Surprise! Passive income I received from T-bills. Reminders! "Buy and forget" assets! Why am I building my cash pile?

For readers who prefer reading, here is the transcript of a video I made recently on "buy and forget" assets, how important T-bills are in my strategy and why it isn't a bad idea to have more cash and cash equivalents?

There were a couple of mistakes I made in the video which I have corrected for this blog.

Not all that important but my OCD wouldn't let me get away with it.

"Old Change Kee" corrected to "Old Chang Kee".

"Q1 2023" corrected to "Q2 2023".

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I mentioned in a few blogs in the past that I would sometimes check my savings account and get a pleasant "surprise."

The "surprises" are dividends from investments that I have not done anything to for so long that I almost forget I have them.

You know what they say about buying and forgetting?

Some people would look down on people like that.

However, for me, it has not always been a bad thing.

These are stocks which are usually free of cost for me but are still generating income.

During "Evening with AK and friends 2023", I mentioned Old Chang Kee and Hock Lian Seng as two of such investments for me.

They are not the only two either but I cannot recall the others now.

I will remember when I see their dividends come in, I am sure.

My memory is getting quite terrible.

Anyway, why am I talking to myself about this?

Well, quite recently, there is a new addition to these "surprises".

T-bills.

As my 6 months T-bill ladder is complete, I have money coming back to me every 2 weeks.

However, as it is a relatively recent development, I am still not used to it.

This is especially when the amount is relatively big compared to "dividends" received from investments I sometimes forget I have.

Of course, I also have to remind myself that I am not receiving money that I can spend here.

It is a return of my capital.

I have quite a bit of money coming in this month as the month of May is usually a good month for dividends.

Mixed together with this is money coming back from T-bills bought in October and November last year.

Already bought some 6 months T-bills in the last round of auction which saw a cut-off yield of 3.78% p.a.

Will be putting in a non-competitive bid for the upcoming 6 months T-bill auction next week.

I would be quite happy to get a cut-off yield of 3.78% p.a. again or thereabout.

Basically, anything higher than the 6 months fixed deposit rates offered by DBS, OCBC or UOB would be good enough for me.

I remind myself that T-bills pay us at the beginning of the 6 months duration which means the "interest rate" is actually higher than what the cut-off yield indicates.

I also remind myself that this is not my main source of passive income and it should not be my main source of passive income.

To illustrate this, in Q2 2023 so far, I have bought three T-bills which have generated about $500 in passive income for me.

This is really pocket money compared to dividends I have received so far.

However, I never look down on pocket money especially if it flows into my pocket regularly.

Also, this is money which I didn't have before.

This is all thanks to higher interest rates.

(I am also very thankful for a strong Singapore Dollar. Even foreigners want to get Singapore T-bills.)

As an investor for income, I am a creature of comfort and I also said during "Evening with AK and friends 2023" that investing for income is very comforting.

I find T-bills more comforting now that they pay better than they did in a long time.

"The front end of the yield curve is still elevated even as the Fed has signaled a pause in rate hikes.

"I know there is talk of a Fed pivot by end of the year and it could well happen but worrying about whether it will happen or not does nothing to generate income for me.

"I would rather make hay while the sun shines.

"Anyway, my expectation is for 6 months T-bills to remain relatively rewarding in the near future, taking into consideration that it is risk free and volatility free just like the CPF."

Source: 

See related post at the end of this blog.

(My YouTube video on this topic.)

There is nothing wrong with having more cash and cash equivalents in our financial pyramid especially in an environment when cash is no longer trash.

If things should go terribly wrong like they do from time to time, with a stronger footing, we should have less to fear and greater ability to take advantage of investment opportunities.

AK is lazy and a creature of comfort.

Don't do what I do unless you meet those requirements.

Jokes aside, it is never my way or the highway.

We should all have a plan, our own plan.

If AK can do it, so can you!

Related post:

Fixed income update.

Invested in ST Engineering for >20 years! BUY more now?

For readers who prefer reading to watching videos, this is the transcript of a recent YouTube video I produced on ST Engineering.

In the video, I reminded myself of my history with ST Engineering as well as how I would decide on whether Mr. Market was offering a fairly good price?

Don't worry as it isn't rocket science.

Just some quick and dirty number crunching, oppa AK style!
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I found a newspaper article I cut out in the year 2003.

It was about ST Engineering, a company which I have been a shareholder of for more than 20 years by now.

ST Engineering's stock trades at $3.70 a share and it has been paying out dividends annually without fail since I first became a shareholder.

I cannot remember how much exactly from year to year but, off the top of my head, an average of 15c annually in dividend per share cannot be too wrong.

In case you are wondering, yes, I am still holding on to those shares I bought at $1.55 a piece more than 20 years ago.



What would have happened if I had decided to spend that money all those years ago on a luxury watch to show that I had arrived instead of investing in ST Engineering?

If I did that, I think I would still not have arrived.

Isn't there something to be said about delaying gratifications and investing for income?

Once people are determined to make an improvement to their personal finances, once they try out some of the ideas I have blogged about, they will see for themselves that the magic that AK has, they have it in them too.

Suddenly, it isn't so mystical after all.



A reader told me this in 2017.

I remember you mentioned ST Engineering in Evening with AK and friends a couple of years back in 2015.

At that point, you mentioned you would look at adding if it went below $2.90 per share. 

It was hovering around $3.20.

It was my first time attending your talk.

I just managed to scoop some at $2.70!

AK told the reader.

$2.70 a share is a very good price.

I would hold on to it.

ST Engineering is a good income generating asset.

At the time, I also said the following.

I reminded myself how I would determine a fair entry price for ST Engineering.

ST Engineering PE ratio has always been pretty high, but I would not let that deter me.

Instead, I use the ratio to guide me.



Even during the Global Financial Crisis, ST Engineering's PE ratio was 15 times.

That could be considered as crisis valuation for ST Engineering, and I have used that as a yardstick for the stock for a long time.

Today, ST Engineering trades at a PE ratio of some 23 times.

In one of my past blogs, I said if I were to invest in ST Engineering not during a crisis, I would only do so if its PE ratio is 20 times or lower.

What about dividend yield?

Of course, that is something I would look at too as an investor for income.

Today, it is about 4.6% which is higher than the 4.2% ComfortDelGro offers.



However, we have to remember that ST Engineering is no longer the same as it was 20 plus years ago.

When I first invested in ST Engineering, it was sitting on a billion dollars in cash which it didn't know what to do with.

So, it paid out 100% of its earnings yearly to its shareholders.

Getting 15 cents dividend per share for a stock I paid $1.55 a share for was so sweet that it could have given me diabetes.

Today, ST Engineering is in a net debt position to the tune of almost six billion dollars.

That translates to a gearing level of almost 250%!

So, don't just take that 4.6% dividend yield at face value.

That dividend yield is achieved on the back of some amazing leverage.



In comparison, ComfortDelGro is in a net cash position and its 4.2% dividend yield is not achieved with leverage.

I would not be adding to my investment in ST Engineering although I am quite happy to hold on to my existing investment.

My investment in ST Engineering is free of cost and has been so for some time.

Getting free money regularly makes me happy.

However, to add to my investment in ST Engineering, I would have to see its gearing level reduce substantially.

Of course, if we had a crystal ball which was able to tell us that would certainly happen and soon, if ST Engineering should trade at a PE ratio of 20 times or lower, it would be a BUY for me.

If AK can talk to himself, so can you!

Recently published:
ComfortDelgro: BUY more now?