Attended "Evening with AK" and bought books from BetterWorldBooks?

I have been an affiliate of Better World Books for a while now because I like the idea of doing my part for the environment and also to improve literacy for underprivileged children. 

I have not been blogging about them for a while and here is a recent chat with a reader.

Reader:
I went to better world books to get my books. but i only received 2 out of 6 books i bought. to me it's ok since i got them for much cheaper than getting them new. but since u r still endorsing this website on your blog, thought u might want to know. maybe they are not as reliable since you first endorse them...

AK:
Actually, it happened to me once before.
You just have to write to them and tell them you did not receive your books and they will send you replacements.

Reader:
i did, just letting u know since u endorsed them on your blog. just a disclaimer.

AK:
They sent me a replacement and it arrived with the original book I ordered.
So, I concluded that the problem was with the shipping and not BWB.

Reader:
Yes i understand. it's tough for them since they are just the middleman. ok good to know u still hv faith in them.





AK:
Not faith or not lah.
It is just that if I have to buy a book, I rather buy it pre-owned, cheaper, good for environment and help the poor. 🙂
Charity lah. 🙂

Reader:
haha you have become my favorite Santa Claus. Real in person and giving real gifts!

AK:
We are very fortunate people. If we can help the less fortunate, why not?

The world can do with a bit more charity and I am only doing my part. 🙂

All proceeds from "Evening with AK and friends" go to helping needy students, for example.

There will be one session later this year but only one. I really lazy this year. 😞





If you are thinking of buying a book, go to related post #1 below and you will be doing more than just buying a book. You will be saving money, saving the environment and saving lives.

To everyone who has attended "Evening with AK and friends" in the past, thank you too for helping needy students.

Also, look out for the next session of "Evening with AK and friends" which is going to be the only one this year. I will blog about it once all the details are firmed up.

To those who don't know, "Evening with AK and friends" is a chit chat session. If you have high expectations of me, it is best to give it a miss. ;)

Although I want to accommodate a larger group because the tickets usually sell out very quickly, it probably isn't going to be possible. 

So, if you want to get a ticket to the event, check my blog regularly in the next few weeks and, of course, once you see the blog, fast hands fast legs.

Related posts:
1. Donate a book to the needy.
2. AK helps needy students.
3. AK gets invited by NUS

4 ways to beef up our CPF savings! (InvestX Congress and the CPF.)

I hope everyone who went to InvestX Congress today had a good time. 

To my regular readers who were there, I hope it wasn't too boring listening to me repeating the same old stuff about the CPF. 

Anyway, for the benefit of some in the audience who told me that they might have trouble remembering everything I shared today, here are some salient points from my segment:





Beef up your CPF account.

You could do these:

1. Top Up your SA (not beyond FRS)

2. Voluntary contribution to your MA only (together with mandatory contributions, not beyond CPF annual limit and, on its own, not beyond BHS)

You will also get income tax relief for doing the above. For #1, only for the first $7,000 each year.






3. OA to SA transfer (not beyond FRS)

4. Voluntary contribution (allocated to OA, SA and MA) (together with mandatory contributions, not beyond CPF annual limit)


These will not get any income tax relief.





We don't have to do everything to capture all the benefits. It is not like Pokemon GO and we gotta catch them all. Just do what we can.

For me, the big thing was doing OA to SA transfer in the first 4 years of my life as a working adult. I emptied my OA into my SA. 

Did this in the first 4 years of my working life instead of the last 4 years of my working life. 







That makes a big difference because compound interest needs time to work its magic and a bigger base earlier makes it more magical.

Also, have enough in our CPF-MA and the interest income we receive yearly from the government will pay for our insurance. Who says there is no free medical insurance in Singapore?

See:
http://singaporeanstocksinvestor.blogspot.sg/2013/12/how-to-get-free-medical-insurance-in.html 

Please read the following blog for updates:
CPF Amendment Bill 2021.

Here are links to some of my other blogs on the topic:

1. http://singaporeanstocksinvestor.blogspot.sg/2017/01/ak-showing-off-his-cpf-oa-and-ma-2017.html

2. http://singaporeanstocksinvestor.blogspot.sg/2015/01/how-did-ak-amass-so-much-money-in-his.html

3. http://singaporeanstocksinvestor.blogspot.sg/2016/02/the-cpf-is-really-national-ponzi-scheme.html



If AK can do it, so can you! Gambatte!

23yo bought 40yo HDB flat and worried.

Reader:

I am currently 23years old & married. My husband and I purchased a resale flat last year.

Back then we did not read nor have knowledge about financial planning. 

We purchased what we want and our desired location...

Our resale flat is actually quite old. I think is 40 years old this year...

Many people called us stupid for buying resale flat instead of BTO ones. 

And since we didn't have proper financial planning, we exhausted our entire CPF to pay for the flat.

So, our CPF is 0 now. 

We also took a loan of 25 years...

I am beginning to learn how to invest and starting small. May I ask how can I actually do better in planning my finance? 

Thank you for taking your time to read my email. Hope to see your reply.

AK:
How do you start doing better in your finances? That is a very broad question. It is very difficult for me to answer with specifics. 

Here are a few blogs you might want to read:

1. http://singaporeanstocksinvestor.blogspot.sg/2014/03/graduating-soon-take-steps-towards.html

2. http://singaporeanstocksinvestor.blogspot.sg/2015/05/how-much-should-we-have-in-our.html

3. http://singaporeanstocksinvestor.blogspot.sg/2017/04/hdb-flat-is-37-years-old-and-son-is.html


4. http://singaporeanstocksinvestor.blogspot.sg/2017/07/buying-properties-with-short-remaining.html


There are many other relevant links in my blog. 

Go to the right sidebar of my blog and read those suggested especially those listed under "WEALTH CREATION".
-----------------------------
If we to learn from mistakes, we will avoid them and make better decisions in future.

Don't beat ourselves up.

This reader has the right attitude. Gambatte!

Is early critical illness insurance necessary?

I have blogged about the importance of having critical illness insurance before and because I get questions from readers now and then on whether early critical illness insurance is essential, I decided I should blog about it.

Please bear in mind that this is just my opinion and some might disagree.

Reader:
I've started my investing journey and I am quite amazed I've learnt quite a lot ever since I started reading your blog last year. 

I would like to seek your talking to yourself opinion. 

Is it essential to get an early critical illness term insurance? 

The premium is really high.





AK:
When we buy insurance to cover ourselves against critical illnesses, it is so that we get paid a lump sum of money if we should be diagnosed with one of the dread illnesses.

The difference between regular and early forms is that the latter will pay the insured once diagnosed with a dread illness even if it should be at an early stage. 

The regular form would only pay if the illness is at an intermediate stage.

I am of the opinion that we need regular critical illness coverage because it could be that we must stop working to undergo treatment. 

We could be too ill to work. 





Critical illness coverage gives us a lump sum payment. 

Now you know why this is necessary. 

We need this in case we have to stop working. 

It provides us with money to continue living our life as if we were still working (for a long while, hopefully) until we get better.

At the early stages of an illness, it is conceivable that we would still be well enough to work and would not have to give up our regular income. 




So, it is my opinion that it is not essential to have early critical illness insurance. 

We don't need it.


Any medical treatment required if we should be diagnosed with a critical illness in the early stage should be covered to a large extent by our H&S insurance. 

Think Medishield Life, for example. 

We don't need early critical illness coverage to pay for our medical treatment.


The early variant of critical illness insurance is also unattractive because it is very pricey. 

How much more does it cost?







For example, 

A 30 year old male might have to pay almost $800 per year for a $200,000 death with regular critical illness benefit till age 65 but he might have to pay more than $2,000 per year if he were to opt for early critical illness benefit.

That is 150% more! 

If it were 10% or 20% more, maybe, but 150% more? 

Mind boggling.

I have blogged about what I feel is the best insurance in life and I feel that the extra money used to pay for early critical illness insurance could be better used towards this project.






If you don't know what I am talking about, see related post #2 at the end of this blog.

Insurance is absolutely necessary against events which we will not be able to recover from easily without financial help.

For all other events, insurance is probably a "nice to have" and not a "must have".

Buy what we know we need and not what sales people want us to think we need.




Related posts:
1. Without CI coverage?
2. Best insurance to have in life.

Avoiding the instant gratification of yield (SingTel, Starhub and REITs).

My blog has pretty useful content in the comments section but many do not read the comments section, I found out a long time ago. 

So, there was a time when I would share the comments in a blog post so that they reach more people. I stop doing that after I found out that Google didn't like it and it affected my blog's page ranking. 

However, I have decided that it really should not matter to me and that making sure that the content reaches more people is more important. 

This was a recent conversation:

redponza said...
Hi AK,
There is a 4th telco getting into Singapore, don't you worry about the intensified competition?

Also, unlike REIT where there is minimum capital expenditure, telco needs to upgrade their network consistently to maintain competitiveness. With the lower yield, and meh growth potential, not sure why it is better than REIT.

In the telco space, isn't Starhub better with a much higher dividend yield?

Thanks.



AK said...
Hi redponza,

SingTel derives less than 20% of its revenue from Singapore. It is truly an MNC.

(Added on 21 Aug 17. Reader:
I look at Singtel's annual report. I can't derive the 20%. It is 40+ % to my calculation. How did u derive it? 

AK:
Well spotted. I meant to say its Singapore mobile business which is, of course, what would probably be impacted by the entry of a 4th Telco next year. That business segment accounts for 13% of SingTel's total revenue.)

As for CAPEX, selling away most of its stake in Netlink NBN passed a heavy baby to other investors. SingTel retains only a 25% stake in the newly listed entity.

If you are worried about the 4th Telco and increased competition in Singapore, you should be more worried about Starhub.

This is also probably why Mr. Market demands a higher dividend yield from Starhub which incidentally also has a higher payout ratio compared to SingTel.

One more thing, we really shouldn't be comparing Telcos with REITs. The yields are not comparable.

SingTel pays out a percentage of its earnings as dividends while REITs pay out from their operational cash flow.

If we were to use the same yardstick for both, we would worry about REITs since their DPU is usually higher than their EPU.





redponza said...
Is telco attractive?

From my point of view, return = dividend yield + dividend growth, taking debt into consideration.
There is lower growth and lower yield in telco, thus I am puzzled why telco is even considered in the first place.

And from a price to book standpoint, they can never beats a REIT =.=

But on the other hand, I saw famous investors grabbing telco companies, hence I must be missing sth here?





AK said...
Hi redponza,

Like I said, they are different animals.

It depends on how we look at investments and how value is created.

Most REITs pay out more than they earn. They do not retain any earnings.

SingTel pay a percentage of their earnings and they retain some earnings so that they become more valuable over time.

I like some REITs and my portfolio is rather heavy in REITs. So, it is sensible to become less dependent on REITs especially when conditions have become less benign for them.

It is about having a more holistic approach.

Frankly, not all REITs are good investments.

We should wonder at the sustainability of distributions.

A REIT could have high CAPEX down the road:

http://singaporeanstocksinvestor.blogspot.sg/2015/08/is-keppel-dc-reit-attractive-investment.html

A REIT could see their assets disappear in the not too distant future:

http://singaporeanstocksinvestor.blogspot.sg/2017/03/viva-industrial-trust-more-attractive.html

So, we must be careful when we lump REITs together to say that REITs can never be beaten in terms of return on investment. The quality of returns and the sustainability are pertinent considerations.

To new readers of ASSI, please read related post #1 below.

Related posts:
1. Instant gratification of yield.
2. SingTel and Netlink NBN Trust.

SingTel and Netlink NBN Trust.

Some people keep asking me what have I bought recently. 

Hmm. Let me see.

Eggs, extra virgin olive oil, butter, dark chocolate, matcha ice cream and some other stuff.

What? Wrong answer?

Jokes aside, to those who like asking me what did I buy or if XXX stock can buy or not, you should know you would be disappointed most of the time with my answers.

You have been warned. ;)

Anyway, in an interview a few years back, when asked what was the first company I ever invested in, my answer was SingTel. 





Like many Singaporeans then, we were given a chance to buy discounted SingTel shares by Mr. Goh Chok Tong who wished for Singaporeans to think about investing in stocks to help grow our wealth. People my age or older would probably remember this.

I am still holding on to those shares and collecting dividends, year after year. 

Is that the best way to achieve greater returns? 

I don't know but I know it generated pretty decent and safe returns.

Since then, over the years, I went on an adventure as an investor, trader and speculator in the stock market. 

I made some money and lost some money. 

I think I must have made more money than I lost or else I would probably be in IMH by now.

In my retirement, I tell myself that I must not be too adventurous with money. So, I bought more SingTel shares in 2015. 

Informed by charts, I added to my investment in SingTel as its share price retraced to what I thought were supports and I did that again recently.




My decision is now partly emboldened by the listing of Netlink NBN Trust which effectively strengthens SingTel's coffers by some $2 billion. 

So, SingTel has become a more valuable company after the sale, more valuable than it was in 2015.

When asked whether I was interested in Netlink NBN Trust at its IPO, the answer was in the negative. A 5% yield just didn't cut it for me.

With relatively high depreciation and replacement costs to be considered as well, a structure that pays out most of its cash flow to shareholders probably means much higher debt in time to come. 

I wonder about the sustainability of its dividends in the longer run. 

To invest in Netlink NBN Trust, therefore, I would demand a much higher yield than 5% as a compensation. 

This could be achieved through a higher DPU which is unlikely or a lower unit price which is probably more likely to happen.

In comparison, I believe that SingTel's dividends are more sustainable. 





There is talk of a special dividend but whether there is going to be a special dividend from SingTel or not does not matter to me. 

With a payout ratio of 60% to 75% of net profits, I will be quite happy with a 3.5% to 4.5% regular dividend yield. Lower than Netlink NBN Trust's 5% but it gives me peace of mind.

Looking at the chart, it looks like there is a chance that SingTel's share price could weaken again in future but it could bounce up first. This is the trader in me talking. 

Don't ask me what could cause this because I don't know.

However, I do know I would like to buy more if SingTel's share price should go much lower, all else remaining equal.

Related post:
1Q 2017 passive income.

Reader regrets ILP but what to do?

Reader:
I was introduced by my colleague to your blog and only started to read it last night. Many useful tips indeed and I really regret not reading it earlier. 

I am single and 47 this year. I bought an ILP from Prudential for an assured sum of $100,000 when I was 27 for an annual premium of $2,000 for death, PD and CI. My surrender value now is about $40,000. 

Shall I follow your blog advice to terminate it and purchase a term policy till 62? 

Currently almost half of my annual premiums is used to cover the cost and will escalate once I enter into my 50s. 

Any advice would be greatly appreciated.


What is the purpose of insurance?




AK:
(Alamak, paid $2,000 a year for 21 years and now can get back only about $40,000?)
Since you have read my blog on the subject, you know why we should not mix insurance with investment. I wouldn't touch an ILP even with a five feet pole.

We need life insurance if we have dependents. If we no longer have dependents, we don't need life insurance. 

Even if we do not have dependents, if we do not have a meaningful level of passive income, we still need coverage for CI because we might not be able to work for a long time. 





So, before you terminate your ILP, find out first if you are still able to get term life and CI coverage. 

If that option is still open to you, then, terminate the ILP. You will be saving a lot of money to get the same level of coverage.

Related posts:
1. How many 20 years do we have?
2. Without CI coverage?

CPF-SA savings 10 years from now.

The biggest downside of not being gainfully employed is the lack of mandatory CPF contributions.

To ensure that my CPF savings will become a more significant bond component of my investment portfolio in my golden years, I have been making voluntary contributions.




Checking on my CPF account last night, I wondered how much would I have in my CPF-SA by the time I am 55? 

55 years old. That is also when money from my CPF-SA will be moved into my newly created CPF-RA to fund the annuity called CPF Life.





My CPF-SA savings in January 2017:

$215,862

Assuming that CPF annual contribution limit (now $37,740) remains unchanged in the next 10 years and applying the following allocation rates:

Click to enlarge. Source: CPF Board.

Doing voluntary contributions to the annual limit each year, for the next 5 years, about $8,159 each year will go to my CPF-SA. 

Ratio of contribution to the SA being 0.2162.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

At age 50, I would have $308,588 in my CPF-SA.




For the 5 years following that, about $11,699 each year goes to my CPF-SA. 

Ratio of contribution to the SA being 0.3108.

http://www.moneychimp.com/calculator/compound_interest_calculator.htm

At age 55, I would have $441,344 in my CPF-SA.





Of course, all else being equal, the number is likely to be bigger 10 years later as the calculations do not take into consideration the additional 1% interest payable on the first $40,000 in the CPF-SA.

Although it is not $1 million, $441,344 is nothing to scoff at either.





This is why I have told some rather worried readers who are pretty risk averse and who are not investment savvy to seriously consider using the CPF-SA as their primary tool to achieve greater financial security in their old age.

As simple as ABC? 

As simple as CPF.

Related posts:
1. AK showing off his CPF-SA.
2. Average HDB household and $1M.

60% higher interest income from age 55?

Reader:
Would you leave your money in CPF-OA (beyond 55)? 

I can understand CPF-SA @ 4%. 

Wouldnt it be better to move into CPF Life for better returns? 

Noted that leaving it in CPF-OA will provide more flexibility. Thanks.

AK:
We have the option of moving more funds into the CPF-RA up to the prevailing ERS (1.5x the prevailing FRS) at age 55. Is it better? 

If what you want is a higher payout from CPF Life, yes.

However, do note that you will be required to move funds from your CPF-SA first and not from your CPF-OA. 

Only when the CPF-SA has insufficient funds, then, the CPF-OA is tapped.





So, let us say we have quite a bit of money remaining in our CPF-SA after our CPF-RA is created and FRS requirement met at age 55, it is not all that more beneficial for us to move more funds into the CPF-RA because we are not getting a higher interest. 

It is the same 4%, assuming things were to remain unchanged.

However, for someone whose CPF-SA is depleted after the creation of his CPF-RA, if he wants to have the ERS in his RA, he would be moving funds from his CPF-OA and the funds would then be receiving 4% instead of 2.5% interest. 

That is 60% more in interest income!





Like you said, flexibility is sacrificed but, in my opinion, the loss is well compensated.

Sweet but not available for everyone.

I have the happy problem of having much more in my CPF-SA than the prevailing FRS. 




So, will I move more money into my CPF-RA at age 55 to meet ERS? 

I will decide when I turn 55.





To anyone who just dropped in, another blog on the CPF was published earlier today. 

See:
CPF Life Escalating Plan.

CPF Life Escalating Plan.

Reader:
(On CPF Life)
Is 70 the max age to leave the money there?
Can continue to leave it there, and then bequeath everything?

AK:
We can choose our CPF Life payout start age to be any age between 65 to 70 years old.
If we did not make a choice, the payout will start automatically under the CPF Life Standard plan at age 70.





We must remember that CPF Life is an annuity and not a legacy planning tool. It is meant to help fund our retirement.

If we would like to use the CPF as a legacy planning tool, we could choose to leave some or all of the remaining money in our CPF-OA and CPF-SA untouched from age 55 instead.

On the subject of CPF Life, there is another plan which will be available from 2018. 





In addition to the Standard and Basic Plans, we will have the option of the Escalating Plan.

*Available from January 2018.

I feel that the Escalating Plan will appeal to people who would like to have a later payout start age, later than age 70, because they want a bigger monthly payout to address the issue of inflation.

How is this achieved?

The payouts under the Escalating Plan will be smaller than even the Basic Plan's payouts in the initial years but will grow at 2% a year.





Since the latest payout start age for CPF Life is age 70 which already allows for another 5 years of accumulation from age 65, the Escalating Plan helps to address the desire for larger payouts when members are older by allowing some of the funds to continue accumulating instead of being paid out from the payout start age.

I feel that the Escalating Plan is a prudent one and if we believe that an annuity is a good retirement funding tool in case one should be blessed with longevity, then, the Escalating Plan is the obvious choice for anyone with this belief.
----------------------------
UPDATE (23 Oct 17):
Which CPF Life Plan for me?
----------------------------
Related post:
CPF Life estimator.

Options with CPF Life and SRS in retirement.

Reader:
Just wondering if you have given any thoughts on when you will start your CPF LIFE payout? Do you mind blogging about it?

I have been building up my SRS savings. By the time I hit the Official Retirement age of 62 (for now), if I start withdrawing my SRS at 62 to 72, the annual sum will be equivalent to CPF LIFE.




Now the question is, should I start my CPF LIFE payout at 65 or delay till 70 to gain more interest and thus a slightly higher monthly payout?

According to the picture you posted on 17th July 2017, at FRS: age 65 = $1,380 mthly. At age 70 = $1,840.

What will you do? A bird in hand is better than a slightly bigger bird in the bush?



AK:
With CPF Life, it depends on whether I need the money. At 65, if I need the money, then, I will start drawing from the annuity. 

If I don't need the money, I will leave it to grow, earning a risk free and, hopefully, meaningful interest rate by then.

With SRS money, once I start the withdrawal process, I would have to empty the account within 10 years unless I use the money to buy an annuity. I have some investments in my SRS account and I would probably have to liquidate these. 

So, I would probably consider withdrawing money from my SRS account in a bull market sometime after I turn 62.

So, depending on the situation when the time comes, I could tap either the SRS or CPF Life first or not at all.
---------



Liu Jiayi says:
From Jul 2015, SRS members will be able to apply to their SRS operators to withdraw an SRS investment by transferring the investment out of their SRS accounts (e.g. into their personal Central Depository (CDP) account), without having to liquidate their SRS investments.

(Please see comments section below for the full comment.)

Related posts:
1. CPF Life Payout Estimator.
2. CPF Mobile Service Centre.
3. Lifelong income with SRS.

QAF's 2Q17 profit after tax fell 72%.

Part of QAF's large decline in earnings should not come as a surprise since, one year ago, in 2Q 2016, QAF recorded an exceptional gain of $9.7 million from reducing its stake in Gardenia Malaysia (GBKL) to 50%. 

If we were to exclude that exceptional gain, however, profit after tax still reduced by 58%, year on year. Not as bad as 72% but still rather attention grabbing.

Singapore and Malaysia

QAF's share of profits in Malaysia is reduced because of its smaller stake in GBKL. However, the reduction is bigger this quarter compared to the last quarter.

It was revealed that QAF experienced issues in its Johor production plant. This affected sales volume not only in Malaysia but also in Singapore. 

Otherwise, QAF would probably have done better in both countries. There were also some one off cost items due to problems at the said plant.

Philippines

The bakery business in the Philippines is doing well but incurred higher marketing and distribution costs. It was revealed that although costs are heightened, the bakery business achieved higher sales and increased market penetration in the country. 

Looking at the Income Statement, Other Operating Expenses saw the biggest increase of 23% and it was revealed that most of this big increase is due to higher marketing costs in the Philippines. This is also a market in which QAF is planning to expand its footprint.

China

The bakery business in China is still losing money but losing less money. Narrowing losses is good news but if it continues to bleed, it might be a good idea to shut it down. QAF will decide by end of the year if it should continue its business in China.

Australia

QAF's pork business in Australia saw a 20% reduction in selling price due to an over supply situation which led to downward pricing pressure. 

The demand for pork is still healthy but the over supply will take time to resolve. It is hard to say how long the situation might persist but I doubt that it is enduring. 

The situation is probably more cyclical than structural.

One quarter does not make a year. It is reasonable to wait and see if QAF is able to recover earnings in the coming quarters as it pursues growth.

To be realistic, however, any recovery could take some time to materialize as new production plants are built. Also, it is my guess that many of the increases in costs and expenses are going to be sticky.

Having said this, note that QAF is meeting the challenges from a position of strength as its balance sheet remains strong. 

Cash and cash equivalents also increased year on year from $97 million to almost $126 million. 

QAF has a good track record and I like to think that the managerial competence is more enduring than the challenges being faced.

Even with reduced earnings in 2Q 2017, QAF is capable of maintaining a 5c DPS but it is harder to say if a reduction will happen or not. With this in mind, while waiting for improvement in performance, I look forward to being paid.

If Mr. Market were to send QAF's share price tumbling, it would be an opportunity for me to accumulate a larger position in a competently run and financially sound company which is likely to do better again in future.





If there should be a decline in share price, I hope it is a big one of, say, 10% or 20% and not just another dip.

See announcement: HERE.

Related post:
Wondering about QAF Limited.