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Another quarter has gone by and it is time for another update.
For a change, I will reveal the numbers first.
3Q 2024 passive income: $85.223.17
This is a slight reduction, year on year, as 3Q 2023 passive income was: $85,307.78
Almost negligible difference but it is still a dip.
The reason for this is the much lower contribution from Sabana REIT which I drastically reduced exposure to.
The REIT was one of my largest investments but this is no longer so.
Losing one of my largest investments is bound to have a big impact on my passive income.
However, as the title of the blog suggests, thanks to higher dividends received from my investments in the banks, the impact is mitigated.
The money from the sale of Sabana REIT was used to strengthen my T-bill ladder which is, of course, my war chest.
I am in no hurry to deploy the money since I am already substantially invested in the stock market.
Looking at the investments which contributed the most to my passive income in 3Q 2024:
1. OCBC
2. DBS
3. UOB
No surprises here since OCBC is my largest investment at almost the same size as my investments in DBS and UOB combined.
DBS is going to generate more passive income for me because of the bonus issue which in effect gives a 10% uplift to dividends received.
UOB is, well, UOB.
Conservative and plodding along but still more than decent enough return.
In a recent video, I said I would not be adding to my investments in the banks as their share prices hit all time highs.
I would wait for a pull back in prices before adding.
To be fair, at 1.2x or 1.3x book value or so, the common stock of OCBC and UOB do not look expensive.
So, if I were not invested in the local banks yet, those would be where I put money to work first.
4. IREIT Global
In a recent reply to a comment on the REIT, I said this:
"IREIT's Berlin property will be vacant for 12 to 18 months very soon.
No income to be generated by that asset then.
So, expect income to be impacted.
There is also the point that you (the reader) raised and it is a point I have made many times with regards to REITs.
They will be refinancing in a higher interest rate environment although as many as 6 or 7 rate cuts are coming by end of 2025.
I made a video almost a year ago to talk about all these and said I would not be adding to my investment in IREIT unless unit price went down much lower.
Still, there were readers who added at between 32c to 36c per unit.
To be fair, it isn't just IREIT, I am not interested in putting more money in any REIT now.
My recent video on banks and REITs made this very clear.
My focus is on income and valuation, not so much the prices."
I recently did a podcast with The Fifth Person and there was a segment on whether banks or REITs are more attractive as investments for income.
In case you are interested, here is the video:
In the latest update, IREIT Global said that they are in the final stages of pre-letting the Berlin property to a hotel and another hospitality operator.
They expect to double the asking rent which I believe is realistic as the Berlin property is very much under rented.
I feel that the Berlin property is currently undervalued and if the REIT's management does a good job, we should see value unlocked.
IREIT Global's gearing ratio is still very low but their borrowing cost would most likely increase in 2026 when they refinance.
This is although we are likely to see many rounds of cuts to interest rate before then as the interest rate would still be higher than what we saw in the years following the Global Financial Crisis.
However, the REIT's relatively low level of debt should help to reduce the blow higher interest rate brings.
I revealed not too long ago, my investment in IREIT Global is nursing a big paper loss.
I use the word "nursing" and not "suffering" because the REIT is still paying me a meaningful dividend even as Mr. Market feels pessimistic about it.
At the current unit price, the distribution yield is about 8% and as I feel it is undervalued, there is no reason to sell.
I am quite contented to be paid while waiting for things to improve.
However, if Mr. Market should go into a huge depression and offer me a 10% distribution yield, all else being equal, I would probably buy more.
This would be very similar to the earnings yields offered by our local banks then.
All investments are good investments at the right price.
The right price is not a static number.
It should change if circumstances affecting it should change.
5. AIMS APAC REIT
I cannot end this blog post without giving AIMS APAC REIT a mention.
Still one of my largest passive income generators after so many years.
To me, this is a risk free investment as I have recovered all my capital many years ago.
The unit price can go up or down and it wouldn't affect me at all.
For people who recently invested in the REIT, please be aware that the REIT has perpetual bonds which means that their effective gearing level is higher than the gearing level reported.
Invest in the REIT only if we are comfortable with this.
Having said this, the REIT is well run and enjoys a tail win as logistics real estate which the REIT is mostly about remains in high demand.
So, before I get too busy, I decided that I should get this quarterly update out pronto.
Many hobbies and not enough time.
I suppose this is how retirement should be like.
Doing things not because we have to and not because we depend on them to make a living.
I mean if I were churning out blogs and YouTube videos daily because I need the money, it isn't retirement or at least it isn't a retirement I would want.
Oops.
I have to step on the brakes or this would be turn into a blog about F.I.R.E. instead.
Before I go off track, how much passive income did my portfolio generate for me in 2Q 2024?
$81,339.05
This is more or less the same as 2Q 2023 which saw $79,774.61.
Some investments such as AIMS APAC REIT, Frasers Logistics Trust, VICOM and Raffles Medical Group generated less income for me.
So, although I received more income from my investments in DBS, OCBC and UOB, the uplift is less noticeable.
As the title of this blog suggests, I am quite happy to be a captain of a steady boat.
Not seeking greater growth but a steady stream of meaningful passive income.
As revealed in my last blog post, I have been socking away more money in SSBs and T-bills, growing the risk free bond component of my portfolio.
This will contribute to my passive income, although not by much.
Even as interest rates gradually reduce into next year, I see our local banks as better investments than most for investors for income like me.
With DBS, OCBC and UOB accounting for more than 45% of my portfolio, I expect a steady stream of passive income, barring the unthinkable.
The question is what if something were to go wrong?
Well, I have already gotten a taste of it during the pandemic years.
I blogged about how I was worried back then when passive income reduced as dividends were slashed or suspended.
The takeaway was the importance of having a buffer.
This is so that even with reduced passive income, we can still be quite comfortable.
In 3Q 2024, I suspect my passive income would reduce, year on year.
I would be quite surprised if there isn't a reduction.
This is because I reduced my investment in Sabana REIT significantly and I mentioned this in my last blog post too.
Sabana REIT was formerly one of my smallest largest investments.
So, there should be some impact.
Of course, one quarter does not make a year.
I would just have to wait and see.
I would be quite happy if full year passive income comes in more or less unchanged, year on year.
Time flies and it is time for another quarterly update.
Before I start on the update proper, I just want to say a few words about Wilmar International.
I received a few comments from readers on Wilmar and they asked if I had any updates on the business.
Some would like to know whether it is a good time to add to our investment in Wilmar.
Wilmar remains deeply undervalued and my past analyses are still valid.
Value is easy to see but where stock prices would go is much harder.
In terms of valuation, buying Wilmar today is inexpensive.
However, cheap could get cheaper and since I already have a significant investment in Wilmar, I do not feel any urgency to buy more.
I am simply waiting and if the stock price hits $3 a share, I would buy more.
That is an important support level and it is also where insiders typically add to their positions.
Undervalued could stay undervalued for a long time.
So, I like that Wilmar pays meaningful dividends while waiting for value to be unlocked.
Now, I will talk to myself about passive income received in 1Q 2024.
Like I have said before, 1Q and 4Q of the year are always weak in passive income generation as most businesses pay dividends in 2Q and 3Q of the year.
1Q 2024 is no exception.
It is even weaker this year because I received lower income from my investments in REITs which is not unexpected.
I did not take part in the rights issue to strengthen the balance sheet of AA REIT.
IREIT Global generated lower income as they their property in Darmstadt is still mostly vacant.
Sabana REIT generated lower income as they retained 10% of distributable income to cover costs of manager internalization.
Capitaland China Trust generated lower income as China struggles even as the RMB weakens.
1Q 2024 passive income came in at $39,142.25
This is some 5.4% lower than the $41,364.36 received a year ago.
In terms of absolute dollars, it is a reduction of $2,222.11 or $740.70 per month.
I think I will live. ;p
Before I forget, I should also say that I expect to receive less passive income a year from now, all else being equal, as I sold a significant portion of my investment in Sabana REIT recently.
Since Sabana REIT pays half yearly, my passive income 6 months from now should also be impacted but higher dividends from my investments in DBS, UOB and OCBC should provide a cushion.
Although passive income in 1Q 2024 came in lower, I am still quite comfortable.
I was worried during the pandemic because dividends and interest income reduced and pretty drastically too.
Regular readers know that I have a big emergency fund but if the pandemic lasted much longer, even that could get depleted.
Savers are fortunate that interest rates are higher now which means we are receiving meaningful interest income.
This isn't something I have blogged about before because for most of my blogging years, interest rates were too low to make any meaningful contribution.
These days, I receive interest income of approximately $20,000 a year.
This is not accounted for in my quarterly update.
I thought this is worth a mention because a higher interest rate environment isn't all that bad.
Charlie Munger said before that it takes character to sit on money and do nothing.
There are worse situations to be in.
So, what am I doing as my cash position grows.
I will just wait for the next investment opportunity.
It was something I played but only for a bit and I enjoyed the anime.
I didn't have a deck of my own as it was too expensive to build one.
I had to use a friend's deck.
It was so long ago.
Old brain.
So rusty.
It is a strategy game that really tests my ageing brain which is a good thing.
Helps to slow the onset of dementia, maybe.
Anyway, like I said in a previous blog post, I have been contemplating just buying T-bills and bonds from now on.
Of course, if the yields decline, I could always go back to making contributions to my CPF account.
Regular readers know that I treat my CPF savings as an investment grade bond component of my portfolio which pays reasonably attractive coupons.
This way, I would continue to grow the risk free component of my investment portfolio.
I must realize and embrace the fact that I don't really have to take on more risk anymore although I could still buy more stocks if Mr. Market goes into another severe depression.
Like I said several times before, that would be the time to dismantle my T-bill ladder.
Doing this, buying T-bills and bonds in the meantime, price volatility on the portfolio level would reduce over time.
The last T-bill auction saw a cut-off yield of 3.74% p.a.
Until the Fed reduce interest rate, I am expecting similar cut-off yields for the time being.
I have put in a non-competitive bid for the upcoming auction happening on this Thursday, 18th of January.
In my first blog post of the year, I said that 4Q 2023 passive income should come in weaker.
This is because OCBC and UOB only pay dividends in Q2 and Q3.
So, missing these major contributors, it is only reasonable to expect lower passive income numbers for me in Q4 2023.
Also, I expected Q4 2023 passive income to be lower, year on year.
This is because my investments in REITs and property developers were generating less income for me in 2023 compared to the year before.
High interest rates are pretty challenging for some entities.
Fortunately, DBS pays dividends quarterly.
Being another substantial investment in my portfolio, hopefully, this would provide a bit of a cushion.
This is especially when DBS increased their dividend per share not too long ago.
My persistence in building and strengthening a T-bill ladder in an environment of higher yields should also help.
All of that went on in my head.
So, how did things turn out?
Total passive income generated by my investments in 4Q 2023 was:
$ 24,849.44
This is some 2% lower, year on year.
It was $25,331.81 in 4Q 2022.
Hmm, the decline was not unexpected.
Still, like the title says, I smiled because it wasn't too bad.
2% decline on a relatively smaller sum.
Not too damaging.
Thanks to strong Q2 and Q3 numbers, full year 2023 registered an improvement.
Q2 and Q3 saw larger percentage gains on relatively larger numbers, after all.
Everything taken into consideration, pretty decent.
Full year 2023 saw a 12% increase in income generated by my investment portfolio, year on year.
Total amount:
$231,495.19
This compared to $205,999.73 for full year 2022.
To new readers of my blog, this is probably all very impressive.
However, readers who have been following my blog for many years would know that blog posts like this is more to inspire than to impress.
If AK can do it, so can you!
I am not just saying this.
I mean it.
It is about being prudent with money.
It is about keeping our needs simple and our wants few.
It is about being patient and getting rich slow.
It is about being pragmatic and staying invested in bona fide income generating assets.
If it all sounds very boring, well, it is.
It is all about staying grounded and marching towards that pot of gold we know is waiting for us to unearth.
Unearth?
That sounds like work.
Yes, it is.
There is no free lunch in this world.
It is not about going after what could be there but what we know is there.
So, what is my strategy for 2024?
More of the same, really.
I expect my investment portfolio to continue generating income for me this year, barring earth shattering events.
If another pandemic strikes or if war happens on a global scale, expect income generation to slow down or stall.
I can only hope that sanity prevails and that more people in power are willing and able to avoid war on a larger scale.
War is fully avoidable unlike pandemics.
Unfortunately, many human beings are selfish and narrow minded.
When they are put in positions of powers, they could then influence the gullible to do the unthinkable.
This is not a problem exclusive to less developed countries or politically less stable regions in the world, of course.
I am spending some time to talk to myself about this because compared to economic challenges, this is a bigger problem.
Where economic challenges are concerned, high inflation has been tamed or so it seems.
Expectations are for interest rates to start declining sometime this year and there are some experts who think that the Fed will bring interest rate down to under 3% in order to ensure a soft landing.
This is good news for REITs, especially those which are highly leveraged as well as those which have a big part of their debt on floating rates.
For banks, it would mean moderating earnings as rapid interest rate hikes end a strong tailwind.
Still, banks have proven again and again that they have been able to deliver earnings growth over time.
So, staying invested is what I will do.
Before I end this blog post, I will remind myself of the following.
"There will come a day when my passive income generated exceeds my earned income doing what I do.
"If I have always been prudent with money, that is probably the day I become financially free.
"That is when I no longer have to work for money."
I thought of making a video out of this but I am feeling a little under the weather.
So, I decided to blog about this instead while the thought is still fresh on my mind.
Something I do regularly is to blog about my passive income.
It is a digital record of not only the numbers but also my thoughts at those different points in time.
Of course, the blog posts are also to inspire readers.
Hopefully, more regular folks like me would make investing for income a part of their journey towards financial freedom.
Yes, if AK can do it, so can you.
While having a conversation with some friends recently, they asked me how did I continue to grow my passive income while lacking an earned income in the past 8 years?
One of them reminded me how my annual passive income was closer to $100K more than 10 years ago.
Now, it is more than $200K.
It isn't something I have given much thought to.
So, what did I say?
"I am just very frugal when it comes to money which allows me to continue investing more money although I lack an earned income."
When I left the workforce, the biggest disadvantage was losing that earned income.
While still receiving an earned income, I was able to reinvest all of my passive income and also some of my earned income.
Retirement has definitely slowed the pace of wealth building.
A friend told me that being able to continue to grow my wealth even in retirement is quite impressive.
(Most people see their wealth dwindling in retirement.)
How did I achieve this?
In a nutshell, this is the beauty of investing for income.
I consume the income generated by my investment portfolio.
I do not consume my investment portfolio.
I do not eat the chicken but the eggs laid by the chicken.
However, this isn't the full story.
Remember how my friends did a CSI on my passive income and reminded me that my annual passive income was closer to $100K more than 10 years ago?
Wasn't $100K a year already enough to F.I.R.E. for someone like me?
Well, it probably was more than enough.
So, what was the problem?
I am a worrier.
Hard to change.
I needed a buffer and a significant one too.
How significant a buffer?
Well, consider this.
Even today, with inflation being as high as it is, I recently blogged about how I would probably be quite comfortable with $48,000 a year.
See how significant the buffer is?
If I had retired more than 10 years ago instead of 8 years ago, I would have had a smaller buffer.
If I had spent money more freely, the behavior would have probably carried into my retirement years.
I would not have been able to continue building my wealth to what it is today then.
For most of us, it is far easier to curb the outflow than to grow the inflow of wealth.
So, it isn't just about not eating the chicken but the eggs.
It is also about having more than one chicken or having a buffer.
Don't consume all the eggs so that we can sell some of the eggs to buy more chickens.
Of course, there were also times when buyers offered much higher prices for my chickens.
I used the proceeds to buy even more chickens.
Not all chickens thrive but most of them do.
So, how did AK the early retiree grow his passive income from $100K a year to $200K a year?
No earned income but can continue growing passive income?
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.
Why?
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.
For readers who have been following my blog consistently, the title of this blog post might invoke a feeling of deja vu.
It is rather similar to the title of my blog post 3 months ago in which I shared my 2Q 2023 results.
That said "Stronger again!"
This says "Stronger yet again!"
AK is so creative!
Well, jokes aside, I really couldn't think of anything more impactful and accurate at the same time.
For those who follow my YouTube channel, this video might look familiar:
Yes, for the first time in a long time, I shared some numbers before the quarter was up.
With that kind of number after only 2 months into the quarter, I could tell that 3Q 2023 would probably beat my passive income received in 2Q 2023.
In the third month of 3Q 2023, income distributions from my investments in many REITs came in.
Although there was a decline in income received from REITs as a whole which was not unexpected given that three of my largest investments in S-REITs paid less, overall passive income for 3Q 2023 still came in higher.
This is thanks in a large part to the much higher dividends paid out by DBS, OCBC and UOB which are all in my list of largest investments in my portfolio.
Decision to increase exposure to OCBC and UOB from time to time since the pandemic has been very rewarding while the decision to stay invested in IREIT Global has not been as rewarding.
Still, I am of the opinion that IREIT Global has room to grow its revenue and that the REIT is in the process of transformation.
There could be some bumps ahead and investors might want to buckle up.
IREIT Global is undervalued if the 6 months lease extension at a 45% higher asking rent for its Berlin asset is anything to go by.
Unlike some REITs like Manulife US REIT, IREIT Global is not in distress even though its unit price suggests that it could be so.
Unfortunately, the aggressive and rapid hikes in interest rates are not friendly to REITs, especially with the "higher for longer" narrative gaining traction.
Still, with a relatively strong balance sheet, substantial sponsor interest and a capable management, I am willing to wait while I am being paid.
This will be short blog post as I do not want to rehash stuff I have said about my investments before.
Oops.
I almost forgot.
So, what is my 3Q 2023 passive income?
In the video I shared at the beginning of this blog post, I said that 3Q 2023 passive income would probably exceed $80,000.
The actual number is:
S$ 84,942.36
This is almost 12% higher than the $75,989.50 in 3Q 2022.
I think I have beaten inflation in 3Q 2023.
Back in 3Q 2022, I said I was stunned like vegetable, and I feel the same way one year later.
What am I doing, going forward?
The next 6 months will see much lower passive income being received without contributions from OCBC, UOB and many other investments.
So, I am going to be extra careful with money.
What about the investment front?
I am staying invested because I cannot tell if the market is going up or down.
Staying invested in bona fide income producing assets means being paid while I wait.
Filling up my war chest for when Mr. Market becomes depressed again.
This is even as my war chest will grow much slower than before as more of my passive income will be consumed from this year on.
I cannot predict but I can most certainly prepare.
When I blogged about last month's SSB which offered 3.16% p.a. 10 year average yield, I said I would probably be buying some.
And I did.
Just a modest sum of money as I was "borrowing" the money from 2025.
It was money which I would otherwise have earmarked for voluntary contribution to my CPF account in 2025.
2025 would be the year I turn 54 years of age.
Now, I see this month's SSB offering 3.32% p.a.
What am I doing?
I will be buying again, I suppose.
Again, it would be a modest sum of money.
Although I am sticking to my strategy of growing the investment grade bond component of my investment portfolio, there might no longer be a hurry to lock in higher yields for the longer term now.
I recently produced two YouTube videos on the likelihood of interest rates staying higher for longer.
This is the current day narrative and it seems to have gained traction.
This is probably why the last T-bill auction surprised us with a cut-off yield of 4.07% p.a. too.
Much higher than many expected.
If you have not watched the YouTube videos yet, here are the links:
The latest 6 months T-bill gives us a cut-off yield of 4.07% p.a.
Yes, AK stunned like vegetable!
I was expecting 3.75% p.a. thereabouts!
Pleasantly surprised!
The narrative that interest rates will stay higher for longer might be true, after all.
Don't know how much longer this situation is going to last but I will just make hay while the Sun shines.
To be sure, I am also doing this while waiting for Mr. Market to go into a depression.
It is bound to happen.
So, it is not going to be if Mr. Market goes into a depression but when Mr. Market goes into a depression.
I want to be prepared when that happens.
It could happen next year or the year after that or it could happen before this year ends.
There are so many different opinions from so many experts that I have decided to stop listening a long time ago.
All I know is that if I am prepared, I will do OK.
With my OCBC fixed deposits which paid 4.08% p.a. maturing this month and next month, I am rolling most of the funds into new fixed deposits with with CIMB.
Not as high as 4.08% p.a. but higher than the 2.7% p.a. offered by OCBC.
I am using a portion of the funds to strengthen my T-bill ladder too which will pay me every 2 weeks.
Fortunately, I did that for the recent T-bill auction too.
My non-competitve bids were fully allotted!
4.07% p.a.
AK is giddy with joy!
Always ready, surely, it is good to be paid while I wait.
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