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Increasing bond exposure on higher yields.

Wednesday, October 11, 2023

In my last blog post, I shared how much passive income I received in the first 9 months of 2023.

My investment portfolio is still bringing home the bacon.

However, there is more variety to the bacon now.

Why do I say this?

Over the years, I have been very consistent in saying that I want to maintain a meaningful percentage of investment grade bond in my portfolio.

For a long time, I said that I treat my CPF savings as the investment grade bond component of my portfolio.

Risk free and volatility free, there really isn't a better option for a person like me.

I have a blog post titled "Unless we are very rich, CPF is all we need" to share my perspective on the matter.

This is the link to that blog post: HERE.

Of course, I share my CPF numbers at the start of every year, showing how much interest income is paid to me.

This interest income is not included in my quarterly passive income update.


The CPF interest generated is not immediately available for withdrawal to be used in any way we like.

We will be allowed to withdraw any CPF savings in excess of the Full Retirement Sum and the Basic Healthcare Sum when we turn 55 and not earlier.

My quarterly passive income report has always been about income generated by my investments in the stock market.

This year, however, my investment portfolio also includes bonds.

In the last one year or so, with bond yields much higher, I have also been buying Singapore Savings Bonds and T-bills.

So, my quarterly passive income report this year has another flavor.

A sprinkling of fixed income.

With bonds being much more rewarding now than 1 year ago, I am going to continue strengthening my T-bill ladder and, hence, enlarge the bond component of my portfolio.

I am a lazy fellow and would always go for low hanging fruits first.

Taking advantage of the CPF-SA and the CPF-MA was an easy decision so many years ago.

Taking advantage of the higher bond yields now is another easy decision for me.

To be sure, the coupons received from bonds will not make an earth shattering difference to me even as they nudge my quarterly passive income a little higher.

However, if we focus on this difference, we are missing the point.

What's the point then?

This is risk free and volatility free.

There is assurance that we will get paid during good and bad times.

This is very comforting to me.

Having such a component in my investment portfolio helps to smooth out rough patches which are bound to appear from time to time.

All else being equal, I will continue to increase exposure to this asset class in 2024.

If AK can do it, so can you!


Henry said...

AK is talking to himself again. Lol.

AK71 said...

Hi Henry,

AK is mental, surely. ;p

patrol said...

Hi AK,
Hope u can advise. My mum is >80 years and recently received a letter from CPF that her money in RA will be automatically deducted and transferred to her bank acct on a monthly basis and after 5 years her RA will be completely emptied. This has caused her some distress as she prefers to leave the money in RA to earn risk free yield of 4%. Could you kindly share your thoughts if you were in her shoes? Thank you!

AK71 said...

Hi patrol,

On a pragmatic level, the CPF is supposed to help fund our retirement.

So, receiving a monthly payout in our old age is the way it is supposed to work.

However, if we do not need the money, then, we could simply deposit the money back into the RA each time we get the money.

It is called a "Top Up."

This was what I advised my mom to do. ;p

However, because the much older CPF members are not on CPF LIFE, there will come a time when their RA would be emptied.

Then, I supposed it is either fixed deposits or T-bills from then.

C said...

Dear AK, in other words, my parents are in their mid 70s and both on CPF life scheme, regardless they on basic or standard plan, they would continue receive monthly payout as long as they live, even though their RA got depleted one day (becomes zero dollars) ? Not likely since I keep topping up for them. Thanks boss.

AK71 said...

Hi C,

Yes, CPF LIFE is the best annuity there is.
It pays us a monthly income until the day we die. :)

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