14 September, 2018

Hedging My Investments with SSB

I have started to hedge my investments by selling Bumitama Agri to park into the “risk-free yielding” Singapore Saving Bonds (SSB) and getting some exposure to gold.

The thought of hedging came as well after Wall Street reached its longest bull run history. Despite on-going positive GDP growths, unknowns can be dug out anytime and public investors like us will likely be caught off guard. Unless one can be confident that such warnings will be revealed to them in their life or profession before things happen, the overall risk is not really worth it.

The current question in our minds during volatile times must be: should we sell all our investments now and take on lesser pain? (rather than greater pain of major corrections) While there is nothing wrong to do so even at a minor loss, it is not exactly what many will define as “long-term investing”.

Instead of selling, we can turn to hedging. Hedging can come in many forms but it is a double-edge sword. It can either buffer our losses or amplify our pain through deepened losses / opportunity costs (eg. using SSB which has zero price appreciation as compared to stocks).

I am looking at the following hedges:

Although most gold companies or funds do not pay dividends, it is an obvious hedge tool to many.
Copper is the Boon or Boom measure. Gold is the Doom measure. When it is all gloomy and doom, gold prices will move in the opposite direction of the general market.
Some gold ETFs available are:

-GLD US$ (SGX: O87)
-SPDR Gold Shares (NYSEArca: GLD)

Dividend Paying Companies
During down times, dividends are not only bonuses given to us for staying vested.
At the last resort, we can sacrifice our investments using the dividends already realized.

As an example, I am currently losing $500 on each 1000 shares of Singtel.
Till date, I have already received more than $500 worth of dividends from my whole Singtel investment.
If there is really the need to sell partially now, it is a use of realized dividends as a sacrifice.

Another option is to invest in dividend paying companies with some gold exposure. This is hedging in one investment in itself. Some mining companies are:

-OZ Minerals Limited (ASX: OZL)
-Glencore PLC (LON: GLEN)

Pharma or defensive stocks are also "hedges". When the general market is in a correction, we can tell how defensive the pharma companies are from their downside deterrence.

Singapore Saving Bonds (SSB)
For risk-free products, we can turn to the popular SSB which rewards us interest every year at “no risks” and with no price fluctuations. I have signed up for October’18 SSB with an average of 2.42% annual interest over the span of 10 years. At this rate, it is higher than most interest yielding deposits out there without the obligation to perform any transactions. The money parked in SSB will be deployed during negative times when the stock market becomes a better alternative.

While tariffs are implemented on China, there has been increased volume of shipments diverted to other ports such as Canada before shipping them to USA to evade them. UK may resort to voting for Brexit. Continual rising interest rates by the Feds. I am not sure if any the events ever reported in the news or something hidden from us will spark the next recession.

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