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...
Past blog posts now load week by week. The old style created a problem for some as the system would load 50 blog posts each time. Hope the new style is better. Search archives in box below.
After blogging about how I would like to increase my investment in the local banking sector, I went on to increase my investment in UOB by 19% and in OCBC by 11% in the following two weeks.
Why did I do this and in case you are new to my blog or do not remember, read this:
To be honest, they are not at 40% of my portfolio yet as their stock prices rallied somewhat too quickly or I was adding to my positions too slowly, maybe.
Anyway, the catalyst for this short update is a comment from a reader in a blog.
If you are interested, read it in the comments section: HERE.
This is my reply to his comment:
Technically, the banks are somewhat overbought at this point and price action seems to be grinding or churning at resistance.
This doesn't mean that their share prices couldn't go higher but a correction is probably to be expected and it will present a chance to add if it happens.
As for fixed deposit, we will just have to make hay while the Sun shines and enjoy the higher interest rates while they are available.
If the Fed does what they say they will do, then, the higher interest rates could stay high for longer as the aim is to mop up liquidity.
There will come a point when there isn't too much liquidity sloshing in the market but looking at how yields are behaving, we might have some way to go.
When we are at that point, we might not have a simple correction in equities as things could get ugly.
Don't know how things will look in the future.
All I can do is to have a plan which makes sense at least to me.
1. Stay invested in bona fide income producing assets that have the ability and willingness to pay me.
2. Stash emergency funds in risk free and volatility free products which pay reasonably well.
3. As for a war chest, I don't have a very large war chest like I used to have but in retirement my aim isn't so much to grow wealth aggressively anymore.
It is all about financially security and not having to rejoin the workforce because I did something exceedingly foolish with my money.
A few days ago when I logged into my DBS phone app, a message popped up with a special offer.
3.8% p.a. fixed deposit for 5 months tenor.
What?
It was like discovering an endangered species.
I have always thought DBS has the most liquidity sloshing around with the most CASA (i.e. current account and savings account) money from customers amongst the local banks.
DBS has benefitted immensely from cheap funding from relatively conservative POSB customers.
DBS has also routinely said that they were extremely well capitalized.
Are they feeling the heat now or are they making a pre-emptive move to lock in some liquidity?
Whatever the case may be, it isn't my problem.
My question was: "What to do?"
In my last blog, I expressed my disappointment that the cut off yield of the 6 months T-bill was only 4%.
I also expressed my disgust at people who made very low bids in order to get all the T-bill they applied for as that probably resulted in a lower cut off yield.
The problem with T-bill is that we won't know what the yield is until the auction is over.
Could the cut off yield be lower than 4% this time?
Yes, another T-bill auction is now open.
Could the cut off yield, heavens forbid, be even lower than 3.8% this time?
Like I said in my last blog, I suspect it would depend on how competitive (and inane) people get.
This is especially the case with people using their CPF-OA savings which are akin to elephant guns to apply.
I understand that it is costly both in terms of time and money to use CPF-OA savings to apply for T-bill.
If these people do not get their applications fully filled, it would mean another trip or a few more trips to the bank.
Using CPF-OA funds is costly not only because there is an application fee and a monthly service fee, we will also lose out on one or two months of CPF-OA interest at 2.5% p.a.
This is because CPF-OA interest is calculated on a monthly basis and not a daily basis.
So, if we withdraw money from our CPF-OA at the start of the month, we will not have interest income for one month.
If we withdraw money from our CPF-OA in the second half of the month, we very likely would not have interest income for two months.
This is because when the fund comes back from the T-bill, it most likely would not be credited into our CPF-OA in the same month but the following month.
CPF interest is calculated based on the lowest monthly balance.
So, having the incoming fund credited in the following month means no interest income for that sum in that month.
Therefore, if we are unsuccessful in a T-bill auction using CPF-OA savings, it is painful in more ways than one, especially if the amount of money involved is relatively large.
I can understand why these people are more kiasu than others.
Still, I want to apply for this round of T-bills because the yield could be higher than 3.8% p.a.
At the same time, I also put some money in the fixed deposit special offer by DBS.
In case you are wondering, the special offer is for a minimum sum of $20,000 while the minimum sum required for T-bill is only $1,000.
If you are interested in the special offer by DBS, use their banking app to start a fixed deposit account.
Latest 6 months Singapore Treasury Bills (T-bills) auction had a record 95,000 bids!
Total amount applied for?
$14.2 billion!
I only got half of what I applied for.
Yield at 4.00% p.a. is lower than the 4.19% p.a. from the previous round.
What to do?
Will just have to apply for a larger amount in the next auction in case it gets heavily oversubscribed again.
Somewhat disappointed that the yield isn't higher.
This is on top of being disappointed that I did not get the full amount I applied for.
Well, it is just too bad that the demand is so strong that a lower yield is acceptable to competitive bidders although I think it is stupid to bid so low.
Won't be surprised some might have put in super low bids like 3% yield to make sure they get full allocation.
Every man for himself, I guess.
Risk free and volatility free T-bills.
Relatively attractive yield (while it lasts.)
In a strong currency like the Singapore Dollar.
What's not to like?
Buying Singapore Treasury Bills (T-bills) is a relatively new activity for me as I was never interested in T-bills in the past due to the very low yields offered.
Things have quite obviously changed and not just for me but, evidently, for many people too.
This first round of auction in November is my 3rd time taking part.
The first two rounds for me were in October and those 6 months T-bills offered yields of 3.76% p.a. and 4.19% p.a.
My plan is still to divert cash from maturing fixed deposits into T-bills.
Specifically, 6 months T-bills.
I did not say this before but, to be clear, not all the funds from maturing fixed deposits will be diverted into T-bills.
I used to have many more bank accounts but, in my retirement, for the sake of simplicity, I have reduced the number to only four.
There are different reasons for keeping these four bank accounts active and the others which I found I could do without were closed.
Yes, I can be absolutely ruthless just like what I did with my credit cards, reducing from more than ten cards to just three cards now.
I would like to keep only one credit card but it is good to have another card or two just in case.
Anyway, before I ramble off, back to the topic at hand.
Growing old.
Mind goes wandering a lot more.
I will renew some fixed deposits when they mature at higher interest rates offered by the respective banks for a couple of reasons.
First reason is because I am mental and I would feel poor without seeing some meaningful amount of savings in my bank accounts.
OK, jokes aside, long time readers of my blog might remember that I have an outsized emergency fund as I not only consider my own needs for the next 24 months but also my parents' needs and, to a more limited extent, my siblings' needs.
So, to people who are not in the know, my emergency fund might look excessive but it really isn't.
Well, at least not to my mind.
If you are new to my blog or would like a refresher on my take on an emergency fund, you will find that and more in this collection of blogs:
The nice thing about fixed deposits is that I could terminate them pretty easily, get back my principal sum right away with no loss of capital.
Second reason is because I want to maintain my relationship with these four banks as they are useful to me in different ways.
I do not want to terminate my accounts by shifting all my funds from fixed deposits into T-bills.
It would be too much work for me to rewire things and maybe even reopen accounts when things change again.
We never know what might happen and there is some comfort in familiarity which is OK as long as it isn't harmful.
Yes, old man doesn't like too much change.
So, I suppose I will let the banks make some money because I am such a nice person.
Anyway, more on my plan with T-bills.
I will probably be taking part in T-bill auctions with fresh funds until March 2023 as long as the yields remain relatively high.
This means that with 2 auctions a month, it would be a total of 12 auctions by end of March 2023.
Then, it would just be recycling funds from maturing T-bills into new T-bills from April 2023.
Doing this, together with Singapore Savings Bonds and my CPF savings, the investment grade bond component of my portfolio is going to grow pretty significantly.
Is AK de-risking his investment portfolio?
I don't think so since it is mostly moving money from my bank accounts to bonds.
Of course, I should also say that if T-bills should see yields plummet due to an overly competitive (and inane) landscape, I could just stay with fixed deposits which are offering increasingly tempting interest rates.
Just as a hedge, I would probably renew a one year fixed deposit with CIMB this month as they are offering 3.8% p.a. for a one year tenor now.
So, am I expecting the next T-bill have a yield of less than 4%?
Well, like I said, it depends on how competitive (and inane) people get.
This development (i.e. larger exposure to T-bills and SSBs) should result in a more resilient investment portfolio and also provide greater certainty in terms of meaningful passive income generation.
We don't know what we don't know but, from time to time, we have more clarity.
Don't throw caution to the wind but we don't want to be overly cautious either.
Stay pragmatic.
Stay invested but be prepared for the possibility that things could get worse.
Cash is not trash and I am talking about the Singapore Dollar, of course.
"We never want to count on the kindness of strangers in order to meet tomorrow's obligations."
Yes, AK isn't really investing in Chinese tech stocks.
AK is trading Chinese tech stocks.
OK, to be honest, there is also an investing element because I only got interested in Chinese tech stocks after their share prices fell from the sky.
Basically, in recent months, Chinese tech stocks have been trading at valuations which value investors might find interesting.
They were trading at what I thought were crazy high valuations before and proponents were all saying high PE ratios were reasonable for these tech companies.
As it turned out, those crazy high PE ratios were only possible because interest rate was zero or even negative.
Then, there were some meme stocks which rode on speculative fervor and tech stocks which didn't even have a PE ratio because they didn't have any earnings!
Still, since the Lion-OCBC Hang Seng Tech ETF does not pay a dividend, as an investor for income, I have to trade it to generate some income.
One of the things I like to remind myself when it comes to trading stocks is to go for stocks which I do not mind holding on to.
Usually, the reason is because I feel these stocks are mispriced and there is a good chance of prices going higher later.
Of course, how much later I don't know.
If you think this sounds like speculation, it is!
What?
You think speculation is bad?
AK hides his face in shame...
As usual, I would keep my speculative positions small or very small.
So, in the event that we have to hold on to our positions, we won't lose sleep over the matter.
In trading, whenever we can book a gain and take some money off the table, we should do so and I have sold what I purchased at 49 cents a unit in late October at 60 cents a unit today.
The declining 50 days moving average is just a bit above 60 cents and should be immediate resistance.
If this should be cleared, then, the declining 100 days moving average is next and it is now at 69 cents but it could be at 67 cents by end of the month.
Yes, the trend is still down and trading to make some pocket money reduces the cost of holding.
It is just like investing in dividend paying stocks but it isn't passive income in this case.
I treat this as an adventure or an experiment.
With a tiny position, it is not something that is going to make me rich.
If it goes bust, it won't sink me either.
If you like what I am doing and would like to do the same, please be mindful of all the things I have said.
This blog on IREIT Global will build on the blog I published on 16 Sep 22.
In the earlier blog, I said that IREIT Global was a bargain and I will say the same in this blog.
One of the biggest fears in a rising interest rate environment for REIT investors is how badly it would impact financing cost.
IREIT Global allays this fear as it has a relatively low gearing level of 30.6%.
Also, it is insulated from rising interest rate for the next 4 years as their borrowings are on fixed rates till 2026 and beyond.
The other important thing which I talked about in my blog of 16 Sep 22 was the ability of the REIT to increase asking rents.
I said that IREIT Global would be able to increase asking rents and in a timely manner too.
As reported by the REIT, a 4.2% year on year rental escalation supports this point.
I also expect rental escalations to continue in the coming months as higher inflation stays sticky.
Being able to command higher rents while keeping financing cost low for the next 4 years is something any REIT would be envious of.
So, IREIT Global is in such a sweet spot.
The biggest bugbear now for IREIT Global is its Darmstadt property which will be vacated by the current tenant by end of this month.
It is encouraging to see that the REIT has not 1 or 2 but 12 potential tenants who have made enquiries which show how desirable the property is.
However, I am going to stay pragmatic as the leasing environment in Germany has become challenging.
Maybe, the REIT is trying to manage investors' expectations and I don't blame them because I would do the same if I were in their shoes.
As the property in question accounts for 10.5% of the REIT's income, in the most pessimistic scenario, we might see full year DPU declining from 2.8 Euro cents to 2.5 Euro cents per year.
This is pretty unlikely as positive and more rapid rental escalations in the other properties in the REIT's portfolio will pick up some of the slack in the meantime.
This is just me being a pragmatist.
The property in Darmstadt will be leased out in one way or another (i.e. master tenanted or multi-tenanted) but it might take more time compared to how quickly vacated space was backfilled before.
Investors have to be realistic and we just have to be more patient, given the circumstances.
Of course, patience is sometimes the hardest thing.
2.5 Euro cents is about 3.5 Singapore cents if we use an exchange rate of 1.4x which gives us a distribution yield of 7% at 50 cents a unit.
I would remind myself that this is the most pessimistic scenario and that such a scenario is unlikely to be durable.
IREIT Global is already trading at less than 50c a unit and I have increased the size of my investment because I eat my own pudding.
Of course, I do not know how Mr. Market is going to react to the business update.
However, if Mr. Market should offer me a lower price, I will probably be buying more, everything else being equal.
The worst is probably over now for ComfortDelgro unless we are hit by another pandemic or something just as bad.
However, ComfortDelgro still has headwinds such as the irrational competition from GRAB and also FOREX risks due to a relatively strong Singapore Dollar.
A pretty significant portion of ComfortDelgro's income is derived from overseas ventures, after all.
The British Pound Sterling, the Australian Dollar and the Chinese Yuan have all weakened against the Singapore Dollar.
I would rather add to my investment in our local lenders, mostly OCBC and UOB, which seems like a better idea than investing in ComfortDelgro as their earnings enjoy a strong tailwind with rapidly rising interest rate.
A short blog to say I will be diverting money set aside for voluntary contribution to my CPF account in 2023 to Singapore Savings Bond (SSB) again.
With a 10 year average yield of 3.47%, the latest round of SSB soundly beats the average return of 3% I would get from the CPF for doing voluntary contribution to my OA and SA.
If you are interested in how I arrived at this conclusion, see:
I expect this round of SSB to be oversubscribed again with its record beating 10 year average yield.
The last round of SSB was 2.44x oversubscribed and even if no new funds joined the fray, this round of SSB would be 1.44x oversubscribed if only unsuccessful funds from the last round reapplied.
So, I won't be surprised if my application is partially filled again.
$10,000 again?
Maybe.
Well, I will only be applying for $28,000 this time since I got $10,000 the last time.
If some of my money gets refunded, it might not be a bad thing as the final round of SSB in December could offer an even higher 10 year average yield.
Hmm.
Maybe, I should hedge.
I should apply for $14,000 this time and apply for $14,000 in December.
My investment portfolio is almost 100% in Chinese and U.S. tech stocks and it has been very depressing to see a growing 6 figure loss for almost 2 years.
I am still holding on but I don't know if there is light at the end of the tunnel.
The saving grace is I am not using borrowed money.
It has gotten so bad that I think my relationship with my family is being affected.
My work is beginning to suffer too.
I confided in a close friend that I thought of selling everything and never look at stocks again.
He suggested a few things and one is reading your blog and I saw that you bought into Chinese tech ETF.
Do you think there is hope?
Should I hold on?
(The above has been edited to leave out very personal information.)
AK says to reader:
Not to rub salt into your wound but I only started buying into Chinese tech after Alibaba crashed dramatically in price.
That was when I thought the valuations of tech stocks were more reasonable.
My first purchase was sometime in April this year.
I am also not buying and holding but trading for some pocket money because the ETF just like Alibaba does not pay a dividend.
So, I don't have the baggage that you have.
Not in the same shoes but I can understand how you feel.
It sounds to me that you are overly concentrated in tech stocks, whether in China or the U.S.A.
I will say that there is probably light at the end of the tunnel but we just don't know how long is that tunnel.
This is especially the case with Chinese tech because of policy risks.
So, to make the wait more bearable, you might want to think about reducing exposure to tech and diversifying your portfolio.
Since you have read my blogs, you would also know that my exposure to Chinese tech is very small at lower than 1% of my portfolio.
I am not suggesting that you should reduce your exposure to tech stocks drastically but a 100% exposure is obviously affecting your mental health badly.
Conviction is a good thing but being stubborn isn't.
Our investment portfolio should have more than one leg to stand on.
Standing on one leg isn't very stable.
It isn't something we would do in real life normally.
So, why would we do it as investors?
I cannot say that my investment portfolio is a good model to follow but it gives me peace of mind because it is sufficiently diversified by my standards.
I have a mix of investment grade bonds (i.e. CPF, SSBs and Treasury Bills), real estate exposure through selected REITs and also equities, with large caps in the finance sector having the lion's share.
The idea is that our investment portfolios should be standing on more than one leg.
How many legs should your portfolio have?
I am sorry that I cannot tell you specifically what to do but I hope you get the idea.
I know you are going through a very rough patch now but never let a good lesson go to waste.
We will make mistakes as investors.
Even Warren Buffett and Charlie Munger make mistakes.
The important thing is to learn from these mistakes and try to do better in future.
The stock market will always be there and as long as we don't give up, we will have our revenge one day!
I sincerely hope you will find the strength within you to bite the bullet and soldier on.
On 18 October, I shared my thoughts in a blog on growing passive income in an environment of heightened inflation and rapidly increasing interest rates.
If you cannot remember or need a refresher, here it is:
I will be submitting non-competitive bids for 6 months T-bills for auctions in November and December too.
This is because I expect their yields to be much more attractive than 6 months or even 1 year fixed deposit interest rates offered by the banks.
Cut-off yield at 4.6% p.a. next?
After all, the U.S. Fed is expected to hike interest rates in November and again in December.
I would avoid long duration bonds in such an environment of rapidly rising interest rates.
For sure, I would avoid bond funds.
If you are new to my blog or if you have forgotten, here is a refresher from my YouTube channel:
Remember, no one cares more about our money than we do.
Do not ask barbers if we need a haircut.
If we are not overleveraged or overly leveraged, we don't have to fear rising interest rates.
We have not been swimming naked and don't have to fear what the receding tide might reveal.
Yes, I know. Bad AK! Bad AK!
If we are invested in bona fide income generating assets and if we are getting a share of the income, there is really no need to panic (as long as we have a good handle on our expenses.)
The sky is not falling.
We will still enjoy some level of cash flow even during tough times.
Unfortunately, it sometimes takes a crisis for some people to realize that reliable and meaningful cash flow is one of the most important things to prioritize in investing and personal finance.
Getting rich slow is not sexy but it works.
Readers who have been following my blog for a long time might remember that I said this:
"Gradually, as our passive income grows from a stream to a river, our earned income could become something less critical." Source: Best insurance in life.
The unit price of Daiwa House Logistics Trust has declined 32c or almost 40% in the last 6 months.
This is pretty dramatic.
Although I was unimpressed by Daiwa House Logistics Trust at its IPO and had some concerns, I did not expect its unit price to crash so hard.
At the end of June this year, when a reader asked if I was interested in Daiwa House Logistics Trust as its unit price had declined, I raised a new concern which was the persistent weakness in the Japanese Yen.
Unlike the ECB which is raising interest rate, the Japanese central bank seems determined to keep interest rate low which is depressing the value of the Japanese Yen.
In reply to the reader who asked if the lower unit price made Daiwa House Logistics Trust a BUY back in July, I said that if the Yen was stronger, then, the REIT would be undervalued.
Unfortunately, it wasn't.
I said:
"Since the Yen declined so much, then, a similar decline in unit price doesn't make it (i.e. the REIT) undervalued."
More recently, just a few days ago, the Yen hit a historic low against the U.S. Dollar.
With this recent development, Daiwa House Logistics Trust's unit price has sunk even lower.
I said in my last blog that China was getting very hard to read.
Japan isn't much easier either.
Why is the Japanese central bank so stubborn?
All investments are good investment at the right price.
Unfortunately, at the moment, I do not know if it is the right price but as long as the Japanese central bank is bent on their current course, Mr. Market doesn't know either.
I do not see any positive divergence in the chart as MACD and RSI decline in tandem with the unit price.
I don't have an interest in Daiwa House Logistics Trust.
Just a quick blog sharing my response to a query from someone I know.
Daiwa House Logistics Trust was priced too dearly at IPO and we now have a persistently weakening Yen thrown into the mix.
On hindsight, it might have been a blessing in disguise that Saizen REIT, Croesus Retail Trust and Accordia Golf Trust were forcibly removed from my portfolio.
I produced a video recently for my YouTube channel which shared my response to a reader's question on investing in Capitaland China Trust.
In case readers who do not follow my YouTube channel are interested, here is the video:
That video has unexpectedly led to an interesting exchange with another reader and for the benefit of readers who are not subscribed to my YouTube channel, I am sharing it here:
Reader says:
Hihi AK, so your stance on CLCT has never changed ya?
AK says:
I still think CLCT will do well once things normalize.
How long is that going to take?
Xi is being pretty stubborn.
I don't think China will move away from the zero COVID policy anytime soon.
So, not in a hurry to add.
Will wait and see.
Reader says:
thanks for ur reply. i cashed out my SSB to divert to CLCT. but now i still hesitating when to enter CLCT. below 0.80 ah?
hahaha..
AK says:
China is getting very hard to read.
On the REIT level, I suspect that the RMB is going to stay weak and it could impact gearing level and DPU and it is not the only thing that is giving me pause.
It would be interesting to see if CLCT has to give rental support to tenants or not too.
Greater clarity needed.
I will (try to) stay defensive and continue to divert funds whenever available to bank stocks, SSB and T-bills.
Reader says:
sg bank stocks exp leh…. China Bank stocks on HKSE ok? ðŸ¤
AK says:
Eh. I don't invest outside of the Singapore Stock Exchange.
So, I am not a good person to answer that question.
Singapore banks will benefit from rising interest rates.
I don't think the Chinese banks have the same tailwind.
Also, if I were to invest in Chinese banks, I would ask how exposed are they to the likes of Evergrande?
I feel that to invest in the Chinese banks is really to invest in the Chinese government.
Why would they be trading at such low PE ratios otherwise? ;p
Readers who are interested in my YouTube channel, here is the link:
Posts
Bloggy Award