Have your (CPF) pie and eat it (eventually)! .......................... (AK is showing off his CPF numbers graphically!)

I really like the colorful yearly statements generated by the CPF Board.

It adds a dash of color to what is usually a very boring black and white sheet of numbers.










I find the colorful statement really pretty and makes my pretty CPF numbers prettier!

You like pies?

I like pies.

Pie chart that shows how much I have in my CPF account, I like even more!

For newly minted readers of ASSI, do I hear "Oooh", "Ahhh" and the more local "Waah"?

How old am I?

Clue?

Read this blog: 8 years AAA bond.






It is about making the CPF a cornerstone in our retirement funding strategy.

If you have not read my recent blogs on the subject, read:

1. Funding my retirement.

2. CPF savings grew almost $200K in 3 years.






Remember, if AK can do it, so can you! Believe it!

Related post:
AK is showing off his CPF again.

Merger of ESR-REIT and VIVA Industrial Trust.

I have more than a handful of relatively small investments (i.e. anything smaller than $100,000 and usually smaller than $50,000 in size).

Some of them are legacy investments (i.e. leftovers from many years ago after selling off most of the investments) and ESR-REIT (formerly Cambridge Industrial Trust) was one of them.








The last time I blogged about this REIT was in June 2016.

Back then, I added to my investment in the REIT at 52.5 cents a piece.

After adding to my investment, still, it remained a smallish investment and I explained why in related post #1 at the end of this blog.








Well, I have decided to let go of my investment in the REIT.

Why?

Regular readers know that I have concerns about VIVA Industrial REIT. See related post #2 at the end of this blog.

I am uncomfortable that ESR-REIT and VIVA Industrial REIT are talking about merging.

I have enjoyed many years of income distributions and I will also enjoy a capital gain from the divestment.

So, everything taken into consideration, it is not a bad outcome.








This reminds me of the time when I let go of K-Green Trust (KGT) in 2014 when it was decided that they would merge with CitySpring Infrastructure Trust.

I didn't like CitySpring. 

What to do?

I cut KGT loose. See related post #3 at the end of this blog.






With this move, my total investment in REITs shrinks again and, everything else being equal, so will the income distributions I will be receiving from REITs this year.

Read:
ESR-REIT and VIVA in merger talks.

Related posts:
1. Cambridge Industrial Trust (June 2016).
2. VIVA Industrial REIT's short land leases.
3. KGT and CitySprings' unequal marriage.

Spent money and now will spend more time.

If you are a regular reader of my blog, you must have noticed that I have not been blogging as much as before.

If you regularly send me emails, you must have noticed that I do not reply to emails as promptly as before.

This has been going on for many months.








What have I been doing?

I have been spending more time on my other hobbies and the one that is taking the lion's share of my time is online gaming.

Specifically, MMORPG.

I have blogged about this before but things are about to get more intense.








After almost a year of online gaming, I decided to get a dedicated gaming laptop.

A beauty, it is.

Serious gamers would probably scoff at this entry level machine but it is a big deal for me at $1,348.

The keys glow red.

So cool, right?

I won't be pressing the wrong keys anymore when I play at night with the lights off.








The fact that I only went ahead with the purchase after so many months of online gaming means that I enjoy online gaming enough to part with some real money to get the hardware to at least satisfy the recommended requirements of the game.

The PC I was gaming on didn't even meet the minimum requirements and labored excessively under an IT challenged task master.

Who?

Who IT challenged?

I blur.










Logically, this new purchase also means that I want to spend more time gaming.

When a friend found out that I read only the Money section of the newspapers many years ago, he joked that I had no life because I didn't read the Life section.

When he found out about my latest purchase, he gave me the thumbs up.









No more choppy movement and low resolution images for me. 

Example of a low resolution image,

Not very nice, it was.

Yes, for the last 10 months, in game, I was like a character exploring a new world while suffering from cataracts and palsy.









My Celeron processor driven PC has huffed and puffed enough.

No more demanding online gaming for it.

I think I hear it sighing in relief.

I could be spending a lot more time gaming than before as I revisit many places in the game world now that I can move and see a lot better.









You could say that I am going to be spending more time travelling.

Well, at least I won't be spending money travelling.

OK, I know.

Bad AK! Bad AK!

I got an atas mouse too.

A fellow blogger suggested that I blog about this purchase and what it means so that readers could manage their expectations.

Mission accomplished, I hope.





Related posts:
1. Freedom in retirement.
2. AK is playing Neverwinter!

Generous monetary legacy for children good or bad?

This chat happened after I shared again a blog on a reader's intention to top up his new born's CPF SA account (see related post #1 at the end of this blog).

Reader says...
Imagine if it works... put 171k at age 0, get 2.18mil at 65, that's 2 mil from the government.

AK says...
Haha... it is very amazing. I know





Reader says...
The figure makes me think that there's something wrong with my calculation.

AK says...
If you have money to spare, i think it is ok to do it.

It is legacy planning.

I dunno about the hazards related to character building tho...

Reader says...
I think a graduate can easily earn 5mil in their lifetime. 

But if their habit isn't as strong by the time they found out abt their SA account, I'm afraid they have no desire to work hard. 

And when they meet obstacles, they might say "ohh I will just quit, I have enough for the future anyways." 

That's my biggest fear, snatching away their burning desire and drive.






AK says...
Yes, I know. I feel that way too... 

I mean I didn't like the idea of having to work for money but I had to do it. 

If I had a lot of money in my younger days, I might have stopped working even before I started. 😛

Reader says...
Ohh gosh so that's normal right, we humans won't work hard if we know we have enough! 

Hiez how ahh I want the government's 2 mil but I don't want to steal his drive?





AK says...
Hahaha... 

I am glad I don't have that hot potato in my hand. 😜

Reader says...
How uncle AK? 

How how how? 

What should my mommy do?

AK says...
Mommy should ask daddy. 

I blur... 😛





When my niece was still in primary school, we transferred money in her savings account to her CPF account. 

That is her own money (i.e. savings from ang baos and pocket money).

I think that is OK.

Teach children the importance of saving money and also explain to them how the CPF works.

儿孙自有儿孙福, 莫为儿孙作马牛.





You might also want to read a blog I published earlier today:
Pay home loan and HDB grant fast.

Related posts:
1. Leaving a $1.4 m legacy?
2. Retire by age 45.

Pay home loan and HDB housing grant fast?

Reader says...
I hope you bear with me while I share the info about it - resale flat was purchased at 480k and I got a hdb housing grant of 50k for 1st timer.

My fiancee and myself went for a bank loan instead of hdb loan.

The loan principle I have to service is 384k.






I would really appreciate your advice/guidance to my following questions:

a. I thought of repaying my housing loan using cash instead of cpf.

I think this is still manageable from my side from a cash liquidity perspective since I could save on the chargeable accrued interest (at the point of future flat sale) and at the same time continue to earn the 2.5% int.

What do you think about this approach in terms of pros/cons?






b. I took the housing grant of 50k which I know will be charged accrued interest.

I'm not sure how accrued interest is charged on this 50k but is it considered wise if I try to repay this?

Or in actual fact, it doesn't make a difference because it will net off from the interest that I earned for the OA that continues to reside in my cpf account?






c. If at any point in time I thought of partial loan repayment to my bank, say a sum of 30k in cash every beginning of the year so that principal amount will reduce and I look to repay the full loan in 7 to 10 years.

What do you think about this approach and possibly the risks that go with it?

Many thanks in advance, and I really appreciate your feedback and suggestions.

AK says...
As long as your home loan attracts an interest rate of less than 2.5%, it makes sense to pay your loan with cash instead of using money in your OA.

(I would also add that as long as money in your savings account is paid less interest than the interest paid by the OA, it makes sense to pay your loan with cash.)

If you have no intention of ever selling your HDB flat, you can worry less about accrued interest on OA money used or the grant as long as you hit the prevailing full retirement sum (FRS) by the time you are 55.






By 55, you can withdraw all money from your OA and SA in excess of the FRS.

So, if you were to sell the HDB flat after you turn 55, you could take out all the money which includes the accrued interest you owe your CPF account.

It would be like asking you to put in money only to immediately take it out again.






Partial capital repayment makes sense when interest rate goes much higher.

When exactly to do that?

It is up to you as it should also partially depend on what you feel you could get if you were to invest the money instead.

I remember when I paid the housing loan for my previous home in full, the interest rate on the loan went from 4.1% to 5.1%.

Ouch.






Congratulations on your new home.

Related posts:
1. How to stop accrued interest from growing?
2. Almost 55 and worried about CPF.

How to get a 12% dividend yield?

We should know but do we know what to look out for as income investors?

Here are the basics.





Reader says...

Recently, my friend intro my to allianz income n growth.

He mentioned that the growth is not a lot but dividend is relatively attractive around 12%..

omg.

But i better ask shifu level like u

AK says...

You should ask 2 very basic and important questions:

1. How is the income being generated by the proposed investment?

2. Is the income generated sustainable?

Asking these questions would very likely help us avoid investment scams and also products which are highly risky.







You might also want to read these:
1. Invest in high yield bond fund.
2. Get 14% return per year on investment.

Retirement money made to last longer without risk.

Reader says...

My mom is now 71 and she has $200k retirement money.

She is not on the CPF life scheme but on the past retirement sum scheme.





I am trying hard to help her get some passive income.

She has parked this money in short term duration funds but the returns has been really peanuts.

I am trying to see how to help her.

Do you have any suggestions?

AK says...

I would say that at her age, it is more about capital preservation and she should not take any risk with her savings.

The CPF is a good risk free tool in helping to fund her retirement and topping up her CPF-RA will ensure that her retirement money earns 4% to 6% per annum.

I would say that for any investor, 4% to 6% returns per year is difficult to achieve without taking any risk at all.





So, she should take full advantage of her CPF membership and max out her CPF-RA.

Doing so would most probably help to make her retirement money last quite a bit longer.

If her MA is maxed out, she could also consider doing voluntary contribution to her CPF to max out the CPF Annual Limit.

To her, then, the CPF is like a savings account that earns 2.5% interest per annum in her OA.






Related posts:
1. Elderly to use CPF as a savings account.
2. Insure against longevity risk but...

Sensible to do CPF OA to SA transfer?

Reader said...

Currently working, 31 years old.

Quick question - My current SA sits at $40k and MA sits at $40K.

Based on current MA limit = $54,500, remaining money will go to my SA account.

I have started contributing $7000 yearly into my SA account for tax relief.




Based on my calculation and projected increase of limit yield of 4.4% per annum on MA, my MA contribution will flow into my SA account in 3-4 years time.

When that happens, my monthly contribution to MA and SA will be around $15K/year (Including VC of $7K), taking into consideration of the 4.4% increase limit of MA per year.

With that projection again, I will hit the current FRS of $171K in 7-8 years time.

Does it still make sense to transfer my CPF OA account money to my SA account?

AK said...

Once you CPF-SA hits the prevailing Full Retirement Sum (FRS), you will no longer be able to do Top Ups to your CPF-SA to enjoy income tax relief.

So, if getting income tax relief is hugely beneficial to you (i.e. you are in a high tax bracket), you might not want to do OA to SA transfer.

However, this option of topping up the SA is also only viable if you have the free cash flow to do top ups each year.





If income tax relief is less important to you or if you do not have the free cash flow to do top ups, doing OA to SA transfer would be less demanding as it is simply moving money that is already in your CPF account. 

Bigger OA to SA transfers will also, of course, help to give your SA a bigger base faster for compound interest to work its magic.

Make sure that you do not need your OA money for any other purposes before doing this.






Related posts:
1. Know how to grow our CPF savings.
2. Purpose of CPF is to make rich richer.

Singapore Savings Bond short term more rewarding.

Many readers asked me about Singapore Savings Bond recently and apparently it is because the coupon is now 1.55% for the first year which is much higher than what any local bank I know would pay for a 1 year fixed deposit.

I was not interested in the Singapore Savings Bond for various reasons and to avoid repeating myself, if you are not familiar with the reasons, please read the following blog (plus details on eligibility and mechanics):

Singapore Savings Bond: Good or bad?








When I blogged about the bond in the middle of 2015, the bond's coupon for the first year was 0.9%.

At that time, we could get 1.45% interest for a one year fixed deposit easily.

The Singapore Savings Bond was unattractive for money in my emergency fund and war chest, therefore.








Interest rates for one year fixed deposits have declined although I am puzzled why they would because with interest rates on the rise, short term interest rates should be impacted first.

Singapore Savings Bond's coupons.

Whatever the reason, the lower interest rates offered by local banks for one year fixed deposits make the Singapore Savings Bond's 1.55% coupon for the first year more attractive.








So, what to do?

I am going to have some of my war chest money in this bond.

Closing on 26 Jan at 9pm.

I am going to think of this as another fixed deposit.

With the higher coupon for the first year, having some money in the Singapore Savings Bond now gels more with my methods.

Taken from DBS internet banking.

Application or redemption is also very easy because they made it available through internet banking.

Very good for lazy AK who doesn't want to leave home to queue at an ATM.

Related post:
Use fixed deposits (FD) for emergency fund and war chest. (And now we say SSB too.)

My final word on Bitcoin and friends.

"January’s cryptocurrency selloff got fresh impetus on Tuesday when Bitcoin slumped as much as 25 percent, as the prospect of regulatory crackdowns appeared to spread..."

This story continues at the end of this blog.





AK says...

The key is to understand that Bitcoin is for trading.

Bitcoin is not an investment.

People can invest in Blockchain technology but with Bitcoin, it is really a trading game.





There are FOREX traders.

There are no FOREX investors.

Since Bitcoin is a virtual currency, people can be Bitcoin traders.

There are no Bitcoin investors.





People who call themselves Bitcoin investors are really Bitcoin speculators.

When people tell me that they invest in Bitcoin, I get the impression that they are either confused or they are out to confuse other people.

If we understand that Bitcoin is for trading and we cannot invest in it, we should remind ourselves that:

"The trading market is occupied by very large players who are just waiting for newbies to come in and throw their money away by trading aimlessly."

Know what we are doing.

Have a plan and a viable plan at that.






"While the largest digital coin was down 25 percent, it was still at the lowest level since early December, according to composite pricing on Bloomberg.

"Rival cryptocurrencies also tumbled. Ripple sank as much as 40 percent and Ethereum dropped 26 percent."

Read the full story here:
Crypto-currencies resume slide as Bitcoin tumbles.







Related post:
I should have invested in Bitcoin.

Was Soilbuild REIT a shabby investment?

Soilbuild REIT had to juggle not one, not two but three hot potatoes up until last month.

With the sale of KTL Offshore's property to its sponsor, they have two hot potatoes left (i.e. Technics and NK Ingredients).






In a blog in September last year (see related post at the end of this blog), I said that with the reduced DPU assumed then, if we demanded an 8% yield, we should only be buyers at 66c a unit.

Now, with KTL Offshore gone, with lower income, we won't be wrong to downgrade the REIT.

I wonder also if the REIT would see lower valuations which would impact its NAV and, therefore, its gearing level?

Estimating a more aggressive 10% reduction in the DPU assumed in September 2017, all else remaining equal, we might be looking at a full year DPU of 4.8c.

At 71c a unit, that is a prospective distribution yield of 6.76%.

From an industrial REIT with leasehold properties in Singapore, to me, it hardly seems adequate.

I say this partly because a REIT distributes cash flow and does not retain earnings.

So, the relatively low distribution yield is just not attractive enough for me.





If we demand an 8% yield, then, we should only be buying at 60c a unit with the reduced DPU assumption.

If we are less demanding, a 7.5% yield means we should pay no more than 64c a unit.

However, if we demand a 7.5% yield, we can get that by investing in AIMS AMP Capital Industrial REIT which has a lower gearing level too.








How has the investment in Soilbuild REIT turned out for me?

To be fair, Soilbuild REIT's business parks (with relatively long remaining land leases to boot) are attractive and they were the main reason why I invested in the REIT in 2H 2014.

Unfortunately, bad things happen sometimes.

I believe that selling at NAV is a good outcome although I estimate a capital loss of around $4,000 from the sale.







Having said this, I have received more than $17,000 in income distributions from the REIT since I first became a unit holder.

Yes, I did say before that my investment in the REIT was a relatively small one.

So, roughly, the investment returned more than 8% per annum.





Not fantastic but, as an investment for income, not too shabby either.

Having plonked quite a bit of money in SingTel and ComfortDelgro in 4Q 2017, the money from this sale will shore up my cash position.

Related post:
Decline in Soilbuild REIT's DPU likely.

8 years AAA bond with 2.5% and 4% coupons.

UPDATED IN JULY 2018:

Find out more:
https://www.cpf.gov.sg/Members/Schemes/schemes/retirement/retirement-sum-scheme




-------------------------------------
Conventional wisdom tells us that we should have some investment grade bonds in our portfolio because they help to smooth out volatility.

Investing in good quality equities is probably more rewarding in the longer term but we have to develop a stomach for the volatility that comes with the territory.






Whatever the case may be, when I turn 55, there is no way of knowing if equities would be in a rough patch or not.

So, having some money in investment grade bonds makes sense to me.

It gives me peace of mind.

The CPF is as good as a AAA rated sovereign bond and it is one that pays relatively attractive "coupons".

OK, to be fair, for a younger person, the "coupons" are less attractive than they are for an older person like me.

The closer we are to 55 years of age, the more attractive the "coupons" because the waiting time is shorter.

For anyone who has met the Full Retirement Sum (formerly known as the Minimum Sum) and who believe in having investment grade bonds, taking full advantage of the CPF Annual Limit is a good idea.






Why mention specifically people who have already met the Full Retirement Sum?

Well, at age 55, we will be able to withdraw all CPF money (from OA and SA) in excess of the Full Retirement Sum (formed by savings in our SA and OA) which would go into the newly created RA.

So, for people who have met the Full Retirement Sum, maxing out the CPF Annual Limit, we are setting the stage for a bigger "windfall" when we turn 55.

CPF Allocation Rates.

The CPF Annual Limit is $37,740 for now.





If mandatory contributions (MC) fall short, we can do voluntary contributions (VC) to hit the limit.

So, what am I doing?

I am buying an 8 year tenor AAA rated sovereign bond (i.e. making voluntary contributions to my CPF accounts) with "coupons" of 2.5% (OA) and 4.0% (SA and MA).

Now, you know my age. Alamak.





Read also the blog before this one:
CPF savings grew almost $200K in 3 years.

Related post:
Buying a AAA sovereign bond.