Exchange Traded Funds
This month, I made some adjustments to my portfolio. I basically dumped my portfolio of Microsoft (MSFT) shares, and parked the money in a global index tracker. After six years of non-performance (zero returns over this period of time), it’s time to move on.
Personally, I’m in favour of index funds (or passively managed funds) because of their low cost. Over the last five years, my stock picks have not outperformed the market, and actively managed funds as a whole do not outperform passively managed funds. So the choice is clear - move to index funds!
But ever since Vanguard popularized the index fund, the number of funds and indices have multiplied. There are now indices that track every conceivable market niche and a bewildering choice of funds that track these. How can one choose a good fund to invest in?
The right choice comes down to the goals of investing. To me, investment is not about getting rich - it’s about protecting your assets from the vagaries of the market economy. The primary enemy here is inflation, and investing the money allows the returns to combat the loss of earning power.
However, the key to choosing which market (and therefore index) to invest in is the choice of which society one intends to live/retire in. Inflation in Timbuktu has absolutely no impact on me, but inflation in Singapore or in the US has absolutely every impact on my quality of life. So therefore, I need to make sure that my assets are parked in investments that can grow with the costs in these markets.
Today, my strategy is to cover several markets as follows.
- US Market - the principle is that what’s good for the US economy is good for the world. The chosen fund here is the Vanguard Total Market Index
- Singapore Market - this covers Singapore and Southeast Asia since most of the companies listed here do business regionally. Limited choice - the most accessible is the STI ETF 100, although this is constrained by low trading volumes.
- World Market - a backup in case runaway growth in other major markets hike up costs or if I end up somewhere else. The broadest coverage here is the MSCI EAFE index, tracked by EFA (iShares)
To complete this, I hold a sprinkling of Bond funds to protect against Equity fallout, and some Real-Estate Investment Trusts as a proxy for property prices.