A lazy and fool proof way to investing for income?

Reader says...

I attended your AK with friends on Friday (15 July) and came away a bit disappointed. 

Not because you did badly (in fact you were the most impressive of the 3 presenters), just that I went into the session with certain expectations of what I could potentially learn from you which was met only partially. 

I didn't expect it to be a Q&A forum (this is my first AK session) and a session about specific stock/REIT question after question. I was hoping that there was a more in-depth discussion about underlying concepts or a mindset to approaching investments/income investing. Yes there were sprinkles of that but it's probably safe to say the session was dominated by the "what is your view of Centurion, or Sembawang, or Soilbuilt REITs....". You get the drift.

My goal is, like a lot of people, comfortable retirement and maintenance of my current lifestyle with a predictable stream of income. 

Objective - As I have a day job, and I suck at investing, I want to achieve my goal above by having a dummies methodology to invest in REITs or other income generating investments without a lot of decision-making (I'm lazier than you). I'm not looking at super returns, around 5-6% or so would do as long as they are predictable (more or less). 

Seriously, I am not suited to do investments and I have made a lot of investor mistakes (loss aversion, recency bias etc). What is in my favor is a fairly solid investment foundation and from there, I want to build on it by making a reasonable amount of return with reasonable predictablity, and without needing to make a lot of decisions.

That's why REIT investing appeals to me. My sense is the analysis for REITs is lesser than that of a stock such as DBS (which you mentioned quite extensively on Friday). I was hoping to narrow down the time and effort to do analysis on REITs.

I will continue to focus on your REITs related blog posts (especially those on the right hand side bar) but have already benefited from your advice on CPF (I'm going to top up my mum's CPF RA to earn a blended 4.45% returns and maintain some liquidity by drawing a monthly sum from her account over 5 years.) 

AK says...

Oops. Yes, "Evening with AK and friends" is Q&A. I assume that the audience are all my readers and that they know my approach to achieving financial freedom. "Evening with AK and friends" is for further interaction, face to (masked) face. ;p

If you are a lazy guy like me, yes, make good use of the CPF which you have started doing. That is as good as it gets when it comes to fixed income instruments. It is really a AAA rated sovereign bond with an annuity thrown in.

REITs? Well, it isn't as simple as you think. Investing in REITs looks simple now because conditions are relatively benign for REITs. Of course, for the income investor, REITs are still relevant instruments. 





Keep reading. Keep learning. 

I am still learning too. :)

You might want to consider regularly socking away some money in an ETF that tracks the STI. ASSI guest blogger, Matthew Seah, blogged about this strategy before and you will find his name in the left side bar of my blog. Click on his name and you will see all his blog posts.

Investing for income, focus on the business and its ability to generate income and willingness to share that income with you. Try not to be (too) emotionally affected by price volatility.

Start investing but keep a war chest ready to buy more if Mr. Market goes into a depression. Do this and, given enough time, you will do well enough. :)





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1. Risk averse? STI ETF, REITs or stocks?

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3 questions on investment strategy.

Omg! You actually reply! Thanks a lot really appreciate it!

Ok sorry but i have more questions!

1.       I read an article on facebook (sponsored article), that says if you are 30 years old you need to saveabout $700 per month on a 6% yield in order to hit i think 1m by age 65.

a.       What I want to know is, does the funds like CPF or anything other things that provides that so call xx% calculated on an annual basis? What i mean is that is there a difference if i were to save and invest lets say $1000 every month into something or at the end of the year i just invest $12000? Will i get the same returns?

b.       Next part of the question is Would it be better to have regular buy ins of a stock or REITs compared to 1 lum sum? The question mark that i have is the effect of compounding effect which you mentioned many times on your blog especially with CPF.

                                                               i.      My thoughts are that if i have an emergency fund already saved up and stashed away, calculated my monthly expenses and know how much i can spare per month in excess to invest and already have a war chest in your terms. I should first put this war chest to use to obtain dividends in terms of cash flow now at the rate of perhaps 5,7,9% whicever. And then coupled with the monthly excess that I have build up another war chest to buy in regularly? There are definitely pros and cons such as if i use everything in the war chest and have no cash upfront, then I wouldnt be able to make use of events such as the GFC to stash on more cheap buys. But just would like to know your thoughts on my thinking process and any advice on that?

2.       If i have investments in unit trusts currently, should i sell them off so that I can go into stocks and reits?

a.       I basically went into them for their historical dividends based on the information given on fundsupermart. Of course for some there were capital gains and some losses. So no read up on company fundementals, no fa or ta and just went in.

3.       I am a self employed so there is no employer contribution for cpf. Shd i then make a monthly contribution or wait till before dec ends then make a lum sum? How is the interest calculate in that case?

a.       Since that i am self employed, which option shd i go for, using the sum of money i have to top up cpf? Or use that same sum of money to buy into reits or stocks?

Thanks alot!
W

Hi W,

1 a. There will be a difference. See this:
http://singaporeanstocksinvestor.blogspot.sg/2015/01/cpf-minimum-sum-top-up-and-interest.html

1 b. Investing a fixed sum regularly or dollar cost averaging is a tried and tested approach. You become less concerned with volatility. However, having a war chest ready to buy more when Mr. Market feels depressed is a good idea. Nibble most of the time and gobble sometimes.
See this:
http://singaporeanstocksinvestor.blogspot.sg/2013/08/are-you-ready-to-come-out-on-top-from_22.html

2. I won't tell you what to do but I have given unit trusts a wide berth for many years.

3. See answer to 1a above.
I treat the CPF as a long term investment grade bond which pays an attractive coupon. Whether we believe in having an instrument like this in our portfolio will shape our decision to top up our CPF accounts or to put everything in the equities market.

Best wishes,
AK

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Could this be the way to financial freedom in 5 years?

Hello AK,

I have been reading and following your blog. I have just started my investment journey and hopes to attain financial freedom within 5 years.

Recently, I have been given an investment offer which I would like to share with you and seek your help  by listening to your opinions. I shall not share with you where and who offered me the opportunity as I want to prevent any accidental bias.

I received an offer to join a club opened by a company (it is a reputable company, which is why I do not want to share with you the name of the company now as I believe you would have heard of the company before.) in Singapore. In order to join this club, you have to commit a 5-figure sum for a few years. 

One of the businesses of the company is to help other company IPO. 

Basically, in point form, I shall name the company I am talking about as IPO Services Ltd. 

1) Herbal Tea Ptd Ltd wants to IPO on SGX, so they approached IPO Services Ltd for help. 

2) IPO Services Ltd will check through Herbal Tea Pte Ltd's finances and other legal requirements that SGX requires in order for a company to be listed on SGX.

3) Herbal Tea Pte Ltd passed all the financial and legal requirements. Next, Herbal Tea Pte Ltd needs enough public interest before they can be listed. (If not they won't be a PUBLIC listed company.)

4) This is where members of the club comes in. IPO Services Ltd will show members this company and interested members will form the bulk of the "interested public" and be issued shares at pre-IPO prices. (For eg. $0.50)

5) With everything in place, SGX approves and Herbal Tea Pte Ltd is listed on SGX. The IPO price is $1. So members of the club can

• Sell off their shares to the "enthusiastic public" and make a 100% profit.
• Hold onto their shares if they believe in Herbal Tea. (Bearing in mind that the shares was initially purchased at pre-IPO price)

Therefore, effectively, the club allows me access to IPO opportunities BEFORE IPO.

 

I have read in many books to avoid IPO as IPOs are often over-priced and there are simply too many uncertainties. The way this offer was portrayed to me sounds "quite" secure. However, being the skeptic that I am, I wonder what is the catch? 

I am showed many videos of members giving testimonial of their 100%, 200% or even 300% profits within months (this should be a red flag,  but hey, this is not some shady gold buyback company I am talking about but a reputable PLC).

That 1 question alone is sufficient enough for me to not make any commitment, however, if it is genuine, I wouldn't want to miss out on an opportunity like that. 

Therefore, I am emailing you to ask you for your opinions on this "investment opportunity"

Hope you can help me.

Cheers

Hi,

If I were able to list a company at $1 a share, why should I sell to you at 50c a share? I might do it to incentivise employees and insiders but members of an IPO club to show that there is interest from the public? I don't think so.

Also, in order to join this club, you have to commit a 5 figure sum for a few years? For me to part with so much money for such a long time, an investment has to be a highly transparent and tangible. This does not sound like one.

There is no free lunch. This has to be a highly rewarding scheme for the owners of the IPO club. How are they rewarded?

This is not an investment opportunity to me. It is, at best, an invitation to speculate.

Best wishes,
AK

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NOTE: The first step in converting from private to public is to undertake a process called due diligence. Due diligence is the analysis and valuing of a company and it is usually performed by a professional accountancy firm. It will involve a comprehensive look into almost every area of the business. This due diligence is the foundation upon which all information disclosed to the public is based. A value is then assigned to the company and an appropriate number of shares are issued. At this stage,the investing public is offered an opportunity to buy the shares. This is called the Initial Public Offering (IPO). (Source: Taking your venture public in SG.)