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"E-book" by AK

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What would I do if I had $750,000 to start investing?

Tuesday, February 24, 2015

By now, I have almost 2,500 blog posts here in ASSI and most of them are about personal finance and investments although not all of them are related to investing in stocks.

Sometimes, I worry if I am sending the right messages to readers and I am actually quite happy, even grateful, when readers write to me to clarify their doubts. I try to do a good job in communication but there will be times I can do better.




I received a letter recently from a reader which sent alarm bells ringing in my head:

Dear AK

Thank you very much for sharing your knowledge because i am learning a lot from it.

I am considering investing Saizen Reit which yield 7-8% p.a. If i do my mathematics right, i will need 750'000 to yield $5000 per month to support our family household expenses.

Correct me if i am wrong.

If i have $750'000 cash to invest into Saizen Reit, wouldnt it be better investing the money elsewhere. My question is would you invest $750'000 all into Saizen Reit to give you passive income $5000 per month.

Please forgive my ignorance.

Regards
B





My reply:


Hi B,

Welcome to my blog. :)

You will have to understand a couple of things:

1. Investing in a REIT is not like locking money in a fixed deposit. So, you shouldn't be looking at yield and yield only. It is more than that.

2. Putting all your money in a single investment to have the income it generates cover all your household expenses exposes you to concentration risks.

If I had $750,000 to start investing with, I wouldn't put all of it into Saizen REIT or any one single investment. I wouldn't be fully invested either.

Without knowing more, I cannot say what I would do in your shoes but although my own investment in Saizen REIT is a significant part of my investment portfolio, it is not my entire portfolio.

Best wishes,
AK



If you have anything to share, please do so by leaving a comment below. Thank you.

Note: As usual, please, do not advertise your products and services in the comments section.

Related posts:
1. How to have peace of mind investing?
2. Income investing and position sizing.
3. Saizen REIT: Is the DPU sustainable?

13 comments:

Rebel said...

Sends chills down my peasant body . . .

AK71 said...

Hi Rebel,

Haha... Having a peasant mentality towards wealth building isn't a bad thing, really. ;p

We might not appreciate the finer things in life but we can find joy in the smaller things in life. ;)

Solace said...

Nothing much to add on for AK suggestions.

A lot has to do with asset allocation. If I am presented with $750k of money, I might do the following:

1. Allocate a portion to Max up CPF to minimum sum (via SA top up or VC) over the years.
2. Hold about 10 different dividends yielding stock ( I presume reader is interested in dividend stock based on letters, 10 stocks is comfortable for me, subject to individual preference)
3. Signed up for a term insurance that provide coverage up to 1 millions.
4. Allocate about 30% as war chest or opportunity funds
5. Give back to society (jubilee year budget allow more tax relief when contribute to charity)

AK71 said...

Hi Solace,

Good to hear from you, as always. :D

Very sound and responsible suggestions. Thumbs up! :)

seefei said...

good post and sound advice from solace. need to put aside some cash for right issue as well... :-)

AK71 said...

Hi seefei,

That will be part of my war chest, I guess. ;p

Siew Mun said...

Save some money in SRS which the ceiling increased to $15,300 in 2016.

Sunny said...

Hi, AK

Just for my acknodge purpose, can I use my cpf SA to buy STI ETF or similar fund? And how to do it? Tks fit sharing

Sunny

AK71 said...

Hi Sunny,

I am pretty sure someone asked the same question recently. Anyway, nope, cannot use funds in the CPF-SA to buy into any ETFs. You might want to check with the CPF Board to be sure though. :)

bubba gump said...

hi AK,
great post again. would you be considering adding positions to Saizen?

Also could your crystal ball suggest what could be the major factors for the continual price weakness of saizen?

AK71 said...

Hi bubba gump,

My average price is probably about 65c a unit and my investment in Saizen REIT is relatively big, accounting for about 10% to 15% of my portfolio. It is one of my top 3 investments in S-REITs.

Unless its unit price should decline drastically, there is no reason or incentive for me to increase exposure to the REIT. :)

The JPY could continue declining and this would impact DPU in S$ terms. This could exert a downward pressure on Saizen REIT's unit price.

There is another argument for investing in Saizen REIT and that is how undervalued it is, trading at a big discount to NAV. However, the question is whether this value could be unlocked? I blogged about this before:
Saizen REIT: Sell the entire portfolio?

So, question our motivations for thinking of investing in the REIT and ask if we have the stomach for it before jumping into it. Ask if we have a margin of safety buying at the current price.

LOL said...

Hi AK!

I have a question regarding REIT which I hope you can help me with. Let's say the annual NPI of a REIT is 200 million and after going through an AEI, it increases by 10 million. Will I be able to estimate the future dividend payout?

Sorry for asking such a simple question!

AK71 said...

Hi LOL,

If you have the other bits of information that might affect DPU, yes, you can estimate future DPUs. I cannot give you an answer clearer than this because it depends on various components which might or might not be present. Must look at this case by case.

However, we can look at a couple of imaginary cases. The simplest case would be a $200M income increased to $210M and nothing else changed. So, future DPU should improve 5%.

What if the REIT did a placement to raise funds for the AEI? In such an instance, we would have to find out how many more units are there to share the higher income. Still, it is predictable.

Hope this helps. :)

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