Questions from an investor on HDB and CPF.

Reader says...
I have been following your blog for a few years and am grateful for the nuggets of wisdom that you post on your blog.

I bought a resale HDB flat that is of the same age as me and by the time I fulfill the 5 years MOP, the remaining lease would be 59 years.








In other words, I understand that there would be certain restrictions on the use of CPF for potential buyers of my flat.

(See:
Older HDB flats with remaining lease of less than 60 years are problematic.)








However, I am not intending to sell the flat as I think the lease is sufficient and the flat is big enough.

To pay for the flat, I took up a bank loan with 2 years fixed interest of 1.58% and am currently using my CPF OA to pay my monthly mortgage.






I am thinking since I don't intend to sell the flat, I might as well not repay the accrued interest and continue using CPF OA to pay the monthly mortgage. 

I could use the extra cash to do my own investments.






However, I also wonder if I should use cash to pay the monthly mortgage so that my CPF OA can grow and government can pay me 2.5% interest?

I hope you could shed some light on what would be the best way forward. 

Thank you very much 😊

AK says...
I will try to focus on what is important here if I were in your shoes.

Feel free to ignore me.

I wouldn't use my CPF OA money to pay a loan that attracts 1.58% interest.

I have lost 1% interest right away.








I would use cash to pay the loan.

Even if you do not intend to sell the flat and would not need to repay the accrued interest, it still doesn't make sense to lose that risk free interest.

This is especially if you believe that having an investment grade bond in your investment portfolio is important.






AK does well enough as an investor but he is not a very good investor.

AK needs some certainty in retirement funding and risk free, volatility free CPF helps him to sleep better at night.

If you are a very good investor, please ignore this blog. ;p







Related post:
Free money from the government is good.

"My parents are my ATM."

Reader says...
Hahaha, AK, I actually really like how you refer kids as consumption or hobby items.

Really turned on a light bulb for me.

Looking back, my kids have indeed been an expensive (underestimated the costs!) but enjoyable hobby for me.






A lot more fun when they were younger... less fun as they get bigger and sad thing is one day this hobby will have to end for me.

Though expensive, but finite, guess I just have to enjoy it as much as I can now and think of way to optimize my expenses on this hobby! :)






AK says...
I like to think that for most people this "hobby" has a finite life as a money sink.

Unfortunately, for some, this "hobby" is a money pit, a bottomless pit that lasts a lifetime.

The horror!

Choy!

Bad AK! Bad AK!






For sure, we always hope for the best in everything we do.

However, having high expectations (i.e. being overly optimistic) could set us up for disappointment.

"Mr Tan retired with a sizeable nest egg. But soon, his children started borrowing money. Money that was never returned."

Watch the video:





Related posts:
1. Regrets helping son buy condo.
2. Attitude towards having children.

Leaving Singapore and worried about leaving mom alone.

Reader says...
I met my fiancee at work but he is not Singaporean and we will be leaving for his home country next year.

My worry is my mother and I have asked her to join us but she prefers staying in Singapore which I understand but I don't want her to be alone at home.

Home is a 3 room flat my late father bought 40 years ago.





I know it would be difficult but I asked my younger brother who is married and staying in a 4 room flat if mother could move in with him but he said his flat is too small as they have children and a maid as well.

He said he will visit mother weekly but I still worry because I see her daily now...

AK says...
Reading your email has given me such conflicting feelings.

I am happy for you and worried at the same time.

I worry a lot too and, so, I understand.

What to do?

OK, someone I respect said to me before:

"You must live your life and you should not stop pursuing your own happiness."





I am sure your mom feels the same way.

She will be sad to see you go but she will feel happy at the same time.

When you are far away, contact her daily or every other day to keep in touch and to make sure she is doing well.

Come back to Singapore to spend some time with her as often as it is possible to do so.






Your mom's situation is not so bad and I do know of worse situations. 

So, cheer up or you might make your husband to be feel bad. Yes, don't forget him.

Wishing you and your family good health and happiness. :)

Related post:
Retiree regrets selling flat to help son buy a condominium.

What to do as price plunged on $100K investment?

Reader says...

I have $100K invested in XXX.

As the stock price has plunged, I am wondering if I should buy more, hold or sell?

Should I buy more or should I invest in another stock?

AK says...

Remember the importance of position sizing.

If your investment makes you worried, it might be because it is too big.

Don't bite off more than you can chew.





1. Always ask why did you invest and if it still makes sense now?

2. Ask if you did not invest back then, would you invest now?

Then, you will know what to do.







No matter how attractive an investment looks, it is rarely a good idea to throw in everything including the kitchen sink.

What? You don't know how to tell if you have thrown in the kitchen sink as well?

You would know because your home plumbing would keep you awake all night!





Related post:
Largest investments updated.

Planning for retirement early made early retirement possible.

I spent almost 20 years of my life working, focusing more on the money than on what I love doing.

Even as I made more money, my lifestyle remained more or less unchanged.

Since I did not need more money because I did not crave material upgrades in life, having more and more money didn't really make me happier.





If we are contented with what we already have, even if we make more money, we won't go and buy something frivolous.

As our income increased, if we did not upgrade our lifestyle, logically, there would be less fear of not having enough money in our old age.

I am happier now because I am spending time doing what I enjoy doing although they don't pay me a single cent or in the case of blogging not very well.

It is not about how much money I make anymore but how much joy I get from doing the stuff I do.






However, I am Gen X and I cannot help but wonder sometimes if I should stop bumming around.

Stop being economically inactive!

Hmm.

Nah.

Am I being irresponsible?

I like to think that I am being irresponsible in a responsible manner.

You blur?

I also blur.





To be honest, I have also learned to be reasonably more easy going with money because I can afford to as it makes life easier. 

No man is an island, if you know what I mean.

It is not easy to unlearn certain things but I like to think that I am making progress.

"OK, don't go overboard, AK!"

Who said that? Who? Who?

Must be the other AK.

What? You didn't know AK is mental?

Well, now, you know.






The firm belief that I must plan for retirement early has made my early retirement from employment possible.

I am just talking to myself, as usual.

I don't expect anyone to agree with me.

Remember, I am just a crazy guy.

You must be crazy to listen to a crazy guy.





However, if you are crazy like me, take heart because if AK can do it, so can you! 

100% (bonkers)!

Also published today:
No dividend because CEO was very sick!

Related posts:
1. Start with a plan!
2. Be idealistic?
3. AK should be ashamed!

No dividend because CEO was very sick!

For those who are not in the know, read the related post at the end of this blog post first.

Reader says...
It is a learning journey for me, tolerating all the drama and stories telling why the payout was delayed etc etc..





And they have the guts to make up a story like this:

"The payout was delayed because the CEO fell very sick and was hospitalized, in and out of hospital etc etc"

I was just wondering if these people thought the "investors" are school kids?





To be honest, now I believe all the investors were worst than kids and we were not kids, we were "gundus"- if you know what "gundus" meant?

My agent told me she invested more than me and does this make her a bigger "gundus"?





We are not competing who is the bigger "gundus" here and I just wish the "CEO" will not pass away because the stories will end if he passed away?

And more will follow him to the grave?

Let's pray NOT.

AK says...
Alamak!

Investors have not been paid because the CEO fell sick?

If the CEO of SingTel or ComfortDelgro fell sick, I wonder if they would stop paying dividends to shareholders. ;p






Related post:
$71,000 alternative or bogus investment?

2Q 2018 passive income from non-REITs.

2Q 2018 saw the first income contribution from my investment in ComfortDelgro, the majority of which was made late last year.

Regular readers would remember that my investment in ComfortDelgro was a relatively large one.

So, the dividend received from ComfortDelgro was a pretty significant contribution to my total passive income for the quarter.







Of course, as ComfortDelgro's share price rose in 2Q 2018, I was sitting on some rather nice gains.


After doing some back of the envelope calculations and looking at the chart, I decided to lock in some gains. 

I blogged about the decision to reduce my investment in ComfortDelgro last month.

Read it: HERE.










With a much smaller investment in ComfortDelgro now, its future contribution to my passive income is going to be correspondingly smaller, unless there is a significant special dividend, however unlikely.

It seems that Mr. Market is feeling much better about ComfortDelgro now but if there should be another bout of depression, all else remaining equal, I would be quite happy to take up Mr. Market's special offer again then.






More recently, however, I did nibble at ComfortDelgro after its share price retraced to $2.20. 

This is consistent with what I shared in both the comments section here in ASSI as well as on my Facebook page that any price decline should find some support at $2.20.

Technically, it seems like ComfortDelgro's share price bottomed at $1.90 to $2.00 and that should provide some guidance for those who are interested in price action.

In 2Q 2018, I added to my investment in SingTel which regular readers would remember as another relatively large investment I made late last year and added in 1Q 2018 on price weakness.

SingTel's price moved in the opposite direction of ComfortDelgro's and this has given me the opportunity to add to my investment in SingTel again and again in 2Q 2018.

For sure, all telcos are facing a more challenging environment but SingTel is not Starhub nor M1 and should not be tarred with the same brush.

You might be interested in my recent blog on Starhub: HERE.






I will talk more about SingTel as I received messages and emails from readers who seemed to be in distress after investing in SingTel coincidentally at the same time I did.

When I bought into SingTel late last year, it was obvious from the charts that the share price could see some weakness and I said as much here in ASSI.

I really hope that people did not bite off more than they could chew.

Even so, I can understand that it could be more than unsettling for some people as they see the share price declining.






Why did I go ahead and buy although the chart suggested more weakness was likely?

Well, one could also ask why did I go and buy ComfortDelgro when the chart was bearish too?

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

I knew what I was getting myself into.

I had a plan and I stuck to it.








Our decision should also be informed by FA.

SingTel had bearish charts but from a FA perspective, I thought I was paying a fair price for SingTel but what about ComfortDelgro?

ComfortDelgro was rather undervalued. 

Yes, I paid an unfair price for ComfortDelgro that was to my advantage.








Now, as SingTel's share price plunged, it has also become unfairly priced and to my advantage as a buyer.

Is SingTel undervalued now? 

I think so.

Like how I was accumulating ComfortDelgro, it is only natural that I would be accumulating SingTel now.

Of course, we have to be aware that cheap could get cheaper.






Treating my investment in SingTel as an equity bond (especially after the management's commitment to an annual DPS of 17.5c for the next 2 years), I am quite happy to add to my investment as its share price plunged. 

Basically, dividend yield has expanded which makes it all the more attractive to the income investor in me.

Unless we have good reason to believe that SingTel is going the way of the Dodo, there is really no need to panic and sell if we are investing for income.







OK, I guess some might have reason to panic.

Who? 

For those who used money which they really should not be using to invest with, they might panic.

If it is money we need for other purposes in the near future, we should not be investing with it and, definitely, I would not use borrowings in one form or another to invest with.






Now, treating ComfortDelgro also as an equity bond, with a surge in share price to a high of $2.50 in 2Q 2018, its dividend yield compressed and rather significantly too which made it immediately less attractive as an investment for income when compared to SingTel.


Both SingTel and ComfortDelgro have strong balance sheets and also strong cash flow.

I believe that they will continue to pay meaningful dividends and I will continue to accumulate on any further price weakness.

Mr. Market is probably overly pessimistic about SingTel but, of course, only time will tell (pun unintended).






To cap it off, I have to say that getting a dividend yield of around 5% from entities like ComfortDelgro and SingTel is probably more attractive than getting a 6% or 7% dividend yield from an S-REIT with a gearing level of 35% to 45%.

There is a reason why SingTel has a credit rating of "A" while AIMS AMP Capital Industrial REIT has a credit rating of "BBB-" both from S&P, for example.







S-REITs pay out 100% of their operational cash flow (not earnings) and have no retained earnings while SingTel has retained earnings, not paying all its earnings as dividends.

If there should be another financial crisis, all else remaining equal, SingTel is likely to weather it better than most S-REITs which partly explains the difference in credit ratings.






I should quickly mention that I also made a small investment in Raffles Medical Group in 2Q 2018.

Please refer to the blog if you are interested in this: HERE.

2Q 2018 passive income from non-REITs:
S$ 47,043.92







Overall, 2Q 2018 has turned out pretty well for me with the receipt of passive income, capital gain and also opportunities to buy more good stuff on the cheap.

Related post:
1Q 2018 passive income from non-REITs.

2Q 2018 passive income from S-REITs.

Regular readers know that AK is usually pretty inactive as an investor, preferring to do nothing most of the time and just collect dividends.

Well, in 2Q 2018, in the S-REITs space, there was a bit of action.






There was the 1 for 10 rights issue by Frasers Logistics & Industrial Trust (FLT) in which I took up my entitlement and applied for a small number of excess rights.

To be honest, I did not think that the rights issue was very attractively priced. 

Perhaps, it was fairly priced.

We have to take note that the massive deal weakened the REIT's balance sheet significantly while delivering very little increase to DPU and NAV per unit.






I must say that I feel that the deal was better for the sponsor than it was for the REIT.

We shall see if the REIT's DPU grows in future, everything else remaining equal.

Having said this, the REIT should still be a fairly safe and stable investment for income that keeps me happy enough to stay invested.

Even after the rights issue, the REIT is still only one of my bigger smaller investments (under $100,000 in market value but more than $50,000).

Another thing I did in 2Q 2018 was to nibble at Starhill Global REIT as its unit price declined.

As its unit price declined by 5%, I pointed out to a friend that the drop in unit price did not really make the REIT absolutely more of a bargain than it was before.

Of course, I was not interested in adding to my investment then.

If you remember, I mentioned in an earlier blog that with the new tax levied by Malaysia, I estimated a 5% reduction to the REIT's DPU.

So, with a lower DPU, it is only logical that the REIT's unit price took a 5% hit as well.






However, when its unit price declined by much more than 5% later on, I decided that the selling was probably overdone.

In fact, unit price has declined by more than 10% compared to my initial entry price and I couldn't resist nibbling.

After all, there is reason to be hopeful that Starhill Global REIT could do better in future and that buying at a big discount to its NAV is a very tempting proposition and probably provides a decent margin of safety.







The REIT's portfolio of commercial buildings has intrinsic value.

As an investment for income right now, however, it is really nothing to shout about.

Although I feel that there is nothing fundamentally wrong with the REIT, it is really one for investors who are very patient and who are OK with being paid while waiting.

As I bought more in 2Q 2018, Starhill Global REIT has just crossed the line to become one of my larger smaller investments like Frasers Logistics & Industrial Trust (under $100,000 in market value but more than $50,000) but it is on the smaller side compared to FLT.









I like to think that all investments are good at the right price.

At such a big discount to NAV, it is just too hard for me to ignore but without a clearly stronger income investing angle here, I reminded myself not to take too big a bite.

I don't like choking.






Regular readers should not be surprised that the two largest contributors to my passive income from S-REITs are:

1. AA REIT
2. FIRST REIT






DBS recently did a piece on AA REIT, suggesting that it could be a target for takeover and suggested a target price of $1.55 to $1.65 per unit.

• Resilient industrial gem that offers above-average yield of 7.4%-7.6% over FY19-FY21

• Extraction of value from greenfield projects and addition of c.600,000 sqft of untapped GFA could drive revenues by c.16%

• Potential takeover target amid global hunt for quality assets







Frankly, I am not too enthusiastic about this, having lost quite a few good income generating investments in similar fashion already (with Saizen REIT and Croesus Retail Trust being the largest).

Quite honestly, unless there is another bear market, it is not easy to find robust replacements as more meaningful investments for income.





OK, enough grumbling.

Total passive income from S-REITs in 2Q 2018:

S$ 18,715.33

The next blog will be on my passive income from non-REITs and we will have the full picture for 2Q 2018 then.

Related post:
1Q 2018 passive income from S-REITs.

Can I be rich investing for income?

Reader says...

I realised that I don't have enough capital based on dividends to ever FIRE...

It seems like one can get more capital through

1) inheritance
2) work through your way to the top
3) property
4) capital gains when you find a multi bagger.





Seeing that 1 is out since I don't have the privilege of being a white horse or marrying one, 

2 is out since I am a family lady with young kids I am trying to nurture and not leave them to be the spoilt kids of the next generation 

3) is out since I did make a lousy property investment and I know that it isn't going to be a multi bagger (will be happy if it isn't a liability), 

I think my best bet is 4...

AK says...

How much passive income we need to be financially free is not the same for everybody.

For sure, my circumstances are different from yours but you need to set for yourself a realistic goal and work towards it.





Investing for income is about improving our cash flow and overall financial health.

That should be the primary objective.

If we do it well enough, coupled with a relatively simple lifestyle, we could achieve financial freedom within a reasonable amount of time.






Related post:
Make $1m investing for income.

Growing up to be truly rich!

Although we can say genetics make us what we are, our environment plays a part in making who we are.

If we are not careful, certain things we picked up in our younger days could set us back for life.

"Daddy, my classmate's family just moved into their new condominium. Has swimming pool and tennis court. So nice."

If a child said that to his father, I hope the father didn't say:

"His parents must be rich!"

Then, the child would grow up to think that anyone who buys expensive things must be rich.






"Wow, my colleague just bought a Ferrari. Must be rich!"

or

"Wahhhh. My supervisor just bought a Richard Mille watch. So rich. So good."

Yikes!

It is true that some rich people splurge on luxuries but it is not true that people who splurge on luxuries must be rich!







The truly rich are those who can afford to buy all the stuff they need and want

1. Even if they do not have any earned income

and

2. Without ever going into debt.

I believe that this is something that we should teach our children as soon as possible.






We will be improving their chances of growing up to be truly rich.

Related posts:
1. From rich to broke.
2. If we are not rich, don't act rich.

Investing in Starhub at the right price?

My investment in Starhub has turned out to be a bad one.

However, I am not losing sleep over this.

Why? Is it because I am on anti-depressants?

Hey, don't be so like that lah.

I stop taking those pills a long time ago.






I am quite ZEN about the paper loss really because my investment in Starhub is very small especially in comparison to my investment in SingTel which has been, of course, my preferred local Telco to invest in for quite a while now.

To give you a rough idea, the market value of my investment in Starhub is less than 2% the market value of my investment in SingTel.

Although I have been adding to my investment in SingTel as its share price declined in recent months, I have not added to my investment in Starhub even as its share price plunged.

Why is this so?

SingTel has a stronger balance sheet, stronger free cash flow and it pays out a fraction of its earnings as dividends to shareholders.

Starhub, on the other hand, has seen its free cash flow declining in recent years and it pays out much more than its free cash flow as dividends to shareholders.

Although Starhub has cut DPS from 20c to 16c, I think, if the management is financially prudent or unless business improves dramatically however unlikely, DPS should be cut again.




I did the numbers some time back and again more recently. I now feel that a more sustainable DPS could be 10c, assuming things do not get much worse.

So, if we choose to invest in Starhub today for income, we should ask ourselves if a DPS of 10c would make us happy?

I received quite a few messages from readers regarding Starhub recently. Examples:

Assuming that Starhub pays all of its cash flow to shareholders as dividends, I feel that it behaves very much like S-REITs.

Hanging on to that idea, if we can get a dividend yield of 7% or more from Starhub which is probably comparable to what we can get from industrial S-REITs, it is not too bad a deal.

Assuming a lower 10c DPS, even at $1.70 a share, we are looking at a dividend yield of 5.88% which doesn't quite cut it for me even with this new perspective.




Investing in Starhub for income?

Closer to $1.40 a share could be a more reasonable price to pay, I feel.

At $1.40 a share and assuming a more sustainable DPS of 10c, dividend yield would be 7.14%.

What if $1.40 does not happen?

No problem because I would rather invest in SingTel at the current price than to invest in Starhub at the current price, everything taken into consideration.





Looking at the chart, the RSI shows that Starhub is very oversold but like the MACD, the momentum oscillator does not show any sign of a trend reversal.

Although Starhub's share price plunged 5% (- 9c) today to $1.67, we could see it going lower if Mr. Market shares my sentiments.

Things could get worse before they get better.

So, why have I not been adding to my investment in Starhub?

Alamak. I anyhow talk to myself only lah.

You blur? I also blur.