Insure against longevity risk but not like this.

Reader says...
Hi need some feedback on annuity plans/rates.

Pay 16k per year for 5 years. 

Payout monthly $800 per mth for 10 yrs. annuity rate is 12% correct?





AK says...
It is not really comparable because this annuity pays only 10 years.

It is more like an endowment than annuity.

So, I think it might be wrong to valuate this like an annuity.

It is more like a savings plan without any insurance component.

An annuity is an insurance against longevity risk.

Reader says...
If like cpflife forever then it is more like wholelife policy?

AK says...
Life insurance is different.

That is more for your dependents.

We don't need life insurance unless we have dependents.

We buy annuity in case we are blessed with long life and it helps to fund our golden years.





Reader says...
U know of any annuity plans that u feel is worth considering?

AK says...
CPF Life 😉

Reader says...
What is the limit for CPF-RA?

AK says...
You will know the limit for your cohort when you turn 55. 😉





Reader says...
Just wondering if its u, wud u buy that plan?

AK says...
Basically, you are just getting back $96K for saving $80K.

That is a $16K gain.

And you are not even getting it in one shot but spread over 10 years.

20% gain and spread over 10 years is 2% per year.

It sounds innocent but it isn't

There is a cost to this.







Instead of paying us 100% all at once (like a regular endowment plan), they hold back and we are paid a very small % monthly over 10 years.

Conservatively, we could be losing another 2% every year because we could have placed the money in a Singapore Savings Bond.

So, what are we making here? Nothing!

They are not giving us more than what we could get from a Singapore Savings Bond.





Add the fact that you actually pay over a 5 year period (i.e. $16K x 5), without considering opportunity cost, you are getting less than 2% a year in return (when the $800 a month payout starts) because the waiting time for the first few $16K payments made is longer (i.e. 1 to 4 years more).

To me, it is rubbish.

We would be better off just placing the money in a Singapore Savings Bond.

This product gives an illusion that it is an annuity when it really isn't and even as a savings plan, it fails miserably.

There, I have said it.





Guess which insurance company is selling this product?

Really, no one cares more about our money than we do.

Don't ask barbers if we need a haircut.





Read another blog on insurance published yesterday:
Life insurance a heavy burden. What to do?

Related posts:
1. Rather have an annuity or not?
2. When to get a private annuity?
3. What is effective annuity rate?

Life insurance a heavy financial burden. What to do?

Reader says...
I would like to seek your self talk on whether a person should continue paying premiums for his whole life insurance policy.

Person A initiated a whole life policy with the premium payment duration for 25 years.

After 4 years, the surrender value is now around 20% of the total premium payment till date.









As the monthly premium is occupying a huge part of his monthly cash flow, he is considering to replace the whole life insurance with a term life insurance to "cut losses".

In addition, he is also considering to terminate his child's whole life policy which was initiated in 2016.

After spending time getting himself educated, he realised there might not a need for his child to have a whole life policy.

In addition, the sum assured may also be not that significant in the future, given the inflation rate.

What self talk would you give yourself if you imagine yourself to be Person A in the given scenario?












AK says...
In a nutshell, we need life insurance if we have dependents.

If we do not have dependents, we don't need life insurance.

We can get adequate life insurance and keep the cost of insurance significantly lower by buying term.

Whole life insurance is relatively expensive life insurance but it has a saving or investment component which might appeal to some people.

However, for people with budgetary considerations, term life is the best option.







We need life insurance because bad things do happen but we do not need whole life insurance.

Before terminating your existing whole life insurance, make sure that you get term life insurance of equivalent coverage first.

Ideally, your term life insurance should be for as many years as you think you would have dependents.

I cannot and would not give specific advice but I hope that talking to myself has helped to throw light on the matter.










Related posts:
1. Holistic approach to financial freedom.
2. Insurance weakened family balance sheet.

QAF's earnings down but cash increased. What is this?

Reader says...
Thanks for talking to yourself!

Really helpful in terms of long term planning for FI.

Just wanted to get some of your thoughts on QAF..






Latest results show much lower earnings (~60% less), and the stock price took a hit..

However, i see that their cash on hand has increased quite a lot.

With all the other news about it i.e. IPO not proceeding..

Could you talk to yourself on this?

AK says...
The weakness in earnings is probably cyclical (due to oversupply of pork in Australia).

So, I am waiting to buy more if Mr. Market should go into a depression.

You might want to read the related posts at the end of this blog.







Reader says...
How would you define a depression for them, and how would you conclude that their mgmt is taking the right steps? Thanks!

AK says...
If we accept that the weakness is cyclical and not structural, then, we understand that earnings will recover. 

It could take months or years but it will recover.


To be able to weather cyclical downturns, a company must have a strong balance sheet. 

This is what Marco Polo Marine has taught me. 

QAF has a strong balance sheet.





A company could become more valuable over the years but due to downturns which could be prolonged, its stock could trade at relatively low prices. 

That would be a good time to accumulate. 

This is what Wilmar has taught me.

QAF is more valuable today than it was a few years ago.

As for the management, I let their track record speak for them. 

Holding a relatively large controlling stake, they are driven to make QAF more and not less valuable.





Reader says...
I'm still young and willing to wait for recovery, just want to be certain of my decisions 🙂

1) Could i ask why you believe the downturn is cyclical?

Thanks for your time!

AK says...
The primary production business is a commodity business.

This is similar to Wilmar's businesses in agriculture.

This is a cyclical business.

I am referring to QAF's pork business in Australia, of course.

Related posts:
1. Plunging earnings at QAF.
2. Wondering about QAF.

ComfortDelgro's 51% stake in LCR good or bad?

I was wondering whether to blog about this but still feeling rather lazy, I just made a few comments in my blog's comments section and on my Facebook wall.

OK, if you don't know about the proposed acquisition, read the article: HERE.

"Taxi giant ComfortDelGro announced on Friday (Dec 8) its intention to acquire a 51 per cent stake in the Uber-owned rental fleet business, Lion City Rentals."

As things turned out, I received an email from a reader on the matter and I decided to do a little bit of "work" to share it in my blog.

Bad AK! Bad AK!

Reader's email:

I like your reply to your reader Lee Jiahui that CDG's deal with Uber will "stem the loss of drivers" and this is already helping CDG.

I also like your reply to your reader Kevin that "car rental business is actually a good business and CDG is an old hand at fleet management and they should be able to do a better job of managing LCR's fleet and reap some benefits." 

I am also glad that CDG did not invest in Uber and I also believe that the CDG's proposed majority stake in LCR is not a bad idea.





I would like to share the following:

1. CDG is paying S$295 million for a 51% stake in LCR.

2. It involves only 12,450 cars out of LCR's fleet of about 14,000 cars.

3. The NAV of the 12,450 cars is about S$642 million.

4. If utilisation rate of the fleet goes up in future, CDG would pay for more cars in the fleet.






So, although it is true that CDG is paying for depreciating assets, they are only paying for productive depreciating assets.

This is nothing new. 

Taxis are depreciating assets too but if they are put to work, they are productive assets.

Hack, 99 years, 60 years, 30 years leasehold properties are all depreciating assets.

Should investors avoid them?







Like you always say,

"All investments are good investments at the right price."

If we understand this, understand that this deal with Uber would lead to an increase in earnings for CDG in their car leasing department.

Also, we should expect CDG's engineering department's earnings to benefit.

So, is this really a bad deal?

(End)

From the comments here in my blog and on my FB wall, it is clear that not everyone is convinced that this is a good deal for ComfortDelgro.

However, to expect a fantastic offer from Uber to give away something precious to ComfortDelgro on a silver platter would be unrealistic.

As an investor, I try not to be overly optimistic or overly pessimistic. 

I try to be pragmatic.

Realistically, we cannot predict what Mr. Market is going to do next week.

However, as investors for income, all we need to do is to determine what is a fair price to pay and wait for offers from Mr. Market.

We can do it for fun but we are not in the business of predicting price movements.

We are in the business of preparing to buy from Mr. Market when he is feeling depressed.

If you just popped by, this is one of those rare days with more than one blog published in ASSI.

Read the blog published earlier today: HERE.

Related post:
Incomplete analysis of ComfortDeglro.

Rushing CPF with only 11 years left to 55.

Reader says...
I am now 44. my SA is about 100k now. 

My MA has reached BHS. 

I am thinking of transferring some OA to SA to reach FRS. 

I understand that I can’t VC anymore to SA.





Now what happens with monthly mandatory contributions? 

Will all my monthly MC all go to OA?

So does this mean that once SA reaches FRS, there is no other way to grow SA other than the interest earned within SA?

If now, my monthly MC is all going to OA, what else can I do with the faster growing OA to grow my overall CPF funds?





I feel that I want to work smart to build up my nest egg before I hit 55. 

I only have 11 years of doing this. 

I should have done it much earlier.

AK says...
Your SA has $100K and this is below the prevailing FRS, you can continue to Top Up your SA using cash.

Read this blog on the options available:
http://singaporeanstocksinvestor.blogspot.sg/2017/08/investx-congress-and-cpf.html

Your mandatory contributions (MC) will go to your OA and SA but nothing to your MA since it has hit BHS.

Read this blog and refer to allocation rates:
http://singaporeanstocksinvestor.blogspot.sg/2017/08/cpf-sa-savings-10-years-from-now.html





If you have used your CPF-OA money to help purchase your home, you could consider doing a voluntary refund to your CPF-OA to help grow your OA savings.

Read this blog:
http://singaporeanstocksinvestor.blogspot.sg/2015/09/how-to-stop-accrued-interest-we-owe-cpf.html

Let the government work harder to help fund our retirement.

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

Gambatte!





"What if I had done this too?"

Read this blog:
http://singaporeanstocksinvestor.blogspot.com/2014/12/if-i-had-done-this-i-would-have-hit.html

Cutting losses in REITs.

Reader says...
You have been very successful in investing in Reit.

May i ask if you have any cut loss plan for taking up reit position?






I know investing in reit is a long term investment, looking for distribution return.

As investing are about probability and there is no certainty, if the price of reit falling below the entry price, do you get out or continue holding your position?

Really hope to hear from you soon. Thank u Ak.

Your willingness to share help gain alot of knowledge for me.

AK says...
I have in the past sold down some of my investments in REITs.

Examples of such REITs were Lippo Malls and Sabana REIT.

In both instances, I sold because I thought they were no longer as good an investment for income and that the management was mediocre.






If I believe that a REIT is still a relatively good investment for income and that any price weakness is due to (seasonal or cyclical) externalities, unless structural, I won't sell.

You might be interested in the blog on Sabana REIT: HERE.

And the blog on Lippo Malls: HERE.

(I was lucky not to lose any money in both instances and made some money instead.)

I should have invested in Bitcoin.

Reader says...

I should have invested in Bitcoin when my brother in law told me years ago.

Really regret.

AK says...

I think you mean you should have "speculated" in Bitcoin. ;p

When we buy something with nothing more than the hope that we would make money from it (i.e. that its price would go up), we are speculating and not investing. :)

(Actually, the same goes for selling something. Think stock market. Think short sellers.)

It is like buying 4D, TOTO or Big Sweep.

Yup, if you have bought some Bitcoins, you would have won the lottery.

That is what it is.

A lottery.

I don't mind a bit of speculation but we have to know what we are doing.

We have to know that we are speculating and not investing.

I see even financial bloggers getting a bit mixed up sometimes.

Sometimes, we see a blend of investing and speculating going on which isn't anything wrong per se.

We just have to know what is going on.




Anyway, read this blog to have an idea what I am talking about:
Centurion Corporation to double in price!


(And also this blog:
Investment philosophy and property market.)

ComfortDelgro's massive short interest.

Reader says...

Many are concerned that shorting will continue to push the share price down.

What do you say to this?

AK says...
Definitely, ComfortDelgro has been a favorite for short sellers.

There is now a massive amount of short positions in ComfortDelgro.





I see this as a good thing because it has created a buying opportunity.

Short positions have to be covered eventually and, unless ComfortDelgro's fundamentals are rubbish, short covering together with genuine buying interest would send the stock price up.






All else being equal, I would welcome more aggressive shorting as it would let me accumulate at even lower prices.

As I do not believe that ComfortDelgro's fundamentals are rubbish, I believe that the larger the short interest, the stronger the eventual price recovery would be. :)




Related posts:
1. ComfortDelgro's FA.
2. ComfortDelgro's TA.

"Noble Group will be worth $7.00 a share."

Reader says...
I followed the call of a famous trader in Singapore and bought Noble in May.

He drew a chart and said it will go up to $7.00.




I am still holding but the price keeps falling. I put in a lot of money. I don't know what to do now.

Should I cut loss?

AK says...
When was the last time I did a TA on Noble Group?

See the blog: HERE.

I always say that TA is about probability and not certainty.





It is too dangerous for me to suggest if you should hold, cut or add.

However, I would suggest that you pick up TA if you want to be a trader.

See recommended books for TA: HERE.

Regular readers know that I used to do quite a bit of trading and I said as much in this year's "Evening with AK and friends".

See the blog: HERE.






If you want to start a zhi char store, make sure you know how to handle a wok.

If you don't know how and pay a shi fu to do it, you are at his mercy.

So, if you want to trade stocks, make sure you know how to read charts. :)




---------
In case you just dropped in, there was a blog published earlier today:
Investing in high yield Asian bonds.

Investing in high yield Asian bonds.

Reader says...
I am in my early 40s, and do active investing on my own.

Recently I was contacted by an agent, who shared about investing in high yield Asian bonds.




I was initially sceptical but it seems that these are very different from mini bonds, and the failure rate has been historically low.

I am thinking of investing about 10% of what I usually invest in the stock market in these bonds.

The main catch is that the investment commitment is over 10 years (i.e. cannot sell for the first 10 years), which seems fine to me, and after that, I am able to decide whether to continue investing or not.

Would you be so kind to share your thoughts please? 

Many thanks.

AK says...
High yield bonds are a nice way of saying junk bonds.

They are junk bonds for a reason and you should be wary of the financial strength of the issuers.

It depends on how much risk you are comfortable with taking and if you think the potential returns justify the risk.




I wouldn't buy these myself and also because there is a strange thing here about not being able to get out of this for 10 years.

Whether regular bonds or bond funds, we are allowed to get out whenever we want, accepting whatever price Mr. Market should offer at that point in time.

10 years is a very long time and with no escape clause, it is either we swim or sink with the issuer.




Another thing is that with interest rates rising, if the issuer does not default, these bonds could be worth much less 10 years later assuming that interest rates become elevated then.

So, in such a scenario, if you do decide to sell the bonds, you might get back less than your initial investment.

Of course, the decision is yours.





You might want to read the blogs listed below and I hope they are helpful to you:
1. Why have bonds in our portfolio?
2. Nobody cares more about our money.

Have a savings plan and invest fearlessly!

Reader says...
Recently, an agent came to me asking me I should get a saving plan.

As she said that people can invest fearlessly is becos they have a saving plan (safety net) if anything to happen, there's still a saving account.





The saving plan is like pay for 5 years then after 15 years can take the money out with interest.

She says the money can be used for my baby education funds or my personal funds after 15 years.

What r your thoughts on saving plans?

AK says...
What is the guaranteed return?

See for yourself if it is worthwhile.

As a guide, Singapore Savings Bond (SSB) pays 2.16% p.a. guaranteed if held for 10 years.

This is a AAA rated sovereign bond.





So, this savings plan which the insurance agent is trying to sell to you must return much more than this to make it worth considering.

1. 15 years is a long time to hold. You will be sacrificing liquidity for a very long period of time.

2. Insurance company is not a AAA rated country like Singapore.








If you want a similar safety net, locking up some money in SSB for 10 years could be the answer. 🙂

(Unlike a savings plan from an insurance company, you will not suffer any monetary loss for early withdrawal for SSB although the returns would be lower if not held for 10 years.)

15 years is a very long time and in that time, there could be a stock market crash (or two) and I would rather have more money to invest with.

So, with this consideration in mind, putting the money in SSB is a better option for me. 🙂







To be fair, such products (i.e. savings plans) are useful to some people.

These people probably have lots of spare cash and are probably not interested in investing in stocks or hard assets.

These people might not be financially savvy and just want somewhere relatively safe to plonk their money.







If you are financially savvy, buy term and invest the rest. 🙂

Related posts:
1. Insurance weakened family's balance sheet.
2. 2.02% interest attractive? It depends.
3. Singapore Savings Bond good or not?

See this month's Singapore Savings Bond: HERE.

Reducing investment in Accordia Golf Trust.

I am sharing this conversation which I had with a reader which took place in the comments section of my last blog on Accordia Golf Trust because I feel that it is important enough to share as a proper blog.





csky said...
Redemption of the deposit means the member has cancelled their membership. But non-members can still play but at a higher play fee.

The large redemption for FY17/18 was unexpected as the previous years’ redemption averaged about 20%. They think it could be because this batch of redemption included 2 golf courses that had much higher membership deposit fees than other golf courses.

The cumulative amount of membership that has yet to be redeemed is shown in the dark grey bar on top of the chart. Which is 11,215 (JPY million) for FY17/18 and it is also reflected under liabilities in their balance sheet.

This membership deposit is an old scheme. The last batch of this old scheme is reflected by the grey bar of 750 (JPY Million) for FY18/19 as shown in the chart. So new members who join now, they no longer has to place any such redeemable membership deposits.





AK said...
Thanks very much for sharing this. :)

These old members who redeemed their deposits can rejoin as new members without having to make any deposit under the new scheme.

Realistically, we should expect deposit redemption to continue to impact distributions in future and, in time, cease altogether.





csky said...
Most welcome ;)

AK, all of their loans will be due in either August 2018 or August 2019. Is this normal? I am assuming they will try to refinance the loans, but it sounds like they are not giving themselves very much time. What if there is sudden financial crunch? And it certainly does not seem like they have enough cash to make repayment of the loans too.

Term loan A ($15,000M) and Term loan B ($15,000) are both due in August 2018. Term loan C ($15,000) is due Sep 2019. Term Loan A has already been extended once (from August 17 to August 18), no mention of them refinancing it again. The report does say they are refinancing Term Loan B with banks.





AK said...
Yes, I was a bit surprised that they extended the loan for one year only.

Now, together with the risk of membership deposit redemption, it looks like they might have too much on their plate.

Although I think that AGT can be a good investment for income, with all the uncertainties, to add to my investment, I would demand a lower unit price as compensation for the risk I would have to undertake.

With this in mind, I think it might actually be a good idea to reduce my rather big investment in the trust.





I will talk about this again in my regular full year passive income report next month.

Related post:
Accordia Golf Trust DPU plunged.

Medisave voluntary contribution in 2018.

I updated a blog on the CPF-MA yesterday:

"For those under 65, the Basic Healthcare Sum next year will be S$54,500, up from S$52,000 previously, the authorities said."
Source:
CNA, 16 November 2017





And here are some comments on my Facebook wall:

Reader #1:
Interest $52k @ 4% = $2080.
total $54080
New amount $54500.
Still need to top up $420.

Reader #2:
4% interest will bring the total to $54,000.
Meaning we can only top up $250?





There seems to be some confusion as to how much we can contribute to our CPF-MA at the start of the new year.

So, I am doing a quick blog here on the matter.

If our CPF-MA has hit the BHS in 2017, the interest earned in 2017 will be transferred to our CPF-SA or CPF-OA (if our CPF-SA has hit FRS like in my case).






So, at the the start of 2018, our CPF-MA will have $52,000 only (i.e. the BHS in 2017).

This will allow us to do a voluntary contribution of $2,500 to our CPF-MA (to hit the 2018 BHS of $54,500) at the start of 2018 and get an "ang bao" of $100 for the year.

For anyone who is paying income tax, note that the recipient of a voluntary contribution to the CPF-MA will get income tax relief.

HUAT AH!

I like. You like?





Related posts:
1. Do online contribution to CPF-MA.
2. 4 ways to beef up CPF savings.