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Could we be financially free by investing in Singapore only?

Saturday, May 9, 2015

A happy email from a reader:

Hi AK, 

Thank you for taking photos with me and my friends yesterday (i.e. 2 May 2015) at the conference. I was so happy the whole evening because I got a personal photo shot with my favorite blogger ;) Thank you for the chance, AK! 

And thank you for being there to share your investing philosophy - my friends and I will be patient to build our war chests, and take opportunities when the bear comes knocking on our doors! 

May I ask you a question? Can one attain financial freedom by investing in the Singapore stock market only or other more?  

I have many friends who invest in the US stock market, because it is volatile and offers good capital gain (and losses). But till now, I stayed out of it, as I do not understand the high P/E and high fluctuations - it seems so out-of-sync from reality. And I do not get to see the companies, unlike in Singapore where I can be aware of the local companies' operations by visiting their stores. 

Do you take a nibble at the US stock market too? If yes, could you share what one can look at for a start and why? If not, then could one continue to take faith that one can still be financially free by being in S'pore market only? >.<

Thank you AK! 

Cui Xia 

I was smiling too. Really, I was. :)

My reply:

Hi Cui Xia,

Thank you for writing to me and sharing the photos too. :)

I have only invested in foreign stocks once in my life. I don't know if you know of the CLOB saga (in Malaysia) eons ago. Since then, I have only invested in the Singapore stock market. There is enough to keep me occupied here. ;)

I share your concerns with regards to investing in foreign markets. I am sure there are opportunities to make money in those markets but if we don't feel comfortable doing it, it is best to avoid. After all, peace of mind, I always say, is priceless. :)

Best wishes,

Could we become financially free being invested in the Singapore stock market only? 

Given discipline and over a period of time, I believe that the local stock market will have more than enough opportunities for us to make quite a bit of money and, ultimately, achieve financial freedom.

Related posts:
1. STE's story: Investment strategy.
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3. A simple way to a double digit yielding portfolio.


E H said...

We have always banked on the AAA status of Singapore. But with a simple re-rating, all could be lost. Look at Australia, it's at the cusp of becoming AA.

Geographical diversification is necessary. It's only a matter of where and how.

hyom hyom said...

Hi AK,

I am a Singaporean. My preference is to invest as much money in Singapore as possible. There are some advantages investing in the local market compared to investing in other countries. Minimal currency risk and zero withholding tax. Those who invest in the US market should be mindful of the 30% withholding tax on dividends and currency risk. Over a long stretch of time, this tax can be substantial.

Nevertheless, in recent years, developments in the Singapore market have worried me enough to invest in foreign stock markets like US, Hong Kong and a little bit of Australia. I noticed that several good companies have delisted from SGX. Some delisted at a lousy price to investors. New IPOs have dried up.

Another good thing about investing in foreign markets is diversification. Even if a Singaporean holds a diversified portfolio of more than 30 stocks on SGX, he still has a concentrated position because his portfolio is denominated in the Singapore dollar only. If SGD crashes, his portfolio crashes. A global investment provides much better diversification. No single disaster in Singapore will devastate his portfolio.

AK71 said...

Hi EH and HYOM,

Thanks very much for weighing in on the matter. Much appreciate. :)

AK71 said...

Gabriel Tham:
i think for younger generation shld consider foreign growth is starting to stagnate and slow down. We wont experience the same skyrocketing growth as in the 80s or 90s where we changed from third to first world

From my FB wall.

AK71 said...

Chua Jin Yi:
Nowadays, listed companies in SG have biz and assets in other countries. So, by studying the company, u may realize there are exposure in other parts of the world eg Wilmar, having biz in Africa, China, Indonesia, Vietnam...

From my FB wall.

AK71 said...

Sheng Shi:
Singapore companies are all investing overseas, so SG economy may not directly impact SG stock investment.

From my FB wall.

PY said...

SGX listed ETF could be an answer for diversification at reasonable cost, I.e cost averaging.

owq said...

There are many foreign companies with presence in Singapore. And even if you can't look at their "operations", you can look at their products. LG, Samsung, Apple, MasterCard, Visa, etc.

Musicwhiz said...

As long as you invest for the long-term in growing companies which churn out good FCF, I don't see why one needs to have a geographical bias. Factors to consider would be taxes (e.g. USA witholding tax of 30% on dividends) and currency risks (i.e. forex fluctuations when converted back to SGD).

Serendib said...

Hi AK,
many pros/cons of investing overseas - most of my portfolio is in SG-listed companies or the STI ETF. Investing in individual stocks overseas can a) incur expensive transaction/holding costs (local brokers charge an arm and a leg, plus all sorts of custodial fees - but foreign brokers offer better deals), b) open you up to foreign taxes, mostly witholding tax on dividends and estate tax and c) FX risk (although some SGX stocks are also USD listed).
I have only bought foreign ETFs which provide me diversification and also tax savings (vs individual securities).
So for any readers considering getting exposure to foreign stocks, I would ask them to do their research on a) buying diversified low-cost ETF listed on LSE but domiciled in Ireland (see Bogleheads link below) and b) transact through a low-cost but repuatable international broker - eg Interactive Brokers or Saxo

AK71 said...

Hi MW and Serendib,

Both of you make good sense, as always. Thanks so much for enriching the discussion. :)

redponza said...

I am from HK. So maybe I can share some insight from an outsider's point of view:

1. Singapore market is a bit boring (more like UK). That is there are more investors than speculators (?), making less market fluctuation and volume, but less buying opportunity as well.

2. Singapore market is with little activity. Low no. of IPOs, low corporate activities, low occurences in index composition change = less ways to make profit

3. Singapore's advantage lies in the low tax rate (ie no withholding tax, low transaction tax)

4. Singapore's corporate governance is so and so compared to UK/US, still better than HK/China though

5. Singapore has one of the largest REIT/trust listing in Asia though, this is the major strength

6. Currency is not a concern for me as I hedged my currency exposure somewhat

7. If you would like to trade foreign stocks cheaply, Interactive Brokers are one of the best choices.

Just some general thoughts.

SMK said...

I like this comment.

I made the same point in LP blog

SMK said...

This is the 2nd post I havr seen from you. Impressed.

SMK said...

And coupled with the low imported interest rates, together with capital from a sell off, ak made his name in reits.

Thumbs up to both.

AK71 said...

Mr AK. What do you think of investing overseas. Apparently the best portfolio managers recommend a global strategy as not we can see certain countries are very heavy on certain industries (Singapore lacks tech stocks while real estate developers are aplenty). Home bias is apparently something that could affect the long run returns. Your thoughts?

I also dunno. I am not amongst the best portfolio managers. 😛

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