Free e-book by AK now has a cover!

This was sent to me in an e-mail:

Volume 1: Retiring before 60 is not a dream.
Volume 2: Achieving Level 1 Financial Security.
Volume 3: Don't depend on wage increases for higher income.

(Please click on the titles below picture of "e-book" to start reading.)

Someone took pity on me for being an IT idiot.

This is so cool! I think I look slimmer here too. LOL.

9pm, 23 June 2014:
I added a book title! Not bad for an IT idiot. ;p

To retire by age 45, start with a plan.

I have blogged about how it is important to have a war chest a number of times before. 

I have also said during my talk at InvestX Congress that it was precisely because I had a war chest during the GFC that I was able to take advantage of the very low prices offered by Mr. Market.

I also said that I lost quite a bit of money before which set my retirement plan back by about 2 years and how having a war chest ready helped to propel my plan forward by 10 years. 

What did I mean by this?

Now, before I continue, I have to caution that this was something that I thought about a long time ago when I just started working life as a young adult. 


I was trying to grow my wealth through investments and I was a frog in a teeny tiny well in those days. 

I was basically thinking of amassing enough wealth to retire by age 45 and the plan had a projection to age 75.

So, imagine, if you will, a Mr. Tan who would like to retire by age 45. 

He decided that he required at least $2,500 a month to be comfortable and, assuming a normalised inflation rate of 3% and using a 5 year band to help determine the amount of money needed till age 75, he got the following:





Age 45 - 49: 
$ 2,813 a month ($33,756 a year)

Age 50 - 54: 
$ 3,261 a month ($39,132 a year)

Age 55 - 59: 
$ 3,781 a month ($45,372 a year)

Age 60 - 64: 
$ 4,383 a month ($52,596 a year)

Age 65 - 69: 
$ 5,081 a month ($60,972 a year)

Age 70 - 74: 
$ 5,891 a month ($70,692 a year)

Age 75: 
$ 6,068 a month ($72,816 a year)





Now, these numbers had a bit of a buffer because the amount required per month was actually the amount required in the final year of each age band. 

So, there was more money in the first few years of each band than actually required. 

Mr. Tan was being cautious.





The total accumulated wealth required to be in Mr. Tan's bank account to fund his retirement years from age 45 to 75 would be $1,358,556. 

Now, over a 20 years working life, he would have had to save $67,928 a year towards this end.

So, losing $136,000 would set Mr. Tan's retirement back by 2 years. 

Gaining $680,000 would propel his retirement forward by 10 years. 

Finally, the answer to the question posed in paragraph 2 is revealed. 

Old people are so long winded, aren't they?

Of course, the problem really was with saving $67,928 a year, every year. 

On top of his full time job, even with a couple of part time jobs, it was really difficult for Mr. Tan. 

Mr. Tan needed help. 

He sought out Mr. Market in earnest. 





Several times, in the early years, he almost gave up but just like with friends, it takes time to know Mr. Market better.

Mr. Market has mood swings and it was during Mr. Market's particularly bad bouts of manic depression in the last few years that Mr. Tan accepted many offers which were too good to refuse. 

This is why it is important to have a war chest or a few ready.




Deciding that dividends are more reliable than Mr. Market's moods, Mr. Tan bought mostly stocks which paid meaningful and sustainable dividends. 

So, if prices were to be stuck in the doldrums, Mr. Tan would still grow his wealth through dividends collected.

Of course, buying these stocks undervalued meant that there was a decent chance of capital gains in the future too. 

Over time, through a combination of realised gains and dividends collected, Mr. Tan's retirement plan was propelled forward by 10 years.





With Mr. Tan's initial plan to retire based on accumulated wealth, there was a big problem. 

What happens after age 75 if he should be blessed with longevity? 

There should be some money in his CPF but it wasn't a good solution, was it? 

Well, with a strategy that invests for income, the problem is solved.




The Chinese people have a saying: 

谋事在人,成事在天. 

Humans plan but whether the plan succeeds depends on the heavens. 

Luck plays a part but if we do the right things, the right things have a higher chance of happening to us. 

It all starts with a plan.

"Is early retirement the right financial choice?"
Jim Ellis discusses long-term financial growth strategies.




Related posts:
1. When to be fully invested?
2. A war chest called "SRS".
3. Be prepared for war!
4. Ready for a recession?
5. $1 million in retirement funds.

For every $2 you donate, OCBC donates $1.

A reader kindly informed me about "OCBC-TODAY Children's Fund" because I am a regular donor to Singapore Children's Society.

This fund has an annual cap of $1.5 million. Of this, $1 million is from the public and $500,000 is from OCBC. If you would like to make a donation to help children in need, then, this is a way to magnify your donations by leveraging on the generosity of OCBC.

"Through the Fund and the programmes it supports, we hope to help as many children grow into confident and useful individuals with high self-esteem, character and discipline. Together, OCBC Bank and TODAY are committed to rebuilding children's lives."

Find out more at: https://ocbctodayfund.sg/

Related post:
The world is full of nice people.

High yielding business trusts: A discussion.

I was sorting out my preparation notes for my presentation at Invest X Congress on Saturday and found an article published in Channel NewsAsia which I printed out on 10 June 2014, just 4 days before the event.

I had meant to share this at the event but I totally forgot about it. It was in my folder all along. Growing old and forgetful. I consoled myself by saying that even if I had remembered, I wouldn't have had the time to talk about it. Anyway, I will talk about it in my blog.

The article was about business trusts and it said that "dividend yield payouts are a key factor to consider."

Then, a consultant went on to say "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.

"As of today, we're looking at some business trusts giving more than 10 per cent yield, of course at higher risk, but if you think that the risk is manageable, it's actually quite attractive at this point in time."




I wrote a few reminders to myself:

1. Dividend payouts are a key factor to consider, not the only factor. Indeed, it is not the only key factor either. Note that they used the indefinite article "a" and not the definite article "the". We have to look at other factors too. For example, how highly geared is the business trust. What kind of debts does it have and how are they structured?

2. When we invest in business trusts or in any asset with an eye to generate income, we should also keep an eye on possible capital gain or loss. It is possible to have our cake and eat it too which is sweet. It is also possible that we could lose a big chunk of our capital even as the investment distributes money regularly to shareholders.




3. If we say that we still get our dividend yield even if prices were to fall, it would be true if we were to base our calculations on our entry prices. Well, we can do this if it matches our motivation for being invested. However, doing this is not useful in helping us to decide whether to buy more or to sell some. We should look at the yield on our investment based on current day prices so that we can manage our capital more efficiently.

4. Does it make sense to invest in a business trust that delivers a constant dividend yield on our cost while its unit price keeps dropping over time? Could it be that we are taking back our own money? So, is the dividend actually a partial return of capital? So, we have to ask if the business trust is becoming less valuable over time? Prices do come down and even if we still get our dividend yield, we have to ask why.




5. When something is riskier to invest in, we should demand a higher yield to compensate for the risk which we are asked to undertake. How do we know if the yield sufficiently compensates for the higher risk? How do we know if the risk is manageable? Is the investment within our circle of competence to make such a call? So, although the consultant says that there are riskier business trusts available that offer more than 10% in dividend yield which is attractive at this point in time, we have to decide if these are suitable for us.

Motivations and methods in investing.

Understand also that what risk is acceptable now might not be acceptable in the future. So, to make things simpler, it might be a good idea to simply to go for investments which have much lower levels of risk and yet deliver decent dividend yields to shareholders.

When we invest for income, we must have certainty of regular distributions. Ideally, the dividend paid out regularly to shareholders should be sustainable and our capital should stay intact. It is about the investment having good fundamentals and it is about us getting in with a margin of safety.

When we read any investment related publication, it is important to do so with a questioning mind. Don't take anything anyone (including me, of course) say at face value.




Related posts:
1. Invest X Congress: Q&A.
2. Rickmers Maritime Trust: 1 for 1 rights.
3. CitySpring Infrastructure Trust: Rights issue.
4. K-Green Trust: A bad investment?
5. High yields: Successes, failures and the in-betweens.
6. HPH Trust: Storm clouds over a safe harbour?
7. Croesus Retail Trust and Perennial China Retail Trust.
8. Portfolio review: Unexpectedly eventful.