Note: It was announced in November 2023 that MoneyOwl will be acquired by Temasek Trust to serve communities under a re-purposed model, and will move away from direct sale of financial products. The article is retained with original information relevant as at the date of the article only, and any mention of products or promotions is retained for reference purposes only. 

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Global stock markets continued to rally in Q2 2023, following a positive first quarter. Global equities for the quarter ending 30 June 2023 returned 8.08%, and while bonds had a negative quarter.¹

All MoneyOwl portfolios had positive returns in Q2 2023. However, as the rally was led by a strong recovery of US technology stocks, our value and small-caps-tilted Dimensional portfolios with emerging market exposure underperformed: our Dimensional Equity portfolio returned 6.11% for the quarter. The CPF portfolios with fully passive, developed world equities outperformed, with the CPF Equity portfolio returning 10.01%. WiseIncome underperformed at 1.95% in Q2 2023 (re-investment class) because of a severe drag from S-REITS, but continued to support its 4.5% p.a. of NAV dividend payout. Our cash fund, WiseSaver, returned 0.95% in Q2.

The performance of markets in both Q1 and Q2 year-to-date, has been confounding to investors who look at macro data and events to time their entries into asset classes and geographies. I’ve been told of at least two fund managers, each with billions under management, who got caught off guard being overweight Asia. After all, US and Europe have had big banks close down in Q1, a stand-off on US debt ceiling in Q2, persistently high CPI prints (the softer print came only in July) and continued policy rate increases throughout this time, whereas China was opening up post-COVID! But markets did not comply with their analysis. This is a very common story. Despite evidence that most fund managers do not beat the market, and that those who in any time period, do not do so consistently, the drive towards active management remains very strong. So often, the business of fund management is about trying to be better and faster than others, and the role of advisers is also understood as selecting a variety of funds that are better than the rest. The higher up the wealth chain, and the more claims to special expertise, the more important it is for managers and advisers to generate activity and variety. After all, it would be quite difficult to justify high fees, high salaries and high marketing expenditures on the basis of “just buying the market”.

In contrast, MoneyOwl clients who have given us the privilege of coming alongside their investment journey, would probably take the randomness of market movements in their stride. Over the years, we have discussed how countries and markets “take turns” each year to outperform, with no particular reliable ex ante signs; as do industry sectors. We know that if you invest in a globally diversified portfolio of stocks and bonds suited to your risk profile and stay invested, you have a very probability of an above-market return over the long term. We also know that the dimensions of higher return that came out of solid Nobel prize-winning research – value, size (small caps) and profitability – are harvested over the long term but are volatile in the short term. Nonetheless, MoneyOwl repeats our advice about staying invested, almost ad nauseum, because we are still a minority voice in the industry, and your investments represent your hard-earned money and the precious goals and dreams you have for you and your family.

Today, I would like to go further to suggest personal systems you can build to help you in your financial journey. Borrowing a quote from a best-selling author, we do not rise to the level of our goals. Rather, we fall to the level of our systems.² The following are good money systems for your consideration:

1. Pay yourself first and automate this payment 

Your saving rate matters more to your eventual nest egg than your current income and your rate of return, and it is the thing you can control best. Rather than only saving or investing what you have left over at the end of every month, send some money away into a saving or investment account once you receive your salary. We recommend saving at least 15% of your income; do up a budget before you settle on the amount. In practical terms, this means setting up a standing instruction to transfer funds into a separate investment or savings account for the day after your pay day, and reviewing the amount each time you increase your income. This not only helps you to maintain a saving rate, it also deters you from fussing about with your portfolio when markets are turbulent and helps you stay invested.

2. Make sure you have the cushion of an emergency fund

Set aside an emergency fund of at least 6 months’ worth of expenses. You may also wish to set aside mortgage payments for 6-9 months in your CPF-OA. The payment to yourself should first be directed towards a low-risk and liquid savings account or true cash fund (like our WiseSaver), until it is built up to this buffer. This system helps you stay invested because should anything happen to your income, you won’t need to sell down your assets to fund your expenses. If you think about it, cash in this form, gives you the opportunity to earn above-inflation returns over the long term. In that sense, your emergency cash is returning you much more, indirectly.

3. Do not borrow to invest or borrow to spend, even if you get a discount or gift from doing so

Investing should be done out of surplus, period. If you leverage, you might be forced out of your positions when things go against you, even temporarily, because you need to put up cash to borrowing or margin costs. In some cases, you may even lose more than your principal. Borrowing to spend should also be avoided as much as possible. There is debate over buy now, pay later (BNPL) schemes, whether they are predatory or if they are actually value-adding as they supposedly provide flexibility and even discounts. Here is where the difference between being smart and being wise. There’s a reason why BNPL is so easy to use, and no one will do a business that has a negative expected return into the long run! The impact of BNPL is that it messes up your system by making you feel that you have more space in your budget than you do. It is the reverse of the dietician mind hack, which suggests that you control your calorie intake by putting your food onto a small plate to make it seem like you are already eating quite a lot. BNPL puts your spending on a big plate with loads of space, and encourages more of it. Avoid it.

4. Do not keep checking your returns or listening to financial news, so you aren’t tempted to interrupt the growth of your money

The work of matching you to a portfolio with an asset allocation suitable for your risk profile should have been done before any volatility occurs. Nonetheless, it is natural to be anxious if we keep checking our returns for the upticks and downticks, or if we keep hearing about things we need to be worried about. Unfortunately, that is the nature of financial news – to tell you about what might go wrong when the stock market is going up, why things would get worse when it is going down, and introduce some curious heroics from past stars. You might be better off limiting yourself to a once-a-month check, and turning off the news.

5. If investing your “dry powder” when markets are “on sale”, pre-set a time period over which to tranche it out

If you are able to keep to your plan, you would already be doing very well in terms of securing your future goals. The “masterclass level” would be treating market downturns as “sale” periods in which to deploy “dry powder” to give your financial plan a booster shot. If you are doing this, decide in advance, with your adviser, how you would go about executing your investments. If you do not feel like going in all at once, pre-set a time period over which you would tranche out your investments, and stick to the dates by setting up standing instructions. Otherwise, you would be just trying to market-time to catch lows and avoid highs, and that might mean missing out totally on the booster shot.

6. If you want to “invest” for pleasure, keep it to around 10% of your capital and be prepared to lose it 

The truth is that many of us like investing and market, not because they are concerned about their long-term goals, but because we like to act on our knowledge, convictions or preferences, and it gives us a thrill when we get things right. When there’s something new in the market, like cryptocurrency, we also do not want to miss out on an outsized gain. The risk with this approach is that if you are wrong on those few bets, you might jeopardise your life goals. A better system would be to limit these bets to about 10% of your capital and be prepared to lose them all. The remaining 90%, keep it to a core, globally diversified portfolio, which will give you reliable returns over the long-term.

7. Review your financial plan in a comprehensive way around once a year and each time there is a change in your life situation or financial situation 

This is not just about investment return! It includes reviewing your budget and savings, your protection levels, your CPF and investment portfolios, and whether you have kept to your systems.

Finally, implementing good money systems will help us to build up and reinforce good mindsets. While not everyone can be a multi-millionaire, having enough is not too meagre, and contentment is not too average.

Over the past years, MoneyOwl has aspired to deliver comprehensive and unbiased advice to the everyday Singaporean. Beyond having a suite of different products and services, and salaried advisers, comprehensive and unbiased advice also means that we highlight aspects of financial planning that have nothing to do with investment or insurance products. In mastering your money, the most powerful levers for an everyday Singaporean are non-commercial ones that don’t involve risk: topping up your CPF (not necessarily investing it!) to maximise your CPF LIFE payouts in future, building good habits of regular saving, and having the correct systems.

With wise decisions, we can all live our best possible lives.

I wish you all the best in your financial and life journeys ahead.

Yours sincerely,