What is our goal and is debt unavoidable?

Reader says...
I am one of those silent readers following your blog and i greatly appreciate your thoughts and wisdom regarding a multitude of issues.

I am currently facing a dilemma of whether to pursue a post graduate education and i was wondering you could knock some sense into me :)




I am a 29yo engineering graduate who developed an interest in finance and was fortunate enough to make an internal switch to a business and financial analyst role within my company.

I was able to pick up the job requirements for my current role but i feel the need to gain more knowledge on the finance side of things and hence i am considering taking up a part time masters in finance.





I would think that this is a form of good debt by investing in myself and having this paper qualification could possibly open up more opportunities in the future but at the same time, this will put me $40k in debt and part of me thinks that this money could be put to use by income investing.

Could you kindly advice what your younger self would have done in this case?

Thank you for hearing me rant.





AK says...
It is very simple. ;)

Ask if this is a need or a want? 

If you need this, go do it even if it puts you in debt.

Having said this, ask if there is another way to get what you want without going into massive debt?

I decided that I needed some knowledge of business when I left teaching to go into sales. 

So, I did a part time diploma in business for about 2 years. (See related post at the end of this blog.)

I didn't have to go into debt to do it.

It probably cost me less than two thousand dollars to do the whole course back in those days.




I decided what I needed was knowledge and learning in a structured manner to speed up the process. 

I didn't need a prestigious degree for my purpose.

So, ask yourself what are you trying to achieve and if debt is unavoidable?
------------------

Although I try to avoid debt in life, it is not because debt is an absolutely bad thing.

Used judiciously, debt can be a good thing if it helps us to generate more income.

Always remember that even with good debt, it is important not to over-leverage because things do go horribly wrong like they sometimes do.





When do we know we are over-leveraged?

There is no precise measure of over-leverage but if we are unable to service our debt for even a short period of time (i.e. 6 months to 24 months) if we should lose our jobs, I would consider us to be over-leveraged.

Of course, this will bring us to another favorite topic of mine which is the importance of having an adequate emergency fund. (See related post #2.)






Related posts:
1. What should I study to be a good investor?
2. How much should we have in emergency funds?

Religare Health Trust to be bought for $966m.

Religare Health Trust's unit price spiked after news that Fortis is seeking to delist the business trust was released earlier this morning.

Surging to as high as 96.5c a unit, it was a 19% increase from the previous trading session in a matter of minutes.





"In an exchange filing on Wed morning (Nov 15), RHT Health Trust Manager Pte Ltd said it has received a proposal from Fortis to acquire all the sale securities held by RHT Singapore's wholly-owned subsidiaries, Fortis Global Healthcare Infrastructure Pte Ltd and RHT Healthtrust Services Pte Ltd.

"The trustee-manager has not declared a distribution for the six months ended Sept 30, as it has not received certain service fees and interest income on the CCDs from the relevant Fortis entities; Fortis is proposing for these to be paid alongside the purchase consideration."

Read article here:
Fortis proposes to buy RHT Health Trust's entire asset portfolio for S$966m





With about 810 million units in issue, if this goes through, a back of the envelope calculation shows that each unit could be getting more than a dollar.

Although it seems that I will be losing another passive income generator, I cannot really complain if it is a more than fair offer.

For those who are thinking of punting, please remember the risk involved.

If the purchase should fail, unit price would probably take a dive back down.




Related post:
Increased investment in RHT by 150%.

Accordia Golf Trust DPU plunged 32.7%.

I checked my Facebook account earlier this morning and was greeted by a deluge of messages regarding Accordia Golf Trust.

Alamak.

How like that?





Reader #1:
hey AK can i ask you something regarding Accordia's latest results? One thing I didn't understand was, why is the DPU down so much from last year despite the profit and revenue being higher?

AK:
Due to repayment of membership deposit.

Reader #1:
hm I see.
meaning more of its members are withdrawing their deposits, i.e. revoking their membership.

AK:
At this moment, I am treating this as a one off event.
Management said it is unusual.

Reader #1:
yeah probably a large number of it hit the due date for withdrawals or something.

AK:
Probably the case. 🙂

Reader #2:
Hi AK, like to ask you about accordia golf trust. 

In their recent results, they mentioned that "Total distributable income available during 1H FY17/18 was JPY 1,471 million, which was 27.3% lower than 1H FY16/17. 

The decrease of distributable cash flow was due to payment of borrowing upfront fee and unusually large repayment of membership deposit.". 

Any idea what the "unusually large repayment of membership deposit" refers to?

AK:
Members can call for repayment of membership deposits after a lock-up period of a certain number of years.

I am treating this as a one off event since the management said it is unusual.

If I have put all or most of my money in Accordia Golf Trust, this could be depressing.

Since I have a portfolio of many businesses generating income for me, I am able to look at this development with equanimity.

What now?

It is back to K-drama and MMORPGs for me.

Bad AK! Bad AK!




See slides presentation: HERE.

How to turn $60K into $332K?

Growing our wealth can be a daunting task especially when our resources are limited.

I think of wealth building as plucking fruits from a tree.

Being a lazy fellow, I try to use as little energy as possible and would go for low hanging fruits.





Why climb higher up to pluck fruits and risk a bad fall when there are low hanging fruits?

I would climb higher up when my tree climbing skill has improved or if there is a safety net to catch me if I were to fall.

Know what I mean?

Hint, hint.

Nudge, nudge.

Wink, wink.





I received this email from a reader:

Hi AK,
Thanks for sharing your knowledge with us young folks.

Saw you previously at investx.

I just did this calculation last night.

I realized if at 25 years old, you put in 40k into your SA and have 20k in your OA. 





Then you do not contribute a single cent from then on. 

Based on 5% interest on the first 40k in your SA, then 4%, and 3.5% on your first 20k in OA, then 2.5%, at the end of 40 years, at 65 years old, 60k would have become $332k.

This is without doing a single thing. It's actually quite impressive returns.

Cpf is good haha.





“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.”
― Albert Einstein

Correction by the reader:

The extra 1% from OA doesn't actually compound in OA. It is credited to SA. So for 20k in OA, the interest 1 yr later is 20500 in OA and an additional 200 into SA.

Furthermore, after 55yrs old, first 30k gets another 1%.

CPF has a lot of intricacies, but in the end, the magic of compounding is still wonderful!




This magic is very powerful!

Make it your friend!

If AK can do it, so can you!

Related posts:
1. Upsizing Oppa AK style!
2. $1 million in CPF by 65?

Short paid by Croesus Retail Trust?

Reader #1 said...
Could I do a check with you regarding Croesus' delisting. I believe all unitholders have received the payout. Did you receive an amount equal to $1.17 x # of shares you owned (which is what i received)?

Cause i thought that the payout should also include the distribution till the effective date of the delisting, but cap at 4.06cents?

Wonder if you know about this?

Thank you very much for reading my email.

Reader #2 said...
Like you, I have bought some Croesus and the cash proceeds of $1.17 per unit has been credited into my account yesterday. As the Croesus' dividend of 4.06 cts was for the 1 Jan to 30 Jun 2017 period, do you know whether dividend will be paid for the 1 Jul to 25 Oct 2017 period? I do recall reading that the latter dividend would be paid.

Btw, I have enjoyed eavesdropping when you talked to yourself about your passive investment in SReits!!! Thank you for allowing the eavesdropping.







AK said...
Croesus Retail Trust completed the sale on time.
They would have had to make a higher distribution to shareholders if they did not.
So, $1.17 per unit is correct.
A DPU of 4.06 cents was made earlier in September, if I remember correctly.

Related post:
Still making money from CRT.

Keeping in touch as I break from blogging.

I have not been blogging for 10 days and I have received several messages from readers regarding this.

I am sorry if I have caused some anxiety for some readers but don't worry, I am OK. Still alive and kicking.




Then, why have I not been blogging?

My blog will be 8 years old this Christmas Eve.

Yes, I have been blogging for almost 8 years.

Surprised? I am surprised too.

I know I enjoy writing and I enjoy sharing ideas to do with personal finance and investment.

However, looking back, I am still surprised by my blogging stamina.




Over the years, from time to time, for various reasons, I have also blogged about possibly retiring from blogging but I have always been able to bounce back pretty quickly from those moments.

What about now?

Well, I just felt like not blogging quite suddenly.

Is there another way to describe this?

Could I share the abrupt feeling through story telling?

What about this?

Suddenly, one morning not too many years ago, I was not able to read the papers as my vision was blurry and I realized that I needed reading glasses.



OK, not quite there but I think some might get the feeling of abruptness.

I am sure some of you might be able to do a better job of describing this feeling.

As for suddenly realizing that I needed reading glasses many years ago, it is a true experience.

People my age or older would know the feeling.

If you don't know what I am talking about, well, when you hit 40 (plus or minus a few years), you will.

You will get a reminder in the mail too because that is when our government tells you to consider getting Eldershield. ;p

Old age.

We can run from many things but not ageing.



So, am I really going to stop blogging this time?

To be honest, I don't know if this feeling is temporary. 

I don't know if I am only feeling a bit burnt out from blogging and that I need some time to recover or if this is a more permanent thing.

If I were to hazard a guess, I suspect it is temporary.

I am still checking my blogs for comments.

I still visit my Facebook page.

I still check my emails.

However, I might not be very prompt in my replies.

I still try to reply to the many messages and emails I get but if you don't hear from me, it could be because I have yet to read your email. 

I don't usually ignore emails from genuine readers.

So, if you wrote to me and did not hear from me for a prolonged period of time, chances are that your email did not reach me for some reason.



For those who want to keep hearing from me but are not following me on Facebook, go to my blog's left sidebar, find the Facebook link and follow me.

I have been updating older blog posts which I feel are still useful to share again on my Facebook wall.

So, you won't suffer from withdrawal symptoms.

Not to worry.

I don't think my time as a blogger has ended and I shall blog again. :)

Largest investments in my portfolio.

In February this year, I revealed the top investments in my portfolio with some indication of their values in dollar terms.

Understand why I decided to share after refusing for so many years by reading this blog:

Investment portfolio and market value.

Then, later in May, I updated the list as I had accumulated a pretty significant position in Centurion Corporation Limited from February.

Centurion has turned out to be a pretty good investment. Read the update in this blog:

Centurion's pricing power.






It is now almost the end of October and things have changed yet again.

1. The decline in QAF Limited's share price makes it a smaller investment for me. It is not as large as it was before. So, it is no longer in the list.

2. The sale of Croesus Retail Trust has been completed and income distribution has been made to shareholders. So, it is removed from the list.

3. The heavy accumulation of SingTel's stock, increasing my exposure by several times, pushes it into the list.






The updated list:

From $350,000 to $499,999:
AIMS AMP Cap Ind'l REIT

From $200,000 to $349,999:
ACCORDIA Golf Trust
SingTel
FIRST REIT

From $100,000 to $199,999:
ASCENDAS H-Trust
WILMAR Int'l
Centurion Corporation Limited






Although Centurion's stock price has gone up quite a bit and I have not reduced my investment, it isn't quite enough to push it into the $200,000 bracket.

Income distributions from my investments this year is likely to end on a high note due to bumper distributions from Croesus Retail Trust and Saizen REIT as both got delisted. 

I will blog about these towards the end of the year when the income from all my investments are received.

Related post:
1. SingTel and Netlink Trust.
2. Croesus Retail Trust.

The gain will outweigh the loss.

I try to put some effort into coming up with creative titles for my blogs and I am quite pleased with this one. 

Pun upon pun. Rather fun.

After attending "Evening with AK and friends", some overweight readers became more interested in losing weight than investing for income. Ha ha.

A reader just wrote to me to say he has lost 3 kgs since he started dieting almost 3 weeks ago. 

I am very happy for him but I also told him that weight loss will slow down over time and, if he keeps to the diet, when the weight loss stops, that is when his body is telling him that he is at his ideal weight which should be healthier.

He could cut himself some slack then. 

One cheat day a week? Why not?

I see many overweight people trying to lose weight by hitting the treadmills in the gym or jogging along the PCN. 

They shouldn't be doing that.

Doing high impact exercises wears out the knees and overweight people will put a lot more stress on their knees. 

This is why for people with knee pain, losing weight helps a ton (pardon the pun).

Lose weight through dieting first. 

Then, consider doing some jogging.

Of course, regular readers know that my preference is for stair climbing.

I climbed 50 floors last night, jogged for 15 minutes and still enjoyed an evening walk. 

Nothing too strenuous. 

Just keeping myself physically active.

How to lose weight fast?

Avoid carbohydrates. Out with rice, bread, noodles, cookies and other stuff like that. 

Definitely, throw out sugar. 

When we take carbohydrates, it should be in the form of vegetables and fruits. 

Most of the carbohydrates is in the form of fiber and will not be retained in the body. 

Of course, there is sugar in fruits but they are naturally occurring. 

However, in the early days of your diet, you might want to choose berries, green kiwi fruit, green apples and pears, for examples, instead of mangoes, pineapples, durians and papaya, for examples. 

The idea is to go for less sugary options. 

Or you might want to eliminate fruits altogether for the first few weeks.

Don't avoid fats. Take good fats like extra virgin olive oil, extra virgin coconut oil and butter. Our body needs fats to function.

You could supplement your diet with Omega 3 capsules too. 

This is something I do because I don't take fish everyday.

Don't buy low fat food because they are usually filled with other stuff to take the place of fats. 

Just look at evaporated milk being sold at the supermarkets, for example. 

I would buy the full cream version and not the filled or low fat versions.

However, to lose weight, avoid milk for a start. 

It is because of the milk sugar.

Take enough protein. The guideline for a sedentary person is 0.8 gram of protein for every kg of body weight per day.

Take enough protein to maintain our muscle mass. We want to lose fats but not muscles. 

If your body weight is 60 kgs and your lifestyle is sedentary, you need 48 grams of protein a day, for example.

A medium size egg gives us about 7 grams of protein, for example. A small egg weighing 55 grams, about 6 grams of protein.

If we throw out the yoke which contains all the nutrients and eat only the white, we will get about half the protein.

I eat the whole egg.




Being fat is the reason for many health problems and with a sedentary lifestyle it is very easy to become obese if we are not careful with food.

Some of my meals in recent days:

Spinach, eggs, butter and olive oil.

Chicken, coconut oil and spinach.

Salmon, butter and olive oil.

I always add turmeric powder and black pepper because they are good for the joints. 




They are supposed to have other health benefits too if you are into Ayurvedic studies.

The gain will outweigh the loss.

Related post:

Food bill grew but weight reduced.

Which CPF Life Plan for me? Basic, Standard or Escalating? (UPDATED JULY 2018).

An annuity is supposed to help fund our retirement. 

So, I should be looking at getting a bigger payout, if possible, and not a smaller one.

So, my choice is the Standard Plan.

I know there are people who would like to leave more money behind for their children and they might say I think the way I do because I have none (or at least I think I have none).

OK, maybe so.

However, I do feel that children should take care of themselves once they are adults. 

Some might tell me that this is a Western idea. 

OK, then, how did this Chinese saying come about?

儿孙自有儿孙福，莫为儿孙作马牛。

Bad AK! Bad AK!

Now, for some numbers.




Following my last blog on annuity rates, if we were to choose the CPF Life Basic Plan in order to possibly leave more money behind when we die, the annuity rate is approximately 7.16% (i.e. $991 x 12 /$166,000). 
- Refer to Ervin's comment on annuity rate at the end of this blog.

If we were to choose the Standard Plan, the annuity rate is much higher at approximately 7.88% (i.e. $1,090 x 12 /$166,000).
- Refer to Ervin's comment on annuity rate at the end of this blog.

I feel that when it comes to an annuity, the bequest should not be a primary consideration because leaving a legacy is not the purpose of an annuity.

An annuity is not a legacy planning tool. 

An annuity is a retirement funding tool.

What about the new CPF Life Escalating Plan?

I would probably stick to the Standard Plan as receiving a more meaningful sum of money right from the start and for many years after that is intuitively more attractive to me.

Intuition is fine but let me see if I can explain my choice mathematically.

The CPF Life Escalating Plan's annuity rate will escalate at 2% every year. 





Therefore, for the annuity rate to be on par with that of the CPF Life Standard Plan's, it would take about 11 years.

Only from the 12th year, the Escalating Plan's annuity rate would be higher than the Standard Plan's. 

This means its monthly payout would only become higher than the Standard Plan's then.

This seems attractive but in terms of total dollars received from the first payout, it would have lagged behind the Standard Plan and, logically, it would take many more years to catch up with the Standard Plan to make up for the "shortfall".

If we take into consideration the time value of money which says a dollar today is worth more than a dollar tomorrow, the difference in value spanning a period of years is probably quite stark.
.




.

I have never been very good at Math and, like with all my blogs, this is just me trying my best to make sense of things but maybe not doing a good job of it.

You have been warned.


So, why would I choose CPF Life Standard Plan?

You blur?

I also blur.




Please remember that I think this is right for me but it might or might not be for you.

Yes, you have been warned again.



---------
Lee Keh Yi:
CPF has updated their CPF Life Calculator.
It show much more details now

.


.

Ervin Ong says...
Your annuity rate calculation is wrong: "CPF Life Basic Plan in order to possibly leave more money behind when we die, the annuity rate is approximately 7.16% (i.e. $991 x 12 /$166,000)". This is because $166,000 is what you have at age 55, but you only start collecting annuity at age 65. You have missed out all the interest for the 10 years period.

Related post:
1. CPF Life estimator.

2. Annuity rates.

What is effective annuity rate and is CPF Life competitive?

A reader read an article in The Straits Times on CPF Life and asked me to write a piece on it.

I have blogged about CPF Life so much already and, so, to avoid boring anyone too much, I will try to keep this short.




This is taken from a recent chat with another reader:

foolishchameleon said...
... with so many annuities in the market, what returns would be considered decent?
2.5%? 3% ?

AK said...
What is a decent return? I have not done any comparison lately but I know none is able to come close to what CPF Life is able to generate which is a minimum of 4%.
However, if it is only 2.5%, I might as well just do annual VC to my CPF account as the OA pays 2.5%. So, intuitively, I would demand at least 3% from a private annuity.

(Source: https://singaporeanstocksinvestor.blogspot.sg/2017/10/how-insurance-weakened-familys-balance.html)

So, when the article in The Straits Times says CPF Life is able to offer a 7.1% effective annuity rate based on $100,000 premium, what are we looking at here?

We are not talking about effective interest rate here. 

We are talking about effective annuity rate.

If we are talking about interest rate, then, based on $100,000 savings in our CPF-RA, the first $30,000 gets 6%. Next $30,000 gets 5%. The rest gets 4%.

Average interest rate is 4.9%. 

I hope my math is up to scratch.





An annuity rate is not interest rate as it refers to how much is paid out as a percentage of our premium each year.

So, in the CPF Life example mentioned in The Straits Times, a 7.1% annuity rate based on $100,000 gives us $7,100 a year or $591.66 per month from age 65 for life.

It isn't a 7.1% interest rate.

It is quite clear that annuity rate and interest rate are different especially when we remember that some of this regular payout is a return of capital which is why at some point in our old age, when we pass on, there is nothing left for our beneficiaries.

Source: 
The Telegraph, 17 May 2017.

Taken from the article in The Straits Times:

The report highlighted that with CPF's interest rate structure, CPF Life is able to provide an effective annuity rate of 7.1 per cent based on a $100,000 premium.

"This compares favourably with life annuities in most markets," stated the report. The annuity rate was calculated based on the ratio of annual payout to premium paid, for a male member born in 1962, or is 55 this year, who receives payouts at age 65.

It is no wonder that financial experts like Mr Christopher Tan, chief executive of Providend, believes that every retiree's portfolio must include an annuity plan to hedge against longevity risk.


He says: "CPF Life is currently the best annuity plan in the market. It is low-cost and offers high return."




Read full article here:
http://www.straitstimes.com/business/invest/is-the-new-cpf-life-plan-ideal-for-you

Related posts:
1. An annuity.
2. Retirement funding.
3. CPF Life Escalating Plan.

Retirement funding assurance for the average investor.

I have met many people who told me they didn't believe in the CPF and they didn't believe in CPF Life.

When I explained that CPF Life is an annuity that would pay us a monthly income for life from age 65, some would go on to say that they didn't believe in having annuities.





There are different reasons given for not having an annuity but amongst investors, those that do not believe in annuities usually believe that they can always do better investing their own money.

It could indeed be the case that some of us constantly outperform the market.

See related post #2 at the end of this blog.

Well, I am not too confident of my own ability to do so.

So, I like to have some assurance that I would have a basic retirement income that is predictable.





In case my investments do not perform well enough in certain years, I have a well I can depend on. 

Having a well helps us to live well.

Sorry, I couldn't resist it.

Really.

No Evian? At least have well water.

That is what an annuity like CPF Life can do for us.

AK anyhow draw one.

Peace of mind is priceless.




Related posts:
1. An annuity.
2. CPF Life Escalating Plan. 

What to do with $45K? It depends.

Reader:
I have a bal of 45k which trying to find place to put. need for kid study or health problem. Is posb invest-saver a good choice?







AK:
Since you say you might need it for health problem, then, it is not money you can afford to lose.
Go for the safest options.
In case you are wondering, safest options are those that will not result in monetary loss. 🙂
So, if you need the money, you know you can get 100% of it.

Reader:
ya. cause read many earn from this invest saver but not savvy in investment. think just buy some good stock to keep is better.






AK:
Invest saver is an investment plan.
There is a risk of monetary loss.
The same goes with stocks.
Invest only with money u can afford to lose.

Also read this:
Investor psychology.