disciplined investor ignores the noise and stays invested to reap the long-term return of the markets. Short-term volatility in the markets is to be expected. It is difficult to consistently achieve higher returns by timing the entry and/or exit from asset classes, sectors or companies, sometimes known as “tactical asset allocation”. This is another type of active management, though active managers may use passive instruments like ETFs to execute market timing strategies.

It is difficult to time the markets because markets are efficient, such that prices quickly incorporate all available information and expectations of millions of market players in aggregate – be they macroeconomic, technical, market, or other factors.

MoneyOwl does not advocate tactical asset allocation based on forecasting or interpretation of data. Missing just a few of the best days in your investment period can cause a large decline in your long-term investment return, as you miss out on the compounding impact. We do not recommend taking these bets, which have not proven to work.

From the financial planning point of view, besides staying invested, we should also build our “investing muscle” through good practices. MoneyOwl advocates investing regularly out of monthly income, once our key short-term financial health metrics are met (especially emergency fund and debt ratios), and to automate these.

4. Low Cost

Cost is the one factor that we can control. Cost savings contribute to higher returns for the portfolios and our clients. We always keep the cost of investing low, as a dollar of cost is a dollar of return lost – and the effect is compounded where this cost is a percentage of asset value.

Passive funds and ETFs tend to have very low fund-level costs, as reflected in the Total Expense Ratios (TER). Passive indexed funds denominated in SGD, such as those recommended in our Solution Sets, have TERs of 0.10% p.a. to 0.20% p.a., whereas traditional active funds have TERs that can be ten times higher.

Costs should be viewed holistically. US passive indexed ETFs can have very lower TER below 0.10% p.a. but are subject to estate duty should the investor pass away suddenly.

For investing for your retirement, MoneyOwl highly recommends utilising CPF LIFE as a Safe Retirement Income Floor, with at least Full Retirement Sum as a base, before considering any investment. CPF LIFE is one of the best annuities in Singapore and provides a payout for life. The disadvantage is that there is no flexibility for lump sum withdrawal, and it does not hedge against inflation within retirement.

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The snippets above provide a glimpse into our Investment Philosophy. Download our eBook for a deeper understanding of essential investment and financial planning considerations. Once you fill out the form, we’ll send the eBook directly to your email address.