A lazy and fool proof way to investing for income?

Reader says...

I attended your AK with friends on Friday (15 July) and came away a bit disappointed. 

Not because you did badly (in fact you were the most impressive of the 3 presenters), just that I went into the session with certain expectations of what I could potentially learn from you which was met only partially. 

I didn't expect it to be a Q&A forum (this is my first AK session) and a session about specific stock/REIT question after question. I was hoping that there was a more in-depth discussion about underlying concepts or a mindset to approaching investments/income investing. Yes there were sprinkles of that but it's probably safe to say the session was dominated by the "what is your view of Centurion, or Sembawang, or Soilbuilt REITs....". You get the drift.

My goal is, like a lot of people, comfortable retirement and maintenance of my current lifestyle with a predictable stream of income. 

Objective - As I have a day job, and I suck at investing, I want to achieve my goal above by having a dummies methodology to invest in REITs or other income generating investments without a lot of decision-making (I'm lazier than you). I'm not looking at super returns, around 5-6% or so would do as long as they are predictable (more or less). 

Seriously, I am not suited to do investments and I have made a lot of investor mistakes (loss aversion, recency bias etc). What is in my favor is a fairly solid investment foundation and from there, I want to build on it by making a reasonable amount of return with reasonable predictablity, and without needing to make a lot of decisions.

That's why REIT investing appeals to me. My sense is the analysis for REITs is lesser than that of a stock such as DBS (which you mentioned quite extensively on Friday). I was hoping to narrow down the time and effort to do analysis on REITs.

I will continue to focus on your REITs related blog posts (especially those on the right hand side bar) but have already benefited from your advice on CPF (I'm going to top up my mum's CPF RA to earn a blended 4.45% returns and maintain some liquidity by drawing a monthly sum from her account over 5 years.) 

AK says...

Oops. Yes, "Evening with AK and friends" is Q&A. I assume that the audience are all my readers and that they know my approach to achieving financial freedom. "Evening with AK and friends" is for further interaction, face to (masked) face. ;p

If you are a lazy guy like me, yes, make good use of the CPF which you have started doing. That is as good as it gets when it comes to fixed income instruments. It is really a AAA rated sovereign bond with an annuity thrown in.

REITs? Well, it isn't as simple as you think. Investing in REITs looks simple now because conditions are relatively benign for REITs. Of course, for the income investor, REITs are still relevant instruments. 





Keep reading. Keep learning. 

I am still learning too. :)

You might want to consider regularly socking away some money in an ETF that tracks the STI. ASSI guest blogger, Matthew Seah, blogged about this strategy before and you will find his name in the left side bar of my blog. Click on his name and you will see all his blog posts.

Investing for income, focus on the business and its ability to generate income and willingness to share that income with you. Try not to be (too) emotionally affected by price volatility.

Start investing but keep a war chest ready to buy more if Mr. Market goes into a depression. Do this and, given enough time, you will do well enough. :)





Related posts:
1. Risk averse? STI ETF, REITs or stocks?

2. Create another stream of income with $500K?

3. Retire with an investment grade bond and annuity.

4. How younger members can get 6% interest from CPF?

5. Reader's insights into AK the investor.

3 questions on investment strategy.

Omg! You actually reply! Thanks a lot really appreciate it!

Ok sorry but i have more questions!

1.       I read an article on facebook (sponsored article), that says if you are 30 years old you need to saveabout $700 per month on a 6% yield in order to hit i think 1m by age 65.

a.       What I want to know is, does the funds like CPF or anything other things that provides that so call xx% calculated on an annual basis? What i mean is that is there a difference if i were to save and invest lets say $1000 every month into something or at the end of the year i just invest $12000? Will i get the same returns?

b.       Next part of the question is Would it be better to have regular buy ins of a stock or REITs compared to 1 lum sum? The question mark that i have is the effect of compounding effect which you mentioned many times on your blog especially with CPF.

                                                               i.      My thoughts are that if i have an emergency fund already saved up and stashed away, calculated my monthly expenses and know how much i can spare per month in excess to invest and already have a war chest in your terms. I should first put this war chest to use to obtain dividends in terms of cash flow now at the rate of perhaps 5,7,9% whicever. And then coupled with the monthly excess that I have build up another war chest to buy in regularly? There are definitely pros and cons such as if i use everything in the war chest and have no cash upfront, then I wouldnt be able to make use of events such as the GFC to stash on more cheap buys. But just would like to know your thoughts on my thinking process and any advice on that?

2.       If i have investments in unit trusts currently, should i sell them off so that I can go into stocks and reits?

a.       I basically went into them for their historical dividends based on the information given on fundsupermart. Of course for some there were capital gains and some losses. So no read up on company fundementals, no fa or ta and just went in.

3.       I am a self employed so there is no employer contribution for cpf. Shd i then make a monthly contribution or wait till before dec ends then make a lum sum? How is the interest calculate in that case?

a.       Since that i am self employed, which option shd i go for, using the sum of money i have to top up cpf? Or use that same sum of money to buy into reits or stocks?

Thanks alot!
W

Hi W,

1 a. There will be a difference. See this:
http://singaporeanstocksinvestor.blogspot.sg/2015/01/cpf-minimum-sum-top-up-and-interest.html

1 b. Investing a fixed sum regularly or dollar cost averaging is a tried and tested approach. You become less concerned with volatility. However, having a war chest ready to buy more when Mr. Market feels depressed is a good idea. Nibble most of the time and gobble sometimes.
See this:
http://singaporeanstocksinvestor.blogspot.sg/2013/08/are-you-ready-to-come-out-on-top-from_22.html

2. I won't tell you what to do but I have given unit trusts a wide berth for many years.

3. See answer to 1a above.
I treat the CPF as a long term investment grade bond which pays an attractive coupon. Whether we believe in having an instrument like this in our portfolio will shape our decision to top up our CPF accounts or to put everything in the equities market.

Best wishes,
AK

Related post:
Building a cornerstone in retirement funding.

Could this be the way to financial freedom in 5 years?

Hello AK,

I have been reading and following your blog. I have just started my investment journey and hopes to attain financial freedom within 5 years.

Recently, I have been given an investment offer which I would like to share with you and seek your help  by listening to your opinions. I shall not share with you where and who offered me the opportunity as I want to prevent any accidental bias.

I received an offer to join a club opened by a company (it is a reputable company, which is why I do not want to share with you the name of the company now as I believe you would have heard of the company before.) in Singapore. In order to join this club, you have to commit a 5-figure sum for a few years. 

One of the businesses of the company is to help other company IPO. 

Basically, in point form, I shall name the company I am talking about as IPO Services Ltd. 

1) Herbal Tea Ptd Ltd wants to IPO on SGX, so they approached IPO Services Ltd for help. 

2) IPO Services Ltd will check through Herbal Tea Pte Ltd's finances and other legal requirements that SGX requires in order for a company to be listed on SGX.

3) Herbal Tea Pte Ltd passed all the financial and legal requirements. Next, Herbal Tea Pte Ltd needs enough public interest before they can be listed. (If not they won't be a PUBLIC listed company.)

4) This is where members of the club comes in. IPO Services Ltd will show members this company and interested members will form the bulk of the "interested public" and be issued shares at pre-IPO prices. (For eg. $0.50)

5) With everything in place, SGX approves and Herbal Tea Pte Ltd is listed on SGX. The IPO price is $1. So members of the club can

• Sell off their shares to the "enthusiastic public" and make a 100% profit.
• Hold onto their shares if they believe in Herbal Tea. (Bearing in mind that the shares was initially purchased at pre-IPO price)

Therefore, effectively, the club allows me access to IPO opportunities BEFORE IPO.

 

I have read in many books to avoid IPO as IPOs are often over-priced and there are simply too many uncertainties. The way this offer was portrayed to me sounds "quite" secure. However, being the skeptic that I am, I wonder what is the catch? 

I am showed many videos of members giving testimonial of their 100%, 200% or even 300% profits within months (this should be a red flag,  but hey, this is not some shady gold buyback company I am talking about but a reputable PLC).

That 1 question alone is sufficient enough for me to not make any commitment, however, if it is genuine, I wouldn't want to miss out on an opportunity like that. 

Therefore, I am emailing you to ask you for your opinions on this "investment opportunity"

Hope you can help me.

Cheers

Hi,

If I were able to list a company at $1 a share, why should I sell to you at 50c a share? I might do it to incentivise employees and insiders but members of an IPO club to show that there is interest from the public? I don't think so.

Also, in order to join this club, you have to commit a 5 figure sum for a few years? For me to part with so much money for such a long time, an investment has to be a highly transparent and tangible. This does not sound like one.

There is no free lunch. This has to be a highly rewarding scheme for the owners of the IPO club. How are they rewarded?

This is not an investment opportunity to me. It is, at best, an invitation to speculate.

Best wishes,
AK

Related posts:
1. 9 wealth building blog posts.
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NOTE: The first step in converting from private to public is to undertake a process called due diligence. Due diligence is the analysis and valuing of a company and it is usually performed by a professional accountancy firm. It will involve a comprehensive look into almost every area of the business. This due diligence is the foundation upon which all information disclosed to the public is based. A value is then assigned to the company and an appropriate number of shares are issued. At this stage,the investing public is offered an opportunity to buy the shares. This is called the Initial Public Offering (IPO). (Source: Taking your venture public in SG.)

Unemployed, almost 55 and worried about CPF.

Reader says:

I have been following your useful CPF blog and learn alot. Lately I noticed something quite disturbing and what i deem as unfair.

We live a in HDB flat which had been fully paid off about 8 years ago. 

But I only noticed recently that the accured interest (supposed this is the amount I owed to CPF Board) has been increasing every month even after I fully paid off my flat long ago. 





I feel that this practice is unfair.

The accured interest should stop increasing the year that we pay off our loan. 

This kind of contradict the saying that the CPF money is ours. Seems that we always owe the government something somewhere.

It appears quite ridiculous because we had already paid hundred of thousands in interest during the loan term but still have to pay interest even after paying off the loan completely. 

If we borrow from banks, the interest would had stop once we clear the loan right?

I am unemployed and will reach 55 in a few years' time, how will this affect me? 

Kind of worried as retirement approach and without a job for sometime now.

I believed many Singaporean are unaware of this because we don't really track this item. 

How can we deal with this government policy? 

Do we have to pay CPF Board that substantial amount of interest if we sell off our HDB or downgrade to a smaller unit? 

Or when we reach 55 or 65? I get the feeling that one day I have to pay back that huge interest amount. 





How to retire peacefully without worrying about money in this place?

If I give the flat to my son later when I pass on, does he has to take over that accured interest?

Hope you can advise and share your thoughts.

Many thanks AK.

Best Regards

AK says:
The CPF is to help us with retirement adequacy. If we use the CPF money to pay for our homes, there is an opportunity cost. 

The government stops paying us interest and if we should sell our home, we have to pay ourselves interest in order not to compromise on the original purpose of the CPF.

In your case, you might be interested in this blog post: http://singaporeanstocksinvestor.blogspot.sg/2015/09/how-to-stop-accrued-interest-we-owe-cpf.html


Although it might appear otherwise, we don't pay the CPF Board, we are paying ourselves.



Upon reaching age 55, if you already have the MS (now the FRS) in your CPF account, you don't have to pay yourself anything if you were to sell your flat. 

The objective of the CPF to help with your retirement adequacy has been met.




If you do not have the FRS yet, then, it is a different story. 

Some of the money from the sale of your flat will have to go to your CPF account to fulfil this objective. 

There is also the option of BRS in which you pledge the value of your flat but that is another topic.





As long as we remember what is CPF's primary objective, everything makes sense.

Related posts:
1. Use CPF savings or cash to pay for our home?

2. Changes to CPF: BRS, FRS, ERS.
3. Retirement funding adequacy.

Saving money with good deals is common sense but...

As investors, we know that businesses that take cash from customers and enjoy credit terms from their suppliers are in a very good place.

Get paid now but pay vendors much later? Wow! This is one reason why Walmart is a good business, right?

When we go to a supermarket, we don't get to leave the place with the stuff we want unless we pay for it. Of course, we can pay with a credit card to enjoy some shopping benefits but it is essentially a case of "no pay, no take".

When we see a very good deal on something that we consume often, we could buy a lot more to save money. Instead of buying one, we buy more. That makes many of us happy!


Question:
If the supermarket told you that you could buy more of a special deal item but you could only collect one now and the rest on a monthly basis in future, would you bite?

Pause.


Pause.


Pause.

Would you?

Hanor.

Then, what about this?

I shared this on my FB wall 2 days ago.

It happened earlier this year.

I actually told the California Fitness salesman that I didn't mind paying on a monthly basis but a lump sum payment for a 3 years membership?

Sorry, not interested.

Saving money with good deals is common sense? I must be stupid not to take up the offer.

I was adamant.

I could tell that the salesman was disgusted.

AK was such a disgusting customer.

Disgusting and heng ah!

Remember, saving money with good deals is common sense but paying in advance and in full to get good deals is not as sensible.

California Fitness is not the first example and it won't be the last one either.


Related post:
1. 6 points in response to an expensive lesson.
2. Nobody cares more about our money...

Reader has 2 questions for AK.

Q1:

Reader:
"Hi ak, I didn't manage to ask question during your session last fri, actually I would like to ask your "pointers" on: It's easy to buy but I would like to find out when do u sell or trim your portfolio in particular to take profit or capital protection? Looking forward to next ak with friends session!"

AK:
"Sell when the investment no longer does what it should do or if you can find a better investment. If you would like to trade, then, you must pick up some TA skills."

Q2:

Reader:
"example: DBS trading less than book value, is that your permanent holding or you sell when DBS is 1.1 NAV?"

AK:
"If DBS were to go to a PE ratio of 14x or more, I might sell some."

Reader:
"noted with thanks, shall ponder on your wise words. basically is buy and buy for long term instead of marketing timing to trend trading."

AK:
"Timing market versus Time in the market."

Related posts:
1. When to BUY, HOLD or SELL?
2. (I bought DBS share, DBS shares...)
3. Evening with AK (15 July 2016).

Reader has 4 questions for AK.

Hi AK,

I am 29 this year, need some advice for building up passive income.

I have been in contact with financial reading on and off about investing and stocks and stuffs, but i always find that i dont have enough knowledge and skills to actually invest. I made a few investments from insurance agents and banking relationship managers which in the end made me realise they are all functioning for their own personal interest and i learnt the hard way as of course. I trust them too easily.

1.       As such I am thinking what can I do to gain the knowledge that you have to help me make decent decisions. Is there any specific steps that you take when you first started?

2.       What amount of initial capital that you start investing with? To be able to have $50k in 2011 required at least a start up of $500,000 with a 10% ROI.

3.       What do you think of alternative investments? Such as land banking or peer to peer lending?

4.       What if currently I can only come up with $100,000 in initial capital and monthly basis maybe $3-4k, what could and should i do with them to move towards what you are getting?

Thanks a lot for your time!

Regards,

W

Hi W,

I am glad that you have discovered that no one cares more about our money than we do. :)

In reply to your questions:

1. Read, read, read. Of course, it is important not just to gain knowledge but also to cultivate the right temperament.

2. I started investing 20 years ago when I was still an undergrad. Probably had $20,000 or less then.

3. Highly speculative, I will avoid.

4. I don't think anyone should use me or anyone else as a yardstick. As long as we are taking steps to improve our financial well-being (and investing in good income producing assets is one such step), we are moving in the right direction.

Gambatte! :)

Best wishes,AK


Related posts:
1. How did AK create a 6 digit passive income?

2. A way to double digit yielding portfolio.

3. To make 20% per annum...