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Singapore retrenchment: Will Malaysia share the same fate?
Reader:
I found your blog over the past week, and I have been looking your posts when I have the time.
I don’t want to be a slave to my job when I am in my late 40s or 50s.
I know that being an average salaried employee, it is quite difficult to ever be financially free.
Some facts about me:
- Working since 2013, earning $5.7k a month
- Save about $900/month in cash
- Invest $300/month in STI ETF (I read blogs for beginner investors that said STI ETF as a low risk, simple, long term investment that seemed to be ideal for young investors without much capital)
I have just bought a 3 room BTO for my mom and myself.
Hence, I have emptied out my OA for house payment and spent my cash savings for renovation.
In a way, I am starting over from scratch again, with $0 in CPF OA and very little in cash savings.
I understand that since my loan interest rate is much higher than the OA interest rate of 2.5%, I should look to repay the loan as soon as possible (assuming I don't re-finance with a bank loan).
(Parts of the email omitted.)
(Parts of the email omitted.)
For only $300, you gain instant diversification.
AK:What you do depends on what you want to achieve but what you do should also depend on the resources available and your ability to stomach volatility and some risk.
Investing through an STI ETF is good for someone who does not have the inclination nor time to research into specific stocks.
It is a long term strategy that should yield decent results over a 20 to 30 years period.
This is your exposure to the local stock market.
http://singaporeanstocksinvestor.blogspot.sg/2013/07/tea-with-matthew-seah-posb-invest-saver.html
You can think of the CPF as your exposure to an investment grade sovereign bond.
In this respect, you might want to use less of your CPF money for housing loan repayment and use more cash instead.
This will give you better returns than leaving your savings in the bank right away.
Remember, this is a long term savings tool and you won't be able to access the money till you are 55 and, later, 65.
http://singaporeanstocksinvestor.blogspot.sg/2015/11/retire-with-investment-grade-bond-and.html
Of course, please ensure that you have an emergency fund first.
How big should it be? Read this:
http://singaporeanstocksinvestor.blogspot.sg/2015/05/how-much-should-we-have-in-our.html
Also, you want to be adequately insured because you have to take care of your mom.
I would suggest buying a term life insurance for yourself.
http://singaporeanstocksinvestor.blogspot.sg/2014/09/term-life-insurance-why-buy-term-how.html
We don't need some magic formula or complicated strategies to be more financially secure in Singapore.
Of course, if you decide to become an active investor or trader, you could make more money but you should know if you have the temperament for this.
That is all I will say. :)
Related post:
Taking steps towards financial security.
See: PMET took a 30% pay cut but thankful.
Bloggy Award
4 comments:
hi AK
Just saying...
its better to NOT wipe out OA. At least leave 1st 20k, so can
act as buffer, especially if using CPF to service loan, but
yeah, already done so... neber mind... just say say.
why is the loan interest rate much higher than the OA interest rate?
Or comparing it to renov loan? I would have thought eligible for HDB loan?
http://www.hdb.gov.sg/cs/infoweb/residential/buying-a-flat/new/hdb-flat?anchor=PublicScheme
If can get hdb loan, HDB require you to wipe out OA as well, (weird IMO,
yeah, why would CPF want to pay you 2.5% to 3.5% when u r borrowing at 2.6%?
but a gd compromise would be wiped to the 1st 20k by default, 0k by request),
but can avoid this by transferring OA into CPF-OA investment account,
do nothing for 2 mths, and it should be back in OA, yeah already over,
so cant do much, just say say.
If renov loan, please clear that first, I think its ard 6%.
STI ETF - yeah, but if dont have the stomach... can also consider the
old advice of dumping $300 into SA.
STI-ETF 3 yrs performance with DCA inclusive of fees.
https://sginvestors.io/sgx-mygateway/2017/05/sti-3-year-dollar-cost-average-return-of-6-3-pct-per-annum
Compared 6.3% with SA 4% + a little more savings from tax rebate.
Assume salary 5.7 * 12 = 68.4k annual. minus 20% CPF contribution. 54.72k
Minus personal - 1k = 53.72k
Minus parent - 9k = 44.72k (Assume single child)
Minus NS - 1.5k = 43.22k (Assume dude, 1.5k is minimum).
Minus 3.6k contribution = 40k (yeah!!!)
so likely the 3600 contribution per year would end up in the 7% bracket,
so that's 252 tax rebate. but bear in mind, this savings is only on that year.
Agar agar ah.
Its 4% guaranteed vs 6.3%. Not sure the longer term STI ETF DCA
returns I suspect could be lower but I prefer maxing out the SA first.
https://www.drwealth.com/sti-etf-dollar-cost-averaging-performance/
Hmm, maybe can make it a little higher by contributing to mum's
SA (if not maxed out).
fc aka "always talk max SA"
Hi fc,
Oh, I like the CPF-SA. I think it is sexy!
However, we have to remember that it is a long term saving tool and is not near money. In case we should need money, there is no option for early withdrawal. We must always bear this in mind.
Reader says...
I was looking at STI ETF and REITS, are these stable types of investment ? Kindly advise
AK says...
All investments come with some degree of volatility.
Go and see what the STI was like during recessions.
Go and see what REITs were trading at during the financial crisis.
If you are looking for stability, you won't find them in investments.
Reader says...
i also brought my gf last night. slowly introducing her to FIRE, and your principles of personal financial management!
AK says...
I hope your gf wasn't upset with my jokes on wife kicking and wealth destroying children. 😛
I didn't talk much about personal finance last night but she can read my blogs if she is interested in finding out more about my way. 🙂
https://singaporeanstocksinvestor.blogspot.com/2018/11/financial-freedom-and-long-break-from.html
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