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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Reader: My mum's insurance agent sent this. Would you consider this ILP? It's also being marketed at an event at the sports hub...
AK: Generally, I would say to anyone not touch ILPs even with a 5 feet pole. However, ILPs are especially unsuitable for older people as the cost of life insurance jumps after age 55 and from age 60, it becomes very costly. This is because mortality risk increases as we age. In an ILP, the cost of insurance is deducted from the policy value by selling units. As we age, the cost of insurance goes up and in our golden years, it goes up more rapidly. So, imagine units in the ILP being sold down more rapidly to pay for the cost of life insurance as we age. Unless the unit price of the ILP goes up more rapidly and significantly than the increase in deduction, when the value of the ILP becomes zero, the insurance coverage is terminated.
In my opinion, this particular insurance agent who is trying to sell the reader's mother an ILP does not have her interest at heart. It is no secret that ILPs are probably the most lucrative products available to insurance agents. So, I am not surprised that less scrupulous agents would try to sell them to any Tom, Dick or Harry or, in this case, Mary. Related posts: 1. 20 years and $29K. 2. Reader regrets ILP.
Earlier in March this year, I blogged about how I could sell my car for a higher price when the Vehicular Emissions Scheme (VES) is introduced. This new scheme replaces the Carbon Based Vehicle Scheme (CEVS).
The VES will come into effect in the new year and we will see some vehicles which used to enjoy green rebates from $5,000 to $20,000 being slapped with surcharges of up to $20,000 instead. My car, for example, will go from receiving a $15,000 green rebate to being slapped with a $20,000 surcharge. That is a $35,000 difference!
Many car models which do not meet the EURO 6 standards will also disappear from the showrooms. A couple of popular examples are the Toyota Vios and the Toyota Camry. Apparently, all the models from Chevrolet being sold in Singapore do not meet the new environmental standards. Of course, I am just a little guy in his little car and I am very much concerned about how everything affects the money in my pocket. For those who don't know, I have a diesel car. Diesel technology has gone from dirty to green and, now, back to dirty. So, apart from the higher price that a diesel car would attract from 2018, there is also a usage based diesel tax. Diesel, for many months now, costs an extra 10c a litre.
So, the more diesel I use, the more I pay. Fortunately, diesel engines are pretty economical compared to petrol engines. This coupled with the fact that I do not drive as much as I used to, I buy only about 40 litres of diesel a month. This means that I pay $4 more for automotive fuel each month. OK, that is hardly a disaster. Actually, with the usage based tax, it seems that I will end up paying less because the government is reducing the lump sum tax (road tax) that diesel cars will have to pay by $100 a year.
I read an article titled "First bribed to buy diesel cars and now they want to tax us" and had a good laugh.
The article is about the predicament of diesel car owners in the U.K. and although I had a good laugh, it is no laughing matter for them.
"When I bought my diesel-powered Citroen C5 estate six years ago, the last thing on my mind was that I would end up being treated as an environmental vandal by a government minister. "It is quite a shock, then, to hear Transport Secretary Patrick McLoughlin warning motorists like me that we face a hike in taxes designed to punish us for doing what we thought was the right thing and buying a diesel car." Read the full article: HERE.
Although I am somewhat disappointed that my diesel car is not as environmentally friendly as I once thought it was, when I do drive, I still enjoy the car very much and I am glad that new measures taken by the Singapore government are more reasonable than punitive. In fact, it might even help to lessen the monetary loss of selling my car if I decide to do so in the new year. Bribed to buy a diesel car and regretting now? If I were in the U.K. maybe but not when I am in Singapore. Heng ah! Related post:
1. Make $35,000 from selling my car. 2. How much to spend on a car? 3. 3 good reasons to buy a car.
Reader: Been reading your blog for a while now and wanted to ask you what do you think of XXXXXXXXXXX as a retirement plan. My financial consultant suggested this (product) to me recently but I wanted to get a second opinion on this. Could you talk to yourself about this please?
In summary, max out your CPF account first (i.e. top up your CPF-SA to hit prevailing FRS) or if you are above 55, think about maxing out your CPF-RA. Only then, think of possibly getting a private plan to supplement CPF Life. Related posts:
1. 4 ways to beef up CPF savings. 2. CPF savings 10 years from now.
Most of us are amateurs when it comes to anything that has nothing to do with our full time job. It stands to reason. However, even if we spend hours each day doing something, we might not be very professional about it. So, we could remain amateurs. This stands to reason too. AK is an amateur this and an amateur that in retirement. I do the things I enjoy but I am not necessarily good at them. It is about having fun and not making a living. So, I am not going to set professional targets or high standards. Just thinking about doing this is stressful. Naturally, this is how I treat gardening as a past time too. For an amateur gardener, I think I have done OK. To be honest, it is probably because I have mostly chosen plants which are easier to grow. Yes, AK is a lazy fellow and always likes options which have lesser resistance.
A friend told me that it is too difficult to grow Lavender in Singapore because the weather is too warm. Then, a friend told me that it is impossible for Lavender to flower in Singapore because it is too warm.
I would need to have a cool environment like in the Flower Dome in Gardens by the Bay for Lavender to bloom.
I told him I didn't know that and, by the way, I think my Lavender plant might just be flowering:
(Photos taken on 1 Sep 17.)
Some people tell me that they can never achieve financial freedom in Singapore. It is impossible because it is just too warm hard.
(Photos taken on 12 Sep 17.)
This final photo was taken moments ago this morning:
Reader: I have an existing HDB loan of 270k over 30 years with my spouse and we are deciding whether we should try to reduce the loan amount with our CPF OA or transfer some to CPF SA. Objective is to pay the housing loan - debt free and to have a good retirement amount at 65 (hopefully to hit at least 500k in CPF). We are 35 this year and we have around 80k in our CPF OA each with around 30k in CPF SA. Hope to get your kind advice on this!
AK: When we use our CPF-OA savings to pay for our home, we stop earning interest from the government.Instead, we have to pay ourselves interest if we should sell our home. Once we realise this, it becomes pretty obvious that in an environment of prolonged low interest rates, it would probably be a better idea to pay for our home using cash if we can afford to do so. Don't use our CPF-OA savings. Central to the idea is to receive more interest income for our CPF savings with an eye on achieving a higher level of risk free and volatility free retirement funding.
Before doing any OA to SA transfer, I would keep enough in the CPF-OA to service at least 24 months of mortgage payments. Bad things do happen unexpectedly.
Savings in our CPF-SA receive a base interest rate of 4% per annum. If you use your OA savings to pay your HDB loan, you are saving 2.6% in interest payment but you will be losing 2.5% in interest income. So, you have a net saving of 0.1%...
Reader: Thank you so much for the prompt reply and words of wisdom. I will keep in mind your kind advice and work out a long term plan. It has been very kind of you to share your knowledge and wisdom especially for many of us who are caught at a junction, not sure what is the best way to move forward and yet we would want to maximise the returns for our efforts/assets/decision. Sometimes, there is really no right/wrong way to make a decision. Once again, thank you so much for sharing your knowledge selflessly!
It has been a while since I blogged about my money habits. Readers who have been following my blog for a long time might remember the blogs on packing lunch to work and not buying drinks when eating out (and definitely not from Starbucks), for examples.
For sure, the blogs did not sit well with everybody and I was even labelled a person with a peasant mentality (or a person with a "poverty mindset") in wealth building because of them. Well, I hope people who don't like my money habits don't read this blog. Wait a while. Filtered.
Still reading?
OK, you have been warned. Since I changed my diet more than a year ago, I have been consuming more eggs and this is how I have been buying them.
In a tray of 30.
I transfer the eggs into smaller trays for ease of storage.
Tray of 30 @ $3.30. Tray of 10 @ $1.65. I save $1.65 each time. What? $1.65 only? It is a 33.3% savings! Hey! It is like getting 10 eggs for free!
As you can tell from the scribbles on the label, I have been doing this for quite some time. I know many people think that it is not worth saving small amounts of money. Maybe, saving small amounts of money gives them a "poverty mindset" and they don't like it. Small savings are for poor people and they want to feel rich.
AK, you not poor wor. Why you so giamsiap? So cham like that.
Well, saving small amounts of money might not make us rich but it definitely won't make us poorer. Now, doing the opposite would definitely make us poorer. Almost bankrupt, AK's family was once quite poor. AK doesn't want to go back there. Related posts: 1. Money habits and $100K savings. 2. Earn $32,000 with a mug? 3. My family almost went bankrupt.
Cromwell European REIT is a mega IPO that will raise S$ 2 billion. I looked at the distribution yield first. 7.5% (@ 57 euro cent per unit) to 7.7% (@ 55 euro cents per unit).
Then, I looked at the gearing level. 34.3% to 36.6%. It would have been better if it were below 30% but it is not excessive. Then, I do what I do pretty often which is to compare with other REITs in the same sector. Alamak. This is where the problem lies.
This REIT has a rojak portfolio of 81 retail, office and light industrial properties in 6 European countries (Denmark, France, Germany, Italy, Poland and The Netherlands). How to do comparative analysis like that? OK, with IREIT Global taking a pan-European strategy, it could be a good candidate for comparison in future. As of now, IREIT Global still has properties in Germany only. IREIT Global offers a similar distribution yield (7.6% at 76 cents per unit) but its gearing level is higher at 41.3%. Of course, we should say that IREIT Global's portfolio consists only freehold properties while the proposed Cromwell European REIT's portfolio has less than 70% of assets on freehold land. Yield should be higher for shorter leases to make investment sense.
In a rojak portfolio, it is very easy to hide bad assets and let the good assets pull the weight and we have seen this with some S-REITs before. As this could well be the most rojak of portfolios when it comes to S-REITs, I find hard to analyse. We might be able to get a clue as to what the sponsor thinks of the REIT by looking at the stake they will be retaining after the IPO. 8.7% (if popular) to 12.7% (if unpopular). Pretty low numbers. Cromwell European REIT's distribution yield might look decent and the gearing might look comfortable but I don't feel comfortable with the rojak nature of its portfolio.
It gives me the feeling that the sponsor wants to dump everything into a pot and be done with it. For me, it would have been better if the IPO offered one asset class in one country or even a few asset classes in one country. Then, if the REIT would like to expand its portfolio to include assets in other countries, justify why and take it from there.
Or it could offer a single asset class cutting across a few countries and then expand to include other asset classes later on. It would be more orderly.
It could be the OCD in me but, now, it does not feel as if there is any clear strategy other than the REIT is holding European assets and, hence, the name of the REIT. It feels messy to me. I have avoided IPOs for years and this will be no exception. If Mr. Market should go into a depression and offer me a much lower price to compensate for the rojak nature of the portfolio, I could be tempted. Read article: HERE. IREIT Global: HERE. Related post: Would AK invest in IREIT today?
Serejouir said... Hi AK, I am a long time reader of your blog and felt compel to write in and share my own experience after reading about the reader who was jobless for almost a year. I could not agree with you more on living prudently, avoiding unnecessary debt and investing in income generating tool. To add to that, we should also make an effort to to build up transferable skills.
I'm in my late 40s and single, earning $8-9k a month. I was retrenched in Nov last year, a week before my 25th year anniversary with the company, with almost zero compensation. Thankfully, I have minimal debt - only a property loan that I co-share with my sis, which we managed to 1) re-mortgage a few months before my retrenchment; & 2) rented out albeit lower than our monthly loan payment at the moment. Thankfully too, I am not into any of those designer stuff nor eating in those fancy restaurant. While I do enjoy an overseas holiday, 5-star hotel and shopping are not my cup of tea; it is also not a must have that I am willing to get into debt for, like many of my friends. A quick calculation on the back of the envelop, gave me the assurance that my savings + investment returns can last me for 1-2 years, without having to liquidate any of my investment immediately. I would still be able to maintain the current lifestyle while still giving my parents their monthly living allowance.
Nevertheless, I also started to examine whether there are any other "frills"/"good to haves" that I can cut back on, so as to make my savings last even longer as well as in anticipation of a drastic pay cut in a new job. This thought of financial security also gave me the safety net of having a bit of time on my side to evaluate what I want out of life and to get a job that I would enjoy doing, and not one that I have to work for a pay check. While investing wisely for a secure financial future, I believe one must also look into investing in ourselves, so as to ensure that we have transferable skills that we can bring with us everywhere we turn to.
I also like what you said about keeping an open mind when it comes to job search. I spent the last 20+ years in technology/manufacturing sector before I was retrenched. In March this year, 3 months after I was retrenched, I got a new job in the healthcare sector, a totally new and alien industry to me. It was a very steep learning curve for me - job responsibilities were very different but I was able to tap on the analytical and management skills as well as various soft skills that I have picked up all these years. I find my current job very fulfilling and I really enjoyed what I am doing. To top it off, I not only did not suffer a pay cut but actually was offered a higher salary!
AK says: Big "thank you" to Serejouir for sharing his experience and advice. Being retrenched is tough, no matter how we slice it. However, if we are prepared, we will be less badly affected.
So, remember, if Serejouir can do it, so can you!
Gambatte! Watch the video. He was retrenched after working as a manager for thirty years.
Reader: Won't you be also concern for yourself? The TPD part. Medical is already covered for everyone aka Medishield. I believe most people say not afraid to die, but afraid cannot die. AK: Why should I be concerned?
Reader: Sick and disability. I imagine this 2 are for everyone to think about. Sorry I don't mean to pry. But sought your thoughts on what's necessary to insure for own self. If not necessary one then don't have to pay for it. AK: If we have dependents, we need life insurance. Buy term. We also need the following: For hospitalization, H&S. For critical illness, CI insurance. If you are still reliant on your earned income, then, TPD coverage is relevant to you. It is relatively costly but it will give you peace of mind while you are building your portfolio or until you are able to tap your CPF savings. Reader: The insurance agent out there won't really think for customers. We have to be our own agent. But sometimes can't get the "logics" yet. Thank you again.
Of course, not everyone is able or willing to be an investor. For many people, building up their CPF savings is probably the best way to bolster retirement funding adequacy. For them, if a meaningful lump sum is available for withdrawal from their CPF account at age 55, having TPD coverage till age 55 could be sufficient. Otherwise, some amount of TPD coverage till age 65 is probably a better idea as the earliest CPF Life would start paying a monthly income for life is at 65 years old.
Whether we need TPD coverage and to what age we need it will depend on when we will be able to work when we want to and not because we need to.
Reader: I stumbled on your blog last month when searching for ways to make my savings last longer. There are many other blogs on money but your blog just feels more real to me. We are about the same age and also single but, unlike your frugal ways, I have always had the good life.
To be honest, I used to laugh at people like you. As I have been jobless for almost a year, I don't laugh now. I really regret now. Looking back, I really did not need to spend so much money on my flat, my car and on looking good. Still servicing loans, my savings is running low and I have been avoiding meeting friends recently. I have been telling everyone I have been travelling for work a lot. I think I am losing my mind.
AK: Your situation seems pretty bad but it is not the end of the world. HEALTH: I am not a doctor but it sounds to me that you might be suffering from depression or on the verge of going into a depression. Go to a government polyclinic or IMH for consultation. Inexpensive but effective. I am quite serious about this because depression is very dangerous (hyperlinked to IMH website) and could lead to death.
This is from IMH:
A person who experiences five or more of these symptoms for more than two weeks may have a depressive illness: Persistent sadness; or feeling down or gloomy A loss of interest in activities previously enjoyed Weight loss or weight gain; or decrease or increase in appetite Difficulty falling asleep or staying asleep; or sleeping excessively Feeling agitated or restless Feeling tired and lacking the energy Feelings of worthlessness or excessive guilt Difficulty concentrating or having trouble thinking Frequent thoughts of death or suicide
JOB SEARCH: While you continue searching for a new job, please remember that with all the disruption that is going on, it is possible that we might have to accept lower pay and a job very different from what we used to have especially if we are structurally unemployed. The world has been changing rapidly and it makes financial security a much higher priority than ever before especially when job security has become more elusive.
MONEY: Sell your car. It is a luxury you can no longer afford. Take public transport instead.
Since you are single, you might want to consider renting out spare bedrooms if you have any. If you do not have spare bedrooms or if you do not like the idea of sharing your home, I don't know how big your mortgage is but if it is draining your resources rapidly, you might want to consider selling your home too. Getting a housing option that will cost only a small fraction of your current home will help a lot.
Remember, unless our home is fully paid for, it is a liability. Even if it is fully paid for, if it does not generate income, it is an asset with attached expenses (i.e. operational expenses). We want to keep our expenses low (especially when our income is compromised). So, downsizing (especially if it leads to right sizing) is a sensible option.
People often feel invincible during good times and only truly appreciate their financial fragility during hard times. You are suffering now but your situation is not hopeless. Do the right things and right your life.
It has been many years since I blogged about Cache Logistics Trust in more detail. After partially divesting my investment in the Trust a few years ago, I have not really looked at it as I decided back then that they were not friendly to retail investors like me. Many share placements over the years have diluted the NAV per unit and although total revenue has increased, DPU has reduced. For a retail investor (for income), it is not good for me.
I searched my blog's archives and the last time I really blogged about Cache Logistics Trust was in 2012. NAV per unit was 90c then in 2Q 2012. It was 77c in 2Q 2017. DPU was 1.981c then in 2Q 2012. It was 2.086c the quarter before. It was 1.8c for 2Q 2017. Gearing level was at 27.5% then in 2Q 2012. It was 43.4% in 2Q 2017. Interest cover ratio was 7.5x then in 2Q 2012. It was 4.0x in 2Q 2017. With gearing level much elevated, some form of equity fund raising is not unexpected.
The manager did say in their 2Q 2017 presentation that they wished to achieve a lower leverage ratio and the Trust just announced an 18 for 100 rights issue at 63.2 cent per rights unit. See 2Q 2017 presentation: HERE.
I have said before that I like rights issues if funds are being used to generate more income and hopefully they are DPU accretive. However, rights issues to strengthen the balance sheet means a lower DPU and we should expect DPU to drop by a few per cent after this rights issue is over, everything else remaining equal. Yes, this rights issue is to strengthen the Trust's balance sheet.
After suffering a string of dilution in the value of their investment in the Trust and receiving lower DPU over time, now, retail investors are being asked to cough up some of those reduced distributions they received to help strengthen the balance sheet. Why don't they do another private placement which was something they did so well before? OK. I know. I am complaining. Hey, I am Singaporean! Complaining is something I can do quite well but I like to think that I am not being unreasonable. Anyway, after the rights issue, gearing level will reduce significantly from 43.4% to 35.5%. Let us hope they do not squander a stronger balance sheet. Crossing fingers (and toes).
See announcement: HERE.
See time table: HERE.
Related post: Cache Logistics Trust 2Q 2012 DPU reduced.
Reader: Sorry didn't msg u for awhile I broke my arm Hope u r doin well Shi fu AK: Please take calcium supplement and also Vitamin C. We need especially as we age. Best is to take with Magnesium and Vitamin D included. Also, take Omega 3 supplement if you don't take enough fish. I take all these.
Reader: Ok noted will ask my Wife Now got go therapy Damn pain AK: Also, taking Vit C will help in recovery. 500mg a day. I told a friend to give his wife who went for operation. His wife was in pain for a long time... and the vit c helped a lot in speeding her recovery. And even after recovery, continue with Vit C for maintenance... Daily one pill... very impt for anti ageing and also reduces chances of getting cancer Reader: Wah AK: It is many times more potent than Vit E as an anti oxidant. People don't know how powerful Vit C is.
Reader: U can set up nutrition blog Liao If ppl dunno tink u work in pharmacy AK: haha... already thinking of stopping this blog. i lazy Reader: Cannot stop la U r inspiration for many Stil alot ppl haven wake up Stil tink big car n house means Ho seh Liao I see a few around me buy Rolex , AP etc Few months salary gone like tat
AK: aiyoh... not much i can do lah they happy can liao 😜 Reader: Ya now I don't talk le Waste time waste effort Haha AK: See? You also like that liao. LOL Reader: I go sleep first Shi Fu .. later working U take care talk to u soon
AK says:
We must try to take better care of ourselves physically as we age. The body is not as resilient as before. All we can do is to slow down the deterioration. Unlike our physical body, our financial body can actually become stronger as we age. How to do this? Alamak... I forgot to ask. What is "AP" har? Related posts: 1. Don't be the 1 in 9. 2. Average income workers can be rich.
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