Teh Tarik Peng (AKA Iced Tea) With Elvin Hayden Liang: Laddering The War-Chest Of Certainty.

I have not met Elvin before but that shouldn't surprise anyone. However, through our rather lengthy chats online from time to time, I know that he has a rather brilliant mind. When he mentioned bond laddering during one of our chats, I said it would make a great guest blog and, well, here it is.

I have read about bond laddering before but I did not know anyone who was actually doing it. Well, now, I do. Thanks for sharing, Elvin.

-------------

Hi AK,

Thanks for allowing me to share a post on your blog. It is indeed my honour! :D

Actually I'm glad I've found good natured people too!

Here's the post:

"Laddering The War-Chest Of Certainty"

As it is right now, we've been swimming in a low-interest rate environment (below 1%) for quite a while since the last spike in 2004 which was the onset of the SARS outbreak which shook our economy.

To illustrate the point of low interest rates, for your viewing pleasure:

Recent news reported that interest rates have gone up a fair bit above 0.9%. However, deposit rates are still low ( < 2%) nonetheless.

Ever since, many who are vested in the capital markets have seen much higher returns than bank savings rates and fixed deposits. However, I would believe there would be a group out there who have a distaste for risky investments such as equities and even corporate bonds.

Question they would throw to the floor: Where can I put my money, say for 1 year to maybe 5 years, and, at the same time enjoy a better than the Bank's savings account rate without risk?

Risk-free Assets

1. CPF - guaranteed interest with the lowest at 2.5% and now the highest at 6%! (more details at www.cpf.gov.sg)

2. Fixed deposits - low interest rates of between 1 - 2%

3. SGS Bonds - Though they are in the bond family, which is typically an investment, SGS bonds are government backed, hence with Singapore having a good credit standing, risk of default is extremely low.

Interest rates vary between 0 - 2% for 2 years and 2 - 2.5% for about 10 years and 2.5% - 3% for about 20 years.

4. Local bank account - mainly kept active for transactions and intended spending / liquidity.

Well, lately, for people who are storing up a war-chest for investments in future, especially when trying to time the market, this is one strategy we could use, to ensure we have steady cash coming out at different time intervals to plant the seeds in opportune market failures. While aiding our cash flow, this is also good for dollar-cost averaging purchases. It is mechanical, routine, and keeps out fear using a sound strategy.

Why should we break up our war-chest to different time intervals? This is because, like in investing, it is difficult to time the market, hence every 5 years would be a good time-frame to capture the market at sweet spots to ride any uptrends. Similar to dollar-cost averaging, we can also use the same strategy to dollar-cost buying into SGS bonds (which have been made really easy to do).

Here is a rough sketch of what I have done using a Bond Ladder and how it looks like:

So the 5 year plan goes like this:

1. From this year to the end of next year (2015 - 2016) or Year 1, I'd budget out about S$1,000/month to buy the First Tranche of the SGS Bonds which will mature in 2020 (capital guaranteed and with semi-annual payouts) be utilised in future, when opportunity arises to buy in blue chips when they are at huge discounts (i.e. during financial crisis, shocks, failure)

2. In Year 2, I'll do the same, but will purchase SGS Bonds in Tranche 2, which matures in 2024.

3. In Year 3, ... Tranche 3, matures in 2029.

4. In Year 4, ... Tranche 4, matures in 2033.

5. In Year 5, ... which is 2020, I'll have my Tranche 1 maturing, which will then have the bond ladder revisited again.

Sounds good?

Well this actually makes sense to me, with an effective yield (weighted average) of about 2.51% for the entire ladder (18 years, net of purchase charges etc.). So other than preserving cash value for opportunities in future, what can we use it for? For those who are very conservative, this could be used to hedge against low housing loan interest rates conservatively since housing loans usually range from 15 -  30 years.

As purchasing a property is an investment decision, with risky leverage, one may decide to reduce risk by hedging it against an instrument which gives more guarantee and security. Similar when we decide to use cash for investments. Remember, the bond ladder is risk-free, well, except if the person who is constructing it runs out of cash. So it does help one cultivate a good disciplined savings habit! What's more, you could also sell off the bonds (may incur some price difference, but usually small ~1%) if you need urgent liquidity too.

What do you think of a bond ladder? Would you think it wise to put all your cash into property or the capital markets rain or shine?

Visit Elvin's blog: here.

Read more blogs regarding bonds: here.

Spent time with family in Copenhagen without a hefty price. (Have a family vacation without spending too much money.)

Added on 7 Jan 2017:
Here is an idea. I spent half an hour in Copenhagen with my family without leaving the comfort of the living room.

I see so much of the world from my armchair and I just love the (missing) price tag. Don't they say it is the company that matters?
AK, you are terrible! Bad AK! Bad AK!
-------------------
Some time ago, I suggested to my family that we should have "stay-cations" which basically is to have vacations in our home country of Singapore and that was what we did for Chinese New Year. There are so many things to do and places to see in Singapore. Well, at least I think so.

"Stay-cations" are less stressful and they can be just as fun as vacations. In fact, I found the "stay-cation" we had this year a lot more fun and comfortable than the vacations we had in Japan a year or so ago.

CNY in Universal Studios, Singapore.

The old folks are familiar with things in Singapore and they didn't have to suffer discomfort in their joints from the cold of winter. So, it was very comfortable for them which I thought was a big plus. We didn't have to worry about their health as much.

We decided to take the MRT to visit the different attractions in order to feel what it is like to be a tourist in our own country. There is much to be said about the efficiency of our public transportation network that is good. Well, the MRT didn't break down on us, luckily.

Did we go to a resort? Nope, this was in Botanic Gardens.

At the end of the day, we went home feeling happy, having enjoyed each other's good company which is what really makes family vacations meaningful. It is about spending quality time together as a family.

We didn't have to bother with packing and unpacking of luggage. We didn't have to bother with checking in and the clearing of customs. We didn't have to bother with foreign exchange. We didn't have to bother with language issues.

Of course, a big plus about "stay-cations" is the cost savings. We probably spent less than 10% of what we would have spent as a family if we had chosen to vacation in Japan even with the much weakened Japanese Yen, for example. So, I was spending a bit more freely in those three days. I let my hair down, so to speak.

A few nights ago, after dinner with a friend, I decided to go for a brisk after dinner walk in the Marina Bay area. There were people walking, blading, jogging etc. I could tell that probably more than half were not Singaporeans. I really felt like a tourist in my own country again.

Here are some photos taken with my phone's camera that night:

Very beautiful. We should enjoy our own country more often. It doesn't cost us much to do so.

Try having "stay-cations" instead of having vacations from time to time as a family. I am sure you will discover the many benefits of doing so for yourself.


NEW PHOTOS ADDED 
(23 August 2016):

Taking in the sights, I enjoy long walks which usually last about an hour around Marina Bay at night. Quite beautiful, don't you think so?


Related posts:

1. A day in MBLM.

2. Your children will become what you are.
"I was out and about when I overheard a conversation a father was having with his young son whom I thought must be 9 or 10 years old..."

3. AK's birthday wish is ....
"When my family asked where would I like to go to have dinner to celebrate my 43rd birthday, I suggested Whampoa Market! "

Who is AK? Really, who is he?

Added (17 Jan 17): 
I am sometimes surprised by the kind of things people say about AK especially when these are people who AK don't know and they don't know AK either. 

Yet, they are quick to judge and say some really terrible things without the slightest compunction. 

I am even more surprised when 有头有脸 (see translation here) people behave in the same way. 

Why the need to say anything so virulent about AK who is a mere blogger? I wonder.
-----------------------------




One of the things I care about a lot is my privacy. As my blog got a bit more popular recently, I got a bit more worried about how my privacy could be compromised as I have been asked before why I stay anonymous?

Yesterday, through conversations with two readers, this matter popped up again.

As there possibly could be similar conversations in future, I thought I should just share the conversations from yesterday. 

Then, I would have a blog for me to direct curious readers to in future.

So, this is a bit like a FAQ link, if you like. 

AK is lazy lah.





Chat 1:

M: Why u wan to put on a mask

AK: aiyoh... i always say it is so that people dunno who i am and won't borrow money from me, actually, there is a more serious reason

M: Oh

AK: you know i share a lot of very personal info in my blog de... I am able to feel comfortable doing that because i am anonymous

M: Yeah. I agree

Credit: Eu Jin Lee

Chat 2:

P: Hi there Assi Ak, I just started to follow you on fb, instead of troubling my friend J who is also your fb friend to give me an insight...is there a page or a blog page I can access to your bio...maybe?

AK: Access to my bio? I dun understand this. Do you mean to be my FB friend?

P: Not so much fb frens...More like, who you are, what you did before...? Cos urs is investing blogging...

AK: Oh, haha... I think you won't find any info like that. I am a hobbyist blogger and a very private person. You will find that most hobbyist bloggers in this niche are very private.

P: But, why are they asking you for opinions on investment? ....you are freddy

AK: Freddy? Ya, I also dunno why... -.-"

P: Freddy kreuger

AK: Yikes! That is from a horror movie, right? Don't scare me... -.-

P: Ya..cos u mask urself.. Ok...I will ask J, why he is following you. Otherwise, you are no different to those kopi tiam uncle.. lol
AK: Oh, I assure you that is a very good description except that I don't go to kopi tiams. I stay home mostly.






Privacy is important to me. 

It is important for me to say that I am comfortable doing what I do now because I am an anonymous blogger.

Related post:
My blog as a business?
"... anyone who has followed my blog for a while would know that, for me, blogging was something that happened not by design. I started this blog out of boredom and curiosity."

Save ($18,000) and have better H&S insurance for parents?

I had a conversation with a friend recently on why he should get the best H&S plan he could afford for his parents:







AK: I think you can easily afford the premium.

F: OMG! It is more than $5,000 a year for the two of them.

AK: Well, you make $120,000 a year. That is like 4% of your annual income. That is not too much to pay for peace of mind.

F: That is a lot of money to me.

AK: For most middle class families, that is a lot of money, not just to you.

F: It would mean some serious cutting back of expenses.

AK: It shouldn't be that difficult. Maybe, instead of spending $10,000 on that annual family vacation, keep to a budget of $5,000 instead. Thailand is really a nice vacation destination.

F: Let me discuss this with my wife.

AK: Well, tell her that insurance premium is something you can budget for. If your parents should be warded in a private hospital for some reason, you might get a shocker of a bill when you see how little Medishield's share of the bill actually is.

F: How much is it?

AK: From experience? Less than 10%. Imagine a bill of $15,000 and Medishield pays only $1,000, for example.

F: That little?

AK: Yup. I am not saying that your parents will stay in private hospitals but I am just saying that it could happen.

F: Yes, of course...

AK: These things are hard to predict and if they should happen, we want to be prepared. That is where a good H&S comes in. At least, with insurance premiums, you know how much money you have to set aside each year. Like I said, it is about having peace of mind.

F: You are right. We can include the insurance premiums in our household budget more easily than anticipating a bomb of a hospital bill... I need to discuss this with my wife...

This friend of mine stays in a condominium and has a big mortgage to service. He also drives a European make MPV.

I understand that, like many other middle class families in Singapore, the children also go for myriad enrichment classes.

An annual holiday at the end of the year is also a must for the family.

So, I can quite understand why he thinks that having to pay more than $5,000 in insurance premium a year for his parents is a big financial burden although his salary is definitely way above average.

There are many things in life which will compete for our limited financial resources.

However, when we think rationally, we would be able to tell which of these items should really have priority in our lives.

Related to this, I shared in another blog post how a reader in his 40s made some changes in his lifestyle. In making the changes, he managed to save an additional $18,000 a year. That is quite a bit of money to any middle class family. (See related post number 2 below.)

This blog's title has $18,000 in brackets. This is because all our circumstances are different. The extent to which we are willing to cut back on expenses will also be different.

Some might be able to save more than others, whether it is a matter of will or ability. It is about conserving financial resources and diverting them to the things that really matter more.







I believe that if my friend is able to make some adjustments in his lifestyle, he would have enough savings to pay for the higher H&S insurance premium for his old folks at home. I feel that it is the prudent thing to do.

If you are like my friend, this might have provided you with some food for thought.

Related posts:
1. Enhanced Incomeshield for my mom.
2. How to have a comfortable retirement?
3. How to have children and retire comfortably?

AK might nibble at King Wan Corp. Ltd.

The past few years were characterised by very low interest rates as money supply was ramped up by the U.S. Federal Reserves. Many businesses and individuals probably benefited from this. However, interest rates cannot stay so low for too long.

In preparation for an environment of higher interest rates, I have mentioned a few times before that I am on the lookout for businesses which are net cash or have very low gearing. I would also like to have them pay regular and meaningful dividends. I said the same thing too during an interview I gave recently.

To this end, together with a handful of companies, I have also been keeping an eye on King Wan which is a company introduced to me by Solace, a guest blogger here in ASSI, some time ago. Solace also wrote a very good piece on King Wan then and I have appended the link at the end of this blog.

Of course, it is not enough that a business is in a net cash position or has low gearing. That only represents balance sheet strength. We should also want the company to have earnings visibility.

King Wan is in a net cash position and it also has an order book that would provide earnings visibility until 2018. Just like how I like Hock Lian Seng's order book which provides earnings visibility until 2020, I like the health of King Wan's order book too.

As I invest primarily for income, I am also attracted to King Wan because they pay dividends regularly. A DPS of about 1.5c per year seems undemanding given their more normalised EPS of about 2c.

What do I mean by normalised EPS?

Well, I know that King Wan made quite a bit of money from savvy investments which gave them extraordinary gains at times but it is the health of their core businesses' which is more important in helping to determine sustainability of their dividend payouts.

So, at a price of 30c a share, for example, a 1.5c DPS, representing a pay out ratio of 75%, gives us a dividend yield of 5%. Doesn't sound too bad, right? Then, why did I not buy some of its stock?

Well, as I shared with Solace in a chat before, I have a certain amount of money to be allocated and, after some thought, I decided to put King Wan in the same category as Hock Lian Seng which comparatively gave a higher dividend yield with a lower payout ratio of about 40%.

Am I going to invest in King Wan now, I asked myself, as Hock Lian Seng's stock price has shot through the roof? Why not a nibble?

OK, if Mr. Market should give me a better offer, I might.

Related post:
Tea with Solace: King Wan Corp. Ltd.

The lowest income tax payable in many years (YA 2015).

I just did my income tax filing for Year of Assessment 2015. 

Yes, I am always quite early, preferring to get it out of the way ASAP.

My estimated income tax payable has reached a new low.

I have shared some ways which could help us pay less income tax before and I have included the links at the end of this blog.

This year, the government, to celebrate SG50, is allowing all qualifying donations a tax deduction of 300% of the donation amounts in 2015. 

This is up from 250% in recent years.





As we journey towards financial freedom, let us not forget the less fortunate. 

Do good and pay less income tax? Why not? 

I am sure all of us can find a charitable cause that we support in 2015.

Reference:
What type of donation is tax deductible?





So, how much is my estimated income tax payable for YA 2015?

Estimated income tax payable is $772.14.

Related posts:
1. Ways to reduce income tax. (YA 2013)
2. Double your income but not your tax. (YA 2014)
3. One of the most noble things we can do.

Green is not just the color of money.

People remember Mr. Lee Kuan Yew for saying many things before but I think few would remember him making a statement regarding global warming and whether governments around the world were doing enough to tackle the problem.

He will be sad if the polar bears vanish from the North Pole, but sadder still should the ice cap melt at the South Pole. These dire consequences of global warming featured prominently in Minister Mentor Lee Kuan Yew's inaugural Singapore Maritime Lecture at the Fullerton Hotel yesterday. 

"When the polar bear disappears from the Arctic, I will be sad when I see them at the zoo. But I will be sadder when the Antarctic ice cap melts because the water level will rise so much," he said. The calamity confronting humanity has no easy solutions nor are governments doing enough to tackle this problem, said Mr Lee. 

"I am not optimistic about the will of governments to attack this cause," he told some 300 top maritime executives, in response to a question about how Singapore can contribute to climate change. "I do not see any leaders saying let us eat less, eat more vegetables, eat less meat." 

Source: 
http://www.wildsingapore.com/news/20070910/070926-1.htm

Close friends would know that I am a bit of an environmentalist. I carefully wash and clean what could be recycled and deposit these in recycling bins regularly. I also try to grow some plants at home. I am careful to conserve water and electricity while still having a comfortable life.

I also try to reuse product packaging where possible and friends are constantly amazed by how I actually find a purpose for stuff that many would have simply thrown away. Some readers would remember how I put a Bengawan Solo mooncake tin to good use, for example.

So, I suppose it is not surprising that what Mr. Lee Kuan Yew said so many years ago stayed at the back of my mind. Then again, why the sudden flashback?

Well, I have been eating less meat recently. This is partly because I think I do not need much meat in my diet as I grow older and partly because I think they make me fat. The fact that not having meat helps the environment is a plus.

Do you know what else is a plus? The cost savings.

Here are some photos of my meals this week:

Price: $2.50

Price: $2.30

Price: $2.60

For dinner this evening, I decided to boil some broccoli I bought from the supermarket in an Ikan Bilis soup stock.
Price: $0.87. Ok, add water, heating and some Ikan Bilis.
Maybe $1.20?

Want to try doing something meaningful beyond your weekly routine? If you are not a vegetarian, try cutting back on meat this week.

I am not sure if you would like it but I think you would see the many benefits of doing so. Of course, you would also be doing your bit for the environment although you might not know it.

Have a good week ahead!

Related posts:
1. AK71 on climate change.
2. AK71 on more frequent storms.

If AK can grow money trees, so can you!

Not too long ago, I revealed that I bought a money tree and a few other plants for my planter at home. I have spent some time re-potting them and I want to show them off:

The money tree is the tallest plant in the pot.

Re-potting the cacti was more daunting a task.

I hope I didn't damage their roots or something in the process. It would be totally inauspicious if the money tree should die on me.

What else do I do from time to time on weekends other than growing a money tree?

Well, I enjoy picking fruits from another money tree which I have been growing for many years. 

Another money tree? It must be quite big to be bearing fruits, you might think.

Surprisingly, I don't need a pot or soil for this money tree. I just need a calculator, a pen and some paper. Got you!

Yes, it involves real money this time.

I am quite happy to spend some quality time with my money tree and my "money tree".

Like what you see? You can do it too. Believe it.

-------
Update (3 January 2016)

How is my money tree doing?

Not too bad. :)

Related posts:
1. Grow some plants that bring wealth?
2. Create Dividend Machines. (Interview with AK.)

Have fun as the whole family improve on financial literacy!

Some people get invited to be beta testers for really cool online games like Diablo III but AK was invited to be a beta tester for a board game! Yes, a board game! Just nice for low tech AK. Roll dice, move a counter, get money, buy stocks, buy properties etc. Sounds like something that would appeal to AK, right? Exactly!

AK also provided feedback on how the game could be improved and when he was invited to play the game again, the kinks were ironed out. The game in AK's opinion is good enough for him to put a little testimonial on the box. In case you are wondering, no, AK was not paid to do all these. Then why did AK do it? I did it because I thought it was fun.

However, the fact that I was the only beta tester not in his 20s was not fun. Old brain in its mid 40s had to try to keep up with much younger brains. Not easy. Oh, I wasn't the winner in the game. ASSI's resident guest blogger, Matthew Seah, won. Brilliant fellow (and really good dice throws too).

Anyway, what is this game?

Fine looking game and proudly Made in Singapore!

This is taken from the official media release by its creators:

ASSET FINESSE™ (AF) is for anyone who hopes to gain a deeper understanding of Singapore’s economy and endeavors to learn more about the world of finance in a fun and interactive manner.

Singapore has adopted unique policies, enabling her to thrive even as a country with limiting circumstances. Through the AF board game, players will be introduced to common Assets in Singapore and the various characteristics of each Asset. Assets under the AF boardgame include Stocks, Bonds, CPF, Properties, Unit Trusts, Insurance and Businesses.

This game also seeks to equip players with investment pointers that can potentially prevent him or her from falling prey to investment scams and find out what constitute illegal practices in Singapore. 

Players can learn basic accounting treatments and will grasp the importance of insurance when making sound financial decisions. In addition, the game will simulate market behaviours and various financial calamities. This serves to shape the mental model of players before they attempt to deal with real-life challenges that arise from the unpredictable nature of economic cycles.

The main objective is for the player to be financially free by accumulating a level of net assets, while fulfilling certain conditions. Ultimately, it aims to evoke a desire in participants to attain financial freedom.

Recommended for ages 13 and up, this could definitely be a fun family game. Remember I said something about making financial freedom a family affair before? This could be a fun way to get everyone in the right frame of mind.

The game usually retails at $118 per set. You can get this cheaper if you use the discount code "AK71". How much cheaper? You get a 10% discount. Aiyoh, so little? I also say.

Want more discount? Easy, scan a student card and email your order to:

onestop@diverselearning.com.sg

If you do this, you will get a 30% discount! Student card more powerful than AK's face.

What is in it for AK? Every set that is sold, he gets an OCK curry puff. Really, I am telling the truth. Don't believe me, when ordering the game, ask the vendor.

Anyway, for those who are more cautious and unwilling to jump into a purchase right away, you might want to try out the game by joining a competition and you might win Apple products and I don't mean those growing on trees. Oh, you know har?

Date: Saturday, 21^stMarch 2015

Time: 0930 to 2000 hrs

Venue: Great Eastern Centre for Excellence, Raffles Place

Registration Fee: $10 per participant

They will also provide a mass training session. So, everyone will be on a level playing field.

A mass training session will also be conducted for all participants one week prior to the actual event day. The details are as follow:

Date: Saturday, 14th March 2015

Time: 0900 to 1200 hrs (Secondary School Category)

          1400 to 1700 hrs (Tertiary/Open Category)

Sign up now by clicking on the link below:

http://goo.gl/forms/11Y2VlllER​

Registration deadline: 12 March 2015, 2359 hrs.

For more updates and details, visit 

https://www.facebook.com/joinNCF​ 
or 
http://ntu-iic.org/ncf/​.

Hope you have fun. I know I did.

Oh, I hope you win that Macbook Air too!

Related post:
Financial freedom is a family affair.

Listen to AK and create your own Dividend Machines.

By now, some of you would have heard an interview I gave quite recently on the topic of Income Investing. I didn't share the interview in my blog earlier because I thought I didn't do such a good job, on hindsight, and I kind of let slip my thoughts on my FB wall.

Well, for many of us, it is very often like this, isn't it? "Aiyoh, I could have done better."

So, who requested for an interview? They are my friends from The Fifth Person and those of you who attended InvestX Congress middle of last year might remember them. I also mention them every so often in my blog. They are good people who are bent on providing quality education at very reasonable prices.

The interview I gave ties in with the latest program by The Fifth Person on Income Investing and, just now, they asked if I would like to be an affiliate to promote the program?

I am too lazy to conduct a course on investing for income and here is a low cost option for anyone who might be interested to learn and need some guidance. So, why not? Of course, I would be happy to promote their program.

So, if you are interested in more structured learning about Income Investing, you might want to consider what is being offered by The Fifth Person. See if you agree with me that it is value for money. I think you will be pleasantly surprised because I was. 

Note: Don't spoil the surprise by scrolling quickly all the way to the bottom of the page after clicking on the link provided below. I think some of you will do it anyway. So, never mind lah. You happy can already.

Dividend Machines by The Fifth Person

Do the right things and the right things will have a higher chance of happening for you!

Remember, if AK can do it, so can you!

Are you thinking of selling or buying a condominium?

I received two emails from readers, one about selling a condominium and one about buying a condominium. Put them together and it could generate some interesting thoughts. Have a read and maybe you will have a comment to share with us.

Hi AK,

I have been following your blog for about a year now, really enjoy reading all your posts, be it on financial related topics or simply what you had for dinner! I'm glad that you blog quite frequently so there are new posts most of the time. :)

This is my first time writing to you,  sparked off by your latest post on a reader's question on 99 year lh vs freehold properties. I have had this same question at the back of my head for some time now but never really bothered to do much about it. In my case, I own a 99 yr lease hold property ( a 2+1 BR condo) which i'm currently living in. As i bought this property sometime back, the current prices are still higher than my purchase price. However, I have been wondering if there is a need to sell this place to buy a freehold property to live in and when would it be the right time to do this? My property TOP in 2010 so it has been 5 years, i suppose its not considered old at this point. Though my preference is to stay at this current place for its location (not near mrt, just relatively convenient for me to get to work), avoid the hassle which comes with shifting, as well as the high property prices, my worry is not being able to sell the place easily in another 5 years time. Should i be looking to sell this place before it gets too old?

What would your advice be for me?

Thanks,

K

AK says:

Hi K,

Welcome to my blog. :)

If you like your home and have never thought of monetising it, then, just stay put. For me, I am never emotionally attached to where I stay. So, it is relatively easy for me to let go. ;)

You place received its TOP in 2010 but you have to remember that its 99 years lease started its countdown from the date the land was acquired by the developer, not from the date the project received its TOP. So, if it took 3 to 4 years to construct, almost 10 years of the lease are gone.

If look at your home just as another asset which you think could make money for you and I think it might be the case since you worry about not being able to sell it easily a few years later, then, I think you might want to start marketing your condo now. Oversupply situation is going to get much worse. I am sure you know.

Having said this, make sure you have somewhere to move to after selling your condo. In my case, I still had my rooms in my parents' place. If you have to rent a place, then, it might not make a lot of sense.

Best wishes,
AK

Hi AK,

I know your position regarding property as an investment, having followed your posts these 2-3 years.

One recurring thought but have had trouble articulating is this: the current soft property market is really largely a result of government intervention. If the ABSD and TDSR were not in place, what would your guess be for the property market today?

I would think that those crazy heady days of people lining up at showrooms (and also, people asking people to queue there) would continue. Which then leads me to think that we would really be in (big) bubble territory. Now, with upcoming oversupply of flats and condos, and a rising SIBOR, it would really make sense to hold out and probably buy an apartment in 2015/2016.

I'm single, 35, and currently living with my folks. At this time, my inclination is buying a HDB resale flat. I'm not sure if it's still worth it to buy a condo and wait for capital appreciation.

Care to share your thoughts with me please?

Cheers,

M

AK says:

Hi M,

If not for the cooling measures the government put in place, I am very sure that prices of real estate in Singapore would have shot through the roof, pardon the pun. However, to be fair, prices have come down due to the ramp up in supply of both public and private housing too.

I am inclined to believe that prices will decline much more before stabilising and it will be many years before prices start moving up again. When will prices bottom? Although we estimated quite accurately when prices would start declining, it is much harder to say when they might bottom.

Something which we might be able to use as a gauge is the ABSD. The day the government removes the ABSD, then, it could be a signal that prices have bottomed. Just an idea. ;)

Best wishes,
AK

Related posts:
1. When to buy (and sell) a private residential property?
2. Disastrous investments in the property market.

Frasers Centrepoint's Perpetual Bonds.

A reader sent me a note in FB today, asking me what I thought of this:

FRASERS Centrepoint on Monday is selling Singapore dollar perpetual bonds, the first perpetual deal in 2015. A term sheet seen said that the SGD subordinated Perp NC 5 has an initial price guidance in the low 5 per cent. NC 5 means that the perpetual bonds will not be recalled before year 5.

Source: The Business Times.

Well, I would generally avoid long term bonds especially since I believe that interest rates are more likely to go up than not from here on. With perpetual bonds, there isn't any maturity date. So, they are more long term than long term bonds. There isn't a date when the bond matures and when the principal is returned to the bond holder. Having a maturity date when the principal is returned to the bond holder is a feature that makes bonds safer.

Reader:
What do you think about this, as compared to CPF minimum sum?

So, can we compare this with the CPF which locks up some of our money for a very long time? The expected coupon of 5% is similar to what is being paid on our funds in the CPF-SA, isn't it?

Well, it isn't an apple with apple comparison, actually. One is a bond backed by a business entity while the other has a built in annuity and is backed by a AAA rated sovereign bond. Definitely, they are quite different animals.

As always, whether something is good or not depends on where we stand. Generally, I think this is a good thing for Frasers Centrepoint's shareholders as the company diversify their sources of funding and a 5% coupon might appear quite cheap several years from now (and they only have to keep paying the coupon and not worry about paying the principal).

However, for the bond holders, they could find themselves holding the shorter end of the stick and it could become more apparent as time goes by.

Related posts:
1. Perpetual bonds: Good or bad?
2. Nobody cares more about our money than we do.
3. Bonds, REITs and the instant gratification of yield.

Yongnam: A bad 2014. Could 2015 be better?

When I first invested in Yongnam, it was beginning to reward shareholders by paying dividends and being the biggest outside of Japan in what they do, I decided that they probably had a competitive advantage over smaller players.

Consistent with Yongnam's new direction to invest in infrastructural projects that would generate recurring income, together with two partners, it submitted a tender for the construction and operation of an international airport in Myanmar. I rather liked this new direction.

However, when Yongnam's share price was driven up on speculation that their consortium would clinch the project in Myanmar, I divested most of my investment in the company. Price had gone up not because of some fundamental improvements. It went up based on speculative pressure. As it turned out, Yongnam et. al. was unsuccessful in clinching the project that time.

Subsequently, Yongnam suffered setbacks in its business and its stock price tumbled. I added to my reduced long position when my initial purchase price was hit. Basically, by then, my long position in Yongnam was funded by capital gains from trading its stock as well as the dividends paid by the company.

I was willing to stay invested because I felt that the setbacks were project based and should be temporary. The weaker results were not due to some destructive force which was more enduring in nature. Given time, things should improve again, I thought.

Well, instead of the improvement in results I was expecting, a bigger loss was announced months later. In a blog post in August last year, I said I would not be adding to my investment as Yongnam's attractiveness as an investment for income and growth was undermined. The stock was trading at 22c a share back then and it didn't look like it would be able to pay a dividend. As expected, no dividend was announced in its full year results.

At that time, I said that I would like to see Yongnam's order book improving and if it did not, I might have to trim my exposure. Businesses like Yongnam's need to constantly replenish their order books. As long as Yongnam has new orders, it will have earnings visibility if nothing goes wrong.

In its latest results, Yongnam announced that, as of end December 2014, its order book stood at $405 million. This is an improvement over end December 2013 which saw order book at $340 million. The improvement is a relief for shareholders.

Although Yongnam with its two partners secured the mega project in Myanmar, this still remains a wild card for now. We might remember how Yongnam's stock price rallied briefly when the announcement was made a few months ago. The rally sputtered and the stock price resumed its slide downwards.

This is probably because it remains to be seen what are the details and terms of the public-private partnership agreement with a 30 year concession for the international airport project in Myanmar. In Yongnam's recent full year statement, it is stated that discussion is still underway.

Naturally, the project will require funding and will take time to complete. The Myanmar government will get a US$700 million low interest rate loan from the Japanese government while the consortium will secure about US$520 million in loans from private lenders as well as use internal resources in the construction of the airport. The airport will take about 4 years to complete construction. This project is likely to make material contributions to Yongnam's performance once it gets off the ground.

So, taking everything into consideration plus the fact that I am already holding on to a much reduced long position in Yongnam compared to the time when I was invested in it for income and growth, I decided to increase my long position in Yongnam today after its stock took a beating and price tested an important support level I identified.

Buying in at 16.1c per share represents a 32% discount to Yongnam's NAV and it also marks my first purchase of its stock in quite a while.

Yongnam had a terrible 2014 but could 2015 and beyond be better?

See financial statement: here.

Related posts:
1. Yongnam: Investing in infrastructural development.
2. Portfolio review: Unexpectedly eventful.
3. Managing exposure in AK's investment portfolio.