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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I have said before that AA REIT is not unique in the industrial REIT space. All industrial landlords in Singapore are facing difficulties presented by over supply and weaker demand. From the latest results presented by AA REIT, it is obvious that the difficult environment is not letting up anytime soon. 1. New and renewed leases are at a weighted average rental decrease of 4.3%.
2. Portfolio occupancy has declined from 94.6% to 91.0%. Things are admittedly difficult but they are far from grim.
103 Defu Lane 10.
A competent management has kept gearing manageable at 36.3% and also managed to reduce overall blended funding cost to 3.6%. Interest cover ratio is healthy at 4.9x and NAV per unit stands at $1.39. We tend to be a bit less cautious when the stock market is doing better but it pays to go back to the fundamentals. Just two days ago:
Parents in late 60s considering whether to go for lease buy back on their HDB flat (42 yr old flat) or leave it to children.
Lease buy back so that parents can increase current monthly pocket money and thus lessen burden. Parents are more inclined to stay in flat.
Though selling entire flat can fully monetise the value of the flat, but given that it is already 42 yr old flat, waiting another 10 to 15 year likely will see a drop in property price in the current peak market condition. Plus Singapore is a developed n aging economy, gone are the days of more 200% price increase in property prices.
Lease buy back or wait later to sell?
Your very honest self talk would be much appreciated here, please.
Watch this video on Lease Buyback Scheme.
AK: Most old folks don't like moving house. It is quite normal. If they need some extra pocket money, selling the tail end of their lease (30 years, perhaps) to HDB is a good idea instead of selling the flat outright and moving out.
Don't do this and keep the flat as a legacy for their children? Well, it would mean tightening their belts and burdening their children in the meantime. All for leaving behind a property with a very much shorter remaining lease?
If we are cash rich, no issues. If we are cash poor, cash comes first. Asset? That takes a back seat, especially when it is one that is suffering from accelerated lease decay.
Inspired by several past conversations. From a financial perspective, should a single buy a one bedroom HDB apartment for $100,000 or a three bedroom HDB apartment for $500,000? The former seems less demanding financially. However, in the latter, he could rent out two bedrooms and that could conservatively net him around $15,000 a year. The apartment could generate $450,000 in 30 years and, in his golden years, his apartment is almost free of charge. If we are the sociable type and do not mind dealing with tenants, then, buying the bigger apartment which has the option of income generation makes sense. For any income investor, having such a temperament is fortunate. If we are not the sociable type and if we value privacy highly, the one bedroom apartment is probably sufficient unless we are an antique collector and need more room to house our collection. If we are not prepared to rent out two bedrooms, then, we are not only losing out on $15,000 a year in rental income but we are also paying 5x more for a home. Spread $400,000 over 50 years (assuming that is the length of our remaining life on earth) is $8,000 a year. OK, if we have a pretty pricey antique collection to house, maybe paying $23,000 a year is peanuts. If we want our very own place to call home till the day we say farewell to this world, ask how much space do we need and could the price tag be smaller? What is the topic of this blog?
Reader: Don't believe in emergency funds. Better to put money in bank preference shares or perpetuals. AK: Well, let's hope you never meet with an emergency which might force you to liquidate your investments at prices not of your own choosing. Reader: DBS preference share, at any price, still provides a return many times that of a FD. In a situation where the preference shares cannot maintain a payout, is the FD much safer? While it sounds logical, how often do people who actually set aside an emergency fund found it useful? Having an emergency fund in a FD is a big opportunity cost.
AK: I think you could say that you don't have an emergency fund but to say that you don't believe in having an emergency fund boggles the mind. It might be a good idea to remind ourselves of the GFC and how stock prices plunged terribly. The stock market was, then, in the doldrums for many, many months. Many people also lost their jobs. Imagine someone without an emergency fund who might have an emergency in those months. Imagine him liquidating his investments at a massive loss only to see the recovery in the stock market later on. Not a pretty thought.
Similar to buying insurance and how we hope we never have to make a claim, we hope that we do not have to draw on our emergency fund. Similar to buying insurance, there is a cost involved in maintaining an emergency fund.
Should we say we do not believe in having insurance and money paid for insurance is wasted?
"I would rather see you have money you can get at than to worry about the interest rate." - Suze Orman Related posts: 1. Fixed deposits for emergency fund. 2. PMET took 30% pay cut but thankful."... as I have more than 6 months of emergency funds, I was quite relax about this and could take my time to look for a job."
Reader: I am a sad shareholder of Singpost. Final dividend is 0.5 cent. Should I continue to hold and wait for improvement?
Suspicious looking package at
Singapore Post mail processing centre.
AK: Those who thought they would continue to get 7c a year were delusional. I also said those who were expecting a reduced dividend per share (DPS) of 4.2c to 5.6c a year could be disappointed. Now, we could see an annual DPS of only 2c. If you are still expecting a 5% dividend yield, it is quite depressing.
In my earlier blog on SingPost where I wondered what price I might pay to be a shareholder, I made some assumptions which gave me what I thought was a more realistic DPS of 3c.
A more than 70% reduction in DPS from 7c to 2c is a tough one to swallow for any investor for income. Imagine a retiree who has SingPost as his largest investment in his portfolio. How much do I think is a fair price to pay for SingPost now? You might want to read the related post below for an idea. Related post: An incomplete analysis of SingPost. "Since SingPost is going to pay at least 60% of earnings as dividend, we would get a 3% yield at $1.00 a share, using the assumption in this blog which gives us a DPS of about 3c."
In retirement, I have become totally slothful. I go to bed late. I wake up late. I spend time getting my hands dirty in my planter and also staring into my aquarium.
Make simple meals. Do some housework. Watch some TV and do lots of online gaming. Of course, I still blog and interact with readers but everything is OTOT lah. Don't know what is OTOT? Ask anyone who has done NS. Don't know what NS is? Never mind.
Oh, did I say I also take a nap whenever I want in the day?
What about my social life? Very little because I rather prefer my own company. It should come as no surprise that I have avoided going to large gatherings for a while.
(Did someone say Singapore's doors are always open to welcome the rich in the video?)
C:
I just moved into a bigger condo recently. I am going to keep my old condo for rental income.
B:
We are thinking of upgrading too.
C:
Your condo is nice and big. Why must upgrade?
B:
You know where I stay, right? We thought of moving somewhere central.
C:
Central will cost a lot more for the same size
B:
With our combined income, we can just about make it. Now, still looking.
C:
AK, what about you?
AK:
Me? I stay in a shoebox apartment.
C:
OMG! Why such a small apartment?
B:
It is OK lah. Can always upgrade.
AK:
I cannot because no bank would lend me any money...
When I mentioned this incident to my banker, he gave me some advice. Banker:
Didn't you tell them you have retired?
AK: I usually tell people I am unemployed.
Banker:
No, no. You mustn't tell people that. They will look down on you. You must always show people you are successful.
AK: Really? How do you do that?
Banker:
They are usually impressed by how I have a luxury condo and a luxury car at such a young age. You must have visible signs of success and don't be afraid to flaunt it.
When I shared on Facebook why OCBC 360 has gone from the top to the bottom of my list of "jumping through hoops" savings accounts, a reader suggested Standard Chartered Bank's Bonus Saver as an alternative.
Coincidentally, my sister started a Bonus Saver account recently and I did look at it before junking it. Please take note that I junked it because it didn't suit me. I will share who it is good for later.
SCB announces plans to slash 15000 jobs. The headline interest rate is always attractive:
Up to 3.88% per annum! How to get this?
OK, start jumping through hoops. Base interest rate (for the first $200,000 in the account) is 0.1%. Spend $2,000 on a SCB credit card each month to get 1.78%. Alamak! Now, I am already struggling with spending $500 with the UOB One Card. How like that?
What if I spend only $500 a month? OK, I will get 0.78% per annum. A big difference.
Monthly salary crediting gets an extra 1% per annum. I don't meet this requirement, of course. Invest or insure with SCB to get an extra 0.75% per annum. What do you think I will say to this? Pay 3 bills via Giro or online banking each month to get an extra 0.25% per annum. This, I can do.
Bonus interest will apply to the first $100,000 in the account only. So, let's see. What is the interest rate from SCB Bonus Saver for me? 0.1% + 0.78% + 0.25% = 1.13%. This is after jumping through 2 hoops. OK, quite clearly, if I must jump through hoops to get higher interest rate on my savings, SCB Bonus Saver beats OCBC 360 which would give me a miserable 0.6% per annum. Read the blog on why I junked OCBC 360: https://singaporeanstocksinvestor.blogspot.sg/2017/03/ocbc-360-updated-and-downgraded-again.html
However, if your circumstances are like mine, UOB ONE account is still the number one choice. An interest rate of 2.43% beats the competition flat. Unfortunately, it is for the first $50,000 in the account only. Now, most people my age are not retired like me. So, let us see what they will get if they have a salary to credit monthly:
SCB Bonus Saver: 2.13%
OCBC 360: 1.8% UOB ONE account: 2.43%
Alamak. I am not a UOB shareholder. How like that? I am a shareholder of the giamsiap bank and, of course, another giamsiap bank which didn't even get a mention here.
Maybe, the moral of the story is to invest in giamsiap banks. Aiyoh! Bad AK! Bad AK!
For who does the SCB Bonus Saver make sense?
If we have much more than $50,000 in savings and if we have a monthly salary to credit, it could make sense to migrate to SCB Bonus Saver because of the much higher cap at $100,000.
Reader: Hi ak, I like to hear your view on SPH. I have hold the stocks which I bought few years ago avg price 4.1. With this recent big drop, do u think it make sense to buy more to avg down the cost? The business seems to cutting more div in coming future 😟
AK: Whenever you are thinking of investing more, ask yourself if you were not already an investor, would you invest now. You will have your answer. Quite simple. 😉 Reader: My feeling is telling me not to buy if I do not have any.. thanks
Regular readers might remember my blogs on QAF Limited and why a higher share price might not mean that the stock is more expensive. In actual fact, QAF Limited's stock could actually be cheaper even though the price was higher.
Along the same line of thought, a lower share price might not mean that a stock is cheaper. The stock could actually be more expensive. It has to do with earnings.
And he asked me: "Shocking or expected?" What did I tell him? "If people don't make good use of the CPF to help plan for retirement, well, they won't get much out of it. 😉" If AK says so, it must be so.
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Ronnie Wan says... Any advice or comments on the forum article above? AK says... I don't bother calling CPFB for things like that because I use the CPF LIFE Payout Estimator online. Notice that the payout estimated falls in a range. It is just an estimate. The sky is not falling.
Reader: I would like to ask you about transferring from OA to SA. Currently my mother is under CPF life. According to CPF board, I am able to withdraw the OA and SA. Is there anything I should look at before transferring OA to SA? Thanks!
AK: OA to SA transfer is not allowed for those 55 years and older.
You qualify for CPF Life if:
Reader: oh damnnn XD ok the RA amount that is not deducted for CPF life, what can we do with that balance? AK: RA is meant to fund our retirement. Cannot be withdrawn unless the member passes on.
That is if there is anything left.
Reader: but how does it fund our retirement? Since the CPF life's premium is alr deducted and the payout wont touch the remaining balance AK: All the RA money will be depleted by age 85 (under the LIFE Standard Plan).
UPDATED on 11 JAN 2022.
Use CPF LIFE Payout Estimator: HERE Find out more: CPF LIFE.
Reader: may I ask how will it be depleted? AK: It is used to fund the payouts. Even after all the funds have been depleted at 85, CPF LIFE continues to pay until the day we die.
Reader: I got another qn say the FRS is 166k A has 166k in RA and B has 180k in RA they will deduct 166k to buy CPF life right AK: Will not have more than FRS in RA Unless u opt for ERS So, A and B will have FRS $166K in RA. Same same.
UPDATED on 11 JAN 2022.
Use CPF LIFE Payout Estimator: HERE Find out more: CPF LIFE.
I blog about the CPF quite a bit and although some might think I have all the answers, I don't. Reader: are you familiar with CPF LIFE? i am worried that my dad who is 63 wondering if there is any chance i could do a VC to his account to qualify for CPF LIFE and get annuity payout? AK: Of course, you can top up his CPF account so that he can take part. 🙂 Give CPF Board a call and ask them how much to top up. If you stay in Choa Chu Kang or nearby, you want to take advantage of the CPF Mobile Service Centre which is at Keat Hong CC till 31 August. The best people to answer your questions on the CPF are from the CPF Board.
Make the CPF a cornerstone in your retirement funding strategy.
Wah! Such a long queue of people waiting to buy Old Chang Kee curry puffs or maybe waiting to get into Din Tai Fung? Nah! Mr Andy Koh, spent $5,900 on four items, including aT-shirt and bag. He held ticket No. 3. Says the NS-man, 23: "I didn't look at the price, I just grabbed the items." Read full article: HERE. NS man so rich!!! Reader WYK: "...don't understand the mentality of teens nowadays or maybe I'm just poor😖" Alamak. I also don't understand! These shoppers are so stupid! So expensive lah. Most learn how to save money lah. Like that how can? Let me tell you a secret. Ready? Must fly to Europe and buy lah. Will save more money. Even AK knows this. These shoppers so stupid. Don't believe me? Read this: http://singaporeanstocksinvestor.blogspot.sg/2016/05/ak-learns-to-embrace-yolo.html
Dave Lim, a reader who seems to be to be quite the expert on car ownership in Singapore, weighs in on my last blog on the subject:
Dear AK, Appreciate your post on car ownership and bringing up some noteworthy points of consideration before one buys a car. You never fail to be honest and wise. However, being a former hardcore car enthusiast (well, a folly of my younger days – a story for another day), I find that I’m “morally obligated” to call out the glaring factual inaccuracies as evinced in the blogpost by Bullythebear (http://bullythebear.blogspot.sg/2014/03/whats-good-about-owning-car.html#.WWpZFIiGPIV), who doesn’t seem to be too well-versed about cars. - In order to give decent meaning to numbers, a proper calculation of annual car expenses should take into consideration the depreciation of the car, and not merely the sum of instalments one chooses to pay. It is absolutely futile to discuss car expenses without delving into the interplay of depreciation, COE, OMV and ARF – concepts which the blogger himself were probably unfamiliar with. To add insult to injury, the foregoing discussion was, ironically, featured in a financial blog educating readers about numerical fluency. - The blogger had grossly oversimplified the types of car expenses. His monthly “running costs” had conveniently left out items like ERP expenses, road tax, car grooming, car inspections, provision for traffic summons and accidents/repairs, and regular wear-and-tear items like tyres, brake discs/pads, mounts, bushings, etc. A total “running cost” of just $500/month ($6,000/yr) is unbelievably optimistic, especially when the estimate is made by a supposedly prudent financial blogger. - Do we really believe that the total cost of owning a bread-and-butter ride is merely $860 a month? And that of a “flashy car” is just $1,200 a month “all in” as asserted by the blogger? Based on the numbers provided by the blogger, the depreciation cost of his Mazda 2 is already about $6,000/yr ! (*total purchase price of $34,000 incl. interest paid, for 4.8 yrs, assuming a PARF rebate of $6,000) - I noted that the blogger purchased his ride sometime in early 2012, back when car prices (specifically that in the second-hand market) were still somewhat palatable (https://bullythebear.blogspot.sg/2013/05/reflections-on-owning-car-for-1-yr.html#.WWtU64iGPIU). As we know, the environment has changed radically ever since. It first began with the drastic cooling measures on vehicle financing introduced by MAS in Feb 2013, which changed the entire playing field. Next, in Feb 2014, the new COE categories turned the market topsy turvy. Second hand dealers called the shots in the market, and in 2014, countless numbers of Toyota Vios and Honda Fits started changing hands at $11,000 to $12,000 depreciation. Given the high COE (hovering at $70,000 in year 2014), most brand new Korean/Jap models were priced above $11,000 depreciation, excluding interest payable. Was anyone still able to purchase a Mazda 2 at $6,000 depreciation in the year 2014? – the odds are almost next to nought, unless we are talking about a lemon sale. Given the foregoing context, I question the blogger’s intention in writing an article in 2014 to recount his purchase in 2012, and to use it as a premise for telling his readers that he “really think it's affordable for people who wants to get a car.” For the avoidance of doubt, the blogger was silent about the cooling measures and changes in COE in his article. At the time of writing his article (Mar 2014), the COE was also at a high of $78,602. (http://www.sgcarmart.com/news/COE_past.php?YR=2014&CAT=a). While it is arguably forgivable for him to miss the news about the cooling measures/COE changes, I find it inexcusable and morally irresponsible for him not to check up market prices before telling his readers that is “affordable” to buy cars. However, to think on the flip side, I could well be wrong about the blogger. He could be a car expert himself, completely au fait with the MAS cooling measures, the COE system and the market prices. The article might then have been written blindly, to reassure and rationalise his buying decision retrospectively. Whatever the reasons behind penning the article, and regardless of how uninspiring his reasons for buying a car might be, it is imperative to highlight the perilously inaccurate and irrelevant contents in his article to avoid misguiding the masses. I do not have any personal issues against the blogger and neither do I know who he is or follow his blog actively. Fast forward to today, the average depreciation of an entry-level bread-and-butter car, old or new, is still $10,000 or more. Followers of the car market would recall that this same amount could get you a Mitsubishi Evo or an entry continental sedan just a few years ago. Ever since the blogger wrote his article, petrol duty has risen (an increase of around 20% in fuel price), parking rate has increased by 20%, and as most of us would know, emission taxes will be implemented over the next two years. Further and significantly, the financially savvy consumers would know that interest rates have risen – the average car loan interest rate is now at an obscene 3%, equivalent to about 5 or 6 % EIR!* I will not dwell on details, but the current annual expenses for an entry level ride is about $20,000 to $24,000. Such information is everywhere on the web, in the online forums, and even on the government website – https://www.gov.sg/microsites/whatsyourplan/finances/can-you-truly-afford-a-car-in-singapore )
Guy A:
I want to buy a car but my elder brother keeps telling me how expensive it is. He even worked out the depreciation. All in, about $12K a year. I think that is OK.
Guy B:
$12K a year in Singapore for a car is quite normal. My car is about the same.
Guy C: Can be lesser than $12K a year lah but that is OK for most families.
Is it a good idea to lose $12K a year to own a car?
Hey, having a car definitely improves our quality of life. It is worth it!
Sure or not? Cannot find an unoccupied seat on the train or bus? What? Cannot even get on the train because too crowded? What? Train broke down? Again? Alamak. All these issues are magnified if we are on an outing with children and the elderly. Stop for a moment and imagine that. I get exhausted just by thinking about it. Shudder. Yes, we have a finite amount of energy too. Of course, like many people have pointed out, having a car also helps to save lots of time used in travelling. Time is precious. Here is a something from a fellow blogger whom I respect:
"Financial bloggers are more conservative than the general public. My advice to all financial bloggers is this: "Just live life a little."
Read his blog here: What's good about owning a car?
In my retirement, I don't need a car but I have a car too. It definitely helps to make life more comfortable.
Now, before some start building castles in the air, we really should be asking other questions before we buy a car. I will share two questions in this blog but before I ask them,
Guy A takes home an earned income of $40K a year. Guy B takes home an earned income of $40K a year and has passive income of $12K a year. Guy C has no earned income because he is unemployed but he has passive income of $120K a year.
So, what are the questions?
1. Are we using more than 10% of our total income for the car?
Why 10%? For an average young worker, spending $200 per month on transportation is pretty normal, riding mostly on mass transportation and with taxi rides on certain days. Assuming a monthly pay of about $2,000 a month, $200 is about 10%.
2. How much of our total income depends on us holding a job?
Of course, regular readers would be familiar with this line of thought. Try not to consume with our earned income. Instead, invest to have passive income and consume with our passive income.
If being jobless means we have to cut back on our consumption drastically, we might want to think twice about that car.
There are some other things I would consider and if you are interested, please read related posts at the end of this blog.
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