We are not perfect but we can improve our lives.

Hi AK,

I am also pessimistic, actually. The thing I realised these couple of months is in life things can be unfair or by a stroke luck fate deals a bad set of cards or bad things happen because of my incompetence.

However, whatever situation one is in, the cliche of being optimistic that's sold by people may not be too practical. What's practical I find is to be able to do something even a small little thing to be better off. Because I believe little things do add up. Of course, sometimes trying to improve can backfire or backslide but it's just part of life. No one is immune to failure lest they do nothing at all.

When I go out, I do see people working in jobs they cannot extricate themselves from and bosses that exploit people. I mean if they could they would have changed jobs or found a way to have a higher salary. So, not all people are fortunate enough to move into a better situation. I think they call it social mobility.

On the part of feeling very pessimistic, I can understand that. Take, for example, the guy that works at the train station control or the driver or technician or maybe even the engineer. 

Faced with stagnating wages and rising costs and the worst part is the company they work for has long ago categorized them into the lowest ranks in the company. Their advancement may not be existent. So, there is not much hope if u look at it. 

Who is going to help them? 

So, when they start thinking about retirement or old age it can look very bleak for our current generation. The government may look rich but they have other issues to think about as well. The countries around the world may not be as friendly as they seem to be.

But through proper planning and use of excess funds, however little, or to restructure the way their resources are being used or allocated, I believe people can improve their lives. The problem is, I feel, nobody told them how to do it. So, since no ideas were planted, nothing can grow.

So, I think if the SGX changes the board lot size to 1 share come next year, it can really help people who don't have much. Finally, they can own blue chips and, hopefully, reduce their risks. 

People would just have to pay a one time charge with Standard Chartered that's only 0.2% with no minimum fee.  At the very least, they can grow with the economy. 

Even people who don't know anything about stocks, they can just create their own index rather than depend on the ETF which has additional expense or blue chip share building program which I feel is restrictive.

A peeve I have with the STI ETF is that it is hard to sell. I bought the Nikko once and took a long time to get rid of my 100 shares and the pricing wasn't good. So, I gave up on that and just went to buy the blue chip instead. U know in some blogs people sing praises of it but I am not sure if they actually tried to sell it. 

I personally feel there's a bit of untruths to the STI ETF. When they took the 8% y-o-y growth, they were measuring the years where there was a nice increasing slope. However, if one bought at other periods, the return just doesn't look that good.

The flip side of the coin is people, by nature, want quick solutions. 

If I tell people u know u get 1.5% extra or u can save 100 dollars in tax every year, nobody is really going to take notice. But they are very interested in TOTO and 4D and making a quick buck in the financial markets, university graduates included. 

It is only after a long time, through some event happening, that some of the lucky ones will start to work on their lives and the extremely lucky ones meet someone who would hold their hands.

My reply:

....

Till today, I tell people that my ideas are simple but to really see them through might not be easy. I also tell people that I have been lucky and, in life, we always need a bit of luck, investments included. Sometimes, things do go wrong, like you said, and it could well be due to my incompetence too. No one I know has had a life that is smooth sailing always.

I do share your concerns and I do want to help people, especially those of able body and mind who think that it is impossible ever to be financially free. This has been a driving force behind many of my blog posts.

For sure, every little bit adds up. We just need discipline and time for results to show. Problem, like you said, is that people cannot seem to wait.

When I tell people that 4% is a whole lot more than 2.5%, they usually tell me that it is only 1.5% more. I would tell them that they are wrong. It is actually 60% more! It is simple that way but they could not see it. Some saw it and their eyes lit up but some just chose to be fatalistic and ignore the revelation.

I like it when you say how people can improve their lives and I always say that everyone's life could be and should be better.

.....

“No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”
– Warren Buffett

Read Klein's earlier emails to me:
Tea with Klein: CPF, SRS and HDB housing loan.

Related post:
Take your time to pay down your HDB housing loan.

Tea with Klein: CPF, SRS and HDB housing loans.

I received a couple of emails from a reader this weekend and I want to share them here because I like sharing high quality content, especially those which are thought provoking and inspiring.

Hi AK,

I read this post: http://singaporeanstocksinvestor.blogspot.sg/2010/10/do-you-want-to-be-richer.html

If u never mention about the OA transfer to SA account and get the compounded interest, I wouldn't have thought about it. Thanks.

Hopefully, I can meet the minimum sum with this when I retire and float the money out so I can have money to spend between 55 to 62 else it's going to be tough working in my old age.

On using the medisave to pay for integrated shield plan, I finally found someone who shares the same view cause when I told my collegues and friends about it, they just shrugged it off. In fact, I got laughed at a bit. Well, that's life. (See: http://singaporeanstocksinvestor.blogspot.sg/2013/12/how-to-get-free-medical-insurance-in.html)

I like this quote u have as well:

"Find your strengths and build on them."

AND

Hi AK,

Thank you for taking the time to read and reply my mails again.
 

Well, transferring to the SA, I feel is really a good idea that is if I cannot make the 35% investible grow more than 4% per annum. Even if I can grow it at 4% what about my other 65% that's running at 20k @ 3.5% the rest at 2.5%? That's a lot of growth I need to cover. So, by transferring to SA, my risk-free rate becomes 4% rather than 2.5%.

 

I am 34. So, about 21 years later, I need to make sure I can meet the minimum sum. I am not too good at finance stuff so maybe some of my calculations are wrong. I just find finance a bit hard to learn. (Right after I saw your article, I moved it all to SA. There is much I need to learn and not many people will teach.)

 

Yes, I agree with u about using the system to beat the system. One example is when u talk about SRS. Though there is a 5% penalty but for a safe investor that can get a 3-4% dividend he can recover the cost in about 1 to 2 years. Thereafter, if he chooses, he can take it out. So, that's at least 3.5% savings in tax and a slight capital gain. But sadly people really want cash in the bank and regard the taxes they pay to IRAS as a small sum.

 

I really do not understand how saving $420 a year in taxes is not an incentive for them. Of course, if they did contribute to the SRS, they must not take the money out of their SRS accounts when they still have income or else they might jump to the next tax bracket or simply just pay more tax.

 

To me, the tax savings is like 4 months of free internet n hp bills.

 

In fact, this is how I see it:

 

1. CPF minimum sum, at age 65 drawable (in the form of CPF Life). So, that covers my late life. Gives about $1,200 pay-out per month, I think.

 

2. SRS, so that I can cover my journey from age 62 to 72. So, say I don't work, I can withdraw $20,000 non-taxable + personal relief $1,500-$2,000, that makes $22,000 total tax free. There's supposed to be a 50% tax rebate. So, I think maybe $40k tax free? Not sure how to calculate this though.

 

This is, of course, a bit of an idealism as I don't think I can save $220,000 in 20 years. Old cow cannot pull cart. so I think if I spend within my means with some occassional entertainment, that's ok.

 

When I see the folks working at menial jobs at an advanced age, my heart sinks a bit. They really don't look happy, some of them. Did a general survey at my workplace. It seems most people think they will not end up working after 60+ as a cleaner etc. I have my doubts and goverments around the world don't have a solution at all.

 

So, I think I better plan ahead. Better to be labelled a scrooge than to be screwed.

 

Of course, as one's situation gets better, going on long tours and stuff would be good. In short, make sure one is on firm ground before thinking about having fun.

 

 

The 1.5%/year difference in interest rate compounded monthly gives me 35 cents more per $1 after 20 years. That is like 35% more compared to if I put it into the OA and I beat the inflation by 1% even though I don't believe inflation is 3% given the price increases. I have a personal inflation index based on what I spend on.

 

Secondly, I think even if people do own HDB flats, they should not be too concerned about paying back too fast because people do fear about holding debt. But what I think most of the people around me don't realise is paying back the HDB too early they are doing themselves a disservice. Why?

 

1. There is insurance on the HDB flat. So, if one party happens to die, the loan is repaid. So, if there are dependents like kids they will get less cash compared if they didn't pay the HDB back so fast.

 

2. Every dollar given back to HDB, that dollar will not help them earn any interest.

 

3. The interest on housing loans runs on reducing balance while the interest on OA runs on simple interest. So, even if the HDB loan is 0.1 percent higher it still doesn't make sense to pay too much because the interest accumulated would outrun the savings on a lower CPF loan.

 

4. The fear of the hdb repossessing the flat is a bit irrational. If by some stroke of bad luck there is job loss or illness in the family resulting in skipping payments, I mean this can be negotiated or rather put it simply if they have more money in the bank they can wriggle through the situation but if they paid it all to HDB then I don't think they can get it back. However, if it was because of debtors, then, of course, the above would not be a good choice for them.

 

The weird thing is after explaining to friends about this, I do not know why they still want to pay their loan back as fast as possible.

 

 

If you have any ideas or experience which you would like to share with readers here in ASSI, please feel free to email to me at ak71@sillypore.com. I would be more than happy to share high quality content here in my blog. Like I always say, I don't know everything. :)

Related posts:
1. SRS - A brief analysis.
2. Build a bigger retirement fund: CPF-SA.
3. Dirty CPF-HDB scheme to trick Singaporeans?