Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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I didn't think there would be another blog post until the new year but I did something just now which would have surprised myself a few months ago.
I bought some Alibaba shares.
If you are rubbing your eyes to read that again, I know how you feel.
However, if you have been following my YouTube channel, you would have heard me talking to myself about how Alibaba at HK$80 a share looked attractive even to value investors.
I just didn't like the policy risks in China and I also didn't like that they paid so little in dividends.
Well, better than no dividends, I guess.
Alibaba is fully capable of paying higher dividends given their healthy cash flow and balance sheet.
They have instead decided to buy back shares which, of course, increased the value of the outstanding shares.
Alibaba isn't dreadfully overvalued like Tesla.
Some readers might remember I made a video comparing the two.
I said that if I had to choose, I would invest in Alibaba and not Tesla.
Well, Mr. Market has gone on a Tesla buying spree and ended its brief fling with Alibaba.
Anyway, what made me change my mind?
More accurately, who made me changed my mind.
I had a chat with a friend who is invested in Alibaba.
He knows my stand on Alibaba and he agrees that there are policy risks.
China is not a free market economy.
The many ways we use to value stocks conventionally are not able to put a numerical or monetary value to these risks.
Yet, he is willing to take the risk because Alibaba just looks relatively cheap, a point which I am in agreement with.
When he saw me smiling, he asked,
"Do you think I am kum gong?"
I laughed at that because he obviously watched the video I produced on how a fellow YouTuber called me that for buying shares of DBS at higher prices.
He went on to say that if I was willing to buy Bitcoin after being convinced that the digital currency had value, why not buy some shares of Alibaba?
The important thing is to invest an amount of money that's similar to what I used to buy Bitcoin.
Or do not invest more than what I feel I am OK to lose if Alibaba gets shut down by the CCP.
I came home and I gave it some thought.
Alibaba isn't something I must buy but I do like the idea of investing in a fundamentally strong company which Mr. Market dislikes.
Like what Warren Buffett said before,
"Be greedy when others are fearful."
Well, I am not going to be greedy here but I don't mind having a sampler.
So, thanks to my friend, I am a newly minted Alibaba shareholder now that Alibaba is back at HK$80 a share.
It helps that we can buy Alibaba shares in the form of SDRs or Singapore Depository Receipts in SGX now.
I like to keep things simple.
I think this will be the last video for the year but, of course, never say never.
It has been almost a month since my last blog post.
I am serious about becoming more laid back and being less active in social media.
The garden which I used to enjoy taking strolls in has become a minefield.
What to say?
What not to say?
How to say what I want to say?
Talking to myself has never been more stressful.
I have enough stress to deal with in my life.
Don't want to have to deal with more stress especially when I am not being paid to do so.
Yeah, at least we are paid to deal with stress at work, right?
I believe that many local financial influencers will have to be licensed and regulated because they are being paid for promoting financial products and services constantly.
From an interview conducted by CNA, I believe that it was one of the tests set out by MAS.
In case you are you interested, here is the video by CNA:
Not the best interviewer nor interviewee but just focus on the substance, I guess.
I think the blogger they interviewed is probably one of those who would have to be licensed and regulated as her content is heavily monetized.
Well, since she and other financial influencers like her make money constantly from doing what they do in social media, they shouldn't mind being licensed and regulated.
As for me, I rather not have to deal with the hassle.
So, I will restrict the frequency of sharing and also the things which I do share in my blog and YouTube channel.
For example, in this blog, I am also going to talk to myself about why I am hoarding cash.
2024, just like 2023, has been kind to me when it comes to my investment portfolio.
Well, there are still a couple of weeks left to 2024 but I guess I can close my books for the year early.
Unlike 2023, I have not put any money to work in equities in 2024.
Most of the passive income I received in 2024 has been put to work in SSBs and T-bills.
I also made a smallish voluntary contribution of $8,000 to my CPF account.
CPF money for me will become cash in another 2 years from now.
Well, the money in the CPF OA, anyway.
Being paid an average of 3.0% p.a. risk free and volatility free is not bad.
So, my cash position has grown in 2024 and looks set to grow in 2025 too.
It will grow even more in 2026 when I have access to my CPF OA money.
In the meantime, I get paid reasonably well for holding more cash.
The UOB ONE Account has been good to me.
Fixed deposits in CIMB have been decent in generating some interest income too.
Just to be sure, these are not investments and I do not include them in my quarterly passive income updates which are about passive income generated by my investment portfolio.
6 months T-bills are still paying 3.0% p.a. or so.
Singapore Savings Bonds I bought in the middle of this year had 10 years average yields of 3.2 to 3.3% p.a. or so.
I am already substantially invested in the stock market and do not feel any urgency to put more money to work there.
Does this mean that I feel that the stock market is going to crash soon?
I know that some financial influencers like to make predictions as to where stock prices are going but like I always say, we cannot predict but we can most certainly prepare.
So, people can think of what I am doing as preparing for a stock market crash.
I just don't know when it is going to happen.
Of course, I also say never to be overly optimistic nor overly pessimistic.
It is important to stay invested in bona fide income generating assets and be paid while we wait.
Someone who kept saying that the common stocks of Singapore banks were very overvalued in the last 12 to 18 months and said he would wait for a crash before buying might want to do a rethink.
The fact that I have been hoarding cash does not mean that I think the stocks were very overvalued.
In fact, I have been quite consistent in saying that if we were not invested yet, we could buy some.
However, it is certainly harder to say that now.
When we look at PE ratios, it is mind boggling how the multiples have expanded for so many companies.
Earnings really have to come in much stronger in 2025 to justify these multiples.
For DBS, OCBC and UOB, their PE ratios have also risen pretty significantly.
They are now around 11x to 12x which is slightly higher than the 5 year average.
If we had a working crystal ball and if we could tell for sure if the earnings would grow enough to ensure these numbers are justifiable, then, we could buy more now.
Since I only have a bowling ball that thinks it is a crystal ball, I would rather err on the side of caution.
This is why I said earlier that my cash position is likely to grow in 2025 as well, all else being equal.
Well, it would probably grow more slowly as I am going to have higher expenses in 2025 with more money set aside for parental support.
That is another topic for maybe another day.
This is probably the last blog post before the year ends and maybe even before "Evening with AK and friends 2025" takes place on 15 January 2025.
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.
I have been thinking about really retiring in a couple of years.
Confused?
Didn't AK retire 8 years ago a few months before he turned 45 years of age?
Yes, I retired from active employment 8 years ago and I have been enjoying retirement so far.
However, I am not really retired because to me that would mean not having to look at growing my wealth anymore.
In the past 8 years, I was still pretty active in managing my investment portfolio.
Most notably, I made the move to increase exposure to DBS, OCBC and UOB.
I look forward to the day when I can be absolutely laid back.
Yes, I want to be more laid back than laid back.
Terrible, I know.
However, if I can achieve that, to me, I would be truly retired.
So, can I do it?
I think I can in another 2 years.
1. CPF money
Like I said in a recent blog, I would be 55 in a couple of years and that would be when my CPF account becomes a savings account.
Assuming that I stay with the FRS in the CPF RA, maintaining the prevailing BHS in the MA, I should have $800K or more in my OA.
Simply leaving it in the OA, that would generate an interest income of $20K per year.
I do not expect the low interest rate environment which lasted 15 years from the Global Financial Crisis to return anytime soon.
So, I could possibly get more than $20K per year from the CPF OA savings if I were to continue to buy T-bills with the funds.
Conservatively, if I could get 3% yield from T-bills, that would mean another $4K per year for a total of $24K per year in interest income.
2. Emergency fund money
In my recent blog post on how much cash I was holding, if I were to continue maintaining a $250K emergency fund held in fixed deposits, assuming a conservative 2% interest rate, I would get $5K a year in interest income.
This assumes that the UOB ONE account would have stopped offering a higher interest rate by then.
Seeing how UOB has already reduced the interest rate from 5% to 4%, this is a reasonable assumption.
3. T-bill ladder money
Now, I have about $200K in T-bills, if cut-off yields were to be 3% and this is not unlikely in an environment of higher for longer interest rates, that would generate some $6K in interest income.
However, if I continue to grow this since passive income generated by my investment portfolio exceeds my expenses by about $100K a year, with $400K in T-bill in 2 years from now, I could get $12K a year from T-bills then.
4. Fixed income
Fixed income was not attractive in a low interest rate environment and I had to look for more reasonable returns elsewhere.
Obviously, this has changed in the last 2 years.
From all the numbers I have crunched so far, 2 years from now, if I were to simply continue to buy more T-bills, I could receive passive income of $24K (CPF) + $5K (Emergency Fund) + $12K (T-bills) per year.
That is $41K in total.
5. Investment portfolio
If my investment portfolio continues to bring home the bacon and I am inclined to think that it would, I would be very comfortable.
My investment portfolio generated some $230K in 2023 and this included passive income from T-bills.
If I were to exclude this component, the portfolio would still have generated more than $220K in passive income.
Assuming income generation takes a 10% hit because REITs continue to underperform, I would still see $200K from my investment portfolio.
If we should see disease X striking, resulting in another pandemic, income generation could take a hit like what we saw during the lockdown.
Banks paid less dividend.
So, knocking 40% off passive income generated by 40% of my portfolio would still see $170K generated by my investment portfolio.
This includes the assumption that REITs would perform poorly too as said earlier, if you crunch the numbers yourself.
Assuming that I am still comfortable with living on $48,000 a year and setting aside another $48,000 for parental support, even in such a scenario, I shouldn't have to worry about money.
6. Total passive income
Looking at the above points, with the aid of fixed income in an environment of higher interest rates, in 2 years from now, I would have a truly worry free retirement.
Well, worry free when it comes to money at least.
There will be other worries, I am sure.
7. Conclusion
Having come to this realization, I have decided that I don't have to look at the stock market as much as before in the meantime.
Unless there is another stock market crash, simply hold my stock positions and continue to buy more T-bills.
This is naturally going to translate to fewer blogs and videos on related topics.
This is something I have been thinking of on and off.
It is the first time I have sat down and really looked at the numbers more carefully, projecting into the future.
To be fair, it is the near future I am looking at.
I will have to talk to myself again when I turn 55.
To anyone who is eavesdropping, this isn't a miracle and it isn't a dream either.
I have talked to myself extensively since 2009 here in my blog on the things I have done to make this possible.
I shared a photo of one my favorite ships in World of Warships in a video yesterday.
Bismark is a ship I enjoy a lot and I have had many hours of fun playing it.
There are some ships I have which are really beautiful to look at.
Unfortunately, that is the only thing I find them good for.
They are not fun to play, for various reasons. :(
It is just like investing in stocks.
Some stocks, we might think they are undervalued and good to invest in.
However, they do nothing for us in terms of dividends.
They don't even give us peace of mind.
One starting with the letter "T" comes to mind.
Bad AK! Bad AK! ;p
The names of the "only nice to look at" ships below, for those who are wondering:
Cherbourg, a French cruiser.
Gneisenau, a German battleship.
Loyang, a Chinese destroyer.
Try World of Warships on the Asian server.
I am having a lot of fun and have not spent a single cent.
Use my referral link and both of us will get some freebies in game.
https://wows.asia/steam/Uther_Kaze
In my last blog post, I made a passing mention about a 6 month T-bill which I bought using money in my CPF-OA maturing in the same week.
I made a request to transfer the money back to my CPF-OA when I saw the funds sitting in my CPF-IA a day later.
It was all rather easy with DBS online banking.
I simply logged in and went to the "Invest" tab and selected "More investment services."
Then, I chose "Refund to CPF Board."
Clicked on "Refund Full Amount", and it was basically done after clicking "Next" and "Submit."
Today, I checked my CPF account and found that the funds are back in my CPF-OA.
Now, I am wondering whether I should buy another 6 months T-bill with the money.
To be quite honest, I am not as enthusiastic as before because the cut-off yield has reduced so much since the start of the year for 6 months T-bills.
In January, it was as high as 4.2% p.a.
The T-bill that matured last week had a cut-off yield of 3.93% p.a.
I am hazarding a guess that the cut-off yield for this week's auction is probably going to be around 3.7% p.a. or similar to what we got in the last auction.
For a sum of $50,000, we are looking at an additional interest income of less than $200 compared to what the CPF-OA would pay for a 7 months period.
Nothing to write home about.
Anyway, with CPF-OA money, I will not go the path of non-competitive bids just in case the unthinkable happens.
I will put in a competitive bid of 3.5% p.a. because I don't think I am interested in anything lower than that.
If the cut-off yield should come in at 3.5% p.a., the difference in interest income is going to be less than $120.
The cut-off yields for 6 months T-bills are declining but the CPF-OA still pays 2.5% p.a.
So, the difference is shrinking and it is really not a big deal.
There is quite a bit of talk in social media that we should all use our CPF-OA money to buy T-bills.
To be honest, unless the sum of money is relatively large, it isn't anything to worry about.
If we do not have a large amount of money sitting in our CPF-OA, we really are not missing out on any meaningful passive income.
I think some people would say don't sweat the small stuff.
The next 6 months T-bill's auction is happening this Thursday.
So, if we are building or maintaining a T-bill ladder, don't forget to put in a bid.
I will be putting in a non-competitive bid again.
No reason to agonize over how much to bid for in a competitive bid when chances are any cut-off yield is likely to be higher than offers from the banks for a 6 months fixed deposit for now.
I just produced a video on a 3.6% per annum offer for a fixed deposit but that is for a 9 months tenure.
This is the link to the video for readers who do not follow me on YouTube:
The sequel to the podcast I did with The Fifth Person last month is here.
I just watched it and I thought it would be good to tie up a few loose ends.
If viewers should spend some time ruminating on what I said in the follow-up podcast, they would not need to read this blog post.
So, this blog post is more for my benefit since I have a need to talk to myself all the time.
AK is mental.
1. My response to a viewer who said most regular folks would have to speculate in order to generate sufficient capital to get a $200K dividend annually from investments.
There is no need to speculate although we could certainly do it and in the podcast I shared my view on that.
There are other ways to make more money and regular readers know I did some trading and I also had side hustles to make more money.
I also blogged about how we should not wait until we have a larger amount of money before we start investing for income.
Dividends made in the early days, no matter how small, would grow our wealth, and could be used to invest for even more income.
2. Possible to make $200K dividends annually with $2M and how to get $2M in capital?
In the podcast, I said that my capital wasn't $10M, $5M, $4M or $3M.
It could have been closer to $2M.
And that is giving me $200K in yearly dividends now?
How is that possible?
Elementary, my dear Watson.
A lot of what I bought was bought during crises, when Mr. Market was suffering from severe depression.
By now, my experience with AIMS APAC REIT should be quite well-known.
It is one of my largest investments and probably my oldest one.
It generates a distribution yield of more than 10% on cost for me, year after year.
As I got into it in a big way during the Global Financial Crisis, it is a major contributor to my yearly passive income.
Of course, my investment has been free of cost for many years too.
I have recovered my capital and I am still receiving income from my investment.
So, of the $200K in dividends received last year, a big chunk of it was actually free money.
It is money generated from nothing.
How did this happen?
Time happened.
It is possible to get higher dividend yields during crises if we invest in the right businesses that would survive the crises.
Of course, we could choose to sell these investments if their stock prices should recover later on.
I used the examples of Lippo Mall Trust and First REIT in the podcast.
Regular readers of my blog would know there were others like Saizen REIT, Croesus Retail Trust and Accordia Golf Trust as well.
Selling for significant capital gains grew my wealth.
It gave me more capital to invest with.
We could also choose to sell a portion of our investments like what I did with Old Chang Kee and Hock Lian Seng.
I sold half of my investments in them when their share prices doubled.
So, whatever I am still holding now is free of cost.
And they are still paying me dividends, year after year.
More free money.
This brings me back to the earlier point on speculation.
Why is there a need to speculate in order to grow wealth?
Simply wait for the next opportunity to make significant investments for income like what I did during the Global Financial Crisis.
Invest in good businesses which are able and willing to pay us.
That opportunity came in the form of the COVID-19 pandemic not too long ago.
Of course, regular readers would know that I emptied my war chest during the pandemic and got into UOB at $19 a share.
That is one of my largest investments today.
It is rewarding me with a dividend yield of almost 9% per annum now.
I also talked about how I started buying into DBS at $13 and $14 a share back in 2016.
At $13 a share, the dividend yield is almost 15% per annum today.
Now, coupled with free money I get from AIMS APAC REIT and some other stocks, do you see why I say the capital deployed isn't as much as what some people say it is?
What I have done over the years isn't simply putting some of my monthly salary in fixed income instruments unless we count the CPF.
If that was my method, then, yes, to generate $200K yearly in dividends now, I would need around $4 million in capital today.
I agree this would be insurmountable for most regular folks.
So, I remind myself of what I did over the years and how I made what seemed impossible happen.
This might be a lot for some people to take in.
There is also the fact that my skill as a wordsmith has regressed in recent years.
So, maybe, read this blog post a few times.
Ruminate on it.
I know I had to.
AK is talking to AK here, after all.
Please don't let people tell us what AK has achieved is not possible for regular folks because the capital required is enormous.
It is simply not true.
This blog post is the truth.
Go share this with people you care about and tell them this.
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