Not an investment but it pays $3,400 monthly for LIFE.

In recent times, I have found it much easier to talk to myself on YouTube.

It is faster than blogging.

This explains the greater number of videos produced compared to the number of blogs I have published.

Although it is expeditious, YouTube is only good for sharing what would require less mental processing on my part

It is good for sharing content which I have at my finger tips which means I could simply ramble while still making sense.

For anything that requires me to think more deeply and to organize my ideas, I find writing to be more effective.

This blog is going to be about something which has required more thinking on my part.

This is really inspired by 2 comments in my most recent YouTube video.

If you have not seen the video yet, here it is:

One reader told me that I am growing older and I should spend more of my money before my health deteriorates.

I know the reader means well but I have very little interest in spending more money than I do now.

In case you are new to my blog and think that I live like a pauper, I don't.

I own a condominium apartment and I have a car, for examples.

Very big ticket items in Singapore.

Still, I must accept that I am growing old, not just older.

Another reader provided the numbers by saying I would be 55 years old in 2 years from now.

Then, he asked what would I do with my CPF money and if I would choose the FRS or the ERS?

Both these readers' comments got me thinking.

That's a problem I have always had.

I think a lot and some would say I think too much.

You know what people say about young people.

They think that they are invincible and have plenty of time.

Well, I am not a young person anymore.

Although I am still relatively sharp mentally, I can tell that my memory is declining.

According to the doctors, this is normal but I am more worried about dementia now.

So, although I have said before that if we are savvy investors, we would choose the FRS and invest the rest of our CPF money ourselves, I could change my mind.

This is really consistent with having a crisis mentality.

Always asks what could go wrong?

Although it is still true that if we are savvy investors, we could possibly do better investing our CPF savings in excess of the FRS, there is this question of age related issues.

What if we become mentally infirm in our old age or, worse, middle age?

For most of us, the answer to this would be to have a bigger stream of passive income which does not fluctuate with market conditions.

CPF LIFE would fill this role admirably and by choosing ERS, we would allow it to do better.

ERS is not just for those who are not savvy investors but for anyone who wants to have a greater level of certainty in retirement funding.

I am aware that the interest accumulated in the FRS or ERS in order for CPF LIFE to provide us with an income for the rest of our lives goes into a pool and would not go to our beneficiaries in case we should bid farewell to this world earlier than desired.

However, CPF LIFE is an annuity and it is an insurance product.

It is an insurance against longevity risk.

As with all insurance products, it is about pooling resources from many to protect against shared risks.

We might not like the idea of having interest accumulated on our savings going into a pool instead of our beneficiaries but if we should be blessed with a long life, we would be dipping into other people's money in the pool as our own would have been exhausted.

We must remember that CPF LIFE is a retirement funding tool and not a legacy planning tool.

Take the good with the bad.

With this in mind, I checked my latest CPF OA and SA balances.

CPF OA

$768,628

CPF SA

$350,678

I also checked what the FRS would be like in 2026 which is when I turn 55.

55th birthday in the year of 2026? 

The FRS would be $220,400.

ERS would be twice that sum or $440,800.

My CPF SA should grow to about $380,000 by 2026 just from interest earned, assuming no further contribution on my part.

If I were to go for the ERS, it would mean having the entire sum migrate to the newly created CPF RA plus $60,000 from my CPF OA.

This would give me a monthly income of about $3,400 from CPF LIFE Standard Plan from age 65.

This is quite possibly going to be more than enough to cover the basics in my life.

Of course, I am hazarding a guess here since who knows what the world would look like 10 years from now?

As I grow older, I find myself less inclined to tinker with things.

I value simplicity more and more.

In the last podcast I did with The Fifth Person, I said that I had little or no inclination to look at new stuff when it comes to investments.

I am just looking at what I already have and waiting to add to what I think are strong businesses which would pay me through good and bad times.

Having said this, true to the spirit of this blog post, there could come a time when I might not be mentally well enough to make such decisions.

Making full use of CPF LIFE would help to mitigate this risk.

Of course, all of us are different and what gives me peace of mind might be a source of discomfort for others.

If AK can talk to himself, so can you.

Relevant link: CPF LIFE.

3Q 2024 passive income: Banks to the rescue!

Another quarter has gone by and it is time for another update.

For a change, I will reveal the numbers first.

3Q 2024 passive income:
$85.223.17

This is a slight reduction, year on year, as 3Q 2023 passive income was:
$85,307.78

Almost negligible difference but it is still a dip.

The reason for this is the much lower contribution from Sabana REIT which I drastically reduced exposure to.

The REIT was one of my largest investments but this is no longer so.

Losing one of my largest investments is bound to have a big impact on my passive income.

However, as the title of the blog suggests, thanks to higher dividends received from my investments in the banks, the impact is mitigated.

The money from the sale of Sabana REIT was used to strengthen my T-bill ladder which is, of course, my war chest.

I am in no hurry to deploy the money since I am already substantially invested in the stock market.

Looking at the investments which contributed the most to my passive income in 3Q 2024:

1. OCBC

2. DBS

3. UOB

No surprises here since OCBC is my largest investment at almost the same size as my investments in DBS and UOB combined.

DBS is going to generate more passive income for me because of the bonus issue which in effect gives a 10% uplift to dividends received.

UOB is, well, UOB. 

Conservative and plodding along but still more than decent enough return.

In a recent video, I said I would not be adding to my investments in the banks as their share prices hit all time highs.

I would wait for a pull back in prices before adding.

To be fair, at 1.2x or 1.3x book value or so, the common stock of OCBC and UOB do not look expensive.

So, if I were not invested in the local banks yet, those would be where I put money to work first.

4. IREIT Global

In a recent reply to a comment on the REIT, I said this:

"IREIT's Berlin property will be vacant for 12 to 18 months very soon. 

No income to be generated by that asset then. 

So, expect income to be impacted. 

There is also the point that you (the reader) raised and it is a point I have made many times with regards to REITs. 

They will be refinancing in a higher interest rate environment although as many as 6 or 7 rate cuts are coming by end of 2025. 

I made a video almost a year ago to talk about all these and said I would not be adding to my investment in IREIT unless unit price went down much lower. 

Still, there were readers who added at between 32c to 36c per unit. 

To be fair, it isn't just IREIT, I am not interested in putting more money in any REIT now. 

My recent video on banks and REITs made this very clear. 

My focus is on income and valuation, not so much the prices."

I recently did a podcast with The Fifth Person and there was a segment on whether banks or REITs are more attractive as investments for income.

In case you are interested, here is the video:

In the latest update, IREIT Global said that they are in the final stages of pre-letting the Berlin property to a hotel and another hospitality operator. 

They expect to double the asking rent which I believe is realistic as the Berlin property is very much under rented.

I feel that the Berlin property is currently undervalued and if the REIT's management does a good job, we should see value unlocked.

IREIT Global's gearing ratio is still very low but their borrowing cost would most likely increase in 2026 when they refinance.

This is although we are likely to see many rounds of cuts to interest rate before then as the interest rate would still be higher than what we saw in the years following the Global Financial Crisis.

However, the REIT's relatively low level of debt should help to reduce the blow higher interest rate brings.

I revealed not too long ago, my investment in IREIT Global is nursing a big paper loss.

I use the word "nursing" and not "suffering" because the REIT is still paying me a meaningful dividend even as Mr. Market feels pessimistic about it.

At the current unit price, the distribution yield is about 8% and as I feel it is undervalued, there is no reason to sell.

I am quite contented to be paid while waiting for things to improve.

However, if Mr. Market should go into a huge depression and offer me a 10% distribution yield, all else being equal, I would probably buy more.

This would be very similar to the earnings yields offered by our local banks then.

All investments are good investments at the right price.

The right price is not a static number.

It should change if circumstances affecting it should change.

5. AIMS APAC REIT

I cannot end this blog post without giving AIMS APAC REIT a mention.

Still one of my largest passive income generators after so many years.

To me, this is a risk free investment as I have recovered all my capital many years ago.

The unit price can go up or down and it wouldn't affect me at all.

For people who recently invested in the REIT, please be aware that the REIT has perpetual bonds which means that their effective gearing level is higher than the gearing level reported.

Invest in the REIT only if we are comfortable with this.

Having said this, the REIT is well run and enjoys a tail win as logistics real estate which the REIT is mostly about remains in high demand.

Remember, if AK can do it, so can you!