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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Reader #1 says... Do you feel that there’s a REIT in Singapore which we could buy and hold forever? AK says... I thought I could hold First REIT forever. I changed my mind. 😜 Now, I wonder if I could hold AA REIT forever? I think we have to be prepared for changes because they do happen. Related post: Largest investments updated (3Q 2019).
Reader #2 says... I noticed that you hardly talked about Forex Trading. May I know if you could share your thoughts on it? Actually I’m asking this because one of my friends is doing it and he advertised it on his Facebook recently AK says... FOREX trading. Hmm. I dunno anything about trading in currencies. It isn't something I can value. I made a mention of this in my blogs on Bitcoin. Bad AK! Bad AK! 😛
Reader #3 says... Now lippo seems to hv "fixed" the mess. U think for ppl like me who never get (First REIT), can consider? Can heal? AK says... Bandaged :p You see my blog on why I sold and you decide for yourself. 😉 Related post: Sold First REIT.
I know my blog has some reach beyond the shores of our tiny island nation of Singapore. Remember how I received a not too glamorous award from a forum in China recently? See: Once upon a time in China, Weibo says 铁公鸡AK 还好没结婚!
I would like to share a conversation I had with a reader from Hong Kong some time ago: Reader says... Hope you don't mind a guy from H.K. dropping a line. Indeed I used to stay in Singapore for a few years back 20 years ago. As far as I know Singaporeans at that time liked luxury items, and home as well of course. It is kind of having face, isn't it? Glad to find AK's blog which share a different view from the majority (Forgive me, if this sounds offensive, on my poor English). Personally I do agree with your mentality but I think You would appear a bit odd in the main stream?
AK says... I think having face is more important in Asian societies compared to western societies. I could be wrong but this is from my own observation and Hong Kong is probably the same as Singapore in this respect. Me? I am crazy. ;p (But not a Crazy Rich Asian hor.)
Reader says... You are right that face matters in Asian community so does it in H.K. as well. I am not sure if I still understand Singaporean correctly now but as far as Honkies, I think they are more pragmatic than their counterparts. I don't say they don't care face but when it comes to money, they prefer money more than face. People on the street don't put many luxury branded things on them. I think they like the (saved) money better.
I did find that you guys discussed a lot on financial freedom but don't you guys have the CPF which is supposed to support the post retirement living? Is it not adequate for the purpose or you guys just want a better than standard living, apart from the possible and unpredictable retrenchment? Guys, here in H.K. also has a growing concern about financial freedom because our MPF, a copycat of CPF but much less effective, is just a joke. We really need to be on our own feet after retirement. No la, you are not crazy at all but just pragmatic and rational.
AK says... Thank goodness we have the CPF! :) However, not every CPF member knows how to make good use of it. For those who know, who are able and willing to, they could have a million dollars in their CPF by the time they retire from active employment. Enough or not? That depends on the individual. ;) A problem with our CPF system is that the government allows members to use their CPF savings for too many things and people forget the primary purpose of the CPF. More and more CPF members who have used their CPF savings to pay for their homes might find out as they grow older that they might not have enough CPF savings to fund their retirement.
Is it true that Hong Kong people are more pragmatic than Singaporeans? Do they care more about having money than having face?
I don't know but I know that housing cost is through the roof in Hong Kong and I know that unlike our CPF system, their MPF does not provide a relatively reasonable risk free return. So, perhaps, this is why they are more worried than Singaporeans about their personal financial health.
I was once told that if we can climb the corporate ladder in Hong Kong successfully, we can do well anywhere in the world because it is that stressful. I am very fortunate to be a Singaporean and this is one blessing I count all the time. My fellow Singaporeans, we might not be Crazy Rich Asians but if we do the right things, we will be Pragmatic Rich Asians.
When are we investors and when are we speculators? When we buy into something that has intrinsic value which generates revenue and ideally provides us with an income, we are investors. When we buy into something that is the complete opposite but we feel that we could sell it for a higher price in future, we are speculators.
People often get into serious trouble when they think they are investors when they are really speculators. Speculating is not for everyone. People of more modest means would do better if they stay away from speculating and just stick to investing.
The value of all outstanding cryptocurrencies has fallen by about $600 billion, or 75 percent, since the peak in January. The damage is likely to be particularly bad in places like South Korea and Japan, where there was minimal cryptocurrency activity before last year, and where ordinary investors with little expertise jumped in with abandon. Kim Hyon-jeong, a 45-year-old teacher and mother, put in about $90,000 last fall. She drew on savings, an insurance policy and a $25,000 loan. She is down about 90 percent. “I thought my family and I could escape hardship and live more comfortably, but it turned out to be the other way around.”
Twitter is also filled with complaints: “It’s really hard to stomach losing all my hard earned money. Just broke down and cried.” On Reddit, a user posted a picture of the $100,000 loan that he had taken out in December to buy cryptocurrencies — and that he will now be paying back out of his salary for the next three years. “I’ve made a mistake, and now I’m going to have to unfortunately pay the cost for the next few years.” Source: New York Times.
Remember, no one cares more about our money than we do. Before parting with our money, question if it is an invitation to invest or an invitation to speculate. Oh, I don't even borrow money to invest with. Borrow money to speculate with? That is how some people "ki chia" lor.
Related post: My final word on Bitcoin and friends. "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."
I have blogged about my fear of growing old and destitute many times before. Indeed, it is this fear that helps shape the person that is AK and not just in terms of money matters. However, what is worse than growing old and destitute?
Today, I had a chat with a fellow blogger: FB: Oh .. I wanted to ask a qn Suddenly figure out the answwr Hahahahaha sorry AK: LOL
FB: Was wondering when I buy using CPF, SRS and cash When I sell, how they know which to sell? AK: :o FB: Then I realised I put the option Ya I know I getting stupid hahahahaha AK: no lah... growing older is liddat dementia cham liao
FB: I still young at heart Just old at the mind How are u getting on AK: I am growing old and forgetful like u 😛 FB: hope to catch u and others at your evening. I live by the day,hopefully tickets still available AK: I think u missed this blog:
Alamak! So, what is worse than growing old and destitute? Possibly, being rich and suffering from dementia! Hey, it might sound funny to some of you but I am serious hor. OK, at least half serious.
Remember the real story of the rich old lady who was cheated of her money by some tour guide? At least in that case, her daughter found out and took action. Or was it her grand-daughter? Oh, no! I cannot remember. Anyway, how many similar cases go unnoticed or unreported?
So, what is worse than growing old and destitute? Maybe it is not being rich and suffering from dementia. Maybe it is from being rich and suffering from dementia to being old and destitute! The horror!
A friend told me recently that I have followers in an air mile club and that my blog's outreach is quite widespread. He went on to share a screen capture when I expressed my disbelief. Air mile club? I haven't clocked a single air mile in years.
When I was much younger, I enjoyed taking flights but not anymore. I find that it is uncomfortable and inconvenient in more ways than one. However, the catalyst for this blog was really what a reader shared with me recently and it was something that happened in a Weibo forum in China!
Although we can say genetics make us what we are, our environment plays a part in making who we are. If we are not careful, certain things we picked up in our younger days could set us back for life.
"Daddy, my classmate's family just moved into their new condominium. Has swimming pool and tennis court. So nice." If a child said that to his father, I hope the father didn't say: "His parents must be rich!" Then, the child would grow up to think that anyone who buys expensive things must be rich.
"Wow, my colleague just bought a Ferrari. Must be rich!" or "Wahhhh. My supervisor just bought a Richard Mille watch. So rich. So good." Yikes! It is true that some rich people splurge on luxuries but it is not true that people who splurge on luxuries must be rich!
The truly rich are those who can afford to buy all the stuff they need and want 1. Even if they do not have any earned income and 2. Without ever going into debt. I believe that this is something that we should teach our children as soon as possible.
This chat happened after I shared again a blog on a reader's intention to top up his new born's CPF SA account (see related post #1 at the end of this blog). Reader says... Imagine if it works... put 171k at age 0, get 2.18mil at 65, that's 2 mil from the government. AK says... Haha... it is very amazing. I know
Reader says... The figure makes me think that there's something wrong with my calculation. AK says... If you have money to spare, i think it is ok to do it. It is legacy planning. I dunno about the hazards related to character building tho...
Reader says... I think a graduate can easily earn 5mil in their lifetime. But if their habit isn't as strong by the time they found out abt their SA account, I'm afraid they have no desire to work hard. And when they meet obstacles, they might say "ohh I will just quit, I have enough for the future anyways." That's my biggest fear, snatching away their burning desire and drive.
AK says... Yes, I know. I feel that way too... I mean I didn't like the idea of having to work for money but I had to do it. If I had a lot of money in my younger days, I might have stopped working even before I started. 😛 Reader says... Ohh gosh so that's normal right, we humans won't work hard if we know we have enough! Hiez how ahh I want the government's 2 mil but I don't want to steal his drive?
AK says... Hahaha... I am glad I don't have that hot potato in my hand. 😜 Reader says... How uncle AK? How how how? What should my mommy do? AK says... Mommy should ask daddy. I blur... 😛
When my niece was still in primary school, we transferred money in her savings account to her CPF account. That is her own money (i.e. savings from ang baos and pocket money).
I think that is OK.
Teach children the importance of saving money and also explain to them how the CPF works. 儿孙自有儿孙福, 莫为儿孙作马牛.
Growing our wealth can be a daunting task especially when our resources are limited. I think of wealth building as plucking fruits from a tree. Being a lazy fellow, I try to use as little energy as possible and would go for low hanging fruits.
Why climb higher up to pluck fruits and risk a bad fall when there are low hanging fruits? I would climb higher up when my tree climbing skill has improved or if there is a safety net to catch me if I were to fall.
Know what I mean? Hint, hint. Nudge, nudge. Wink, wink.
I received this email from a reader: Hi AK, Thanks for sharing your knowledge with us young folks. Saw you previously at investx. I just did this calculation last night. I realized if at 25 years old, you put in 40k into your SA and have 20k in your OA.
Then you do not contribute a single cent from then on. Based on 5% interest on the first 40k in your SA, then 4%, and 3.5% on your first 20k in OA, then 2.5%, at the end of 40 years, at 65 years old, 60k would have become $332k. This is without doing a single thing. It's actually quite impressive returns. Cpf is good haha.
“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” ― Albert Einstein Correction by the reader: The extra 1% from OA doesn't actually compound in OA. It is credited to SA. So for 20k in OA, the interest 1 yr later is 20500 in OA and an additional 200 into SA. Furthermore, after 55yrs old, first 30k gets another 1%. CPF has a lot of intricacies, but in the end, the magic of compounding is still wonderful!
Reader says... I have been a reader of your blog for many years now. Similar to your childhood experience - my parents also went thru bankruptcy during my teens and bad memories of money lenders coming to the old house. I am Malaysian and coming to 55 years old. I was made redundant middle of last year, was unemployed for 4 months and have since resumed working.
My current gross salary is just enough to cover my household expenses + medical insurance for the whole family. (wife+ 3 kids.) My fear of becoming destitute in the old age has created self-stress, as I continue to have interrupted sleep & tension with family members as I continue to delay/disapprove of their wants.
I currently have > RM3.3Mil in Malaysia Bonds, EPF & fully paid-up endowment policies. I park SGD$0.57Mil in a Singapore bank and have 2 fully paid-up landed property (one for my parents and the other for my family worth a total of RM2.5Mil). AK pls talk to yourself, How should this person 'live life' going forward?
AK says... All of us need to plan for the day when we stop working either voluntarily or involuntarily. Usually, it means saving some money first and then putting it to work. Hopefully, by the time we stop working, we would be able to receive a regular and meaningful income to have a comfortable retirement. If your gross salary is enough to only cover your expenses, it means that you do not have any money left to grow your savings. So, I can understand your worry.
However, I can see that you were prudent in your younger days. Having 2 fully paid homes, $0.6 million in savings and RM3.3 million in bonds, EPF and endowment, I feel that you could possibly have a comfortable enough retirement if you have a modest lifestyle. Having said this, I agree that you should continue to be prudent when it comes to wants because your earned income does not have room for wants. To satisfy the wants, you would probably have to dig into your savings.
Assuming the old folks at home are financially independent, I would continue to work till my 3 children are financially independent. If my parents depend on me financially, then, I would continue to work till they pass on and when all my children are financially independent.
Maybe, I could switch to part time work and have more leisure time when fewer people depend on me financially.
You could rent out one house when your parents pass on in future. The rental income plus the interest income from your bonds and EPF savings mean you would have a more meaningful passive income. Money from your fully paid endowments and savings in the bank could be put to work when Mr. Market goes into a depression or whenever there is a good investment opportunity. I would think of these as your war chests.
If you are risk averse, you could think of purchasing a few annuities to fund your retirement. You might want to do this sooner than later so that you could start receiving another stream of passive income sooner. At your age, your balance sheet is definitely not weak but with dependents, it could be exhausted quite quickly if you are not careful especially when you are not able to grow your savings meaningfully.
Agent: "We should do a review. Your salary is higher now. You should need bigger insurance coverage." This was what one of my insurance agents said to me many years ago. I was wondering why did she say something like that.
Wasn't I financially more secure by then? Why would I need to increase my insurance coverage? Agent: "You are worth more now. Your life is more valuable. It is like insuring a valuable piece of art. More valuable the artwork, the higher the coverage." OK, at that point, I think most people would have just bought into the argument. I didn't. I decided that the agent was only interested in lining her own pockets with more of my money.
Read this conversation I had with a fellow blogger on the need to buy insurance and how this need correctly changes with our circumstances. AK: We should look left and right before crossing the road. In some instances, we should look back as well to make sure we are not in the way of some speeding motorized scooters. Risks have to be managed and having insurance helps to manage risks. Since we are talking about risks, actually, insurance companies could go bust too. What then? OK, I am being a little perverse. ;p So, even if we have insurance, it is still important to have a meaningful emergency fund and I do maintain a very large emergency fund well beyond the 12 to 24 months of recurring expenses that I usually suggest.
The need for certain insurance products in life diminishes if we have a large enough emergency fund as well. Insurance is most relevant when we want to transfer risks which could result in catastrophic financial losses or hardship. So, we have to insure ourselves against events which we or our loved ones might find hard to cope with on our own. The financial ability to cope will, of course, differ from person to person and from family to family.
la papillion: I think it's a important to know that everything we do runs a risk. Even if we buy insurance, it's also possible for the company to close down, as u had mentioned. (that's why don't buy all your policies from one single company). That's not the only risk of buying insurance. These days, even if u bought a plan, u might not be able to claim because of some disclaimers laid out but u didn't know about. So, I agree that we should progressively take the risk ourselves as our financial situation improves. When we just started working, the insurer should bear a big part of the risk because we don't have the means to shoulder the risk. It should be inverted when our situation improves.
Don't think of ourselves as a valuable piece of art that needs insurance coverage. We should become more valuable as a person because our wealth has grown. As we become wealthier, we shouldn't need to have more insurance coverage. How to become wealthier? What? Make more money and buy more stuff that we need to buy insurance for? OK, maybe, I will ask that insurance agent who said I was a valuable piece of art to give you a call. Related posts: 1. Emergency fund. 2. Best insurance. 3. Become wealthier.
Reader: My view is. Cpf is workable for rich ppl ......high educated/ professionals group. This system can help them richer. It’s not really help those below average. Only can make sure they got food when they old n can’t work. No luxury. In other word, cpf is workable for those above average n PR. But not for those below average Singaporean，who really need money to survive ( except 月光族）。So, what is the main purpose for CPF ?
AK: Your question is rhetorical because you gave your answer in your first paragraph. So, is the main purpose of the CPF to make the rich richer? The CPF is meant to help the masses. It is not meant to help the rich. This is quite obvious when the CPF has annual contribution limit and a limit to top ups to the SA and RA. It prevents members with a lot more cash to exploit the system. This is quite obvious when the CPF gives 2% more interest for the first $30K and 1% more interest for the first $60K of CPF savings. It is to help members with less savings.
The real problem lies in the lack of simple financial prudence and basic financial literacy amongst the masses. Lacking in simple financial prudence, they spend all the money they make or more than what they make. They are too easy with spending money. Lacking in basic financial literacy, they allocate capital foolishly. Some losing money to simple scams like magic stones or elaborate scams like PONZI schemes or buying expensive financial products or locking up funds in illiquid non-productive assets.
The CPF is a system that is meant to help the masses to help themselves. If we think the system cannot help us, it is probably because we have not tried to help ourselves.
Of course, there will be some who are physically or mentally handicapped and these are people who genuinely need help. They cannot help themselves.
However, for most of us in Singapore, we don't really have anyone to blame but ourselves if we languish in poverty.
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