Singapore Savings Bond short term more rewarding.

Many readers asked me about Singapore Savings Bond recently and apparently it is because the coupon is now 1.55% for the first year which is much higher than what any local bank I know would pay for a 1 year fixed deposit.

I was not interested in the Singapore Savings Bond for various reasons and to avoid repeating myself, if you are not familiar with the reasons, please read the following blog (plus details on eligibility and mechanics):

Singapore Savings Bond: Good or bad?








When I blogged about the bond in the middle of 2015, the bond's coupon for the first year was 0.9%.

At that time, we could get 1.45% interest for a one year fixed deposit easily.

The Singapore Savings Bond was unattractive for money in my emergency fund and war chest, therefore.








Interest rates for one year fixed deposits have declined although I am puzzled why they would because with interest rates on the rise, short term interest rates should be impacted first.

Singapore Savings Bond's coupons.

Whatever the reason, the lower interest rates offered by local banks for one year fixed deposits make the Singapore Savings Bond's 1.55% coupon for the first year more attractive.








So, what to do?

I am going to have some of my war chest money in this bond.

Closing on 26 Jan at 9pm.

I am going to think of this as another fixed deposit.

With the higher coupon for the first year, having some money in the Singapore Savings Bond now gels more with my methods.

Taken from DBS internet banking.

Application or redemption is also very easy because they made it available through internet banking.

Very good for lazy AK who doesn't want to leave home to queue at an ATM.

Related post:
Use fixed deposits (FD) for emergency fund and war chest. (And now we say SSB too.)

My final word on Bitcoin and friends.

"January’s cryptocurrency selloff got fresh impetus on Tuesday when Bitcoin slumped as much as 25 percent, as the prospect of regulatory crackdowns appeared to spread..."

This story continues at the end of this blog.





AK says...

The key is to understand that Bitcoin is for trading.

Bitcoin is not an investment.

People can invest in Blockchain technology but with Bitcoin, it is really a trading game.





There are FOREX traders.

There are no FOREX investors.

Since Bitcoin is a virtual currency, people can be Bitcoin traders.

There are no Bitcoin investors.





People who call themselves Bitcoin investors are really Bitcoin speculators.

When people tell me that they invest in Bitcoin, I get the impression that they are either confused or they are out to confuse other people.

If we understand that Bitcoin is for trading and we cannot invest in it, we should remind ourselves that:

"The trading market is occupied by very large players who are just waiting for newbies to come in and throw their money away by trading aimlessly."

Know what we are doing.

Have a plan and a viable plan at that.






"While the largest digital coin was down 25 percent, it was still at the lowest level since early December, according to composite pricing on Bloomberg.

"Rival cryptocurrencies also tumbled. Ripple sank as much as 40 percent and Ethereum dropped 26 percent."

Read the full story here:
Crypto-currencies resume slide as Bitcoin tumbles.







Related post:
I should have invested in Bitcoin.

Was Soilbuild REIT a shabby investment?

Soilbuild REIT had to juggle not one, not two but three hot potatoes up until last month.

With the sale of KTL Offshore's property to its sponsor, they have two hot potatoes left (i.e. Technics and NK Ingredients).






In a blog in September last year (see related post at the end of this blog), I said that with the reduced DPU assumed then, if we demanded an 8% yield, we should only be buyers at 66c a unit.

Now, with KTL Offshore gone, with lower income, we won't be wrong to downgrade the REIT.

I wonder also if the REIT would see lower valuations which would impact its NAV and, therefore, its gearing level?

Estimating a more aggressive 10% reduction in the DPU assumed in September 2017, all else remaining equal, we might be looking at a full year DPU of 4.8c.

At 71c a unit, that is a prospective distribution yield of 6.76%.

From an industrial REIT with leasehold properties in Singapore, to me, it hardly seems adequate.

I say this partly because a REIT distributes cash flow and does not retain earnings.

So, the relatively low distribution yield is just not attractive enough for me.





If we demand an 8% yield, then, we should only be buying at 60c a unit with the reduced DPU assumption.

If we are less demanding, a 7.5% yield means we should pay no more than 64c a unit.

However, if we demand a 7.5% yield, we can get that by investing in AIMS AMP Capital Industrial REIT which has a lower gearing level too.








How has the investment in Soilbuild REIT turned out for me?

To be fair, Soilbuild REIT's business parks (with relatively long remaining land leases to boot) are attractive and they were the main reason why I invested in the REIT in 2H 2014.

Unfortunately, bad things happen sometimes.

I believe that selling at NAV is a good outcome although I estimate a capital loss of around $4,000 from the sale.







Having said this, I have received more than $17,000 in income distributions from the REIT since I first became a unit holder.

Yes, I did say before that my investment in the REIT was a relatively small one.

So, roughly, the investment returned more than 8% per annum.





Not fantastic but, as an investment for income, not too shabby either.

Having plonked quite a bit of money in SingTel and ComfortDelgro in 4Q 2017, the money from this sale will shore up my cash position.

Related post:
Decline in Soilbuild REIT's DPU likely.

8 years AAA bond with 2.5% and 4% coupons.

UPDATED IN JULY 2018:

Find out more:
https://www.cpf.gov.sg/Members/Schemes/schemes/retirement/retirement-sum-scheme




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Conventional wisdom tells us that we should have some investment grade bonds in our portfolio because they help to smooth out volatility.

Investing in good quality equities is probably more rewarding in the longer term but we have to develop a stomach for the volatility that comes with the territory.






Whatever the case may be, when I turn 55, there is no way of knowing if equities would be in a rough patch or not.

So, having some money in investment grade bonds makes sense to me.

It gives me peace of mind.

The CPF is as good as a AAA rated sovereign bond and it is one that pays relatively attractive "coupons".

OK, to be fair, for a younger person, the "coupons" are less attractive than they are for an older person like me.

The closer we are to 55 years of age, the more attractive the "coupons" because the waiting time is shorter.

For anyone who has met the Full Retirement Sum (formerly known as the Minimum Sum) and who believe in having investment grade bonds, taking full advantage of the CPF Annual Limit is a good idea.






Why mention specifically people who have already met the Full Retirement Sum?

Well, at age 55, we will be able to withdraw all CPF money (from OA and SA) in excess of the Full Retirement Sum (formed by savings in our SA and OA) which would go into the newly created RA.

So, for people who have met the Full Retirement Sum, maxing out the CPF Annual Limit, we are setting the stage for a bigger "windfall" when we turn 55.

CPF Allocation Rates.

The CPF Annual Limit is $37,740 for now.





If mandatory contributions (MC) fall short, we can do voluntary contributions (VC) to hit the limit.

So, what am I doing?

I am buying an 8 year tenor AAA rated sovereign bond (i.e. making voluntary contributions to my CPF accounts) with "coupons" of 2.5% (OA) and 4.0% (SA and MA).

Now, you know my age. Alamak.





Read also the blog before this one:
CPF savings grew almost $200K in 3 years.

Related post:
Buying a AAA sovereign bond.