Paul Samuelson dies at age 94

Legendary economist, Nobel laureate and author Paul Samuelson has died at the age of 94 (see Paul Krugman’s blog post).

I first came to know his name from what he has said below on investing (which is also my favourite investment quote):

Investing should be dull. It shouldn’t be exciting. Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. – Source

Paul Samuelson was referring to the emotional traps (overconfidence, market timing, performance chasing, etc.) that investors often fall into. And that investors would be better off doing it passively. It is also the investment philosophy I adopt and wrote about it in this post 3 years ago.

Portfolio activity, October-November 2009

October is the time to do my semi-annual purchase of funds. My asset allocation plan shows that I need to top up two asset classes:

1. Europe equity
2. Japan equity

No top up for REITs as the current holdings in my portfolio is over the target allocation already, because I have accepted a number of rights issues offered by some of the REITs.

For Europe equity and Japan equity, the funds that I will use remain the same: iShares MSCI Europe ETF and Lyxor Japan (TOPIX) ETF respectively. There is an alternative to Europe equity: Lyxor MSCI Europe ETF that was listed in SGX a week ago.  The broker fee to buy this ETF is cheaper than iShares MSCI Europe ETF, which is listed in London Stock Exchange. But for now,  I will give Lyxor MSCI Europe ETF a miss because it is quite new and the asset under management is only slightly more than USD 6 million.

I have made the transaction for Lyxor Japan (TOPIX) ETF and will buy iShares MSCI Europe ETF next week, after its ex-date on 28-Oct-2009.

Portfolio activity, April-July 2009

Just to update my regular fund purchase in April. The asset allocation plan in April indicated top up required for asset classes:

1. US
2. Asia Pacific Ex Japan
3. REIT

I have only bought REIT in April, while I was preparing for the funds for the rest. When the fund was ready, it was July and the asset allocation had changed due to the rise in Asian stock markets. The asset classes to top up in July was US equity only, for which I bought Vanguard Total Stock Market ETF (VTI).

As of 7-September-2009, my portfolio allocation is shown below.

	Current	Target
Equity	67%	75%
US	23%	25%
EU	14%	20%
JP	4%	5%
APEJ	8%	10%
SG	4%	5%
REIT	14%	10%
Fixed Income	33%	25%
Global	7%	10%
Asia	6%	5%
SG	13%	10%
Cash	7%	0%

The next regular fund purchase is in October. The 7% cash shown above is the savings for this coming purchase.

Sell VWO to cut future dividend withholding tax?

Right now, I still hold Vanguard Emerging Markets Stock ETF (VWO) and pay the dividend withholding tax every year. I wonder if it would be better to sell VWO to cut the future dividend withholding tax. Before I continue, here’s some background:

1. In a portfolio asset allocation update in 2007, I decided to use Lyxor ETF Asia Pacific Ex Japan listed at SGX (symbol: AEJ) to replace VWO for future purchase. But I still keep my VWO holding.
2. As a result, I am still paying every year 30% dividend withholding tax on the dividend I receive from VWO.
3. The dividend withholding tax is about USD10-15 every year.
4. In my previous post on claiming back US dividend withholding tax on non-US equity ETF, I decided not to pursue that avenue to claim back dividend withholding tax for VWO, because my broker’s Form 1042-S does not list the necessary information and the dividend tax amount is small to worth the effort.

To get an idea of how much dividend withholding tax I would be paying if I were to hold it for the next 30 years, I calculated the cumulative present values of the tax in this spreadsheet Present value of VWO dividend tax (Google Docs) with a discount rate of 2.5%. The rate 2.5% is the interest rate of CPF Ordinary Account.

As you can see, the cumulative present values of the tax paid for the next 30 years are between USD200-300. Compare this with the broker commission of USD15 if I sell VWO, it seems logical to me to sell VWO to save on the tax. The sales proceed would be used to buy VWO’s replacement – Lyxor ETF Asia Pacific Ex Japan.

Does this make sense to you? Is the maths correct? Let me know and leave your comment, please.

Claiming back US dividend withholding tax on non-US equity ETF

As I am not a US citizen, the dividend that I receive from US-listed ETF are subject to 30% withholding tax. It is OK for US equity ETF, such as Vanguard Total Stock Market ETF (VTI) that I own, because the dividend originated from US companies. However, for non-US equity ETF, such as Vanguard Emerging Markets Stock ETF (VWO), the dividend is also subject to the withholding tax. Is there a way to claim back this withheld tax on non-US equity ETF from Uncle Sam?

How to claim?

Well, a Taiwanese investor/blogger by the name of greenhorn has successfully claimed back withheld tax for non-US equity ETF dividend. He detailed the steps in Filing for Tax Refund with Form 1040NR (sorry, it is written in Mandarin). To be able to do this, you need Form 1042-S that you broker (hopefully) send you every year, and the form must show that you have overpaid the tax, as shown in the figure below (from the above article by greenhorn).

Source: greenhornfinancefootnote.blogspot.com

To be specific, in item “Income Code 06″, Gross Inome (Box 2) should only include US-sourced dividend (e.g. VTI), such that Gross Income (Box 2) times 30% should be less than U.S. Federal tax withheld (Box 7), i.e.

B*30% < C

The difference (C – B*30%) is the overpaid tax that you can claim back. This is good news to me as I can now claim back the withheld tax of my VWO.

But …

However, my 2007 Form 1042-S from optionsXpress shows that A*30% = B, as shown below.

Form 1042-S from optionsXpress

This means optionsXpress does not differentiate between US- and non-US-sourced dividend. My VWO dividend was included in the Gross Income (Box 2) and therefore, I could not claim back my withheld tax from Form 1042-S. The form does not show that I have overpaid the tax, as A*30% equals B.

This is not unique to me, as others have reported that their brokers also include both US and non-US sourced dividend as Gross Income in their Form 1042-S. In Filing for Refund of Overpaid NRA Withheld Tax with Form 1040NR, readers of the article reported that Zecco and MBTrading are two of the brokers that do this, making the Form 1042-S not suitable to claim back withheld tax. Other readers and the blogger greenhorn himself reported that Form 1042-S from eTrade and FirstTrade do differentiate between US- and non-US-sourced dividend, hence effective for claiming back withheld tax.

So, for me, I gave up this avenue to claim back withholding tax on my VWO dividends.

StockQuote 2.1.2 released

This is a bug fix release for the price import error when importing price from Yahoo Finance, due to changes in its HTML code recently. No new feature was added.

Download this release at the download page.

Follow me on Twitter

Follow me on Twitter: mmstallinvestor

Yup, Mamak Stall Investor is going micro-blogging on Twitter (what’s that?).

For quick sharing of links, small thoughts or simply just blurb about anything related to investing and my portfolio, I will post or tweet it on Twitter. For longer and meatier writing, I will still post it on this blog, and will of course tweet the link on my Twitter.

To follow me: join Twitter if you do not have an account yet, then click the above Twitter icon to go to my Twitter page and finally click Follow below my username: mmstallinvestor to follow my Twitter updates. Hope to see you there!

Portfolio review for 2008

Using the same format as last year portfolio review, below are the expenses, emotion review and return of my portfolio for year 2008.

Expenses

	2008	2007
Number of Buy	13	8
Number of Sell	1	2
Turnover Ratio	1.94%	4.53%
Average Holding Period	618 months	264 months
Total Expense Ratio	1.45%	0.88%

While turnover ratio has dropped, expense has gone up because of two reasons.

First, there was more number of buy in 2008, in order to move CPF-SA money into Growpath 2040 fund before the restriction in using CPF for investment kicked in April. This adds to the total expense ratio.

Second, total expense ratio also increases because of the outgoing transfer fee charged by stock brokers when I consolidated my ETF holdings.

Emotion

I invested my monthly savings on time in April and quite early in October, may be I was eager to “finished the job”. I did not hesitate, wait and monitor when making purchase, something I did in 2007. All in all, the year 2008 was pretty much a boring year. And that’s good for me.

Return

	2008		2007
	Portfolio	Benchmark	Portfolio	Benchmark
SGD	-32.54%	-29.05%	4.35%	0.69%
USD	-32.35%	-28.85%	10.69%	6.81%

Return is calculated by using XIRR function in Excel and includes dividend and un-invested cash holding. Though slightly lower than the benchmark, the portfolio return is quite close to the benchmark. This is because SGD-USD exchange rate is almost the same in the beginning and end of 2008.

The portfolio allocation as at 31 December 2008 is shown in the table below.

The last portfolio activity was in October. Since then, cash (6% in the table) is being built up from the monthly savings that will be invested in April 2009. The equity portion (62%) is lower than that of 2007 (65%), due to the financial crisis that started in October 2008.

Looking into 2009

With my ETF holdings consolidated in one place and the investment vehicle decided, the portfolio has finally passed its formation years since 2005. Phew~!

I have also increased the monthly savings for the portfolio by a meager amount as I have just received, well, a meager pay increment. Other than this, while the same may not be said for the stock market (don’t ask me about it), I expect 2009 to be an uneventful year for my portfolio.

To all passive investors out there: stay the course.

“I’m in charge here”

In Your money and Your Brain, Jason Zweig described an investor who sold all of her stocks and bonds into cash whenever she goes on vacation, and move everything back when she is back from vacation. The investor says, “That way I know I’m in charge while I’m on vacation, and I can relax instead of worrying that I might lose money.”

The author described the inventor as being suffered from “the illusion of control”, the feeling that one can exert authority over random chance with our physical actions. (This reminds me of the book Fooled by Randomness)

The Mamak Stall Investor is going on vacation too. He is not going to do anything to his portfolio: no selling, no buying. He says, “That way I know I wouldn’t be subject to emotional roller coaster while I’m on vacation, and I can relax knowing that there wouldn’t be any surprise because my indexed portfolio will behave just like how the markets behave.” Will there be year-end stock rally? Will there be more bad news from the finance sector? “I don’t know, I don’t care“, he says.

Merry Christmas and Happy New Year to all of you!

Dividend withholding tax of LSE-listed ETF in Saxo

After I consolidated my ETF holdings to Saxo in June, the first dividend from my ETF in London Stock Exchange was declared in my Saxo account in July. But wait, how come they were taxed at 20%? They were not taxed at all when I held the ETF in POEMS. After I have sent an email to Saxo, the withheld tax was refunded to me before the pay date in August.

Round Two

The second dividend was declared in October. Again, it was taxed at 20%! After a few emails to chase for the refund, it was credited into my Saxo account after the pay date.

Transfer Again?

The ETF pays dividend four times a year. It is going to be a pain if I need to email for tax refund for every dividend payout. And if Saxo decides not to refund withholding tax (e.g. change in custodian structure), it may be time to do another account transfer, sigh…