Overpaid for our investments in business trusts?

As investors, we do our best to look ahead but because we have imperfect knowledge, what we can see is probably just our best guess. Things are usually clearer on hindsight.

As income investors, we can be too concerned with yields sometimes and it does not help that certain consultants also put their focus on yields. To be fair, this is a common pitfall and I fell into such pits in my early days as well. However, consultants are professionals and, as a consequence, sometimes, they have a bit more reach. We should be more wary.

I do not have perfect knowledge. I am not a professional. I am just your average retail investor who has opened his fair share of cans of worms. I just share my thoughts and experience here in my blog but, remember, that they are not sacred in any way.

On 20 June 2014, I wrote a piece in response to a report which quoted a consultant as saying "If you want to invest in business trusts, you shouldn't be looking so much at capital gain... your objective is more dividend yield. Prices do come down, but you actually still get your dividend yield."

I took issue with that statement and listed 5 reminders to myself:

1. Dividend yield is a key factor, not the only key factor.

2. Keep an eye on possible capital gain or loss.

3. Look at yield on investment based on current price.

4. Could it be that we are taking back our own money?

5. Does the yield sufficiently compensate us for the risk?

To read the complete blog, refer to related post number 1 at the end of this blog.

Over the weekend, an article in The EDGE said:

"There is no doubt now that investors who bought shares in Hutchison Port Holdings Trust (HPH Trust) at its IPO four years ago paid Hong Kong tycoon Li Ka-shing's corporate stable far too much."

I did not apply for shares in HPH Trust's IPO.

Actually, I have not applied for shares in any IPO for many years. I think avoiding IPOs has generally been more rewarding for me than not. So, this might be a good rule of thumb for me to stick to.

Similarly for Croesus Retail Trust's IPO, I avoided although I was interested and watched in disbelief as the unit price was chased to a high of $1.18. Its yield was being compressed so much as its price shot through the roof and some people still said it was attractive enough to buy. Did they know something I didn't? I wondered to myself, self-doubt settling in.

Well, this is just a short blog post to remind myself that REITs and business trusts are relevant tools for income investors and that there are many things to look out for, not just their distribution yields. Look at yields only and I could end up overpaying.

Related posts:
1. High yielding business trusts: A discussion.
2. HPH Trust: Storm clouds over a safe harbour.
3. Croesus Retail Trust: Motivations and risks.

An annuity: Would you rather have it or not? (UPDATED)

I told a friend over a tau hui break just now that there are really many Singaporean families which seem to be doing very well but, in actual fact, are not doing well at all. 

In many instances, low or non-existent financial literacy is to be blamed.

Chances are that these people will be unprepared or under-prepared for retirement. 

Many actually do not believe in annuities, especially the one that is linked to the CPF. 





In fact, ironically, I have found that savvy investors are more likely to say that annuities have a place in their retirement portfolios while people who really need annuities more don't seem to trust them.


Anyway, if you do not believe in the CPF Life, no matter what people say, I understand if you want to skip the rest of the article but you might want to read this instead:

Have huge amount of savings and work till 70?




For the rest of us who believe in the CPF Life, we would be happy to know that there is an article in The Sunday Times today which compares the returns of the CPF Life against other annuities available in Singapore.

CPF Life is the best annuity there is in Singapore.

CPF members are a fortunate bunch even if many don't know this.

Source: The Sunday Times, 15 Feb 15.

There is also a very good article by Mok Fei Fei on the CPF which discussed:

1. Why it is wise to keep money in the CPF?

2. Know which plan you are eligible for.
(Remember the 3 little pigs and their huts? See Related Post 2.)




3. Check both returns and risks.
(Remember the Hong Lim Park protests? See Related Post 3.)

4. Decide how much you need.

5. Maybe complement CPF Life with private plans.





UPDATE:

Central Provident Fund (CPF) members will be able to grow their retirement savings further next year as the Government will raise interest rates on account balances, the salary ceiling for contributions and contribution rates for older workers.

An additional 1 per cent interest will be applied to the first $30,000 of CPF savings for those aged 55 and above next year, on top of the existing 1 per cent extra interest on the first $60,000 of savings. This means that the first $30,000 in Special, Retirement or Medisave accounts can earn up to 6 per cent interest.

(Source: The Straits Times, 23 Feb 15.)

Related posts:
1. An annuity proposal: A case study.
2. Proposed changes to the CPF.
3. We do better managing our savings than the CPF does.