As global asset manager advocates shift toward fixed income, local investors face unique considerations in Asia’s financial hub
By [Analysis] | February 7, 2026
When Vanguard’s Chief Investment Officer Gregory Davis suggested investors might want to allocate more than half their portfolios to bonds—potentially inverting the classic 60/40 stock-bond split—it marked a watershed moment in investment thinking. For Singapore investors, this shift carries particular significance given the city-state’s unique position at the intersection of Eastern and Western capital markets, its aging demographics, and its distinct regulatory and tax environment.
Understanding Vanguard’s Thesis
Davis’s argument rests on a straightforward but profound observation: for the first time in nearly a decade, bonds offer meaningful real yields. With the US 10-year Treasury yielding 4.2% and inflation moderating, fixed income has regained its traditional role as a legitimate alternative to equities rather than merely a portfolio stabilizer.
The broader context amplifies this appeal. Vanguard forecasts mid-single-digit returns for US equities over the next decade, a dramatic deceleration from the approximately 90% gain the S&P 500 has delivered since October 2022. Goldman Sachs issued similar projections a year earlier. The culprit? Elevated valuations that leave little room for multiple expansion, combined with uncertainty about whether artificial intelligence investments will generate returns justifying current stock prices.
This creates an unusual convergence: bond yields offering certainty approaching equity return expectations that remain highly uncertain.
Singapore’s Distinct Investment Landscape
Singapore investors operate within a framework that differs materially from their American counterparts, creating both opportunities and complications when implementing Vanguard’s recommendation.
The CPF Conundrum
Singapore’s Central Provident Fund system already provides substantial fixed-income exposure for most citizens. CPF Ordinary Account balances earn 2.5% annually, while Special and MediSave accounts earn 4.08% on the first SGD 60,000 (rising to SGD 70,000 for those over 55). These are risk-free, government-guaranteed returns.
For Singaporeans with substantial CPF balances, the practical question becomes whether additional bond exposure makes sense. A 40-year-old Singaporean with SGD 200,000 in CPF already has significant fixed-income allocation earning competitive yields. Adding corporate or government bonds to their Supplementary Retirement Scheme (SRS) or personal investment accounts might represent over-concentration in fixed income, particularly for those in their wealth accumulation phase.
Conversely, high-net-worth individuals who have maximized CPF contributions and maintain substantial assets outside the CPF system might find Vanguard’s advice more directly applicable, provided they account for their implicit CPF bond allocation when calculating overall portfolio weights.
Currency Considerations
Singaporean investors face a fundamental choice largely absent for American investors: currency denomination of bond holdings.
Singapore Government Securities (SGS) offer domestic currency stability but currently yield approximately 2.8% for 10-year bonds, substantially below US Treasuries. For investors whose liabilities are SGD-denominated—retirement spending in Singapore, children’s local education costs, property maintenance—SGS bonds eliminate currency risk but sacrifice yield.
US Treasuries provide the 4.2% yield Vanguard highlights, but introduce USD/SGD exchange rate risk. The Singapore dollar has appreciated roughly 15% against the US dollar over the past decade, though with considerable volatility. An investor purchasing US bonds gains higher nominal yield but risks currency losses that could eliminate or even reverse real returns.
Asian bonds present a middle path. Singapore dollar-denominated corporate bonds from quality issuers like DBS, OCBC, or Singtel offer yields between SGS and US Treasuries, typically in the 3.0-3.8% range for 5-10 year maturities. These provide higher yields than government bonds while eliminating currency risk, though introducing credit risk.
The optimal approach likely involves diversification across currencies reflecting an investor’s liability profile, but this complexity illustrates why Vanguard’s US-centric advice requires thoughtful adaptation for Singapore portfolios.
Tax Efficiency
Singapore’s tax environment fundamentally alters bond versus equity arithmetic compared to the United States.
Singapore does not tax capital gains or dividends at the individual level. This creates parity between equity appreciation and bond interest that doesn’t exist in many Western markets. For US investors, qualified dividends receive preferential tax treatment relative to bond interest; no such distinction exists for Singaporeans.
However, withholding taxes complicate matters. US-domiciled bonds held by Singapore investors may face withholding tax on interest payments, though the US-Singapore tax treaty provides relief. The Singapore-US tax treaty generally exempts portfolio interest from US withholding tax, but investors must ensure proper documentation. Dividend withholding tax on US stocks is 30%, reduced to 15% under the treaty for those who file Form W-8BEN.
For bonds, this tax efficiency might marginally favor Singapore-based fixed income over foreign alternatives, all else equal.
Regional Economic Dynamics
Singapore’s economy, while globally integrated, shows distinct characteristics that inform asset allocation decisions.
The China Factor
Singapore’s economic fortunes remain substantially linked to China despite diversification efforts. Chinese growth slowdowns, property market stress, or geopolitical tensions ripple through Singapore’s financial sector, trade volumes, and ultimately corporate profitability.
If China’s economy faces extended difficulties—a scenario various analysts consider plausible given demographic decline, debt burdens, and US technological restrictions—Singapore equities might underperform even as regional bonds provide stability. The Straits Times Index includes substantial exposure to banks with Chinese loan books and companies dependent on regional trade flows.
This regional exposure suggests Singapore investors might benefit even more than their Western counterparts from the defensive characteristics Vanguard emphasizes in bond allocations.
Interest Rate Divergence
The Monetary Authority of Singapore conducts policy through exchange rate management rather than interest rate targeting, creating potential divergence between Singapore and US rate cycles. While global rates often move together, the Fed’s trajectory—gradual cuts expected in 2026 unless inflation or employment surprises—may not precisely mirror MAS policy adjustments.
If the MAS maintains a strong Singapore dollar policy while the Fed cuts rates, SGD appreciation could enhance returns for Singapore-based investors holding local currency bonds while reducing USD-denominated returns. This path dependency means timing and currency allocation decisions carry amplified importance.
Demographic Imperatives
Singapore faces rapid population aging. The proportion of residents aged 65 and above is projected to reach 25% by 2030, up from approximately 19% currently. This demographic shift carries direct implications for bond allocation.
Pre-retirees and retirees constitute a growing segment of Singapore’s investor base, and their need for capital preservation and income generation aligns precisely with Vanguard’s thesis. For a 60-year-old Singaporean with SGD 2 million in investable assets outside CPF, a 50-60% bond allocation generating 3-4% yield provides SGD 30,000-48,000 in annual income with substantially lower volatility than equity-heavy portfolios.
Younger investors face different calculus. A 30-year-old professional with a 35-year investment horizon can theoretically withstand equity volatility and might sacrifice long-term returns by over-allocating to bonds during wealth accumulation years, even if near-term equity returns disappoint.
However, the behavioral dimension merits consideration. The 2022 bear market saw both stocks and bonds decline simultaneously, triggering panic selling from investors unprepared for such correlation. If higher bond allocations help investors maintain discipline during equity drawdowns rather than capitulating at bottoms, the behavioral benefit might outweigh the opportunity cost of lower expected returns.
Inflation Dynamics and Real Returns
Vanguard’s emphasis on real yields resonates particularly in Singapore’s current environment. Singapore’s inflation, while moderating from 2022-2023 peaks, remains sensitive to imported price pressures given the city-state’s dependence on foreign goods, food, and energy.
Recent inflation readings show Singapore’s core inflation at approximately 2.3-2.5%, down from highs above 5% in 2022. With SGS 10-year bonds yielding around 2.8%, real yields are barely positive at 0.3-0.5%. US Treasuries at 4.2% against US inflation of roughly 2.5-2.8% offer superior real yields of approximately 1.4-1.7%, but currency risk complicates the comparison.
For Singapore investors convinced the SGD will appreciate against the USD—a view supported by Singapore’s current account surpluses and prudent fiscal management—the lower nominal yield on SGS bonds might prove adequate. For those less certain about currency trajectories, currency-hedged US or global bond exposure presents an alternative, albeit with hedging costs that reduce effective yields.
Implementation Challenges
Translating Vanguard’s recommendation into Singapore portfolios involves practical obstacles.
Access and Liquidity
Singapore investors can access bonds through several channels: direct purchases of SGS bonds via ATMs or banks, corporate bond offerings through private banks, bond funds and ETFs, or offshore bonds through international brokerages.
Each approach involves tradeoffs. Direct SGS purchases provide simplicity and zero credit risk but limit diversification and may require holding to maturity to avoid transaction costs. Bond funds offer diversification and liquidity but charge management fees typically ranging from 0.3% to 0.8% annually, eroding the real yield advantage Vanguard emphasizes. ETFs like the Nikko AM SGD Investment Grade Corporate Bond ETF or ABF Singapore Bond Index Fund provide middle-ground solutions with fees around 0.25-0.35%.
Minimum Investment Requirements
Singapore’s corporate bond market often requires minimum investments of SGD 200,000-250,000 for individual bonds, limiting accessibility for average investors. This contrasts with US Treasury markets where investors can purchase bonds in small increments. For Singaporeans with moderate wealth, bond funds or ETFs may be the only practical diversification vehicle, necessitating acceptance of fund fees and removing the certainty of holding to maturity.
Knowledge Gaps
Many Singapore retail investors lack familiarity with bond mechanics—duration, convexity, credit spreads, call provisions. The historical equity bull market meant bonds received limited attention in investment education. Implementing higher bond allocations without understanding how bonds respond to rate changes, credit events, or inflation shocks risks disappointment or poorly timed decisions.
Alternative Perspectives
Vanguard’s view, while influential, represents one position in ongoing debate about asset allocation.
Equity bulls argue that AI-driven productivity gains could generate returns exceeding current expectations, validating today’s valuations. If artificial intelligence proves as transformative as optimists suggest, the next decade’s equity returns might resemble the past decade’s rather than the mean-reversion scenario Vanguard envisions. Singapore investors with exposure to technology supply chains through semiconductor or electronics manufacturing companies might benefit disproportionately from such outcomes.
Multi-asset strategists note that private markets, real assets, and alternative investments now constitute legitimate portfolio components rather than exotic additions. For sophisticated Singapore investors, private equity, private credit, or real estate investment trusts might offer return enhancement or diversification benefits that simple stock-bond allocation overlooks.
Lifecycle advocates emphasize that no single allocation suits all investors. Human capital, risk tolerance, liability profiles, and behavioral tendencies all inform optimal portfolios in ways that market forecasts alone cannot determine.
Sector-Specific Implications
Certain sectors of Singapore’s economy face distinct impacts from a broad shift toward bond allocations.
Banking Sector
Singapore’s three major banks—DBS, OCBC, and UOB—benefit from higher interest rate environments through expanded net interest margins. However, if substantial capital flows from equities to bonds, bank stock valuations might face pressure even as their fundamental earnings remain solid. These banks also issue substantial volumes of bonds themselves; increased investor appetite for fixed income could reduce their borrowing costs.
Real Estate
Singapore REITs, popular among income-seeking investors, compete directly with bonds for yield-oriented capital. With distribution yields on Singapore REITs averaging 5-6%, they currently offer premiums over bonds, but with higher volatility and sector-specific risks including property market cycles and refinancing risk in a higher-rate environment. A rotation toward bonds could pressure REIT prices, potentially widening yield spreads and eventually creating value opportunities.
Wealth Management
Private banks and wealth managers targeting Singapore’s high-net-worth segment will likely adjust product offerings and advice frameworks if institutional consensus shifts toward higher bond allocations. This could accelerate structured product offerings combining equity upside participation with bond-like downside protection, or expansion of separately managed fixed income accounts catering to tax-optimized, customized bond portfolios.
Geopolitical Risk Dimensions
The article mentions “remote possibilities” of risks to US Treasury markets from political interference with Federal Reserve independence or fiscal sustainability concerns. For Singapore investors, these tail risks warrant closer examination.
Singapore maintains substantial foreign reserves, reportedly exceeding USD 400 billion, with significant US Treasury holdings. If confidence in US fiscal sustainability eroded materially, Singapore as a nation would face challenges, but individual investors might find refuge in Singapore dollar assets backed by the city-state’s pristine balance sheet and AAA credit rating from all major agencies.
Geopolitical fragmentation between the US and China creates separate considerations. Singapore’s position requires balancing relationships with both powers. Chinese asset market volatility or US-China financial decoupling could elevate the appeal of Singapore-domiciled bonds as a neutral, stable alternative to both US and Chinese markets.
Practical Portfolio Construction
For Singapore investors convinced by Vanguard’s thesis, implementation might follow several models.
Conservative approach (suitable for pre-retirees, retirees, or cautious investors):
- 25% Singapore Government Securities (eliminating credit and currency risk)
- 25% Singapore dollar corporate bonds or bond funds (modest yield pickup, no currency risk, limited credit risk)
- 15% Currency-hedged global aggregate bond exposure (geographic diversification)
- 25% Singapore equities (maintaining local market participation, dividend income)
- 10% Regional Asian equities (growth exposure, regional diversification)
This 65% bond, 35% equity split exceeds even Vanguard’s suggestion but might suit risk-averse investors or those with substantial CPF balances representing additional fixed income.
Moderate approach (suitable for mid-career professionals):
- 15% Singapore Government Securities
- 20% Singapore dollar corporate bonds
- 15% Global aggregate bond funds (unhedged or partially hedged)
- 35% Singapore equities
- 15% Global equities
This 50% bond, 50% equity allocation represents the inversion of traditional 60/40, implementing Vanguard’s core recommendation while maintaining meaningful growth exposure.
Growth-oriented approach (suitable for younger investors or higher risk tolerance):
- 10% Singapore Government Securities
- 15% Corporate bond funds
- 15% High-yield or emerging market bonds (accepting higher risk for higher yield)
- 40% Singapore equities
- 20% Global equities
This 40% bond, 60% equity split remains equity-tilted but incorporates substantially more fixed income than many young investors currently hold, providing downside protection while maintaining growth orientation.
All approaches should account for existing CPF balances when calculating total portfolio allocation. An investor with SGD 300,000 in CPF and SGD 300,000 in personal investments has a total portfolio where CPF’s implicit fixed income allocation already represents 50% before any personal bond purchases.
Looking Ahead
Vanguard’s call for increased bond allocations represents more than market timing; it signals a potential regime shift after 15 years of financial repression and equity market dominance.
For Singapore investors, the message requires translation rather than direct application. Currency considerations, CPF’s role, regional economic linkages, and tax efficiency all modify the implementation calculus. Yet the underlying principle—that bonds have regained legitimacy as core holdings offering competitive risk-adjusted returns—applies with equal force in Singapore as in New York.
The key insight is not that every investor should immediately rebalance to 50% or 60% bonds, but rather that bonds deserve reconsideration after a long period where they offered minimal real returns. For many Singapore investors, particularly those approaching or in retirement, higher bond allocations aligned with liability profiles and risk tolerance likely make sense. For younger investors, the case is less clear-cut, but even they might benefit from modest increases in fixed income exposure to improve portfolio resilience.
The next decade may not resemble the last. If Vanguard’s forecasts prove accurate, investors who maintain historical equity-heavy allocations based on rear-view-mirror expectations could face disappointing returns and elevated volatility. Those who thoughtfully increase bond exposure, calibrated to their circumstances and Singapore’s unique investment landscape, may find themselves better positioned for the environment ahead.
As with all investment decisions, no single answer suits everyone. But Vanguard’s message is clear: the assumption that bonds are merely portfolio ballast offering minimal returns no longer holds. In Singapore, as globally, the case for bonds deserves a fresh hearing.
write story
Feb 7
The Rebalancing
A short story
Marcus Tan had been staring at the same spreadsheet for twenty minutes when his phone buzzed. Another notification from his brokerage app. Down 2.3% today. Down 4.1% this week. He swiped it away without opening it.
“Still watching those numbers?”
He looked up to find his wife Elena leaning against the doorframe of his home office, arms crossed, wearing the expression she reserved for when he was being what she called “financially obsessive.”
“Just checking.” He minimized the window. “How was your day?”
“Don’t change the subject.” She walked in, peering over his shoulder at the monitor. “You’ve been stressed about this all week. Maybe it’s time to talk to someone who actually knows what they’re doing.”
“I know what I’m doing,” Marcus said, hearing the defensiveness in his own voice. “I’ve been investing for fifteen years.”
“Exactly. Fifteen years of the best bull market in history. Even I made money, and I barely pay attention.” Elena pulled up a chair. “When was the last time you actually had to make a hard decision? Not just buying more of the same thing?”
He wanted to argue, but she had a point. Since he’d started investing seriously in his late twenties—he was forty-three now—the strategy had been simple: buy index funds, add money every month, ignore the noise. It had worked beautifully. Their portfolio had grown from almost nothing to nearly two million SGD, split between their SRS accounts, personal investment accounts, and the CPF balances that had compounded quietly in the background.
But something felt different now. The notifications came more frequently, the swings wider. And then yesterday, his uncle had forwarded him that article about Vanguard telling people to buy more bonds. Bonds. When was the last time anyone had gotten excited about bonds?
“Maybe you’re right,” he admitted. “I’ll call Uncle Seng.”
Seng Tan had worked in private wealth management for thirty years before retiring at sixty-five. Now seventy-two, he spent his days playing golf, managing his own portfolio, and occasionally dispensing financial wisdom to family members who asked. Marcus had been asking more frequently lately.
They met for coffee at a kopitiam near Seng’s Tiong Bahru flat. The older man arrived first, already working through a kopi-o and a copy of the Business Times.
“You look tired,” Seng said as Marcus sat down.
“Not sleeping well.”
“The markets?”
Marcus nodded. “I keep thinking I should do something, but I don’t know what. Everyone says stocks are expensive, but they’ve been expensive for years and they just kept going up. Now I’m wondering if this is finally the top, or if I’m just being emotional because we had a bad week.”
Seng folded his newspaper carefully. “What’s your allocation now?”
“About 85% stocks, 15% bonds. The bonds are mostly from years ago when I didn’t know better. Everything I’ve added recently has gone into equities.”
“And your CPF?”
“About four hundred thousand between both of us. Almost all in OA and SA, earning the guaranteed rates.”
Seng pulled out a small notebook—he still preferred paper—and did some quick calculations. “So your total portfolio, including CPF, is about 2.4 million. That means CPF is roughly 17% of your total, call it quasi-fixed income. Your actual investable assets are 85% equities. You’re young enough that this isn’t crazy, but…”
“But?”
“But when was the last time you asked yourself what you’re investing for?” Seng looked at him directly. “Not what returns you want. What do you actually need this money to do?”
Marcus hadn’t expected the question. “Retirement, I guess? Financial security? Maybe stop working earlier if we can?”
“How much earlier?”
“I don’t know. Ten years? I’m forty-three. Maybe retire at fifty-five instead of sixty-five?”
Seng made another note. “So twelve years. And what happens at fifty-five?”
“We… live off our investments?”
“Doing what? Traveling? Staying in Singapore? How much do you spend now?”
Marcus realized he didn’t have good answers. He knew their monthly expenses roughly—maybe eight to ten thousand SGD—but he’d never actually calculated what retirement would cost, what returns they’d need, what risks they could afford.
“I see,” Seng said quietly. “You’ve been investing like you’re playing a game. Score goes up, you feel good. Score goes down, you feel bad. But you haven’t connected it to your actual life.”
The words stung because they were true.
“Here’s what I’ll tell you,” Seng continued. “That Vanguard article your uncle forwarded—I read it too. They’re not saying bonds are suddenly amazing. They’re saying bonds are finally reasonable again, and stocks are expensive enough that maybe you don’t get rewarded for the extra risk anymore. At least not for the next five or ten years.”
“So you think I should sell stocks and buy bonds?”
“I think you should figure out what you need, and then build a portfolio that gives you the best chance of getting it without losing sleep.” Seng finished his coffee. “Let me ask you something. If the market drops thirty percent next year, do you keep your job?”
“Probably. Maybe. Banking is unpredictable, but I’m senior enough.”
“And if you keep your job, can you keep adding to your investments?”
“Yes.”
“Then a market drop is a buying opportunity. You should be cheering for it.” Seng smiled at Marcus’s expression. “But you won’t cheer. You’ll panic, because you’ve never been through a real bear market as an adult with serious money. The 2022 drawdown barely lasted. The COVID crash bounced back in months. You’ve never had to watch your portfolio cut in half and stay there for years.”
“So what do I do?”
“You build a portfolio you can live with. Maybe that’s seventy percent stocks, maybe it’s sixty, maybe it’s fifty. The right number isn’t what gets the best returns in a spreadsheet. It’s what lets you sleep at night and stick to the plan when things get ugly.”
That night, Marcus sat down with Elena and actually talked through the numbers. When did they want to retire? What would they spend? What did they want to do?
Elena surprised him. “I don’t want to retire at fifty-five,” she said. “I like my work. But I want the option to stop if it becomes miserable. That’s different.”
“Okay. So we need enough to retire at fifty-five, but we might not actually do it?”
“Right. And I want to travel more while we’re still healthy. Not wait until we’re seventy and our knees hurt.”
They talked until past midnight, and by the end, Marcus had filled several pages of his own notebook. They didn’t need maximum returns. They needed enough returns to hit their goals, with enough safety that they wouldn’t panic and make stupid decisions during downturns.
The next morning, he called Seng again.
“I think I want to move to maybe sixty percent stocks, forty percent bonds,” Marcus said. “Does that sound crazy?”
“For someone your age? Conventional wisdom says yes. But conventional wisdom assumes you’ll stay disciplined in a crash. Will you?”
“I don’t know. Honestly, probably not.”
“Then sixty-forty sounds about right. You’re paying an insurance premium—giving up some upside in exchange for being able to stick with it when times get tough. That’s not crazy. That’s self-awareness.”
“What about the bonds themselves? SGS yields are terrible compared to US Treasuries.”
“Depends what you’re optimizing for. US Treasuries give you better yields but currency risk. If the SGD appreciates, you lose money even if you collect your interest. SGS gives you certainty in your home currency, which matters if you’re spending in SGD.”
“So mix both?”
“I would. Maybe half in SGS, quarter in Singapore corporate bonds from banks you trust, quarter in a global bond fund. You get diversification, decent yield, mostly SGD stability. You won’t maximize returns, but you’re not trying to maximize returns anymore. You’re trying to build a machine that reliably gets you to your goals.”
Marcus spent the next two weeks executing the rebalance. It felt strange selling stocks that had made him money for years. Several times he hesitated, wondering if he was making a mistake, if he was selling at the wrong time, if he was letting fear drive decisions.
But each time he hesitated, he looked at the plan he and Elena had written out. The goals were clear now. The numbers were specific. And the portfolio he was building was designed for those goals, not for impressing himself with returns.
He bought SGS bonds when they came available, even though the 2.8% yield felt paltry compared to what stocks had delivered. He bought corporate bonds from DBS and OCBC, getting yields closer to 3.5%. He bought a global aggregate bond fund, accepting the currency risk in exchange for diversification.
When he finished, his allocation sat at 58% stocks, 42% bonds—close enough to his target. Including CPF, he was roughly fifty-fifty stocks and fixed income.
“How do you feel?” Elena asked when he showed her the final numbers.
He thought about it. “Weird. Like I’m not trying hard enough. Like I’m settling.”
“Or like you’re growing up?”
He laughed despite himself. “Maybe.”
Three months later, the market dropped sharply. Trade tensions, earnings disappointments, something about the Fed—Marcus barely paid attention to the reasons anymore. His portfolio dropped 8% in a week.
He opened his brokerage app, saw the red numbers, and waited for the familiar anxiety to spike. But it didn’t come, not like before. The bonds had actually gone up slightly as stocks fell, cushioning the blow. His total portfolio was down maybe 4%, uncomfortable but not catastrophic.
More importantly, he’d run the numbers months ago. He knew that even if stocks fell thirty percent from here, he’d still be on track for his goals. Not comfortably, but on track. The bonds gave him time, gave him flexibility, gave him the ability to wait out the storm rather than panic.
He closed the app and went to dinner with Elena. They’d booked a trip to Kyoto for next month—the kind of thing they used to put off because it felt irresponsible to spend money they could invest.
“Everything okay?” Elena asked over ramen.
“Yeah,” Marcus said, and meant it. “Everything’s fine.”
Seng called a week later. “I saw the market dropped. Wanted to check on you.”
“I’m okay. The bonds helped.”
“That’s what they’re for. Not to make you rich, to keep you sane.” Seng paused. “You know what the real benefit is? Not the returns. It’s that you can stop checking your phone every five minutes because you’re not so exposed that every movement matters. You’ve bought yourself peace of mind. That’s worth more than another point of return.”
After they hung up, Marcus looked at his spreadsheet one more time. The projected returns were lower than when he’d been all-stocks. But the projected outcomes—retiring at fifty-five, or sixty, or whenever they chose; traveling while they were healthy; having options instead of obligations—those were all still there, just more certain now, more real.
He’d spent fifteen years chasing returns. Maybe it was time to start chasing the life those returns were supposed to enable.
He closed the laptop and went to find Elena. They had plans to make, but for once, they had nothing to do with the market.