Money and Me: Are you measuring your investment portfolio' success the right way?

SPEAKER_1 (0:01)

Best of Live Well, featuring Lance Alexander.

It's not just about money, it's about you. Money And Me, where wealth meets self-awareness. Only on Money FM 89.3.

Lance Alexander (0:18)

All right, now let's talk about Money And Me.

And we want to zone in on portfolio investing. If you're not sure what it means, it means building and managing a collection of different financial assets. So it could be stocks, bonds, ETFs, cash equivalents, sometimes even real estate or commodities. So it's not about picking one good investment, it's about creating a balanced mix bag that works together. Singapore and US shares, as you know, have both risen this year, but different markets and sectors have delivered different results and comparing your portfolio with whichever index is doing best could leave you a bit disappointed or it may even push you to take more risks that you never intended to take, and that may not be a good thing. So what should investors measure? How do you choose an appropriate benchmark? And how can you tell the difference between temporary underperformance and signs that an investment strategy may need to be reassessed? Joining us is Yee Shen Hao, Financial Services Manager at PhillipsCapital. He's also a Certified Financial Planner and conducts financial literacy courses for students and working adults. Shen Hao, welcome to the show. Welcome to Money FM 89.3.

When investors say their portfolio is doing well, is it actually saying it's doing well? What does it actually mean?

Yee Shen Hao (1:49)

Hi. Good morning, Lance. Thanks for having me. So I think when you are comparing a portfolio against major market index, the comparison is not always like for like. So an investor could be comparing a balanced portfolio that holds equities, bonds and cash against, say, the S&P 500 index, which narrowly tracks only large US companies. And now it's the PSLE and exam season, right? So an analogy would be to create a balanced portfolio of against the S&P, it's like marking an English essay with a math answer. So the two have different exposures and taking different levels of risk, so we should not expect them to produce the same result.

It's also worth understanding why the portfolio lacks, because even if you compare a 100% equity portfolio, the returns quoted in S&P and global indices like MSCI World in the headlines are usually in US dollars. But if we are investing in Singapore stocks, or if we measure our wealth in SING dollars, and the SING dollar strengthens, then part of the gain would actually disappear.

Lance Alexander (3:00)

Yee Shen Hao, the big question is, how should an investor choose the right benchmark for a portfolio containing different investments when it comes to shares, bonds and cash? How do you make that?

Yee Shen Hao (3:12)

Yeah, I think for Singaporeans in particular, the first benchmark isn't the Wall Street, right? If, for example, you are taking out your CPF to invest, any money you take out has to clear the risk-free rate given by the government after fees, right, over a sensible horizon for the risk to have been worth it. So because the CPF advisory panel has found that 84% of CPF OA investors who realize their investments in 2015 would have been better off leaving their money in the OA, right. So net of E-returns is important. If, let's say, you are taking out your CPF to invest. If you are using cash, I would start with the portfolio's long-term asset allocation. If the portfolio is designed to hold both the global equities and bonds, then the benchmark should reflect that mix rather than comparing an entire portfolio with a pure equity index.

MSCI World is your equity index.

Lance Alexander (4:12)

Should you also have an exit strategy? Should you also have a time horizon or withdrawal plan when it comes to portfolio investing?

Yee Shen Hao (4:21)

Definitely. For example, if you are still in the accumulation phase, global indices like the MSCI World could be a good benchmark. But if you are inching towards retirement for the pre-retiree, you might want to shift to maybe a 60-40 balance benchmark, 60% equities, 40% bonds. Then when you are fully in your retirement phase, perhaps even lower exposure to equities could be a good strategy.

Lance Alexander (4:50)

Are you finding that people are quite interested in the US markets? Are they looking at that considerably? Because they always look at foreign exchange as well, and obviously if things go up, it's better when they bring it back to Singapore.

Yee Shen Hao (5:06)

Definitely most of the investors that I interface with, they are definitely looking at the US because after all, it is the biggest economy and stock market in the world.