Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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Darry is the reason for this blog which is really my reply to his recent catalytic comment.
There are many gems in the comments section of ASSI and if you have not read Darry's comment, it is in my last blog entry and I have hyperlinked it at the end of this blog.
Actually, you might want to read his comment first as it would help you better make sense of this blog entry.
Hi Darry,
I am thinking of doing this (i.e. not doing VC to MA but simply doing VC to all 3 CPF accounts) when I turn 50 as the CPF Allocation Rates for members age 50 to 55 will place a bigger proportion of our contribution into the SA.
Just based on eye power, the increase in contribution to the SA looks like it will be a big jump of more than 40% once I turn 50 and this will last till I am 55.
I blogged about this big jump more than 3 years ago.
With the BHS increasing by $3K while the CPF Annual Contribution Limit remains unchanged in 2021, doing a $3K VC to MA in order to reach the new BHS would mean less of my VC to all 3 accounts going to my SA later on.
Easy to miss this detail if we are not diligent enough.
So, you are right that it makes sense for people of my age who, like me, do not pay income tax to forgo VC to MA and just do VC to 3 accounts in the new year.
This is for maximum benefit.
$10 is still money and I don't ever look down on money. ;)
Thank you for crunching the numbers and sharing with us here. :)
So, with this blog, AK is bringing forward his plan to stop VC to his CPF MA by one year.
Yes, AK is flipping prata and won't be doing VC to MA in 2021.
AK will only be doing VC to all 3 CPF accounts (OA, SA and MA) in 2021.
Hey, $10 is still good money.
Probably good for a few roti prata and with eggs too. ;p
I am not letting Darry's effort and kindness go to waste.
This is also why I decided to publish my reply to Darry as a blog as not many readers go to the comments section.
Readers who are in the same boat as AK will probably find this sharing interesting.
Readers who are not in the same boat now might want to take note too as there is plenty of room in the boat.
On 1 June, I wrote a piece on the new normal and how I was less sanguine about ComfortDelgro's near term fundamentals then. From a technical analysis perspective, at that time, ComfortDelgro was also trading firmly beneath the declining 50 days moving average (50dMA). The MACD, a momentum oscillator, was also in negative territory, forming a lower high and a lower low.
With COVID-19 vaccines on the horizon, things are set to improve although, realistically, numbers might not return to pre COVID-19 levels soon.
Having said this, I believe that the worst is over for ComfortDelgro.
There is still that competition from Grab, of course, but Grab is facing the same difficult environment right now.
Anyway, when I invested in ComfortDelgro, I did it with the worst case scenario of a complete write off of its taxi business in mind.
At the time, basically, even without its taxi business, ComfortDelgro would still be able to maintain its dividend to shareholders.
ComfortDelgro is mostly a public transportation company and the entire sector is under immense pressure due to the COVID-19 pandemic.
However, is ComfortDelgro going the way of Singapore Airlines (SIA)?
As things are now, it is highly unlikely.
Apart from my feeling that SIA is less essential compared to ComfortDelgro when it comes to the day to day operation of Singapore (and I could be wrong about this), SIA had a much weaker balance sheet in comparison going into this crisis.
ComfortDelgro's balance sheet is relatively stronger and they should be able to weather the crisis without having to raise funds.
ComfortDelgro was also prudent in not declaring an interim dividend earlier in the year although its balance sheet could support a payout to shareholders.
As investors for income, if ComfortDelgro was a major passive income generator for us, the loss of dividend from ComfortDelgro could be a big hole to fill.
Although there is reason for optimism now, we have to be prepared for more of the same especially if the COVID-19 pandemic drags on.
As an investor for income, this was a major reason for my strategy during this crisis to concentrate my firepower on the accumulation of banking stocks.
The local banks have stronger balance sheets and the ability to pay dividends with relative ease.
Dividend visibility always gives income investors peace of mind while waiting for things to improve.
Still, in my blog of 1 June 20, I said that although I was less sanguine about ComfortDelgro, I would still add to my investment in the business.
At the time, I was thinking of adding to my investment if Mr. Market offered me a price similar to the NAV per share of ComfortDelgro.
However, as things are surely looking up for ComfortDelgro now, this is no longer a realistic expectation.
As ComfortDelgro's share price shot up and broke long term resistance on high volume a few days ago, I bought some.
However, as the stock became quickly overbought, I decided to wait for Mr. Market to take a breather and a possible retracement to support to happen before adding more to my investment.
Prices don't usually move up or down in a straight line for an extended period of time.
Having said this, the COVID-19 pandemic has reminded me of a major weakness in the business of public transportation.
As passive income generators, these essential businesses might not be as dependable as I thought them to be.
I hope that ComfortDelgro will become a meaningful income generator in my investment portfolio again soon.
If Mr Market were to offer me lower prices from here, everything else being equal, I would probably add to my investment in ComfortDelgro again.
Back in early 2017, I blogged about my decision to substantially reduce my exposure to SPH, an old timer blue chip investment in my portfolio. However, I still retain till this day my investment in SPH made during the Global Financial Crisis more than 10 years ago. In early 2017, the decision to reduce my exposure to SPH, selling my later investment in the business, was based on the accelerated disruption of its print media business. I knew of the disruption and was expecting a gradual decline. Unfortunately and also shockingly, it happened a lot faster than I thought it would. Then, more recently, SPH's stock price crashed dramatically due to the crisis caused by the COVID-19 pandemic but failed to recover with the broader market. It reminds me of a Chinese saying: 病來如山倒. Unfortunately, SPH's print media business is a shadow of its former self today.
However, is this enough of a reason for such an enduring sickness in its stock price?
Back in the day when AK and Facebook were still friends, I had discussions with some readers on what SPH would be worth.
If we thought that the media business might be worth nothing one day, then, we could value SPH based only on its property investments. Back then, some said SPH stood for "Singapore Properties Holdings." SPH has many property investments and probably the most prominent to many people is its big stake in SPH REIT. Unfortunately, SPH REIT suffered from disruption as well when the COVID-19 pandemic hit. SPH is terribly unlucky. It is reasonable to expect that tourists visiting Singapore will not be returning to the pre COVID-19 numbers anytime soon.
It could take a year or two or more. So, although not hit as hard as hospitality, it is a reasonable assumption that SPH REIT's crown jewel of a mall along Orchard Road, The Paragon, will continue to suffer.
After all, The Paragon depends to a large degree on patronage by tourists.
Still, since SPH's NAV per share is almost all made up of its property investments today, buying at a big discount to this should give some margin of safety. Of course, like I said before, if the COVID-19 pandemic stays with us for a longer time, we could see defaults becoming more common. During the Global Financial Crisis, around the world, we saw massive devaluation of properties, for example, and a downward revaluation of 20% to even 30% was pretty common. If we were to assume a massive revaluation of SPH's property assets to distressed levels, knocking off 25%, we get about $1.50 NAV per share. So, I believe that, fundamentally, any price below $1.50 a share should give some margin of safety, all else being equal.
The lower the price, the bigger the margin of safety.
Of course, investors for income should also be interested in SPH's dividends. SPH slashed dividends drastically to conserve cash because of the COVID-19 pandemic. Prior to the COVID-19 crisis, SPH recorded an earnings per share (EPS) of 13c. SPH also paid an 11c dividend per share (DPS). With these numbers, at $1.35 a share (which was the price on 11 June 20 when I was asked about SPH as an investment by a relative), if the pandemic did not happen, it would be quite a straightforward buy.
Now, as COVID-19 lingers, there is uncertainty over the future of SPH's property investments including its student hostels in the UK.
It is fair to say that there is uncertainty too over its ongoing residential property development on a plot of land in Woodleigh in Singapore which they might have paid too high a price for.
Of course, as the local property market has remained rather buoyant in the face of the ongoing COVID-19 crisis, Woodleigh Residences could still do well for SPH and their Japanese partner, Kajima Corporation.
I do like the development's location and the fact that it is integrated with a shopping mall and MRT station on the purple line.
This is not an advertisement but if you are curious and want to take a look, here is the link:
Mr. Market just doesn't like uncertainty. Even so, SPH REIT's unit price has recovered from its lows while SPH's stock price has only recently formed a new low. Now, for a bit of speculation again.
SPH REIT's DPU during normal times was around 5.5c. Is it conceivable for SPH to pay, say, an 8.0c DPS when normal times return? Why do I ask this question? If an investment in SPH is able to give a dividend yield that is similar to or higher than the distribution yield offered by SPH REIT, I would rather invest in SPH instead of SPH REIT.
This is especially when Mr. Market is offering a selling price now that has discounted SPH's media business and more. Then, any better performance by the media business however unlikely would simply be a bonus.
So, was I thinking of increasing my investment in SPH at $1.35 a share?
No.
Why?
Looking at the charts then, SPH's downtrend was stark. The 50 days moving average was still on a steep decline and it was providing a strong resistance. Too much dust and I could catch a falling knife. So, I decided to wait. Give it more time and see what happens.
I remember having a K.I.V. file in my army days and that was where I kept SPH, I guess.
That decision turned out to be quite fortunate.
What about now?
The air is still dusty and I could still catch a falling knife.
However, the knife is probably a smaller one and might not be as sharp.
What does this mean?
It means that if this is a mistake, it should be a less costly one.
Yes, to be quite honest, this is all still slightly speculative.
So, I am crossing fingers and maybe toes as my investment in SPH is a little larger now.
I decided to publish it as a blog as other readers might be interested in this.
"The rights issue is dilutive because it raises more money than is required to acquire the rest of the Spanish portfolio of assets.
"Also, much of the funds raised is used to reduce gearing.
"As an investor for income, it isn't something I like and I have blogged about this view before.
"However, I like IREIT Global's freehold properties, especially those in Germany.
"I like that its interest cover ratio is very high.
"I also like that it has CDL as a strategic partner.
"With the reduced gearing, I am reasonably optimistic that IREIT Global would do better in future.
"We also want to bear in mind that IREIT Global has a relatively high distribution yield and it is probably harder to make yield accretive acquisitions.
"Like I said, I don't necessarily like the rights issue but since I like the REIT for many reasons, I think of the rights issue as a necessary evil to help it to grow.
"Now, let me add a dash of speculation.
"Once the REIT is massive enough, it should attract more investors, especially the institutional investors and that is when we might see yield compressing to 5% or lower.
"Based on the DPU post rights issue, IREIT Global could trade at 90 cents a unit or higher then.
It has been 3 months since my last blog and I hope everyone is well.
Blogging quarterly is something which is relatively undemanding and I will probably continue to do so as long as it is still interesting for most of us.
So, please think of this as the new normal.
If there are blogs apart from the quarterly ones, think of them as "extra service."
Yes, from that phrase, some can tell that AK has been watching K-drama and reading lots of Korean manga too.
Of course, Neverwinter is still taking up much of my time and "Redeemed Citadel" is the virtual world's latest expansion.
The new normal.
This is something we hear a lot of these days.
Although Singapore seems to have COVID-19 under control now, we should not think that we have conquered it.
Just look at countries which have experienced second and even third waves of COVID-19 infection.
This tells us that COVID-19 is just waiting to strike again and again if we let our guard down.
The damage caused by COVID-19 to our country's economy so far is mind numbingly shocking and the deleterious effects are likely to persist as the world continues to battle the pandemic which, unlike SARS, has exhibited very strong staying power.
Even when effective and safe vaccines become available, it will take a long time to have adequate number of people vaccinated to achieve herd immunity against COVID-19.
Those of us with adequate financial resources at our disposal will be able to deal with the crisis better.
Still, we should not throw caution to the winds as this crisis is likely to be prolonged.
How long will the crisis last?
When IATA says air travel is unlikely to recover fully until the year 2024, that is probably a good indication that the crisis could persist in the current form or another.
We should be prepared for more possible downside even as we hope that things get better faster.
Readers who have been following my blog for a long time probably know that I have a sizable emergency fund.
This emergency fund has yet to be tapped.
Of course, I hope I would not have to tap it but if I must do so, I know the fund is there.
Warren Buffett famously said that he would not operate in a manner "that depends on the kindness of strangers or even that of friends (who may be facing liquidity problems of their own.)"
It is very important to have near money at all times and especially during hard times.
Those without an emergency fund should build one now if they are still able to.
Those without a sizable emergency fund might want to strengthen the fund.
Don't risk economic hardship by speculating on when the economy might recover fully.
Only after being well prepared for possible downside should we think of investing in the stock market.
Even if we have passive income, we should still keep an emergency fund.
There is no telling whether our passive income might be negatively impacted from time to time or, worse, for a prolonged period of time.
If our cashflow is a like a stream of water, an emergency fund is like a water tank that will dispense life giving water in the event of a drought.
In 3Q 2020, my passive income took big hits and came in much lower than expected as businesses I invested in either reduced dividends paid to shareholders or suspended payouts.
Even so, compared to 3Q 2019, total passive income received in 3Q 2020 increased very slightly due to a much larger investment in IREIT Global and also an unexpected payout by Accordia Golf Trust.
Total passive income received in 3Q 2020 was:
S$ 32,023.29.
This number could have been higher but I accepted scrip dividend from OCBC which reduced the amount of cash dividend received for the quarter.
Priced at a generous discount to what was already a low share price, at $7.81 per share, I had to accept the offer.
In 3Q 2020, I dipped into my war chest and bought more shares of UOB.
This is because I would like to have my investments in all three banks to be roughly the same in size.
There is still some way to go before my investment in UOB is as large as my investment in DBS or OCBC but I am taking it slow for two reasons.
The first reason is because although the stock market seems to have bottomed in March, much of the sharp rebound in stock prices has been lost as realization sinks in that the crippling effects which COVID-19 has on the economy will very likely last for a longer time.
The second reason is because of the rights issue by IREIT Global.
IREIT Global is one of my largest investments which has been made larger as I bought more at 42 cents a unit a few months ago.
The 454 for 1000 rights issue at 49 cents per rights share and also my intention to apply for excess rights means the exercise will significantly drain my war chest.
This must be paid for by 15 October 2020.
Does this mean that my war chest would be emptied by then and that I would not be able to add to my investments in the local banks?
Fortunately and unfortunately, another substantial investment of mine is being monetized and the funds will come in on 15 October 2020.
I am talking about Accordia Golf Trust, of course.
Most probably, some money will also be refunded in my application for IREIT Global's excess rights.
Funds will flow into my war chest then.
That is all for this blog.
Till the next blog, mask up, stay safe and keep all of us safe.
If we stay united, we will win the COVID-19 battle eventually.
I thought of not blogging about my 2Q 2020 passive income till a couple of weeks later because Mod 19 of Neverwinter, Avernus, just went live this morning. Yes, the world of Neverwinter just received another expansion. Anyway, after an initial foray which lasted almost 3 hours in the new adventure zone, I told myself I should quickly pen and get this blog published so that I can continue adventuring without feeling terrible about myself. Before I start, this is a peek into the world where I will be spending most of my time in the next few weeks:
Some might remember that in the title of the blog on my 1Q 2020 passive income was the phrase "COVID-19 disaster." This time, in the title, I have the phrase "COVID-19 crisis." Although economies are re-opening, we are not out of the woods. The virus is alive and kicking and we are seeing many cases of resurgence. The COVID-19 pandemic has been described as "a crisis of a generation" by our country's leaders. The COVID-19 virus is showing some worrying staying power. The pandemic has damaged economies around the world very badly, erasing years of progress, plunging countries into deep recessions.
Unlike the Global Financial Crisis some 10 years ago, this is a Global Health Crisis. A recession that stems from a financial crisis can be ended with financial tools. A recession caused by a health crisis like the one we have now cannot be ended with financial tools. The aggressive implementation of supportive monetary and fiscal policies around the world has provided relief but it does not address the root of the problem. As long as a safe and effective vaccine for COVID-19 is unavailable, a return of the global economy to pre-COVID-19 level in a short time is rather unlikely. We would probably see more of the population suffering from joblessness and business failures in the meantime. Not being pessimistic. Just being realistic. An important thing for us to do is to make sure we can definitely survive this crisis financially especially if it drags on for much longer. Instead of chasing possible upside, it is more important to be prepared for possible downside in life. If you are new to my blog or cannot remember, you might want to read this blog: The most dangerous crisis and what should we do?
Now that I am done nagging, how much did I receive in passive income in 2Q 2020? $57,395.95 I will say a few words about the entities which made more substantial contributions to my passive income in 2Q 2020. Frasers Commercial Trust contributed a smallish 4 figure sum which will not be repeated. This is because they have been bought over by Frasers Logistics Trust (now Frasers Logistics & Commercial Trust). My investment in Frasers Logistics & Commercial Trust has also become bigger because of this and should continue to be a good income generator for me.
Other entities which made much larger contributions than Frasers Commercial Trust and Frasers Logistics & Commercial Trust to my passive income in 2Q 2020 were Centurion Corporation, DBS, OCBC, ComfortDelgro, VICOM, WILMAR, AA REIT and Accordia Golf Trust. Of these entities, I expect Centurion Corporation and ComfortDelgro to be the most challenged during this crisis. AA REIT reduced their distribution by about 20% in 2Q 2020 but I am reasonably confident that they will stay resilient. WILMAR looks set to list their Chinese business before the end of the year which should result in a special dividend. Accordia Golf Trust has revealed details of the offer by its sponsor to acquire all its assets and I blogged about this recently. Although my passive income in 2Q 2020 looks healthy, I am aware that it was paid out by my investments from their strong performance in the past. With their future performance likely to be weaker, I expect my future passive income to weaken in tandem, all else being equal.
Apart from the passive income received in 2Q 2020, my float has also been strengthened through selling a big chunk of my investment in Ascott REIT-BT. Ascott REIT-BT is no longer one of my larger investments. I have also received money from BreadTalk as they paid me 77c a share for my investment as they delisted. This was a smallish investment but a profitable one. As for the stock market, it looks like the dust has settled. Although the economy is quite sick and will probably continue to be sick for some time to come, the stock market has found a bottom. Technically, there is still a chance that the bottom could be tested in the next few weeks or months but the chance of that happening is slimmer now. Having said this, if the COVID-19 pandemic has taught me anything, it is that low probability events could happen and they could pack quite a punch when they do.
I see the moving averages turning up and rising in many charts. So, I am likely to add to my investments if prices should retreat to some of these moving averages as they should provide support. I would not be throwing in everything including the kitchen sink because if the supports break, the fall might be another big one. Technical analysis shows where the supports are but it does not tell us if the supports will hold. No one knows for sure. Oh, please allow me to nag again before I go. Please continue to act responsibly and keep all of us safe. We are #SGUnited.
Finally, we have news. "... sponsor of Accordia Golf Trust (AGT) has proposed to acquire the trust's 88 golf courses in Japan for S$804.1 million, or an implied purchase consideration of S$0.732 per unit, it said on Monday." What do I think? Too low! Why do I say so? If you are new to my blog or if you cannot remember, read the following blogs: 1. Offer must be way above valuation. 2. Accordia Golf Trust: Reasonable or realistic price?
Basically, I think that an offer price of $0.732 a unit undervalues Accordia Golf Trust by a lot. Long time readers know that I invest in Accordia Golf Trust mainly for income. Having said this, my belief that Mr. Market does not fully appreciate Accordia Golf Trust's value only became stronger in the last couple of years. There is definitely evidence of undervaluation. I have shared some thoughts towards this in some of my past blogs. It isn't a secret that I have a soft spot for what I believe to be undervalued investments which pay dividends while I wait for their value to be possibly unlocked. That was the case with Saizen REIT. It was also the case with Croesus Retail Trust. What about Accordia Golf Trust?
Looking at my records, I see purchase prices of 49c to 54c in 2018 and purchase prices of 51c to 53c in 2019 as I substantially increased my stake. The records are all hand written, of course. Feeling a bit sentimental. At $0.73 a unit, the market value of my investment in Accordia Golf Trust would cross the $300,000 mark easily. Been receiving nice passive income from Accordia Golf Trust. This might end soon, it now seems. Even though some of that $0.732 a unit would likely go towards costs and some of it might be retained at the Trust level as Accordia Golf Trust is not being delisted, receiving approximately $0.70 a unit would still give me a pretty nice capital gain. When I take into consideration the dividends received in the past, my investment in Accordia Golf Trust has turned out pretty well.
Having said this, honestly, I am perfectly OK with holding on to my investment and to continue receiving passive income especially because I think an offer of $0.732 a unit is really too low. I am pretty disappointed and even disgusted. Well, I guess there is really no point in being upset about this. Could have been worse, I suppose. It is what it is. For what it is worth, having a lot more cash in my bank account is a rather comforting thought. Well, for a while anyway. Have to try to look at the bright side of things a bit more, especially during these trying times.
Regular readers know that I am a worrier. Yes, it is true that I am somewhat mental. As my parents are not financially savvy, I worry about them constantly. This is one enduring worry which has only become worse over time. I am more worried about my dad than I am about my mom because he spends money too freely. There is no point in nagging at him which was something I was prone to doing in my younger days. I remember when I told him to sell two of his club memberships away some 20 plus years ago, he got angry with me and yelled that he wanted a lifestyle in retirement. Well, he is trapped into paying $500 each month in club subscriptions even though he hardly visits the clubs. It is worse than buying insurance policies which he doesn't need because there is no way to terminate these memberships other than to sell them away. Of course, club memberships are not as popular as they were once upon a time and it would be harder to sell them even if he wants to do so now. If my dad regrets not listening to me donkey years ago, he hasn't told me. All of us have pride which can be a good thing but it can also be a bad thing. My dad is in his mid seventies and it is too hard for him to change his ways.
I blog about my parents from time to time. The last time I did this was in October last year when I talked about how much passive income I needed? In that blog, I talked about my decision to double financial support for my parents to about $40,000 a year. With dividends from my investments reduced this year, I might have to dip into my emergency fund to keep the promise. Of course, we would know for sure by the end of the year when I calculate my total dividends for the full year. It is my responsibility to make sure that my parents don't have to worry about money. If our government is right about the negative economic impact of the COVID-19 pandemic lingering on for years to come, I must be prepared that I might have to continue dipping into my emergency fund as my dividend income falls short.
Adding to this development, lately, I have been wondering if I must give even more financial support to my parents? This happened after a recent visit back home and a conversation I had with my parents. My dad complained about the paltry interest rates when he renewed his fixed deposits. Banks' shrinking interest rates on my dad's shrinking savings. My dad complained about the former while my mom complained about the latter. Uh oh. I don't know if some of you might be familiar with such a scene or something similar to such a scene. Well, as expected, in my case, it quickly escalated into a yelling competition. When two people who have been married to each other for half a century fight, oh, they have so much material to draw on. All that baggage. I will not share the details. Too much and, really, what's past is past. Also, we have to accept that no one is perfect and if we cannot look past that and see the good in each other, life becomes almost unbearable. Of course, when emotions run high, people become unreasonable but the problem is that they think they are reasonable. OK, you get the picture.
Anyway, to help address my mom's complaint about my dad's shrinking savings and also to help address my dad's concern about shrinking interest income, I made my dad an offer. I told my dad that at his age, it is about not taking on too much risk while trying to make his savings last longer. I know he doesn't want to be reminded of the bigger financial support I am giving them. Old man has pride. Of course, as children, we should want our parents to age with dignity too. So, I made him an offer that I felt he would respond well to. I introduced him to AA REIT which, of course, I increased exposure to more than a month ago. I took him through the pros and cons of the investment and offered to let him take over my recent investment in the REIT at $1.15 a unit which was what I paid. I told him that, conservatively, it could give him a return of 7% per year at that price. He took the offer and somehow managed to make it looked like he was helping me out. Like I said, old man has pride and if it makes him feels good about himself, so be it. That was how I partially diffused the tension that day. Only partially but I shan't bore you with everything else. 家家有本难念的经.
If AA REIT's unit price should plunge below $1.15 for some reason and if my dad should decide to sell, I would still pay him $1.15 a unit. So, his investment in AA REIT is like a risk free fixed deposit but with some upside. I am sure I do not have the right answer to every problem. I also do not have unlimited financial resources but I will always put my parents' interests before my own. We are not perfect but this imperfect son will do his best for his imperfect parents. This is as close to perfect as is humanly possible.
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