Chats with readers on Japan, bonds, properties, GFC etc.

AK is an accredited kay poh and spends quite a bit of time chit chatting with readers online. When I shared with a couple of fellow bloggers and also some friends that I spend at least 3 to 4 hours online answering questions everyday even if I am not blogging, they were amazed!

Here are some recent chats:

Sent to me by Paul who is vacationing in Japan:

Paul: U come japan so often, they name a burger after u?

LOL!

Then, G thought of buying some bonds:

B had some questions on investing in real estate in Singapore:

E discovered that AK is quite good at side stepping questions:

W had questions about war chests and allocation:

P asked about averaging up or averaging down on our purchases:

I forgot to mention that I kept adding to my investment in Hock Lian Seng over the years when I thought Mr. Market offered me more attractive prices at different times.

I enjoyed all the chats. I hope you did too. ;p

Related post:
An evening with AK and friends: Photos.

Hock Lian Seng: Testing 39.5c resistance.

The last time I blogged about Hock Lian Seng was in December last year. Since then, the stock has seen its price rising almost relentlessly. Drawing some Fibo lines shows that share price is now probably testing the resistance at 39.5c. It is a golden ratio and probably quite a strong resistance.

I have readers asking me if they should sell their investment in Hock Lian Seng in the last month or so. I said it is really up to them.

I am not ready to sell because I invested in Hock Lian Seng for income and even at 36c a share, a 1.8c dividend per share (DPS) would still mean a 5% dividend yield and that is based on a 40% pay out ratio. Still a pretty good income generator. So, even at 36c, it wasn't a price I would sell at.

Just now, I was alerted by a reader that Hock Lian Seng is declaring a 4c DPS and although I thought a bumper dividend possible before, it is still a pleasant surprise. This means a dividend yield of as much as 16.67% based on my lowest entry price in October 2011.

Over the years, Hock Lian Seng has been a very rewarding income investment for me and the higher DPS declared today is the icing on the cake.

What about the future?

Hock Lian Seng has been winning projects and their order book is now worth about $457 million. Even without new order wins which I think is unlikely, they will be kept busy for many years. This is in line with my initial investment thesis that Hock Lian Seng is a natural beneficiary of our country's escalating investment in infrastructure projects till the year 2030.

Hock Lian Seng has another industrial development property project which will obtain TOP probably in the next month or so. This will mean recognising more net proceeds as the project is almost 90% sold. An interim dividend, perhaps? Well, we can always hope although given the conservative nature of Hock Lian Seng's management, I doubt that it would happen.

Now, let us look at the burr in Hock Lian Seng's side, the Skywoods. Although the Skywoods condominium is less than half sold, I have written a pretty detailed piece before on how Hock Lian Seng's business is much more than just Skywoods. This residential development project, a joint venture, is expected to obtain its TOP sometime in 2016.

Recent transactions for Skywoods.

I would have been quite contented to stay invested in an income generating business that Mr. Market wasn't paying much attention to as I would have liked to build a bigger long position at lower prices. With the attention that Hock Lian Seng is now getting, I feel that its stock is no longer undervalued but, taking everything into consideration, it isn't expensive either.

See financial statement: here.

Related post:
Hock Lian Seng: Robust order book.

NeraTel: Still a good investment for income?

NeraTel has been a rewarding investment for me. In their latest results presentation, I like their renewed focus on generating recurring income. It appeals to the income investor in me.

On top of their current strategy to grow recurring revenue from lease of POS terminals, they plan to build and lease in building mobile coverage network in Indonesia to strengthen recurring revenue. We should see their efforts bearing fruit in the following years.

In terms of performance, profit after tax fell rather dramatically by about 30%, year on year, but if we were to remove a one off contribution from negative goodwill which bumped up profit in the preceding year, then, the reduction is a more modest 1.2%. So, it would be quite fair to say that NeraTel's results were flat, year on year.

NeraTel has declared a final dividend of 2c per share. Full year DPS is, therefore, 4c. EPS for the full year was 4.48c. So, the payout ratio is about 90%.

At 76c a share, we are looking at a PE ratio of almost 17x. With a DPS of 4c which is undemanding, we have a dividend yield of 5.26%. About a year ago, NeraTel's stock was priced lower at about 71c to 73c a share. Given that profits after tax in FY13 and FY14 are similar (stripping out gains from negative goodwill in FY13), I don't think it is cheaper now to buy into NeraTel compared to 12 months ago.

NeraTel's balance sheet is relatively strong with very little long term borrowings. They do have a debt facility which they can draw upon to grow their business and they have indicated that they might be doing this soon with regards to their plan to build and lease in building mobile coverage network in Indonesia.

So, what am I going to do?

I will stay invested as I feel that a 4c DPS is sustainable. For me to add to my long position, however, Mr. Market would have to offer me a much lower price, all else remaining equal.


See:
1. Financial Statements FY2014.
2. Slides Presentation.


Related posts:
1. NeraTel: Added to my long position.
2. NeraTel: How high could its share price go?

What would I do if I had $750,000 to start investing?

By now, I have almost 2,500 blog posts here in ASSI and most of them are about personal finance and investments although not all of them are related to investing in stocks.

Sometimes, I worry if I am sending the right messages to readers and I am actually quite happy, even grateful, when readers write to me to clarify their doubts. I try to do a good job in communication but there will be times I can do better.

I received a letter recently from a reader which sent alarm bells ringing in my head:

Dear AK

Thank you very much for sharing your knowledge because i am learning a lot from it.

I am considering investing Saizen Reit which yield 7-8% p.a. If i do my mathematics right, i will need 750'000 to yield $5000 per month to support our family household expenses.

Correct me if i am wrong.

If i have $750'000 cash to invest into Saizen Reit, wouldnt it be better investing the money elsewhere. My question is would you invest $750'000 all into Saizen Reit to give you passive income $5000 per month.

Please forgive my ignorance.

Regards
B

My reply:


Hi B,

Welcome to my blog. :)

You will have to understand a couple of things:

1. Investing in a REIT is not like locking money in a fixed deposit. So, you shouldn't be looking at yield and yield only. It is more than that.

2. Putting all your money in a single investment to have the income it generates cover all your household expenses exposes you to concentration risks.

If I had $750,000 to start investing with, I wouldn't put all of it into Saizen REIT or any one single investment. I wouldn't be fully invested either.

Without knowing more, I cannot say what I would do in your shoes but although my own investment in Saizen REIT is a significant part of my investment portfolio, it is not my entire portfolio.

Best wishes,
AK


If you have anything to share, please do so by leaving a comment below. Thank you.

Note: As usual, please, do not advertise your products and services in the comments section.

Related posts:
1. How to have peace of mind investing?
2. Income investing and position sizing.
3. Saizen REIT: Is the DPU sustainable?

Universal Studios Singapore and a lesson in investment.

I spent a whole day in Universal Studios Singapore with my family today. It was my first time there and I was pretty impressed.

We went in at about 10am and left at 8.20pm after watching the fireworks. We got our money's worth, I guess.

One thing we did quite a bit of was waiting for our turns to get on the rides. One particular ride made us wait for more than an hour for our turn. It was the Transformers ride. After the ride, I told my mom that it was worth the wait. I think it was even better than the Jurassic Park ride which we got on after a pretty short wait in the morning.

I told myself that some things are worth waiting for. We just need patience.

Now, some people tell me that they feel silly holding on to cash waiting for a crash. Some people tell me that the opportunity cost is too high to maintain a war chest.

I won't tell them that they have to maintain a war chest. I mean the choice is theirs to make, isn't it? However, I would ask them if they are very sure that the stock market would not experience a crash.

If they think that it is only a matter of time that we see a bad crash, then, what is wrong with having a war chest ready? The opportunity cost of not having a war chest ready could be really high then. Don't you agree?

My souvnenir from Universal Studios Singapore!
I hope you don't get too freaked out by my hairy legs. -.-"

When people ask me how I manage to do so well in the stock market, I usually tell them that most of my big winners were purchased during severe market downturns. I could do this because I had a war chest or two ready.

During the GFC, my war chests were filled to the brim. Friends were amazed as I pushed out war chest after war chest to buy battered down dividend paying counters then.

"If you took our top 15% decisions out, we'd have a pretty average record. It wasn't hyperactivity but a hell of a lot of patience. You stuck to your principles, and when opportunities came along, you pounced on them with vigour." Charlie Munger.

So, be 100% invested now or have a war chest ready? The decision is yours, of course.

"Patience is sometimes the hardest part ..."
Source: Little Book of Value Investing.

Related posts:
1. If we want peace, be prepared for war.
2. Get paid more while waiting for war.
3. Revisiting AK's simple strategy.

If you think I broke the law, why not call the police?

Have you ever been told that you are not allowed to take photos of the facade of a condominium? Well, it happened to me last evening.

I ate too much and decided to go for a walk to work off some calories in the evening. I walked past a condominium with a nice water feature at the entrance. I took out my phone to take a photo of the water feature and suddenly felt a strong beam of white light in my eyes.

Then, I heard someone shouting but I couldn't make out the words. I looked around and saw a fat, Indian lady wearing a security guard uniform in the guard house which was set probably about 20 meters from the entrance. She was shouting something at me and waving a strong light in my direction.

I cupped one of my ears and said loudly, "I can't hear you!"

She walked out of the guard house and came closer. I had the presence of mind not to walk towards her. I wouldn't want to be accused of trespassing on private property, after all. I remained standing on the public pavement. When she was closer to me, she spoke in an authoritative voice, "No photo taking of condo allowed!"

That gave me a shock largely because it was such an outlandish demand. I have never been stopped by anyone from taking photos of a building's facade in Singapore before. Anyway, I recovered quickly and asked her where was the sign to say photo taking was prohibited? She said there was no sign but she was telling me that I was not allowed to take photos.

I told her that the demand was unreasonable and that it would never stand in a court of law. If I felt like it, I could take as many photos as I liked. I was standing on public land taking photo of the condo's facade. I did not trespass on private property.

Then, she warned me that the condo CCTV was recording the encounter. That got to me and I told her that she could call the police, if she felt like it, since she obviously thought I did something wrong. I think she got a surprise when I said that. She challenged me to call the police instead, turned around and walked away.

怪事每年有, 今年特别多!

As I was walking away, I wondered what kind of MCST would issue such an order since I supposed the guards were following instructions? Maybe, I should call my realtor and arrange for a viewing of some of the units which have been put up for sale or rental. A quick check online revealed quite a few units available.

Would the guards stop me from taking photos of the grounds, the facade or even the guardhouse then? I wonder.

Related post:
Can't think of any... -.-"

For good food or car washes, Singaporeans love to queue!

I don't like wasting time in long queues. Someone could tell me that a restaurant served great food and that I should try but I would give it a miss if I were to see a long queue of people waiting to get a table. Wait 30 minutes to an hour to get a table? Mental!

I was in the lift and a couple was talking:

H: The queue was so long. At least 10 cars in front of me. Queue till the road outside.

W: So many cars?

H: Yah. Chinese New Year's eve. Every year is like that. I waited almost 50 minutes to have the car washed.

W: How much?

H: $8.  (Seeing AK in the lift. H smiled and asked.) You got your car washed?

AK: Yes, I washed it myself. 

H: Wah! You have the time to do it?

AK: Haha... Took me 30 minutes. The shampoo and sponge cost me $6.50. Good for at least 20 washes. Way cheaper than going to a car wash too...

I think I said too much. The husband's smile faded but luckily the lift reached their floor and they got off then. I hope I did not step on someone's foot.

Actually, I see rather long queues at car washes all the time. It is not just during festive seasons.

Wait 30 minutes to an hour to pay people to do something that I could easily do? Definitely mental!

GONG XI FA CAI (to the people washing cars too)!

Related posts:
1. Laugh with AK!
2. AK polishes his car!
3. If we are not rich, don't act rich.

Laugh with AK and have a happy Chinese New Year!

As promised, here are some photos taken in the evening of 13 February 2015 (Friday):

I think the flu bug this year is especially virulent!
Remember your mask. Don't leave home without it!
Hey, who is the other fellow seated next to Sean? O_o

AK demonstrating Chinese Kung Fu from Foshan.
What? You don't recognise the famous dragon claw?
Not the left hand. The right hand! -.-"

Group photo with Sean, Ivan, Leong, Paul et. al.
I think everyone had fun that evening.
Gong Xi Fa Cai! :)

福星高照!

AK wishes all readers a very happy and prosperous Chinese New Year! Huat ah!

Lucky number: 8854.

Related post:
Eat bread with ink slowly.

What is the right price to buy into Sabana REIT?

Last Friday, when I met up with some friends, I compared Sabana REIT with AIMS AMP Capital Industrial REIT to exemplify what I thought are some of the characteristics of a REIT whose management's interests are more aligned with minority shareholders'.

I also made the comment that although I substantially reduced my investment in Sabana REIT starting in late 2013, there could be a time to invest in Sabana REIT again. This is because all investments are good at the right price.

I know that many are looking at Sabana REIT and thinking of buying because its unit price has fallen by quite a bit in the last one year and more. I know because many asked me, one way or another, if I am adding to my much reduced long position.

I didn't give much information but I generally said that I was not interested as I thought that the REIT's management was mediocre in ability and self-serving in motivation.

I know that there are some investors in S-REITs who use NAV as a main consideration to decide if an investment is undervalued. Trading at a 12% to 13% discount to its NAV of $1.04 per unit, Sabana REIT would look undervalued to them. 

Well, unless we can reasonably expect the REIT to divest a few properties at valuation or maybe a slight premium (dare I hope?) to valuation, it is more important to consider the REIT's distribution yield now and in the future if we are satisfied that the REIT is going to stay financially healthy.

Well, financially, Sabana REIT looks healthy enough. Gearing is at 38% with 88% of borrowings having fixed interest rates. Interest cover ratio at 4.1x is passable. They have also been active in refinancing their loans ahead of their maturities. All in cost of financing is at 4.1%.

So, what is the distribution yield? With Sabana REIT, it won't be too wrong to annualise the last quarter's DPU of 1.78c as the decline in DPU is not due to any transient reason. This means that, without any improvement in occupancy or positive rental reversions, all else remaining equal, we can expect a DPU of 7.12c in 2015. Buying at 91c a unit would give a distribution yield of some 7.82%. Is this good enough for me? I don't think so.

Hey, current occupancy is only a bit more than 90%. So, there is a lot of room for improvement, isn't there? Well, this was what the management said when they bought a half vacant building from AMD in Chai Chee many moons ago. 

I have not seen any significant improvement in occupancy since then. There is a lot more supply in the market now and asking rents are probably softening. Stiffer competition? Yes, you said it.

Since the prospects of improving occupancy are rather dim, what about retaining the REITs current tenants? We have seen how the REIT had been unable to renew all their expiring master leases in the past. Now, in 2015 this year, the REIT has a total of 11 expiring Master Leases! Take a moment and let this sink in.

What happens if the REIT is unable to renew these master leases or if they are unable to secure new takers? The properties would be converted into multi-tenanted buildings. What does this mean for shareholders? Occupancy would take a hit. Income would take a hit. Management fee would increase. Translation? DPU would probably decline.

In their presentation in January 2015, the management said:

With approximately 10 months to go before the expiry of the 11 master leases, the Manager is working towards renewing or securing new master leases for 7 of them. The remaining 4 properties will likely be converted into multi-tenanted buildings.

Source: FY2014 Presentation.

I try not to be overly optimistic or pessimistic. I try to be pragmatic.

The pragmatist in me says that it is OK to hold on to my remaining investment which I bought at a pretty low price (and are, for a while now, free of cost) during the Fiscal Cliff debacle in the USA a few years ago but to buy now at 91c a unit, it just isn't the same and in more ways than one too.

Related posts:
1. How to have peace of mind as an investor?
2. Overpaid for our investments in business trusts?
3. Sabana REIT: Weaknesses and uncertainties.

Overpaid for our investments in business trusts?

As investors, we do our best to look ahead but because we have imperfect knowledge, what we can see is probably just our best guess. Things are usually clearer on hindsight.

As income investors, we can be too concerned with yields sometimes and it does not help that certain consultants also put their focus on yields. To be fair, this is a common pitfall and I fell into such pits in my early days as well. However, consultants are professionals and, as a consequence, sometimes, they have a bit more reach. We should be more wary.

I do not have perfect knowledge. I am not a professional. I am just your average retail investor who has opened his fair share of cans of worms. I just share my thoughts and experience here in my blog but, remember, that they are not sacred in any way.

On 20 June 2014, I wrote a piece in response to a report which quoted a consultant as saying "If you want to invest in business trusts, you shouldn't be looking so much at capital gain... your objective is more dividend yield. Prices do come down, but you actually still get your dividend yield."

I took issue with that statement and listed 5 reminders to myself:

1. Dividend yield is a key factor, not the only key factor.

2. Keep an eye on possible capital gain or loss.

3. Look at yield on investment based on current price.

4. Could it be that we are taking back our own money?

5. Does the yield sufficiently compensate us for the risk?

To read the complete blog, refer to related post number 1 at the end of this blog.

Over the weekend, an article in The EDGE said:

"There is no doubt now that investors who bought shares in Hutchison Port Holdings Trust (HPH Trust) at its IPO four years ago paid Hong Kong tycoon Li Ka-shing's corporate stable far too much."

I did not apply for shares in HPH Trust's IPO.

Actually, I have not applied for shares in any IPO for many years. I think avoiding IPOs has generally been more rewarding for me than not. So, this might be a good rule of thumb for me to stick to.

Similarly for Croesus Retail Trust's IPO, I avoided although I was interested and watched in disbelief as the unit price was chased to a high of $1.18. Its yield was being compressed so much as its price shot through the roof and some people still said it was attractive enough to buy. Did they know something I didn't? I wondered to myself, self-doubt settling in.

Well, this is just a short blog post to remind myself that REITs and business trusts are relevant tools for income investors and that there are many things to look out for, not just their distribution yields. Look at yields only and I could end up overpaying.

Related posts:
1. High yielding business trusts: A discussion.
2. HPH Trust: Storm clouds over a safe harbour.
3. Croesus Retail Trust: Motivations and risks.

An annuity: Would you rather have it or not? (UPDATED)

I told a friend over a tau hui break just now that there are really many Singaporean families which seem to be doing very well but, in actual fact, are not doing well at all. 

In many instances, low or non-existent financial literacy is to be blamed.

Chances are that these people will be unprepared or under-prepared for retirement. 

Many actually do not believe in annuities, especially the one that is linked to the CPF. 





In fact, ironically, I have found that savvy investors are more likely to say that annuities have a place in their retirement portfolios while people who really need annuities more don't seem to trust them.


Anyway, if you do not believe in the CPF Life, no matter what people say, I understand if you want to skip the rest of the article but you might want to read this instead:

Have huge amount of savings and work till 70?




For the rest of us who believe in the CPF Life, we would be happy to know that there is an article in The Sunday Times today which compares the returns of the CPF Life against other annuities available in Singapore.

CPF Life is the best annuity there is in Singapore.

CPF members are a fortunate bunch even if many don't know this.

Source: The Sunday Times, 15 Feb 15.

There is also a very good article by Mok Fei Fei on the CPF which discussed:

1. Why it is wise to keep money in the CPF?

2. Know which plan you are eligible for.
(Remember the 3 little pigs and their huts? See Related Post 2.)




3. Check both returns and risks.
(Remember the Hong Lim Park protests? See Related Post 3.)

4. Decide how much you need.

5. Maybe complement CPF Life with private plans.





UPDATE:

Central Provident Fund (CPF) members will be able to grow their retirement savings further next year as the Government will raise interest rates on account balances, the salary ceiling for contributions and contribution rates for older workers.

An additional 1 per cent interest will be applied to the first $30,000 of CPF savings for those aged 55 and above next year, on top of the existing 1 per cent extra interest on the first $60,000 of savings. This means that the first $30,000 in Special, Retirement or Medisave accounts can earn up to 6 per cent interest.

(Source: The Straits Times, 23 Feb 15.)

Related posts:
1. An annuity proposal: A case study.
2. Proposed changes to the CPF.
3. We do better managing our savings than the CPF does.

Buffett and Munger don't like to pay full prices. Do you?

It is hard not to mention how important it is to save money whenever I blog or talk because it is so much a part of me. Now, by saving money, I am not just talking about paying ourselves first. I am also talking about how I try to get the best deals.

Today, I thought I was meeting some friends and when I messaged one of them, I found out that I was mistaken. So, I decided to do some window shopping. Nice, lazy Sunday. Then, suddenly, I felt like having a cold Ribena drink. It was kind of strange but I just felt like it.

So, I walked into the supermarket in the mall and saw that it was going for $1.70 a packet. Those that were chilled would cost 15% more! Reminding myself that there was a Watsons in the mall, I decided to check if they had the same drink at a special price.

Wow! Chilled Ribena drink in Watsons was cheaper at $1.50 a packet and the special deal was "Buy 2 for $2". Jackpot! So, basically, I got 2 for the price of 1.

Since I was in Watsons, I decided to see what other good deals they had and I found these:

Usual price: $8.20 each. I paid $8.80 for 2.

I am always getting paper cuts. Using hand mosturisers each time after I wash my hands help to prevent paper cuts. Rosken is an inexpensive brand which I have been using for years and the pharmacies here have special deals once every few months. Those are the times I would buy.

People sometimes laugh at me and ask me:

1. How much can you save?

2. Aren't you spending more by buying more?

Well, I believe that savings no matter how little do add up. If I am able to get more bang for my dollar, why not? If it is something I use regularly, why shouldn't I buy more?

This thinking is not something that I apply only to the small things in life. I am like this with bigger things in life too. 

I will try to find value for money in big ticket items like cars, apartments and stocks too. 

If something has become a habit, it pervades our lives. Always looking for the best deals is a habit for me.

So, how much money did I save in the process of pampering myself with chilled Ribena drinks and buying what is an essential item for me? Well, there could be several answers to this question. So, I will let whoever is interested derive his own answer:

Of course, for those of us who did Economics in school as a subject, we will remember that all of us have imperfect knowledge, so, it could be very difficult, if at all possible to get the best possible deals all the time. 

If we did get the best possible deal sometimes, we were probably lucky. 

However, this shouldn't stop us from trying. For anyone who is always paying full prices, getting better deals is already a fantastic start.

"Whether socks or stocks, I like buying quality merchandise when it is marked down," Warren Buffett.

"... all that is required is a willingness to bet heavily when the odds are extremely favourable, using resources available as a result of prudence and patience in the past," Charlie Munger.

Related posts:
1. Song Stonecold: Getting value out of everything.

2. Seven money habits of AK71's.

3. Shopping online with free shipping saves money.

How to have peace of mind as an investor?

Having peace of mind will help us to think clearly, not panic and make the best of market opportunities. 

Remember 5 words:

"Eat bread with ink slowly."

Yes, this is in keeping with AK blogging more about food these days but bread with ink? 

Yikes! Has AK gone nuts? 





Hey! Squid ink happens to be a delicacy. 

Don't you know?

Well, some of you might already have guessed it. 

AK is using mnemonics. 

It is something I used to do a lot of as a student to help remember long lists and facts. 

I also taught my students in the past to use mnemonics to help them remember things.

Eat bread with ink?!

OK, before I go off tangent again, what does each word stand for?

The letter "e" in "eat" stands for emergency fund. 

All of us should have an emergency fund. 

During good times, build an emergency fund. 

We do not know when we might need it. 

Having an emergency fund gives me peace of mind during good and bad times.




The letter "b" in "bread" stands for borrowed funds. 

Don't borrow money to invest.  

This does not only mean borrowing from institutions like banks and brokerages. 

It also means borrowing from friends and relatives.




In both "e" and "b", we don't want to be caught in a situation where we might have to liquidate our investments at times not of our own choosing. 

If the money is needed elsewhere or asked to be returned, we might end up liquidating at prices we would not have sold at otherwise.






The letter "w" in "with" stands for war chest. 

We must always have money put aside for opportunities. 

Remember that this is not just cash in our bank accounts but also money in our SRS account and CPF-OA. 

I explained how the CPF-OA money should be the last war chest we use because it earns 2.5% per annum in interest, risk free.






The letter "i" in "ink" doesn't stand for squid ink. 

It stands for income, specifically investing for income. 

I explained how all of us have to have earned income unless we are born with a spoon made of some precious metal in our mouth. 

If we invest for income, we would be able to benefit from a growing stream of dividends (i.e. passive income).




Investing for income is important in providing me with peace of mind because it is:

1. The best form of insurance, self insurance.

2. A fountain of wealth that fills my war chest.

3. A contributor to my improving financial resilience.




Finally, the letter "s" in "slowly". 

It stands for sizing. 

More specifically, position sizing. 

I explained before that if we lose sleep over an investment, then, very possibly, we have too much money in it. 

We might want to whittle the position to a size that will allow us to sleep better at night.




So, do you want to have peace of mind as an investor at any one time? You do?

Then, remember to eat bread with ink slowly.

Related posts:
1. Financial security: 5 points.
2. Making recovery from losses easier.
3. Investing for income and position sizing.

The CPF is a national Ponzi scheme!

"The CPF is the biggest Ponzi scheme in Singapore and it is run by the government!"

Heard of this before?

Now, what actually is a Ponzi scheme?

A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns for older investors by acquiring new investors. This scam actually yields the promised returns to earlier investors, as long as there are more new investors. These schemes usually collapse on themselves when the new investments stop. (Source: Investopedia)

An important characteristic of a Ponzi scheme is the almost continuous need for new investments (contributions) from either new or existing investors. 

So, it is unheard of to have a bona fide Ponzi scheme rejecting investments (contributions).

I made a miscalculation last year and because of that I received a letter from the CPF Board recently. 

See for yourself:

So, is the CPF a national Ponzi scheme?

I don't know. You tell me.

UPDATE:
Central Provident Fund (CPF) members will be able to grow their retirement savings further next year as the Government will raise interest rates on account balances, the salary ceiling for contributions and contribution rates for older workers.

An additional 1 per cent interest will be applied to the first $30,000 of CPF savings for those aged 55 and above next year, on top of the existing 1 per cent extra interest on the first $60,000 of savings. 

This means that the first $30,000 in Special, Retirement or Medisave accounts can earn up to 6 per cent interest.

(Source: The Straits Times, 23 Feb 15.)

Related post:
CPF: Something light and something purple.

Rakuten Singapore: Overseas delicacies at a bargain!

This is an advertorial about Rakuten Singapore.

Rakuten is Japan's No. 1 Online Shopping Mall and they are now here in Singapore!

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Interest rate on home loan jumped 15.84%!

It was less than a month ago when I shared here in my blog and on my FB wall that because the cost of not paying down my home loan is really quite low, it makes sense to hold off paying down the loan for now. Has this changed?

Unless we do not follow the news, all of us would know that the SIBOR has been rising and in the first "An evening with AK and friends" event, I said that the 3 months SIBOR has risen from 0.3+% to 0.6+% in a matter of weeks. Rusmin Ang from The Fifth Person reminded us that the 3 months SIBOR was, at one time, as high as 3+%.

In a letter from the bank yesterday, I was informed that the interest rate for my home loan has changed from 1.16917% to 1.35435% per annum.

This is a jump of 15.84%!

Oh, the pain!

What does this mean in dollar terms?

If a person has a $500,000 outstanding home loan, he would have about $900 more in interest payment a year. The actual figure would differ depending on the length of the loan, bearing in mind the effect of amortisation.

Now, $900 might not seem like a big deal to some people but it is quite a bit of money to me.


For people who have been complacent and who have been upgrading their lifestyles as their income was upgraded, if they had upgraded to the most expensive property they could afford (for their own consumption) in the last few years, I think receiving a letter like this should be a wake up call for them. They should not just file and forget. Why?


These are people who could possibly have stretched their finances to the max especially if they had rushed to buy before the implementation of the TDSR.

What would I do if I were in their shoes?

I would try to anticipate a much higher interest rate in the next two years and take action. If we believe what CIMB's regional economist, Song Seng Wun, said recently (and I think we would do well to believe him), we should be prepared for the 3 month SIBOR to hit 1% by end of the year and 2% by end of 2016.

For a $500,000 home loan, it would mean an additional financial burden of some $2,900 and $7,900 a year this year and next year, respectively, ignoring the effect of amortisation. $900 more a year in interest expense, people might shrug it off but what about $2,900 to $7,900 more a year? Do I see cold sweat?

What about those who had stretched themselves to the max and had taken a $1 million or $1.2 million home loan, bearing in mind that homes priced at $1.5m and below were more popular amongst upgraders in recent years? How much more would the interest expense be in dollar terms?

I shudder at the thought.

On 17 Jan, I said:

Now, my home loan has an interest rate of about 1.3%. A bit lesser than that, probably, even with the recently higher SIBOR. I think that makes it rather inexpensive and it probably makes sense to hold off paying down the loan for now.

I have put aside enough cash to pay off the loan but it could possibly be used for investment opportunities if there should be a stock market crash. Of course, if interest rates were to shoot through the roof, I would use the cash to pay off the loan.


While waiting, I leave my money in CIMB to receive an interest of 0.8% per annum and some FDs that pay 1.1% to 1.25% per annum. So, effectively, the cost of not paying down my home loan is not that high.

So, I am prepared for an eventually higher interest rate. Am I in the minority? I don't know.

Of course, some might say that we could refinance (if the option is available) and opt for fixed interest rate packages.

However, we have to remember that fixed interest rates are usually for a period of a few years (typically 3) and not for life. It might also be higher than the interest rate of our current home loan in the short term.

Finally, there is usually no option for partial capital repayment for fixed interest rate packages.

Refinancing could be an option for some but we should take a hard look at our finances and see whether there are ways of improving our savings rate either by increasing income or reducing expenses or both in order to cope with the much higher interest expense that is bound to hit us in the very near future.

Increasing our savings rate would also give us the option of paying down our home loans. Yes, partial capital repayments should be seriously considered if interest rates become much higher.

So, if we should have an outstanding home loan of $500,000 and if interest expense is estimated to increase by $7,900 a year by end of 2016, we should be thinking of putting aside (at least) an extra $658 every month now. Get ready now and we won't be caught unprepared when the time comes.

What is at the tip of the pyramid?

Believing that our jobs are forever secure and that we will get salary increments year after year to cope with higher costs are beliefs that come close to being speculative (for most of us).

If we believe that we must not put too much weight on our more speculative positions in our investment portfolio, then, what about the weight we should put on these beliefs?


In summary:

1. Higher interest rates are upon us.
2. Higher interest rates will go higher.
3. High time we take action if we have not done so.

Although highly unlikely, I hope I have succeeded in ending this blog post on a high note.

Related post:
Buy the biggest and most expensive home?

Update (10 Oct 15):
"DBS says it expects the three-month Singapore Interbank Offered Rate to rise from the current 1.13 per cent to 1.22 per cent by the end of this year, and 1.75 per cent in about a year's time."
Source: http://www.channelnewsasia.com/news/singapore/home-owners-should/2180930.html