The Dirty CPF-HDB Scheme To Trick Singaporeans?

I would like to share a few comments from a reader on my FB wall when we discussed a very hot article that has been circulating lately. 

Title of the article: "Truth Exposed: The Dirty CPF-HDB Scheme To Trick Singaporeans."



Wah! With a title like this, sure to become viral and it did.






So, what are the reader's comments?

"Well and we have a lot of Singaporeans complaining that they earn too little to make a living... 

"So many are being fanned by this CPF topic and arguing about it everywhere. I would choose to drive a taxi or do some carpentry work instead of arguing over those facts.

"Additional 30 to 50 dollar per day over 1 or 2 years will be a big deal to me..."







And

"A lot of Singaporean are just too spoilt and are unable to see a picture even 5 minutes before them. Lazy and shallow minded, overly comfortable.

"I won't be surprise they and their children remain in the current society status 50 years from now. Children's success are often parent's upbringing and child's willingness for achievement.

"With such mentality, I believe they would and personally feel they should just remain where they are or go lower."





Too harsh but, from my observations, there could be some truth in the comments.

As for what I think about the article, I don't think that it is saying anything new.

The "what" is the same.

It is the "how" that is different.

A new angle on some familiar material.






Make the PAP government look bad and it will excite a whole lot of fellow Singaporeans and probably quite a few foreigners as well.

I made a few comments in FB regarding this and I want to share a couple of them here with readers who don't follow me on FB:

"The CPF provides a minimum safety net for Singaporeans who stay employed for much of their adult lives. 

"The money is primarily meant for retirement use.





"We are allowed to use it for some other purposes including housing in the meantime but please remember that the money is primarily meant for retirement use.

"So, if we take out all the money for whatever reasons, we have to bear in mind the opportunity cost involved although some people might not look at it this way."

AND

"In an environment of very low interest rates in Singapore, the current CPF rates are acceptable. 

"However, if interest rates were to be as high as those in Indonesia or Malaysia, then, it would be totally unacceptable.

"This is the reason for the CPF to be pegged to long term SGS rates. It addresses the issue."


There are always two sides to a coin. 






We can either choose to use the system to help us achieve our goals or vilify it and imagine that it is beating us. 

Read the related posts below (and the very good comments that follow) if you are interested in the other side of the coin.

Related posts:
1. Young working Singaporeans, you are OK!
2. Build a bigger retirement fund with CPF-SA.
3. How to get free medical insurance in Singapore?

Priceless!

Hainanese curry pork chop dinner with my mom: $8.00.

The quality time spent together: Priceless!

Eh, sounds familiar. Oh, I borrowed the format from MasterCard (but not the price tag).

Aiyoh! How can like that?

Bad AK! Bad AK!

Note:
This is not an advertorial. AK did not receive any compensation from the Hainanese Pork Chop Rice store owner (nor MasterCard).

Related post:
Hainanese Pork Chop Rice.

TEA with ENZA: Total Debt Servicing Ratio (TDSR).

Another guest blog that is actually a collection of comments by a very bright fellow I got to know on FB. Reproduced with his permission:

Total Debt Servicing Ratio (TDSR) = Debt Repayments/Income (per month)

Many of our textbooks are based on western spending patterns, which I think isn't feasible for Asians. I would target 25% of TDSR.

IMO, a household cannot have more than 3 durable goods under instalment (because they are going to be a drag over long-run), whereas housing and vehicles cannot, in combination, exceed 20% of gross combined wage median. Always concentrate on paying off one thing at a time since we only have this much of resources.

You see, Asian parents normally pay for their children's university fees. That is a big chunk.

In the USA and Europe, most parents don't. That's why they can have a bigger TDSR. Of course, the most important thing is SG cars are TOTAL WASTE OF MONEY. Only if we can really waste the "excess money", then should we ever own them. So, if depreciation plus insurance plus road tax plus basic maintenance are below 10% of your wage income, no harm. (which is quite unlikely in SG, all because of the COE.)

Are you too much in debt?

Read other guest blogs by ENZA: here.

Related posts:
1. Don't think and grow rich.
2. Slaving to stay in a condominium.
3. The Millionaire Next Door.

So, $350,000 gets peanuts? Upsize the peanuts!

This is what Privilege Banking customers at UOB get:



Apologies for the bad quality.

These are some seriously small peanuts.

Money in our emergency funds (less than $350,000) if left in a savings account like this will get only 0.1% in interest payment per year! Imagine that.

Better leave the funds in fixed deposits. We will still be paid peanuts but these peanuts are at least bigger.

I suppose this is true not only for emergency funds but also for any money that has been earmarked for some specific purpose in the near future. Don't just leave the money in a savings account.

It is time to upsize the peanuts!

Related post:
A special chest for emergency funds.

Tea with Invest Apprentice: 7 Reasons Why We Need Unit Trusts.

Another guest blog by Invest Apprentice and this should be read as a companion blog to the earlier guest blog. Please see related post number 1 at the end of this blog:

7 Reasons Why We Need Unit Trusts.

1) When we only have a small capital and it's too expensive to buy individual stocks or bonds in a certain market we want exposure to.

Eg. A global equity fund is a quick way to gain exposure and diversification to most of the mega cap companies in the global stock market.

2) When we want to diversify our risks and ETF is not a ready option. Our SGX exchange currently does not offer the range of ETFs compared to foreign exchanges such as the US, where you could literally buy an ETF for any sector, style, country, asset class etc. you can think of. They even have leveraged ETFs for you to “short” the market should you wish to (no thanks for me)! But until the day our SGX offers even half the range of ETFs, to some extent I’ll still have to rely on some unit trusts to diversify into certain sectors or markets.

3) When our research on macroeconomic drivers lead is to identify an undervalued sector or a country's market that is extremely promising, but we lack the confidence or funds to invest directly in specific stocks in that sector or country.

A simple example is the Phillip S-REIT Fund which I bought in late 2011 for my mum. She was new to investing and thus averse to picking REITs directly. That fund reinvested its quarterly dividend and has returned about 40% when I sold it in Feb this year.

4) When we favour the fund manager’s style and endorse the fund’s investing philosophy. For example, I still hold on to Aberdeen funds even though they underperformed their benchmarks last year, because I like the defensiveness of their portfolio selection and hold the view that going forward, defensive sectors like consumer staples tend to fare better in an increasingly difficult market.

5) When we don’t have a better alternative. Usually, this means that the sector/country/asset class we want to invest in does not have an ETF representing it, or the ETF is seriously illiquid in our exchange and therefore difficult to trade.

For example, there are unit trusts that invest in exotic frontier markets like Ukraine (!) and Vietnam which we may like to “try-try”, such as FTIF-Templeton Frontier Markets Fund managed by Mark Mobius.

6) When we want clean-cut portfolio allocation and easier time doing rebalancing. It’s easier to create a diversified portfolio like, “I want 40% into US equities, 30% into Asian equities, and 30% into global bonds, and I want to do that with $5,000”.

7) When we are not looking for spectacular returns, but a better than average market return at lower risk compared to investing in individual stocks.

Wilfred Ling did a breakdown of the various myths surrounding unit trusts. Some of my points are similar to his, although I added my personal interpretations:

 

Hopefully the above gives you a broader perspective on the role of unit trusts in one's portfolio. Personally, I am NOT a unit trust fan myself and I do my own active stock picking. I also use ETFs for investing in broad funds. I am just writing this as a response to the negative hype against unit trusts in recent years, at least among the fellow investors I spoke with or read about.

Every investing instrument has its place in the arena.

Disclaimer:
This is NOT investment advice and I am not a licensed FA. Invest on your own risk or seek a professional FA.

Related posts:
1. Can we trust unit trusts?
2. SRS: A brief analysis.

Tea with Invest Apprentice: Can we trust unit trusts?

This is a guest blog by Invest Apprentice, someone whom I got to know on FB. Knowledgeable but very humble, I have been asking him to guest blog for ASSI for months. So, I hope you enjoy this:

Among my friends savvy in investing, the common perception is that unit trusts don't earn money, or they had lost money in unit trusts before. So, they would rather invest on their own.

It's true that unit trusts lose money in a few scenarios:
 

1) The underlying market they are invested in lose money.

2) High expense ratio and management fees.

3) They underperform the market they are benchmarked against.

For (1), this is the market risk that you can't run away from even if you use an ETF or you invest directly in the said market. For example, if you bought an emerging market unit trust since last year you would most likely have lost money, because MSCI Emerging Market index was -5% since last year. In an ETF, that would be the loss you make. If you pick stocks, they have to be strong enough to withstand the broad market decline.

For (2), it's true that unit trusts have a higher cost over index funds and ETFs over the long run. But you also need to pay upfront commission charges for buying ETF, especially if you are buying in small lot sizes. If you diversify your stocks the commission costs will mount up as well. Saying that low cost index funds beat actively managed, expensive unit trusts over the long run is accurate provided you kept commission charges lower than the expense ratio of the unit trusts you are comparing against.

For (3), this is due to poor active management skill of the fund manager. But what is active management? It means the fund manager is using his own analytical research, forecasts, judgement and experience in making investment decisions on what securities (stocks, bonds, commodities) to buy, hold and sell, given the investment universe dictated by the fund objective (sounds like what you and I do when stock picking).

The objective is to beat the benchmark of the fund. This means that if the benchmark returns -20%, and the fund returns -15%, the fund manager has “beaten” the benchmark, even though on your statement it shows a loss. And by the way, that’s supposed to be a good thing!

What we should lament is not that the unit trust we bought loses money, but that it underperforms its own benchmark. This happens when the stocks or bonds the fund bought did not rise as much as the index, or fall in value relative to the broader market. Remember this can happen to us stock pickers as well. I have bought and am still holding on to a number of stocks that are still underperforming the STI.

One way to mitigate this - besides looking at past performance - is to look at the investing objective and philosophy of the unit trust in its prospectus, and also the top 10 holdings and asset allocation of the fund. See if they practice what they preach in their prospectus. One can also read their commentary to see if they explain their rationale behind buying into or divesting of a security / stock.

My "favourite" example is Aberdeen unit trusts. I held a few Aberdeen funds (still do), and I always thought they are the best, until last year I checked the performance of Aberdeen Global Opportunity Fund vs the benchmark MSCI World. To my horror I realized that Aberdeen Global Opportunity Fund only returned 16% in 2013 vs MSCI World Index's return of 27%. Now, 16% is good performance, no doubt, but not when your benchmark returns almost 70% better - you might as well do indexing.

What happened? Basically if you look into their fund factsheet, their country allocation was underweight US in 2013 – and we know that US was the best performing market that year.

Looking at the fund factsheet (for this example: http://www.aberdeen-asia.com/doc.nsf/Lit/FactsheetSingaporeOpenAGOF) and comparing it with the benchmark’s factsheet (for this example, MSCI World Index: http://www.msci.com/resources/factsheets/index_fact_sheet/msci-world-index.pdf) will show you the distinctive investing style of the fund. Study their country and sector allocation.  In this example, you will notice that Aberdeen Global Opp is still underweight US (less than 30%) vs the index (54%). You will have to decide whether you agree with such an allocation.

Let’s say you agree to the investing style of the unit trust. The next thing to look for is the top holdings, also found in the fund factsheet.

If you like the top holdings, buying into the unit trust is a viable way of gaining exposure to these companies - especially if they are not represented in the index that your ETF is tracking. This way you can supplement your passive indexing.

There are of course other things to look for when choosing a unit trust. The above is only a quick guide.

Very often people look at the absolute return instead of the benchmark the unit trust is tracking. If we put things into perspective, buying the right unit trust at the right time can help a portfolio.

Disclaimer:

This is NOT investment advice and I am not a licensed FA. Invest on your own risk or seek a professional FA.

Related posts:

1. OCBC Blue Chip Investment.
2. SRS, CPF-OA and CPF-SA.

AK denied Starhub extra income!

For 4 years, I enjoyed unlimited mobile broadband access at only $19.37 a month. Then, my most recent invoice from Starhub shows that I must pay $38.72 a month from now on. That stunned me. I looked at the invoice for a minute or, maybe, two before the fact sank in.

Oh, no. Doubled.

Although an extra $19.35 a month might not seem like a lot (well, that was what my mom said when I lamented about this to her), it is an extra $232.20 a year! That is more than what I give myself in pocket money a month!

I decided to take action and not being very savvy when it comes to IT stuff, I sought the opinions of my FB readers'. After many comments, Wilson (pero) told me "If 3g is enough for you, 7.2 mbps, it's 19 bucks." Yes! Under $20 a month!

So, I made a trip to a Starhub service centre and re-contracted.

Apparently, my old mobile broadband had a speed of only 2 mbps although the dataplan provided for unlimited usage. The service staff told me that under the new contract, the speed will be faster at 7.2 mbps but the dataplan is restricted to 6gb of usage per month.

Faster speed but restricted data usage. Sounds acceptable although I didn't have any problem with a speed of 2 mbps before. I guess being upgraded to a speed of 7.2 mbps is like upgrading from my Mazda 2 to a BMW Z4. Wah! Nice!

At a price of $19.90 a month, it is just 2.85% higher than what I have been paying in the last 4 years. Wah! This is also nice!

I just denied Starhub an extra income of $18.82 a month or $225.84 a year. Wah! This is very nice! 

Makes me happy.

Related post:
How I earned $9,216 with a mug?
(Could be "How I denied coffee shops extra income?")

Gear up and receive more passive income.

I have mentioned before that I rather not have any debt in my life. 

This does not mean that I don't understand how debt can be good. 

It just means that I am more comfortable not having any.

I rather not borrow money to invest in stocks even though it could potentially give me higher returns.

I rather not borrow money to pay for consumption items which definitely is a road to wealth destruction and, in severe cases, obliteration.

However, in an environment of very low interest rates (still), some think I am being silly not to take advantage of the cheap money sloshing around.

For sure, used sensibly, debt can help to enhance gains in investments. 

Of course, if things should go wrong, the damage would also be magnified. 

So, as you can imagine, whenever the issue of debt crops up, inevitably, we will have debates.






We might not have debt in our personal lives but we might be invested in business entities which have debt. 

If we are invested in REITs and a business trust like Croesus Retail Trust, we are invested in entities which have debt.

Simplistically, debt could increase income available for distribution per share provided that the cost that comes from having it is lower than the income received from the additional investment. 

So, debt could make more money for us. This is probably a financially sensible reason to take on debt.

However, is it financially sensible to introduce debt in our personal balance sheet to invest in REITs and a business trust like Croesus Retail Trust?

A reader, let us call him Mr. Gear, told me that he could borrow cheaply at an interest rate of 2% per annum, invest in a REIT that offers a 7% distribution yield and the spread of 5% is free money. 

Sounds good, doesn't it? 

Well, as long as we have the status quo, yes.

So, how long will the status quo last? 

Does anyone know? I don't.





In the event that risk free rates go up which is more likely to happen than not and Mr. Market demands higher distribution yields from REITs, we could see unit prices declining again.

With a distribution yield of 7%, a 1% increase in risk free rate will mean that unit price will have to decline some 12% to give Mr. Market the 8% distribution yield that he demands. 

A 2% increase in risk free rate will mean a decline of 22% in unit price in order to give a 9% distribution yield.

So, all else remaining equal, if the risk free rate should go up by 1% within the next 2 years, Mr. Gear could lose almost all the income he would have collected. 

If the risk free rate should go up by 2% within the next 4 years, Mr. Gear could lose almost all the income he would have collected over the same period. 

If the risk free rate should go up sooner than expected by 1 or 2%, Mr. Gear could end up losing some money and not just the income collected.





Although I still believe that REITs are relevant for income investors, do we want to gear up our personal balance sheet to invest in REITs for passive income now?

To me, peace of mind is priceless and this is a risk I rather not take.

I would still invest in Croesus Retail Trust, for example, only if I have money to spare. 

To me, being able to get a non-leveraged property income yield of some 5% for owning malls in Japan is pretty attractive. 

This is the kind of yield that we would get if Croesus Retail Trust were debt free.

Investing in a Trust that distributes 90% to 100% of its income, we have to be prepared for the possibility of equity fund raising in the form of a rights issue. 

So, although the estimated distribution yield at 87.5c is about 10%, if we are prudent, we would put aside some of this income.

For someone like Mr. Gear who is thinking of borrowing to invest in REITs, he must be pretty sure that he is able to take on more low interest rate debt to fund his participation in a possible future rights issue.

So, gear up to receive more passive income? Not me.




Related posts:
1. The secret to avoiding financial ruin.
2. Don't think and grow rich.
3. Croesus Retail Trust: Much ado about Yen.

A movie treat from my stock broker: Captain America 2.

Great movie and in 3D too!




I got a free dinner, free tub of pop corn and a free bottle of Pepsi too!

Thumbs up!

"Value might fall but sure to come back up!"

Banker: Why put money in FD? You put money in this bond fund can make more money. About 5% per annum.

Sis: Is this 5% guaranteed?

Banker: Banks cannot say it is guaranteed one but if you look at the history, this fund is very good and have consistent returns.

Sis: But there is administration charge...

Banker: Don't worry, you will make more money, more than the admin charge.

Sis: Then, the value of the bonds might fall...

Banker: Value might fall but sure to come back up one. Don't worry.

The banker said "banks cannot say it is guaranteed" but how many verbal guarantees had she made in that short conversation?

This was my sister's recent experience. Was there any difference between this encounter and that from a year ago? Well, the only obvious difference between this encounter and that from a year ago was the bankers' genders.

Related posts:
1. Nobody cares more about our money than we do.
2. Know what is good for us.
3. A bad experience in a local bank.

Journey to financial freedom is not a race.

I get letters from readers of all ages. 

Obviously, all of them have different circumstances and they have different motivations for writing to me.

However, many are interested in achieving financial freedom on a sustainable basis. 

What does this mean? 




It means having regular and consistent passive income in sums big enough for them to stop working for an earned income, if they so wished it.

Questions such as, "Is this possible?" and "How is this possible?" are rather common. 

Of course, I have blogged about such topics often too.

Once in a while, I would get an email that is like a cry of despair. 

These emails are usually from people who are in their 40s like me or in their 50s. 

They are people who have yet to start or are "late" to start on their journey to financial freedom.




Although I have blogged about how we should start our journey to financial freedom as soon as possible and that the young have the advantage of time on their side, the best time to start our journey is always "now".


We might be 40 or we might be 50. It does not mean that because we are "late", we should give up.

Remember, we are not "late", we are only starting "later".


What we have lost in terms of time, we could compensate with a stronger determination to achieve financial freedom and by putting aside a bit more money each month, investing prudently in sound income generating assets.

Even if we are not able to generate sufficient income from our investments to replace our earned income, being able to have enough recurring passive income to take care of all our regular expenses by retirement is already an achievement. 

If we must delay our retirement by a couple of years to do this, so be it. 

Would we rather have at least this or nothing at all?




Don't be demoralised by how much someone in our age group has achieved. 

Don't envy people who have started the journey at a younger age. 

The journey to financial freedom is not a race.




Each of us have our own circumstances and priorities. What matters is that we achieve the goal of financial freedom. 

Some might get there faster. Some might be a bit slower. 

Everyone who arrives at the destination is a winner. There are no losers at the end point.

Unless severely disadvantaged, all of us can do it.

Believe it.



Related posts:
1. What is $1 million at retirement?
2. Achieving $1 million in retirement funds.
3. Save 100% of your take home pay. What?
4. Man collects rent from his boss.
5. 7 steps to creating passive income from stocks.