Want that $1m in liquid assets or $120K in passive income?

I am very happy to receive emails from readers of all ages but I am especially happy to receive emails from young people who are just getting ready to join the workforce. 

Why?

I always say that we should plan for retirement early. 

Don't wait till we are in our 30s or 40s because we think we are still young in our 20s. 

This belief in planning early is clearly seen in many of my blog posts.






I have also shared my own experience, including some very personal financial numbers, as well as what I did to get to where I am today. 

Some readers are amazed by how simple it sounds but, of course, it isn't as easy to execute. 

Definitely, there is also always an element of luck.

Everyone's experience is going to be different and the paths we take very likely will not be the same. 

It is not about having $1 million by a certain age. 

Definitely, it is not about having $120K in passive income by a certain age either. 

It is about having a better life no matter what our age may be.






Be inspired to take action.

Be inspired to have a better life.

This is what my blog tries to do, to inspire.

Hi AK,

I happened to stumble on your blog when I was researching on the topic of financial planning. And i must say that it was a valuable find.

Anyway, I would like to ask you a question and seek your guidance in it.

I am currently studying uni and about to graduate. Hence, I'm starting to think and plan for my finances so that i'm better prepared in the future.

I understand that I have to save up an emergency fund first, before starting to invest the rest.

This is where my question comes in. Given my low initial capital (i'm expecting about $500-$1k a month of free cash flow that i can invest in the near future), how do i go about investing for a start?

Since transaction fees are really expensive (min of $25), do i put my money in those regular share plans that buy into STI ETF where the transaction cost is 1%? 

Or do i buy single shares/REITs/etc to build up a dividend paying portfolio? 

And even if i do buy singly, do i accumulate them for one company first since I'm only investing a small sum at any one time?

Hope my question isn't too confusing, i tend to be a little long winded :p

Thank you.

AT

Hi AT,

Welcome to my blog. :)

You probably read my blog posts on what fresh grads should think of doing first to help towards a financially secure future. 

Must always get the basics right first.

The next step which is what you are thinking of now is to invest and secure a second stream of income. 






Of course, there is another school of thought which is to grow wealth through investing in growth stocks. I am not dogmatic. They are both good ideas. In fact, why not do both? ;)

If your monthly free cash flow is $500 to $1000 and you would like to get into the thick of things right away, then, buying into an ETF is a good idea. 

Look for the guest blogs by Matthew Seah on the offers by POSB and OCBC in my blog. He did good write ups on these.

You could also choose to build up a war chest and buy stocks when Mr. Market goes into a depression. 







Need to be a disciplined saver and need to have patience. 

Of course, you need to have the courage to bite when almost everyone is feeling depressed too.

There is no hurry. Take your time to find out what you are more comfortable with. 

Self-knowledge and peace of mind are priceless. :)

Best wishes,
AK

Related posts:
1. Retirement (funding) adequacy.
2. Dollar cost averaging and expected returns.
3. How to recession proof your life?

Voted for WP but will vote for PAP in the next election. (Changes to the CPF system are reasonable and necessary.)

AK is a pragmatist.

AK does not believe in being overly optimistic or pessimistic.

AK is non-partisan.

AK gives credit where credit is due.







AK is not a PAP supporter hor.

AK just thinks that the PAP government is doing mostly the right things when it comes to the CPF.

I know what people say about the shifting of goal posts but if the initial measurements were off the mark (and are no longer effective today), the goal posts must be shifted. 

It is about staying relevant.

I always say if changes are reasonable, I will accept them.

The changes made to the CPF system over the years have been reasonable and also necessary.

Related posts:
1. A lot of the money in my CPF-SA is...
2. Achieving Level 1 financial security.
3. Proposed changes to the CPF system.

Did AK smoke and drink his way to greater wealth?

I must absolutely share this exchange I had with P on Facebook. Remember P, a reader who asked for my bio? We have become fast chatting buddies and this was a revelation:

For those of you who have heard me either in the podcast or in person or both, did I sound like a smoker and a drinker? I didn't know that I sounded like one.

If you have not heard the podcast yet, there is a link to the interview in related post number 1. Let me know what you think.

I am curious as to whether there is a general consensus that I sounded like a smoker and a drinker. Humour me, please.

Finally, always avoid wealth destruction. Smoking and drinking destroy wealth now and in the future. Do you believe this?

Related posts:
1. Listen to AK and create your own Dividend Machines.
2. Who is AK? Really, who is he?

AK was bullied and deprived of his mee pok dry.

Just now, for dinner, I decided to go get my favourite mee pok dry from a nearby kopitiam. 

There were two car parking lots left when I got there. 

A big BMW was before me and reversed into one of the lots.

So lucky to have one lot left for me, I thought.






When the BMW came to a stop, I saw that it was encroaching on the empty lot. 

As the well-dressed driver got out of the car with his equally well-dressed lady friend, I lowered my window and asked if they could center their car so that I could park in the neighbouring lot.

What happened next stumped me.






The woman looked at my car and said in a voice loud enough for me to hear, 

"His car so small. I am sure can fit. We no need to shift."

Then, they turned their backs on me and walked away.

OMG! 

They didn't even bother to talk to me!






I was speechless. 

I realised I was just bullied and didn't know how to respond.

Anyway, I was upset enough that I lost my appetite and decided to come home without satisfying my craving for mee pok dry.

Just now, I felt hungry and I cooked this for a late dinner:

Should I get a bigger car so that something like this does not happen again?

New material from my FB wall (11AM, 16 March 2015):

Latest update on my FB wall (4.20pm, 16 March 2015):

No problem with parking this time but this?

This is depressing.




Unrelated post:
Forced selling due to financial hardship.
(Why am I sharing this post? I have no idea.)

A letter: One year after following AK's "recommendations".

There are lessons to be learnt in this email to AK. What are they?

Dear Mr. AK,

I am 41 years old and I am new to investing in stocks. I started last year only.

There is a lot to learn but I really want to put my savings to work. The interest from the banks is too little. I am not greedy. I only want more than what the banks give. So, a colleague told me to read your blog. He said you make a lot of money from stocks.

Maybe, I am lucky. I read an article you wrote about investing money for your father. You listed 5 stocks. So, I took some of my savings and just bought those 5 stocks you recommended. 

It is now almost one year and I am very happy I followed you. I have 10 lots of Sabana Reit, 15 lots of Neratel, 10 lots of Croesus, 3 lots of SPH and 30 lots of Hock Lian Seng. I received $3,427 so far in dividends and I know there will be more very soon. I put in about $51K in total and in one year, I got 6.7% back!

Sabana and Neratel prices have dropped. I know you don't like Sabana now. I think I want to buy more Neratel. SPH price no change. Croesus price up. Hock Lian Seng price up a lot! In total, my investments value up 4.1%. I am happy about this too.

Thank you for helping me start. Although you might not know it, you are helping many beginners like me. I will tell more people about your blog. So, please keep blogging.

Sincerely,
AH

Dear AH,

Welcome to my blog. :)

Thank you very much for letting me know. However, I want to say that all the credit is yours and yours alone. You made the decision to buy and in the proportions that you did. More importantly, you made the decision to invest for income and not to leave all your money in a savings account. 

I didn't do anything and I definitely did not recommend anything. I was just talking to myself.

I hope you will learn much more on your journey as an investor and, as you do, please feel free to share with us your findings. I definitely do not know everything there is to know and look forward to hearing from you again in future.

Best wishes,
AK

Related posts:
1. Helping our parents invest their money.
2. Listen to AK and create Dividend Machines.

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.