How To Build A Boglehead 3-Fund Portfolio In Singapore

If you’re looking for a way to invest with zero effort, you’d probably have come across something called the “Bogleheads Three-Fund Portfolio”. Also known as a “lazy portfolio”, it cannot be any simpler. It typically holds just three funds:

  • A domestic stock market fund
  • A total international stock fund
  • A total international bond fund

You’d find that many forums and resources recommend using exchange-traded funds (ETFs) to build your lazy portfolio. And for good reason. ETFs offer maximum convenience, cost effectiveness and diversification.

When you buy an ETF, you’re essentially investing in hundreds of securities at once. Investing in an ETF is also less risky than picking individual stocks. Plus, you can just buy them very easily through a brokerage like Tiger / moomoo, or a robo-advisor like Syfe.

Options for a domestic stock fund

If you want to invest in the Singapore market, the Straits Times Index (STI) ETF is the obvious choice. As we wrote about previously, it tracks the performance of the top 30 companies listed on SGX. 

The component companies represent the different industries and sectors that make up Singapore’s economy. You’ll find familiar names like DBS, Singtel and CapitaLand amongst the 30 STI component stocks.

Here are the two ETFs that you can consider.

  • SPDR Straits Times Index ETF 
  • Nikko AM Singapore STI ETF

A US stock fund could work too

When Bogleheads discuss the three-fund portfolio, the domestic stock fund they’re referring to is usually a US stock fund. If you’re ready to invest outside the Singapore market, you could swap out the STI ETF for a US focused one.

There are many potential benefits. First, the US is the world’s largest economy. Many of the companies behind the products and services you use daily are listed in the US – Apple, Microsoft, Google, Facebook. 

US stocks are also known to have greater return potential; there’s just a lot more trading activity there compared to the SGX.

Here are some popular US ETFs to consider.

  • Vanguard Total Stock Market ETF (VTI): Exposure to the entire US stock market (large-, mid-, and small-cap exposure)
  • SPDR S&P 500 ETF Trust (SPY) : Exposure to the 500 largest US stocks via the S&P 500 index
  • iShares Core S&P 500 UCITS ETF (CSPX): An option to consider if you’re concerned about the 30% withholding tax on dividends for US listed securities. UCITS securities have 15% dividend withholding tax instead

Options for a global stock fund

The US is home to Apple and Google, but what about companies like Tencent, Unilever, LVMH, Toyota, or Samsung?

If we want to be truly diversified, we need to invest globally. Here are some popular international ETFs to consider.

If you’re already going with a US stock fund, I like choosing an international fund that has exposure outside the US for greater global diversification.

  • Vanguard Total International Stock ETF (VXUS): In my opinion, the best and probably cheapest for one-stop exposure to global stocks outside the US
  • SPDR® MSCI ACWI ex-US ETF (CWI): Exposure to large and mid cap global stocks outside the US
  • SPDR Portfolio Developed World ex-US ETF (SPDW): Exposure to developed market stocks outside the US

Options for a global bond fund

Depending on your risk tolerance and time horizon, bonds may or may not need to be part of your portfolio.

You can use the “120 minus your age” rule of thumb as a guide. So, if you’re 30 years old, you should be investing 90% into stocks and the rest in bonds and cash. Don’t feel comfortable with taking that much risk? Up your bond allocation. Conversely, if you’re more of a “high-risk, high-reward” investor, you may also choose to invest 100% in stocks.

Whichever way you prefer, here are some common bond options for a Boglehead three-fund portfolio.

  • Vanguard Total International Bond ETF (BNDX): Exposure to investment-grade global bonds
  • Vanguard Total Bond Market ETF (BND): Exposure to the broad, investment-grade US bond market
  • iShares Core U.S. Aggregate Bond ETF (AGG): Exposure to the total US investment-grade bond market 

These bond ETFs are USD denominated and if you want local currency exposure instead, you can consider the ABF Singapore Bond Index Fund.

This is a bond ETF that lets you invest in predominantly Singapore government bonds and government-linked entities like LTA, HDB, and Temasek Holdings. 

A possible replacement for bonds

Personally, I’ve subscribed to Astrea bonds as I prefer to have SGD denominated bonds to mitigate currency risk. Given my risk appetite and age, I don’t see a need for bond ETFs in my own portfolio right now.

But, I do appreciate the objectives of investing in bonds – a diversification to stocks and to earn income.

Hence, I’ve replaced the bond portion with Singapore REITs. Now REITs can also be as volatile as stocks, as the March 2020 crash showed. But, their yield potential is a lot more attractive than bonds and that’s a trade-off I’m willing to accept.

In my view, here are two of the more common options for a Singapore REIT fund.

I’ve written about them previously, so do check out the links to know more.

Conclusion

And that’s it! Some ideas on how to build your own three-fund portfolio in Singapore.

What I like is the simplicity and flexibility of this three-fund strategy. You can tweak it to your own needs and simply buy-and-hold long term! This means more time chillaxing and less time checking the market and worrying about your portfolio.

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