Monday, 7 December 2015

Minimum Acceptable Returns

If you have been reading financial books or articles from the United States, it will suggest that return lower than 5% is mediocre. We all want high return for our funds, but how? In US, I guess it is much easier. You can easily buy S&P500 and get about 10% average annualised returns for past decades. However, many of us are skeptical whether STI ETF can do the same. Reason being is that US ETF has much lower management fee and the performance is better. Like it or not, US is the economy powerhouse, a place where everyone at least have some respect on. In Singapore, we can't say for sure in the long term.

I am an advocate for "Not losing is winning half of the battle". There are so many strategies and temptation to do cherry picking in stocks, buy high and sell low, or buy mid and sell mid. When you see fellow investors buy and sell, especially in good years, you will be wondering should you be doing the same.

My philosophy is simple. I am racing against myself. As long as my money grow at an acceptable rate, I will be contended. I don't need to compete with others. I would want a >5% return, but to be "sure win", the strategy is actually to deploy some high interest instruments such as bonds, fixed deposits. I will settle down for any interest >2.5%.

Here, you will be wondering, how 2.5% can help in building up a sound retirement fund. Agreed that it is tougher than if you can earn 10% return, but if you are frugal and effective in your finance, it is actually quite doable. You may be surprised it is our saving/prudence that helped most people accumulate their first pot of gold, not some lottery in stock market. Again, I have to highlight that frugal is not cheap (click here).
When opportunity arises to get better returns (spotted undervalued quality stocks/property/bonds), this is when I will increase my base interest rate to limitless. From historical data, I should be able to average out between 5-8% return. Not impressive, but there is a cushion of "sure win" minimum of 2.5% return. I don't believe market is a 1 way street that keep going up, there will be plenty of buying opportunities. If you are worried about missing the boat and opportunity cost, employ Dollar-Cost Averaging strategy (click here) and permanent portfolio (click here).

What are your views and your minimum acceptable returns?


  1. Hello FD,

    Well-written article. To be honest, I have no expected return figure in my head. I too, subscribe to the philosophy that "not losing is winning half of the battle".

    I tend to be conservative like my wife, though I will still buy a little amount of stock in counters that I deem attractive, so as to put my SRS monies to work.

    When my portfolio income can cover my essential living expenses, I am a happy man. :)

    1. Hi SS

      Given what I have read in your blog, you are clearly aware where you are heading to :)

  2. Hi Frugal Daddy,

    I see myself as having a "defensive" mindset when it comes to investing and trying my best to win the loser's game haha! Indexing fits my investment personality rather well. What you said about savings is very true. How to have a substantial capital without first saving our income?


    1. Hi Kevin

      Actually, there has been debates among bloggers about the future of sti etf. I do hope the indexing will flourish.

      There are so many things to spend our time on. Risking hard earned money is the last thing I want to do.

  3. Hi FD

    Looks like a good plan to park your money at 2.5% while waiting for the big opportunity to come. After all, not losing is half a battle won right? :D

    All the best to your journey and rolling along in your journey.

    1. Thanks B! You are always so encouraging.

  4. Hi FD,

    I am aiming for 8% return on my over all portfolio. That would be 3-4% above inflation rate.
    Parking funds @ 2.5% is for me only viable for a smaller portion of the portfolio, as the opportunity loss is too high and I would be losing purchasing power along the way (maybe not right now but in average).
    Timing the market is a challenge. Time in the market is my preferred choice.
    I wish you the patience required to finding the right buying opportunity fitting your risk appetite.

    1. Hi Andy

      Impressed. Agreed with you on the inflation part and it is not most ideal to aim for 2.5%. This is a "sure win" method but overall could achieve 5-6% by timing the market in range. For example, enter bit by bit when prices corrected. Hopefully it will work.

      If I am to deploy fund when STI is at 3500, i will be hoping it will reach 5000 by year 2020. Is it sound?

      I am still figuring out while moderating my investing strategy. Look forward to chatting with you more on a separate channel. :)

  5. Hi FD,

    Why aimed 2.5%? Are u vying for a seat in govt to tell pple we must be contended with 2.5%? hahahaha... ok just kidding..

    Frugal is not cheap... It can be Flying Daddy!

    Anyway as long as you have your target and know what u r doing, racing agst urself is ok. Most impt also do not be unfazed by failure and DUN ever create an imaginary barrier to prevent urself from improving/changing!

    Ok keep on flying higher. Wish u success in ur own way!

    1. Hi Rolf

      2.5% is because of Singapore Saving Bond. How i wish there is a sure win product with higher interest. haha.

      Actually, I think i have created an imaginary barrier in my career as I am aiming to FI 5 years later and say bye bye. You are a timely reminder to keep on improving myself. haha. Thanks.

      I actually think investing in ETF can easily have >5% return, but not sure win. I will find something feasible.

      Thanks for your well wishes. Wish you success too, especially in your industry downturn. Cheers!