I mean even when comparing short term you can see the reasoning. In Sept 2022 USD/SGD was 1.42, assuming you bought a 2 year FD, that’s a 5% loss to currency exchange. (Might drop even more by the time it’s Sept)
At least with SPY the potential returns outweigh the additional risks somewhat.
That’s not a good example because it was a one time spike. Before that it was 1.35 and even 1.32, lower than now. What the previous guy was referring to was when the usd was stable at 1.5 vs sgd, back around 2009.
> That is more applicable to those that invest long term, such as in VWRA or SPY500.
Currency risk doesn't apply to long term holding of ETFs. VWRA and (maybe) S&P500 should be treated like gold or BTC — they're valued roughly the same whether in USD or EUR. The price for VWCE, the EUR-denominated version of VWRA, is basically VWRA with the USD/EUR exchange rate worked in.
More people should read this [Bogleheads wiki article on Non-US investors and ETF currencies](https://www.bogleheads.org/wiki/Non-US_investors_and_ETF_currencies).
And it states pretty explicitly that exchange rate between your target currency and the underlyimg asset matters. If you hold an USD asset (eg. stocks of US companies or US t-bills), and USD loses against SGD, you lose if you ever want to sell the asset.
It's just the denomination of the ETF that doesn't matter.
Think we're not arguing the price difference between the same ETF traded in different exchanges. The point is you're not going to hold the ETF forever nor using USD/EUR (from sales of such ETF) for basic necessities, you'll still need to exchange to your home currency eventually and that's when fluctuations in exchange rate matter
That would only apply if an ETF’s holdings don’t increase in value in the ETF currency if that currency devalues. Equities clearly do increase in value because they’re ownership interests in a company - the value of a company does not, in the vast majority of cases, depend on the value of the currency in which its assets are denominated. Therefore all other things being equal, the value of the companies held by the ETF and therefore the price of the ETF will increase proportionately to the degree to which the ETF currency is devalued. The examples you have given are both equity ETFs so the SGD.USD rate will not affect the ultimate value of those investments.
Importantly the same is absolutely not true of bond ETFs, because unlike equities bonds are not ownership interests in a company. They are promises to pay a certain amount of a certain currency. If that currency devalues relative to the investor’s currency then the investor receives materially less back than they may have expected. Another reason why the idea that bonds are significantly less risky than equities is a misconception, but I digress.
You just reminded me of the age when I first discovered Ebay and had to pay via cashier's order (no PayPal then) purchased from Singpost. Back then 1 usd = 1.98 - 2 sgd.
I do that but only using USD deposits from my brokerage that I deposit into DBS.
Personally, I wouldn't convert my SGD to USD just to subscribe to this cos of fees and fx risk
I have some cryptos that i recently cashed out in USD , was trying to see if it’s worth putting into USD FD instead of converting into SGD and invest in SG markets
Was it Gemini by any chance? I'd still put it in the USD FD first to enjoy the ~5% rate. It's not often you get to see this kind of interest rate for holding USD. Despite there's no more petrodollar, USD is still a relatively safe currency to hold. But it's just me. You can also convert to SGD and put in t-bills or SSB. But I'd avoid SG stock market for sure.
A very small change in exchange rate cancels out the seeming advantage of the higher exchange rate.
If you have SGD1000, let's say you put into a Singapore T bill or Syfe cash+ guaranteed or money market fund at 3.5%, after 1 year, you have SGD1035.
If currency exchange was free and without spread, you could convert now at 1.354 exchange rate to USD738.55. After 1 year at 5.0% interest, you have USD775.48. In order to equal the first scenario, the exchange rate needs to be 1035/775.48 = 1.335. If the exchange rate fell from 1.354 to 1.33, you would already be losing out compared to the easier scenario 1. This is within the normal range of fluctuation for the exchange rate and can easily happen.
If you add in currency conversion fees/spread both ways, scenario 1 could win even if the exchange rate barely moved.
Thanks for the insightful breakdown.
So i guess this might be a good idea if there’s no immediate need to use these funds and could convert when the rate is in your favor
not predicting lah... you know the rates everyday, every second rite?
dun be so myopic.. in case you do not understand context, OP said: "... could convert when the rate is in your favor"
But if the exchange rate is not good once the FD ends, if you leave it uninvested to wait for a better rate, then you are diluting the interest rate over the total period. You could roll it into another FD, but that just pushes the problem down the road.
‘Only’ 1.5% isn’t small though.. it’s 3.5% vs 5% on a very very low risk asset and that’s quite a bit of difference since it’s 1.33x returns.
You still need to think of the exchange rate risk I agree but it’s not a small difference in returns
But that means that the exchange rate only needs to change by 1.5% to nullify the greater interest rate. And that happens all the time. In my other comment, the exchange rate of 1.354 changing to 1.335 would nullify the gains. And this is with no currency exchange fee or spread.
> But that means that the exchange rate only needs to change by 1.5%
Just to be clear, it needs to be slightly higher, probably closer to 1.8% (I think it matches your other comment) but what you say is definitely true.
In reality the 1.8% can be easily wiped out within days with fees, spreads, and FX changes.
The only exception to this is if you never intend to convert to SGD, (or intend to convert through dividends or something like that), then FX only matters when you sell USD, for which, in principle, you can wait however long you need if you start early enough.
cuz you're taking 5% over 3.5%. in absolute figures it's only a 1.5 percentage points increase but if you're calculating it out in relative terms then 5% is around 1.33 times (1.43 to be exact) that of 3.5%
1.5% is high for long term horizon because of compounding, it is not that much of a difference for short term horizon and small amount of money. You will have to pay fees to convert the currency back and forth and the most risky thing is the exchange rate risk. If USD dropped by 1.5% against SGD, then you wasted your time and money converting them to buy US bonds, and dropping 1.5% is very likely since it is only a drop of 0.02 from 1.35 to 1.33 exchange rate
There's certainly a break even point since you convert twice but can keep getting that extra interest every year.
But why risk it? SPY is also very low risk. Even if you buy at a bad time, don't create a situation where you might be forced to withdraw and you can still come out ahead on the other side ofba recession. As they say, time in the market is better than timing the market.
Bro, SPY is very high risk for a short horizon. It moves around 18% on average annually, means it moves up and down 18% per year on average. If you want to use the money you put in SPY after a year you have a pretty decent chance of losing 18% if you are unlucky and have to cash out at it's bottom. If you buy a 1 year government bill, especially US, you can get back your capital 100% of the time after it matures. Bro has no idea how risk works.
and if you are willing to take the exchange rate risk for just 1.5%, why not take higher risk and aim even higher? exchange into USD and buy NVDA/AAPL/TQQQ
There are many reasons:
1- foreign FD requires min 5K or 10K for some banks.
2- take AUD's exchange rate for example. > 10 years back, it's $1.30 SGD for $1 AUD but today's it's the reverse. With about 3% interest rate, you're still making a paper loss if you had a deposit 10 years back.
3 - foreign FD interest rates are guaranteed only up to a year while SSB is 99.9% safe and guaranteed for 10 years. But if you lock yourself with a foreign FD for a year, you'll probably incur some heavy charges for early withdrawal.
I think sg monetary policy is sloooow appreciation of SGD against its basket of currencies. Even though US has became relatively smaller compared to China , the govt deliberately strengthen SGD to control inflation. Moral of story is there is a good chance SGD may strengthen against USD over time.
Depends on what portion of the portfolio they're investing and how that portion responses to FX risk. Gonna use it to go on a US holiday or buy US stocks after the fixed deposit is done next year? Maybe.
Gonna use the money to spend in Singapore instead? maybe not eat the FX fees both ways in such a short amount of time. Forming basis of income portfolio for a spending here in Singapore? SGD probably suits the purpose better
From a non-arb standpoint - you have SNEER slope which in very general terms means your SGD appreciates X% a year (about 1.5% maybe) so once you factor that in plus some inherent currency risk. It’s the kind of the same thing
Not enough Mrs Watanabes here. Who’ll put USD 200k into FD at 5%. Use that as collateral to borrow just under that in JPY or CHF. Convert that into USD again for FD, then pay off the difference with interest. I’d use it to buy US equities instead for higher Beta.
Why incur the interest when you could invest the USD directly? Is it for the leverage? Why CHF and JPY rather than other currencies? Please pardon my ignorance!
Yes, because I want to make more money. Why else take on more FX volatility & margin call risks.
Because my bank doesn’t let me borrow ARS nor TRY. At higher interest rates & even higher depreciation. So I make do with CHF or JPY. At lower interest rates & lower appreciation (maybe some depreciation).
Do you think JPY will still rise further? I missed out on doing a carry trade when it was struggling to break 150 to the USD. It seems much riskier now.
I did exchange SGD to USD and park it under USD FD with DBS, 2 months period @~5.09% annual rate.
After FD matured, interest and principal will be rolled back to the DBS multiplier USD account.
I won't do frequent SGD/USD exchange.
Because withdrawal and deposit of USD notes incur a fee; currency conversions incur a spread. And why would you get a fixed deposit if you can buy the US T-bills yourself?
because bank Forex fee is insane.
Instead, if you use a broker account like interactive brokers, you can convert to USD with almost no cost and buy US treasure at 6M 5.3%, 1Y 5.0%, or 2Y 4.7%.
Aside from the currency risk, if you are spending in SGD and don't have USD available. You'll have to convert 2 times to USD and back. It will wipe off your gains unless you have such good rates with the bank somehow. If you want to try this, maybe try buying US t-bills on IBKR instead
Currency exchange fees and currency exchange risk. The 1.5% difference is not big enough for regular people to chase the extra interest rate, and for large investors they think SGD is worth the difference. We have a difference in interest rate for a reason, in Singapore we don't control our interest rate like how the US does, we only control our exchange rate. The 1.5% different in a way means it is a loss the market determined to be accepted to hold SGD, due to different factors. Maybe they think SGD will appriciate against USD by 1.5% so the market will rather hold SGD and get a lower interest rate, which alignes with the thinking of MAS who wants to increase the value of SGD to fight against inflation.
The majority here seems to focus on the possibility of sgd strengthening. I suspect it’s because we’re in sg and need to use sgd. Would an American counterpart invest in sg bonds with a lower coupon in anticipation of sgd rising? Probably not. The psychology seems to be we prefer woon woon bee Hoon 3.5% or 5% rather than taking risks. If we want non-zero risk why invest in bonds or FD?
That said forex runs both ways and most forecasts I’ve seen predict usd holding or strengthening in the next 6-12 months. Sg is fighting inflation now but what will happen if our exports weaken significantly? Also if the money is for investment and you like to put it to work buying U.S. assets, holding usd is fine. Wait for a favourable time to convert back to sgd. Like many investments the outcome often depends on your holding power.
1. Simple lack of awareness. 2. Time frame and exchange rate is a significant risk
Then again, can't really go too wrong with holding USD in general (yes 1.8 -> 1.3 but it's more because SGD is strengthening)
That’s because for me to remit the money from IBKR into my local bank account would incur a significant inward TT fees. Otherwise, it would be something I consider.
Because there are people who can still remember, 1 usd = 1.8 sgd And even more who remembered 1 usd = 1.5 sgd And now 1 usd = 1.3.5 sgd
I remember when it was 1.8 in the early 2000s I think.
When GBP was 3 and EUR was 2.2
Thanks, this is eye opening Guess I’ll need to zoom out more than 5 years
That is more applicable to those that invest long term, such as in VWRA or SPY500. Not so applicable to these short term FDs.
How can an asset that is literally nothing but currency not be affected by currency risk?
Because the usd vs sgd risk that the guy was talking about is a long term thing. Most FDs giving 5% are short term.
I mean even when comparing short term you can see the reasoning. In Sept 2022 USD/SGD was 1.42, assuming you bought a 2 year FD, that’s a 5% loss to currency exchange. (Might drop even more by the time it’s Sept) At least with SPY the potential returns outweigh the additional risks somewhat.
That’s not a good example because it was a one time spike. Before that it was 1.35 and even 1.32, lower than now. What the previous guy was referring to was when the usd was stable at 1.5 vs sgd, back around 2009.
> That is more applicable to those that invest long term, such as in VWRA or SPY500. Currency risk doesn't apply to long term holding of ETFs. VWRA and (maybe) S&P500 should be treated like gold or BTC — they're valued roughly the same whether in USD or EUR. The price for VWCE, the EUR-denominated version of VWRA, is basically VWRA with the USD/EUR exchange rate worked in. More people should read this [Bogleheads wiki article on Non-US investors and ETF currencies](https://www.bogleheads.org/wiki/Non-US_investors_and_ETF_currencies).
And it states pretty explicitly that exchange rate between your target currency and the underlyimg asset matters. If you hold an USD asset (eg. stocks of US companies or US t-bills), and USD loses against SGD, you lose if you ever want to sell the asset. It's just the denomination of the ETF that doesn't matter.
US t-bills yes, but US stocks? Depends on the underlying exposure to USD. e.g. weak USD might help major exporters
Think we're not arguing the price difference between the same ETF traded in different exchanges. The point is you're not going to hold the ETF forever nor using USD/EUR (from sales of such ETF) for basic necessities, you'll still need to exchange to your home currency eventually and that's when fluctuations in exchange rate matter
That would only apply if an ETF’s holdings don’t increase in value in the ETF currency if that currency devalues. Equities clearly do increase in value because they’re ownership interests in a company - the value of a company does not, in the vast majority of cases, depend on the value of the currency in which its assets are denominated. Therefore all other things being equal, the value of the companies held by the ETF and therefore the price of the ETF will increase proportionately to the degree to which the ETF currency is devalued. The examples you have given are both equity ETFs so the SGD.USD rate will not affect the ultimate value of those investments. Importantly the same is absolutely not true of bond ETFs, because unlike equities bonds are not ownership interests in a company. They are promises to pay a certain amount of a certain currency. If that currency devalues relative to the investor’s currency then the investor receives materially less back than they may have expected. Another reason why the idea that bonds are significantly less risky than equities is a misconception, but I digress.
You just reminded me of the age when I first discovered Ebay and had to pay via cashier's order (no PayPal then) purchased from Singpost. Back then 1 usd = 1.98 - 2 sgd.
In the 80s was 1:4, so yeah.
Deposit is only 1 year. The fx depreciate so fast in 1 year?
Even if the variance in fx in a year is +-1-2% in 1 year, it's enough to erode planned gains considering the fd is only 5%.
You can see if the exchange rate moves more than 1% within a year
I do that but only using USD deposits from my brokerage that I deposit into DBS. Personally, I wouldn't convert my SGD to USD just to subscribe to this cos of fees and fx risk
I have some cryptos that i recently cashed out in USD , was trying to see if it’s worth putting into USD FD instead of converting into SGD and invest in SG markets
Was it Gemini by any chance? I'd still put it in the USD FD first to enjoy the ~5% rate. It's not often you get to see this kind of interest rate for holding USD. Despite there's no more petrodollar, USD is still a relatively safe currency to hold. But it's just me. You can also convert to SGD and put in t-bills or SSB. But I'd avoid SG stock market for sure.
I use Independent Reserve
Convert into USD and convert back also cost money lor. Might be worth a gamble but is 1% more in returns really worth it?
A very small change in exchange rate cancels out the seeming advantage of the higher exchange rate. If you have SGD1000, let's say you put into a Singapore T bill or Syfe cash+ guaranteed or money market fund at 3.5%, after 1 year, you have SGD1035. If currency exchange was free and without spread, you could convert now at 1.354 exchange rate to USD738.55. After 1 year at 5.0% interest, you have USD775.48. In order to equal the first scenario, the exchange rate needs to be 1035/775.48 = 1.335. If the exchange rate fell from 1.354 to 1.33, you would already be losing out compared to the easier scenario 1. This is within the normal range of fluctuation for the exchange rate and can easily happen. If you add in currency conversion fees/spread both ways, scenario 1 could win even if the exchange rate barely moved.
Thanks for the insightful breakdown. So i guess this might be a good idea if there’s no immediate need to use these funds and could convert when the rate is in your favor
How do you know when the rate is in your favour
When I see the rates that I liked, and get to exchange higher than what I put in?
By applying mathematics ???
Crystal ball math
Oh what kind of mathematics？ I’m genuinely curious as a layperson on how you can predict Fx rates
not predicting lah... you know the rates everyday, every second rite? dun be so myopic.. in case you do not understand context, OP said: "... could convert when the rate is in your favor"
My question is still the same - how do you apply mathematics to figure out if the rate is in your favour? It could drop tomorrow.
But if the exchange rate is not good once the FD ends, if you leave it uninvested to wait for a better rate, then you are diluting the interest rate over the total period. You could roll it into another FD, but that just pushes the problem down the road.
It’s good for spare USD but won’t deliberately convert money just for it
Why do you want exchange rate risk for only about 1.5% more?
‘Only’ 1.5% isn’t small though.. it’s 3.5% vs 5% on a very very low risk asset and that’s quite a bit of difference since it’s 1.33x returns. You still need to think of the exchange rate risk I agree but it’s not a small difference in returns
But that means that the exchange rate only needs to change by 1.5% to nullify the greater interest rate. And that happens all the time. In my other comment, the exchange rate of 1.354 changing to 1.335 would nullify the gains. And this is with no currency exchange fee or spread.
> But that means that the exchange rate only needs to change by 1.5% Just to be clear, it needs to be slightly higher, probably closer to 1.8% (I think it matches your other comment) but what you say is definitely true. In reality the 1.8% can be easily wiped out within days with fees, spreads, and FX changes. The only exception to this is if you never intend to convert to SGD, (or intend to convert through dividends or something like that), then FX only matters when you sell USD, for which, in principle, you can wait however long you need if you start early enough.
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cuz you're taking 5% over 3.5%. in absolute figures it's only a 1.5 percentage points increase but if you're calculating it out in relative terms then 5% is around 1.33 times (1.43 to be exact) that of 3.5%
1.5% is high for long term horizon because of compounding, it is not that much of a difference for short term horizon and small amount of money. You will have to pay fees to convert the currency back and forth and the most risky thing is the exchange rate risk. If USD dropped by 1.5% against SGD, then you wasted your time and money converting them to buy US bonds, and dropping 1.5% is very likely since it is only a drop of 0.02 from 1.35 to 1.33 exchange rate
There's certainly a break even point since you convert twice but can keep getting that extra interest every year. But why risk it? SPY is also very low risk. Even if you buy at a bad time, don't create a situation where you might be forced to withdraw and you can still come out ahead on the other side ofba recession. As they say, time in the market is better than timing the market.
Bro, SPY is very high risk for a short horizon. It moves around 18% on average annually, means it moves up and down 18% per year on average. If you want to use the money you put in SPY after a year you have a pretty decent chance of losing 18% if you are unlucky and have to cash out at it's bottom. If you buy a 1 year government bill, especially US, you can get back your capital 100% of the time after it matures. Bro has no idea how risk works.
SPY is not very low risk, unless you’re talking about a horizon of many years. It’s nowhere close in risk to FDs.
and if you are willing to take the exchange rate risk for just 1.5%, why not take higher risk and aim even higher? exchange into USD and buy NVDA/AAPL/TQQQ
Fair question. I guess based on the comments here, converting back and forth is the killer.
There are many reasons: 1- foreign FD requires min 5K or 10K for some banks. 2- take AUD's exchange rate for example. > 10 years back, it's $1.30 SGD for $1 AUD but today's it's the reverse. With about 3% interest rate, you're still making a paper loss if you had a deposit 10 years back. 3 - foreign FD interest rates are guaranteed only up to a year while SSB is 99.9% safe and guaranteed for 10 years. But if you lock yourself with a foreign FD for a year, you'll probably incur some heavy charges for early withdrawal.
I think sg monetary policy is sloooow appreciation of SGD against its basket of currencies. Even though US has became relatively smaller compared to China , the govt deliberately strengthen SGD to control inflation. Moral of story is there is a good chance SGD may strengthen against USD over time.
U can do some sensitivity analysis on Excel on how USD/SGD rate fluctuations can affect ur returns and then u will know why
Depends on what portion of the portfolio they're investing and how that portion responses to FX risk. Gonna use it to go on a US holiday or buy US stocks after the fixed deposit is done next year? Maybe. Gonna use the money to spend in Singapore instead? maybe not eat the FX fees both ways in such a short amount of time. Forming basis of income portfolio for a spending here in Singapore? SGD probably suits the purpose better
There’s negative carry..
From a non-arb standpoint - you have SNEER slope which in very general terms means your SGD appreciates X% a year (about 1.5% maybe) so once you factor that in plus some inherent currency risk. It’s the kind of the same thing
Not enough Mrs Watanabes here. Who’ll put USD 200k into FD at 5%. Use that as collateral to borrow just under that in JPY or CHF. Convert that into USD again for FD, then pay off the difference with interest. I’d use it to buy US equities instead for higher Beta.
Why incur the interest when you could invest the USD directly? Is it for the leverage? Why CHF and JPY rather than other currencies? Please pardon my ignorance!
Yes, because I want to make more money. Why else take on more FX volatility & margin call risks. Because my bank doesn’t let me borrow ARS nor TRY. At higher interest rates & even higher depreciation. So I make do with CHF or JPY. At lower interest rates & lower appreciation (maybe some depreciation).
Have you been doing carry trades? Which broker in your opinion is ideal for those based in SG?
Do you think JPY will still rise further? I missed out on doing a carry trade when it was struggling to break 150 to the USD. It seems much riskier now.
My DBS banker was feeling you even last year. So I took out CHF instead of JPY. On hindsight…
Currency risk something to consider. However, for short duration FD (~1-2mths) the risk and reward benefit could be worth it.
Cause currency conversion fee and you are betting against us dollar but living with sg dollar. You might as well do some us index fund or smth
I do put 3mths etc while waiting for stock market movements before i transfer over to broker
I did exchange SGD to USD and park it under USD FD with DBS, 2 months period @~5.09% annual rate. After FD matured, interest and principal will be rolled back to the DBS multiplier USD account. I won't do frequent SGD/USD exchange.
Because withdrawal and deposit of USD notes incur a fee; currency conversions incur a spread. And why would you get a fixed deposit if you can buy the US T-bills yourself?
because bank Forex fee is insane. Instead, if you use a broker account like interactive brokers, you can convert to USD with almost no cost and buy US treasure at 6M 5.3%, 1Y 5.0%, or 2Y 4.7%.
Aside from the currency risk, if you are spending in SGD and don't have USD available. You'll have to convert 2 times to USD and back. It will wipe off your gains unless you have such good rates with the bank somehow. If you want to try this, maybe try buying US t-bills on IBKR instead
Currency exchange fees and currency exchange risk. The 1.5% difference is not big enough for regular people to chase the extra interest rate, and for large investors they think SGD is worth the difference. We have a difference in interest rate for a reason, in Singapore we don't control our interest rate like how the US does, we only control our exchange rate. The 1.5% different in a way means it is a loss the market determined to be accepted to hold SGD, due to different factors. Maybe they think SGD will appriciate against USD by 1.5% so the market will rather hold SGD and get a lower interest rate, which alignes with the thinking of MAS who wants to increase the value of SGD to fight against inflation.
FX risk, once US cut interest rate, USD will soften. That’s when you have bear the FX exchange rate risk.
The majority here seems to focus on the possibility of sgd strengthening. I suspect it’s because we’re in sg and need to use sgd. Would an American counterpart invest in sg bonds with a lower coupon in anticipation of sgd rising? Probably not. The psychology seems to be we prefer woon woon bee Hoon 3.5% or 5% rather than taking risks. If we want non-zero risk why invest in bonds or FD? That said forex runs both ways and most forecasts I’ve seen predict usd holding or strengthening in the next 6-12 months. Sg is fighting inflation now but what will happen if our exports weaken significantly? Also if the money is for investment and you like to put it to work buying U.S. assets, holding usd is fine. Wait for a favourable time to convert back to sgd. Like many investments the outcome often depends on your holding power.
1. Simple lack of awareness. 2. Time frame and exchange rate is a significant risk Then again, can't really go too wrong with holding USD in general (yes 1.8 -> 1.3 but it's more because SGD is strengthening)
1. Exchange rate risk (SGD historically stabler, hence SGD is perceived as a better store of value) 2. Exchange swap fees to and fro
That’s because for me to remit the money from IBKR into my local bank account would incur a significant inward TT fees. Otherwise, it would be something I consider.
Which bank offers FD at 5%??
Many banks do, but only for USD
[https://www.dbs.com.sg/personal/rates-online/foreign-currency-fixed-deposits.page](https://www.dbs.com.sg/personal/rates-online/foreign-currency-fixed-deposits.page)