Path to FIRE FUND

[lichtoefur]

Hello Bros and Sis, I just recently got a spark in my brain that having retirement planning is very essential, and I need some advises here. My parents are reaching retirement age and they seem to be in a dilemma, wishing to retire, but financially not able to, while still worrying that they’ll be in negative when they lose/not able to retain their jobs. I need to plan now so that I don’t end up in their shoes 30 years later.

I’m Chinese male, 29. Working in SG as a SG PR with take home salary of about SGD 6,000 (after CPF deduction). Monthly expenses about 2,500 SGD. Savings are sufficient for 6 months emergency, with some small investments in Msia (stock, ASM, PMO) and in US (stock). Currently planning some freelance work to increase monthly income. With this I’m thinking that I have enough to start investing periodically. Planning to retire in Malaysia.

In planning for FIRE, I ran a quick calculation, using formula (annual expenses x 25), a MYR 4M accumulated wealth can sustain retirement life with some leisure.

However , to achieve this, I’ll need to invest a certain amount annually.
Some scenarios I’ve worked out
1. If I annually deposit MYR100,000 (cap/year) into EPF Acc, assuming that the interest payout is 5.35% as per past data, I’ll need to do this for 22 years to achieve the MYR 4M , which I’ll be at 51 y/o
2. ⁠if I annually deposit MYR 100,000 into S&P500 via VOO or CSPX, assuming the capital gain + dividend payout is 8%, I’ll need to do this for 18 years to achieve the target
3. ⁠half half between epf and S&P500

The obvious result is to go for S&P 500, but is that really so simple ?

The question here is, which is the method you’d go for and why? And if not these two avenues, which other avenue with relatively steady returns will you go for and why?

Note: do forgive if the financial jargons are a mess, trying to improve on that

 

[biblequestions]

@lichtoefur Wah I have more or less a similar profile as you. I'm doing half-half EPF and S&P 500 (CSPX to be specific, other people have pointed out the 15% vs 30% dividend withholding tax).

Rationale for EPF is two-fold: (1) to have some "presence" in Malaysia so it doesn't look like I am invisible cause I don't pay income tax; (2) "forced" savings which I cannot touch. I don't trust myself 100% not to withdraw from my other investments but EPF is quite hard to withdraw from.

All the best to us

 

[shahbaz]

@biblequestions i recently read a book, and while there wasnt a big change per say, it does point out that most people have heavy home bias.

Think of your property, your savings, epfs, all is in your local currency and chances are they're highly correlated.

epf is definitely something different id say, more like TIPS from the looks (apparently mandated real return) besides the restriction and cap, could work as minimal risk asset especially if you think of saying in malaysia in your retirement

 

[russman]

@shahbaz Just treat it as a bond fund, which I do, and it being TIPS like it’s just a bonus, not to mention no transaction fees when selling and buying

 

[lichtoefur]

@shahbaz Yeah home bias is real when you’re working abroad. There’s just something about home that can’t be explained easily

Yeah but epf is at a downside of return but upside of risk management, I think 50/50 sounds great

 

[lichtoefur]

@biblequestions Thanks bro, great to hear someone doing the same thing. The lock-in part is double edged, but yeah it’s great to have some imposed discipline.

CSPX through IBKR?

All the best !

 

[biblequestions]

@lichtoefur Yeah I try to save 10% of my monthly income (on top of investments) for a medium-term fund (travel, property, car). So hopefully I’ll never need the money in EPF anyway

Yeap IBKR! It’s by far the cheapest option on the market although the UI and the app is kinda bad lol I just automated it and I’m gonna afk it for years

 

[russman]

@biblequestions Another one is to have some myr in case it appreciates, as the spending is done in ringgit

 

[lichtoefur]

@russman I’m bit skeptical on this as there’s no signs of it appreciating, I could be wrong, but there has to be significant changes to our country to see this growth, maybe in 50 years ?

 

[russman]

@lichtoefur I am also the same, but treat it as insurance

 

[gabrielod]

@lichtoefur You raised an important question. How much should the percentage of equity vs bonds in one's portfolio has probably been asked many times. There are many different answers. A particular answer that I favor is that of the Bogleheads philosophy about passive investing, that is, to parameterize the percentage based on your age. The philosophy states that when one is young, one should prioritize equity through capital gain, and then gradually adjust the percentage as one's age increases. This logic makes sense for most working class people whose primary incomes depend on their ages (e.g. working experience, health).

Generally speaking, equity grows wealth whereas bonds protects wealth. I personally view most (but not all) dividend-generating sources such as EPF, Bursa dividend-generating stocks and ASM as bonds. For S&P 500, which are primarily large cap stocks, these are definitely for capital gain. Of course, there are various spectra within the broader class of equity in terms of gain vs risk (such as property vs stocks vs crypto), but the general idea is that always build your wealth through equity, especially at a younger age.

Edit: sentences sharpened because I'm a logic freak

 

[gabrielod]

Just for your fun knowledge, this is also an interesting and never-ending debate in this sub. Some people who understand this idea are unsatisfied with advice that favors bonds especially when the advice are directed towards young generation. On the other hand, we tend to forget that younger generation in Malaysian society, at least in my observation, are probably brought up in a financially conservative culture. I don't think that there is right or wrong - but if one understands this idea but chooses not to explain to people and instead just speak without logic, then the person is merely a mortal scumbag.

 

[shahbaz]

@gabrielod also worth noting there is recently a study that suggests that 100% equity is better (even in retirement)

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4590406

that being said, even if this is true, human factor is something to consider (imagine your portfolio drops by 50% when you're 70, you might not make it to 71 :/ )

allocation wise, someone suggested following target date funds allocation of sorts, or something like this

https://www.reddit.com/r/Bogleheads/comments/17waubx

 

[russman]

@shahbaz Someone debunked it, it’s usually better to be 90/10, 2000 to 2010 and 1929 is not good for equity only investor, even if you diversify globally

 

[shahbaz]

@russman oww didnt know this, do you have a source to that?

i do recall this article (not sure about its credibility tho), is this the one?

https://earlyretirementnow.com/2024/02/12/100-percent-stocks-for-the-long-run/

 

[russman]

@shahbaz I forgot which one, can check the bogleheads forum

 

[lichtoefur]

@shahbaz Thanks, let me read that paper and what this target date fund is about, as soon as I can

It’s good to learn new things here that will otherwise be tough to discover

 

[lichtoefur]

@gabrielod Thanks Slip, just read it up. General rule = age as % in bond, remaining in equity. That would be a good start.

However, for the remaining in equity, will your choice be S&P500, QQQ or any other ? Let me know your thoughts !

 

[gabrielod]

@lichtoefur There are different rules of thumb. For example, there is the 110 rule where 110 - age is your percentage of equity. There are also economic factors. For instance, some may favor bonds when the economy is bad.

I believe in the value of stocks. Although I might stock-pick for fun, in general, I am a passive investor, hence I will prioritize index funds. This means that I should handle a moderate level of risk (i.e. between bonds and stock-picking), invest long-term (30-year horizon), minimize cost (i.e. choose index funds, avoid tax traps, and keep it simple) and diversify. To diversify broadly means that I would not prioritize only the US market (or only the tech market). How much should one allocate for US vs ex-US market is another big topic though!

 

[lichtoefur]

@gabrielod There are too many choices! Not to mention even in index funds there are too many. I think I’ll have to decide on some and gradually study to decide the eventuality, I guess passive as it is, tweaks have to be done periodically.

Any thoughts on 5% in crypto?