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1M50 CPF millionaire in 2021!

Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...

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Did you miss some stuff AK shared on Facebook in July?

Friday, August 7, 2015

I don't blog as much as I used to but I am actually still quite active in Facebook.

As I started being active in Facebook pretty late as a blogger, I think many of ASSI's readers don't follow me on Facebook. They probably use other means to follow my blog. After all, I have been blogging for almost 6 years but I have been active in Facebook for only about 2 years.

So, from now, I think I will try to share periodically in my blog what I share on my Facebook wall. However, if you think you might get to read something profound, you would probably be disappointed.

The stuff which I post on my Facebook wall which don't appear in my blog are usually nothing cerebral. They are just stuff for fun and laughter most of the time.

See for yourself:












AK is honest, isn't he? ;p

Oh, a bonus pic, from a few days ago:




In case you didn't get the joke, read this:
http://www.channelnewsasia.com/news/singapore/breadtalk-temporarily/2028008.html
BreadTalk on Tuesday (Aug 4) said it has “temporarily stopped selling” bottled soya bean milk touted to be "freshly prepared" after an employee was caught repackaging ready-made soya bean milk into plastic bottles. The move comes after a photograph published by alternative news site Redwire Times sparked a firestorm online. “This ‘freshly prepared’ soya bean milk from BreadTalk always tasted very familiar, but somehow I couldn’t figure out why until now...
Hope you enjoyed this light hearted blog post.

HAPPY SG50. :)

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2. How to recession proof your life?
3. Green is not just the colour of money.

NeraTel: 2Q2015 and an interim DPS of 2.5c.

Thursday, August 6, 2015

In my last blog post on NeraTel, I cautioned against judging the business based on quarterly results because annualising any one quarter's results would not give an accurate picture of business performance. I made the remark based on what I remember the CEO said in an interview:

"In an interview that NeraTel's CEO, Samuel Ang, gave to The EDGE, some time ago, he said that it is important to remember that revenue recognition could be lumpy because NeraTel is generally a project based business." 


NeraTel has announced an interim dividend per share (DPS) of 2.5c on the back of rather encouraging results for 2Q 2015, quite different from the rather gloomy numbers in the preceding quarter.

Revenue for 1H2015 ($90.5m) improved some 7.2% over 1H2014 ($84.4m).




Although the numbers are encouraging, it is only fair to say that NeraTel is still faced with challenges which are forcing them to accept lower margins.

Note that gross profit margin reduced from 35.1% to 33.1%, although it is still above 30% which is pretty good for any business. At the end of the day, NeraTel is still a profitable business although profit after tax reduced 13.1% for the first 6 months of the year, year on year.

NeraTel has plenty of cash which is one of the reasons why it is attractive to income investors. This is also the reason why it is able to pay out 2.5c in interim DPS although its 1H2015 EPS is 1.93c, Part of the dividend payout is, therefore, a return of capital.

Many moons ago, I said that anyone who thought a yearly DPS of 6c for NeraTel was sustainable must have been on drugs. I said that a yearly DPS of 4c was more realistic.




To be quite prudent, however, for anyone who is interested in investing in NeraTel for income today, a DPS assumption of 3c or 3.5c per annum could be a better idea. In such an instance, based on a closing price of 67c a share, we are looking at a dividend yield of 4.48% to 5.22%.

NeraTel, with plenty of cash, low debt and a good track record, remains, for me, a relatively good investment for income. I am quite happy to be paid while I wait. Yes, my bet is on Mr. Samuel Ang bringing his years of experience to bear and delivering better results eventually.


Related posts:
1. NeraTel: Is 1Q2015 a sign of things to come?
2. NeraTel: What is a sustainable dividend payout?

Funding XX% of our retirement with our CPF savings.

A question I get asked pretty often is how much of our retirement could be funded by our CPF savings and I always say that it depends on the kind of lifestyle that we want.

If we would like to have a car, travel and indulge in fine dining, for sure, we are going to need much more than our CPF savings in our golden years. If we are happy with the basic necessities of life, then, our CPF savings could go a long way to providing for our old age.

Whatever our retirement expectations might be, it pays to have an idea as to what our CPF savings might be able to achieve as a percentage of total funding required for our retirement. Then, we can make appropriate plans as to how we might be able to fund the shortfall.

I am going to share an email from a reader detailing his plan on how he is using the CPF to help achieve retirement adequacy and much more.

Now in his 20s, knowing what he wants at retirement, he came up with a target monthly retirement income of $10,000 from age 65. Based on the plan which he is sharing with us here, his CPF savings should account for 20% of retirement funding:


Hi AK,

My 2c: first 60k of combined balances of which up to 20k is from OA. I interpret it as if all 60k comes from SMRA (OA having $0), then first 60k enjoys 4+1% interest.

Anyways glad to see blogs like urs around. Been working for 2+ yrs and had transferred (a month back)/plan to transfer all my OA to SA and do the 7k min sum topup till i hit the future cap (est before i turn 35). My OA has nothing and I'm ok with that as my mthly expenditure is ard $700 :) agree that one shld aim to have annual cpf interest matching/more than covering the increase(s) in MS.

Rgd the medisave int. paying for premiums; was the exact same rationale i told my dad. His interest more than covers premiums and interest from the rest covers the rider (i.e. Pay nothing out of pocket for hospitalisation). He can feel free to pick a better policy (IP) without worrying (until such time when the interest fails to cover, then downgrade). For myself, plan to max out VC MA top ups to annual contribution ceiling ($36720 from 2016) which will also be subjected to the BHS ($49500 at 2016).

Lastly, to enjoy the maximum benefits of interest for top ups, either a) top up 7k at start of year (if u've 7k lying ard) b) top up incrementally near end of mth (interest is given based on lowest balance/mth so topping up at the end mth means lower op cost for lost interest that shld have been accrued on sum).

On a separate note, retirement/financial planning personally is abt attaining a level of passive income pegged to last drawn annual package (not expenditure) as it provides a Very long term goal (if one ever reaches it) and cpf is one component/source of passive income. I wld propose the following weighted sources of passive income based on 10k mthly at 65years: cpf (20%), blue chip stock dividends (50%), srs funds (15%), bonds (10%), unit trusts/funds (15%). Noted that payouts for these sources may not be monthly (DDA for cpf likely will not be 65 for my cohort either haha) as it's used more as a guide. Dont think i'll ever enter full retirement though; nothing to do to pass time!
*cld go on about industry allocation for blue chip stocks but that's another topic altogether :D


Regards,
Longtermplanning
*Wld like to stay anonymous so pls use the above pseudonym thx!




The original intention of the CPF is to help fund our retirement. The reader has shown how he is going to take full advantage of the CPF to do what it is supposed to do.

AK did CPF-OA to CPF-SA transfers for the first 4 years of his working life, providing the magic of compounding a bigger amount to start with. Compounding is magical given more time but it is even more impressive when given a larger amount to start with.

Having said this, all of us have different circumstances. Some might not be able to do OA to SA transfers because they need the OA money to pay their home loans. Some might not have spare cash to do Minimum Sum Top Ups to their SA or Voluntary Contributions to their MA.

Although I am not dogmatic about the CPF, it is reasonable to say that it is about finding what each of us can do to take advantage of the system. If we want it bad enough, we will find a way and usually it starts by being financially prudent.

Related posts:
1. A lot of money in my CPF-SA is...
2. Make CPF a part of your child's savings plan.
3. A lifetime income of more than $2K a month.
4. An annuity: Would you rather have it or not?
5. The best insurance to have in life.

Is Keppel DC REIT an attractive investment for income?

Tuesday, August 4, 2015

I have been asked on various occasions what do I think of Keppel DC REIT and my usual reply was it was still something very new to me. 

I didn't know what to make of it but just looking at the prospective distribution yield was surely the wrong way to value the REIT although as income investors it would be the first thing that drew our attention.

In the latest copy of The EDGE, we would find a well written article on page 27 on Keppel DC REIT. The title is attention grabbing as it included the phrase "solid DPU growth". 

Read the article carefully and we would learn why data centre REITs are so different from other industrial property REITs.

I would draw attention to the following:

"For Keppel DC REIT, depreciable infrastructure accounts for approximately 70% of the development cost, with the building shell accounting for the remaining 30%."

This is an important bit of information, an eye opener, and it is just one line in a full page article. It could be quite easily missed or even dismissed.


Citadel 100. Land lease expiring in 2041.




Even for seasoned income investors in S-REITs, we would think industrial property REITs are just landlords. Buy or develop an industrial property and find a tenant or tenants. 

The tenants do their business while the REIT manages and maintains the property (if the building does not have a Master Tenant) and, of course, collects rent.

When we think of asset value, we think of the value of the buildings a REIT holds. We think mostly of brick and mortar. In the case of a data centre REIT, the asset value is not just the building but significantly the high tech infrastructure in the building. 

Of course, what the high tech infrastructure is exactly will remain Greek to me. I only need to know that it has to do with IT and it is very costly.

By now, most of us would have realised why listing the REIT at a premium to NAV was a very good deal for Keppel T&T. IPO price was 93c a unit while NAV was 86.6c a unit.

For those of us who still don't get it, remember why there is a preference for properties which are freehold instead of properties which are leasehold? It has to do with depreciation. 

Freehold properties (and Keppel DC REIT has 3 of them at IPO), theoretically, do not depreciate.



T25. Land lease expiring in 2021. Option to extend for 30 yrs.






However, if a data centre REIT should own a freehold property, it would also depreciate since "depreciable infrastructure accounts for approximately 70% of the development cost". 

To be able to sell a depreciating asset at a premium to valuation is a wonderful thing. It is like selling a used family car at a premium to market price.



Understanding Keppel DC REIT better now, we want to remember that as a REIT pays out most of its income to unit holders as dividends, it won't be wrong for us to question if the current income distribution from the REIT, all else remaining equal, is sustainable. 

After all, the high tech infrastructure has to be maintained regularly or even replaced periodically. Where is the money going to come from?


We could, of course, argue that because Keppel DC REIT's gearing, post latest acquisition, is 29.9% and, so, it has ample debt headroom to borrow more funds to maintain or replace ageing high tech infrastructure. 

However, if its NAV is formed mostly of depreciable assets, would gearing increase without any additional borrowings, given time? I am not IT savvy but I hear that IT infrastructure suffers from rapid obsolescence.


So, I went online and searched for the cost of maintaining and even replacing the high tech infrastructure in data centres. 

It seems that the costs are usually less than 10% of the revenue generated but in certain years the costs could spike. 

For anyone who is investing in Keppel DC REIT, this is something very important to bear in mind.



S25. Land lease expiring in 2025. Option to extend by 30 yrs.






With an estimated DPU of 7c, post latest acquisition, and a closing price of $1.095 a unit, we are looking at a distribution yield of 6.39%. I would argue that, realistically, this is not a sustainable distribution yield, all else remaining equal.


It might sound totally unrelated but it could be useful to bring up the case of HPH Trust which maintained a higher DPU than it should for a while by delaying much needed CAPEX. 

I believe that was a move to support its unit price and to keep investors happy. The Trust could not delay those CAPEX forever.


When we invest in any business or business trust that requires regular and relatively high CAPEX, we must be ready for it. 

If these entities should pay out all their income to investors as dividends, we must be realistic enough to understand that something must give.


I would demand a higher distribution yield, free of any financial engineering, before investing in Keppel DC REIT, if ever. How much higher? I have yet to decide.

Related posts:
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Retirement funding for our parents: An idea.

My blog, ASSI, is very fortunate to have guest bloggers and some readers who are willing to share their very thoughtful ideas generously. Their thoughts have made the many discussions on diverse topics in ASSI more engaging.

Here, we have another example of what I am talking about:





Hi AK.


My parents are 66 yrs old this yr. Dad is still working. Likely to retire by 70. He prefer to work till 70 than staying at home. My parents belong to the earlier cpf minimum sum scheme. (Last for 20yrs only)



I am considering for them to join the cpf life. My parents saving is about $200k. Instead of keeping the cash in bank for their retirement usage, i am thinking of putting $200k into their RA.


Advantages:
1. They able to earn interest 4% per annual.
2. They able to get payout for life under the cpf life scheme.
3. Money is safe and will not lose to any scam cases.



I have also checked through the annuity plan by ntuc, aviva, tokio marine etc... they cannot match with cpf life. Of course there are other options such as buying stocks, reits, property etc... but not so suitable for retired folks.


Not seeking advise from you but like to hear second options if you have any. smile emoticon

You may like to post this in your blog so as to share it with other friends. smile emoticon

Cheers,
AL




AL shared this with me in a chat on FB not too long ago and I very much agree that CPF Life is the best annuity plan there is out there.

However, it would depend on whether he is able to convince his parents to accept his plan. That could be the biggest obstacle to overcome, I suspect.

Related posts:
1. Securing risk free returns for our retirement.
2. Retirement: AK bought a AAA rated bond.
3. An annuity proposal: AK does a case study.
4. EcoHouse: Questions we must ask.
5. A banker's advice on retirement income strategy.


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