Below are the 5-year exchange rate graphs of USD and SGD against MYR:
Source: Google Finance
Source: Google Finance
When compared to USD:
- 5 years ago, US$ 1 was exchangeable for RM 4.04.
- Today, US$ 1 is exchangeable for RM 4.68.
- USD appreciated by a CAGR of 3.74% against MYR.
When compared to SGD:
- 5 years ago, S$ 1 was exchangeable for RM 2.97.
- Today, S$ 1 is exchangeable for RM 3.45.
- SGD appreciated by a CAGR of 3.82% against SGD.
Food for thought:
As a Malaysian investor, I can choose stocks with the best fundamental qualities in Malaysia and invest in them when they are undervalued. I could earn a stable 5% in dividend yields per year from these stocks as I wait for them to appreciate in value. But with MYR weakening by 3%-4% per year against USD and SGD, this seems like “swimming against the current”. So, the questions are: “Is it still okay and worth it to invest in Malaysian stocks?”.
Here is my take on this:
1. Some limitations. I’m a dividend-growth investor, who earns dividend income regularly from my stock portfolio. I accumulate fundamentally sound stocks and hold them for “life”. So below is written in the context of investing. It is not very suitable for stock traders or speculators, who trade for the short-term or simply have no clue as to what they are doing in the stock market.
Malaysian Stocks:
2. Years ago, I started investing in Malaysian stocks. It was suitable as I was new, had lower capital and felt that I have “homeground advantage”. The portfolio in Malaysia was small in size but I gained a lot in terms of education, experience & emotional training. The Malaysian stock market is my “investment school” and I find that my past experiences with Malaysian stocks have contributed greatly to my current successes in building an overseas portfolio.
3. Today, I continue to hold some Malaysian stocks in my portfolio. They make a small portion in my portfolio and I treat it as a slightly better alternative to local FDs. It’s rolling money meant to be a fund for emergencies. So if there is no real need, I would continue to receive my 4%-6% in dividends per year. But if there’s a need, they will be the first to be “disposed off” in my portfolio as a whole.
Singapore Stocks:
4. Slight bias. I have visited Singapore every now and then since I was a kid. This is mainly due to family reasons. Because of this, I was exposed to Singapore & it makes sense for me to diversify some “money” in SGD as Singapore emerges as a politically-stable financial hub in Asia. I didn’t choose to work in Singapore as I find that it is easier to establish myself as a self-employed & real estate investor in Malaysia. Thus, my game plan was simple. Make money in Malaysia and save some of them in Singapore.
5. All it takes is some initiatives to study the fundamentals of Singapore stocks. I believe they are not hard to find. Once a watch list is built, it’s a “waiting game” to (1) acquire these stocks when they are undervalued and (2) collect dividends in SGD on a quarterly basis over the long-term. The formula is as simple as “buy and hold, wait and collect”. No trading, no prediction and no emotional swings. That is what DividendVault.com is all about and I’m proud to have shaped many of my students to build portfolios that just churn out dividends year-after-year.
6. Simply put, the “triple gains” Malaysian investors could enjoy from Singapore stocks are as follows:
- Dividends in SGD (if the stocks’ businesses are increasingly profitable)
- Capital appreciation (if the stocks’ businesses continue to expand)
- Hedge against weakening of MYR against SGD.
What About US Stocks:
7. Eventually, one would have invested in “all of the good stocks” in Singapore if he has been practicing the investment formula stated in Point 5. This is possible as Singapore is a small nation with 5+ million in total population. So, because of this, it makes sense to look into the U.S. (330+ million in population).
8. To name a few, I find the pros of investing in the U.S. are:
- Wider choices of bigger companies (billion or trillion dollar companies).
- Global brands.
- More diversified in geographical locations.
- More innovative sectors.
- Companies that have more capital, talent, and financial resources.
9. The major shortcoming for investing in the U.S. is a 30% withholding taxes on dividends. So, many U.S. listed companies tend to use their cash flow generated on CAPEX, R&D, share buybacks, business acquisitions, … etc to be tax efficient and at the same time, pursue corporate growth. As such, capital appreciation in the long-term would be the primary focus for investing in U.S. stocks.
10. In essence, Singapore is suitable for regular dividends, while the U.S. is ideal for long-term capital growth.
Portfolio Allocation:
11. There is no general rule to dictate an ideal proportion of MY:SG:US stocks in one’s stock portfolio. This is because such proportion is based on many factors:
- Investment objectives + preferences.
- Investment skills + experiences
- Availability of financial capital + income-generating abilities … etc.
12. For instance, a newbie’s portfolio in Malaysia could be:
- Malaysia: 100%
- Singapore: 0%
- United States: 0%
13. Whereas, a pure-play dividend investor could have a portfolio comprising:
- Malaysia: 10%-15%
- Singapore: 70%-80%
- United States: 10%-15%
14. Meanwhile, a pure-play growth investor may have a portfolio consisting of:
- Malaysia: 10%-15%
- Singapore: 10%-15%
- United States: 70%-80%
15. Also, one that wishes to balance dividend and growth could invest in:
- Malaysia: 10%-20%
- Singapore: 40%-45%
- United States: 40%-45%
Conclusion:
In brief, investing abroad is a viable way to hedge against weakening MYR in the long-term. Personally, I don’t think the question is: “Could MYR be weakened in the future?”. As a Malaysian, I think a weaker MYR may be helpful in improving, enhancing and boosting our competitiveness in trades and commerce. So it can be good for our economy. But, if we expect our MYR to “hold onto its value” for the long-term, that may not be wise.
If you are looking to build a Singapore-based dividend portfolio, you could learn the processes that I use to build mine with the online training session below:
Link:
How to Build a Stock Portfolio that Pays Increasing Dividends?
