How to have enough to fund a university education?

The Sunday Times is conducting a survey titled "Are you saving enough to pay for your children's education?" 10 readers will get to win $50 grocery vouchers sponsored by DBS Bank for just answering 5 questions in the survey.

I am sure we have read horror stories of how some people used their retirement funds or were thinking of using their retirement funds to fund their children's university education. What drugs were they on? 

If their children's academic results were not good enough for a scholarship, then, their children should think of getting a study loan or using the parents' CPF-OA money (choosing the option that attracts a lower interest rate), if the option is available.

Of course, loving parents might protest. They want to provide the best for their children and not burden them financially. That is all fine and good but they should do this not at the expense of their retirement adequacy! 

So, unless they have some money meant to fund their children's university education, love should only go so far. 

They will do well to remember this because it is like not mixing up money in our emergency funds and money in our war chests. They have their designated purposes.

Think of it this way, their children have their whole lives ahead of them. Children will be economically productive for many more years than their parents. 

There is nothing wrong with their children taking a study loan if there are no other options available. 

On the other hand, if a senior is short of money to fund his retirement, there isn't such a thing as a "retirement loan", is there?

Loving parents who do not want their children to choose an option which would require them to repay with interest when they graduate and enter the workforce should think of a plan to help meet the cost of their children's university education. 

Inevitably, for most, the plan would involve saving a portion of their monthly income. Then, the next step is to think of how to grow the savings at a faster clip while continuing to save money in a disciplined manner.

Question number 5 of the survey which is also the last question in the survey asks "Which do you think is the best way to save for this goal (i.e. your child's university education)?" 

The options provided in the survey are:

1. Insurance endowment plans
2. Bank deposits
3. Investments
4. All of the above

Which one would you pick?

There is another option and I wonder why it wasn't listed. 

All Singaporeans and PRs have a CPF account. So? Do voluntary contributions to their childrens' CPF accounts.

Money in the CPF-OA will grow at 2.5% to 3.5% per annum in a risk free manner. Some of the money contributed will go to the CPF-SA and CPF-MA, no doubt, which will earn higher interest of 4% to 5% per annum.

Contributing to their children's CPF account is a monetary gift to their children. For loving parents, this could be an idea worth considering. It is a gift that can be used only for specific purposes, including education.

Although it is true that their children will have to repay their own CPF-OA with interest in future if they were to use the money to fund their university education, they would be paying interest to themselves. This is more palatable than paying interest to a commercial lender, I believe.

It would also force their children to put aside a portion of their earned income every month in their own CPF account as they repay the debt owed to themselves. 

Forced savings? Yes, it is. I think this is not a bad idea for the majority of the population.

If we are disciplined about our personal finances and are set on locking away money for our children's university education, then, it would be money we would not touch for any other reasons and for a relatively long time too. I think the CPF as a tool is worth considering.

Of course, if we were to pick the CPF as our option, we won't be eligible to take part in the lucky draw for a chance to win a $50 voucher. 

Alamak!

Related posts:
1. Make CPF a part of your child's savings plan.
"I want them to save up and partially fund their own university education. ..After they graduate, they will to pay back their own CPF OA. I want them to experience some form of financial obligation when they start work so that they won’t take on debt too readily." EY

2. Why a wealthy nation cannot retire?
"Tan and her husband are currently paying for the education of their two children, including a 21-year-old daughter studying in Perth, Australia. While Tan, an administration professional, hopes to retire soon, she says she knows it might be another 10 years before that happens." CNBC

3. What is our attitude towards having children?

Could we be financially free by investing in Singapore only? (PART 1)

Reader says...

Thank you for taking photos with me and my friends yesterday (i.e. 2 May 2015) at the conference. 

I was so happy the whole evening because I got a personal photo shot with my favorite blogger ;) 

Thank you for the chance, AK! 

And thank you for being there to share your investing philosophy - my friends and I will be patient to build our war chests, and take opportunities when the bear comes knocking on our doors! 

May I ask you a question? 

Can one attain financial freedom by investing in the Singapore stock market only or other more?  

I have many friends who invest in the US stock market, because it is volatile and offers good capital gain (and losses). 

But till now, I stayed out of it, as I do not understand the high P/E and high fluctuations - it seems so out-of-sync from reality. 

And I do not get to see the companies, unlike in Singapore where I can be aware of the local companies' operations by visiting their stores. 

Do you take a nibble at the US stock market too? 

If yes, could you share what one can look at for a start and why? 

If not, then could one continue to take faith that one can still be financially free by being in S'pore market only? >.<

Thank you AK! 

AK says...

Thank you for writing to me and sharing the photos too. :)

I have only invested in foreign stocks once in my life. 

I don't know if you know of the CLOB saga (in Malaysia) eons ago. 

Since then, I have only invested in the Singapore stock market. 






There is enough to keep me occupied here. ;)

I share your concerns with regards to investing in foreign markets. 

I am sure there are opportunities to make money in those markets but if we don't feel comfortable doing it, it is best to avoid. 

After all, peace of mind, I always say, is priceless. :)







Could we become financially free being invested in the Singapore stock market only? 

Given discipline and time, I believe that the local stock market will have more than enough opportunities for most ordinary Singaporeans with sufficient resources to make quite a bit of money and, ultimately, achieve financial freedom.






Related posts:
1. STE's story: Investment strategy.
2. The mystical art of wealth accumulation.
3. A simple way to a double digit yielding portfolio.

Tai Sin Electric: Nibbling for a 6.3% to 6.5% yield.

I was first introduced to Tai Sin Electric by a guest panelist, Paul Chen, at the third "Evening with AK and friends". This was sometime at the end of March. I did some research into the company and also came across a well written article dated 24 Sep 2014 by Sean Seah. 

Since Sean's publication of his article, Tai Sin has paid dividend twice, 1.5c a share on 6 November 2014 and 0.75c a share on 25 March 2015. Having paid 2.25c a share in yearly dividends in the prior 2 years as well, it would seem that this could be the norm for Tai Sin Electric in the coming years, conditions permitting.

Looking at their half yearly results announcement on 11 Feb 2015, the EPS was 2.44c and if we were to expect similar performance in the following 6 months, then, full year EPS would be 4.88c. With a DPS of 2.25c, the pay-out ratio is 46%. This is pretty comfortable.

NAV per share has also grown as Tai Sin Electric retains a relatively big portion of earnings. NAV per share at the end of 2014 was 33.46c. This could possibly grow to 36c or so by middle of this year as I do not expect another dividend to be announced in that time, based on the timing of past pay-outs.

Visit Tai Sin Electric's newsroom: here.

Tai Sin Electric's share price has declined in the last few months since touching a high of 40c in September 2014. Looking at the charts, it seems that 34.5c could be the support to watch as the downtrend was broken in the second half of January 2015 and the share price could stay range bound for months until the next dividend announcement later in the year.

I believe that paying 34.5c to 35.5c a share for Tai Sin Electric is to pay a fair price to be a shareholder of a business that provides a combination of growth and income. If the support identified at 34.5c should break, then, the next band of supports are found at 32.5c, 32c and 31c. If they should be tested, I would probably be accumulating.

Save money by being less picky and be wealthier.

"Aiyoh, this Kimball Chilli Sauce price is up again!"

I was at NTUC Fairprice doing some grocery shopping.

"Ya lor. Price keeps going up. Now, it is $1.55 for a small bottle." 

OK, I am not sure if it was $1.55 or $1.35 by now. Such is the state of my short term memory.

Anyway, it was a conversation between an old uncle and old aunty. They looked to be in their 60s.

"NTUC is too much! Always increasing prices!" The old uncle was relentless.

I was holding on to a bottle of NTUC Fairprice housebrand chilli sauce and debating whether to take 1 bottle for $1.05 or 2 bottles for $1.85 when I heard the exchange. There was a special offer going on and I have always been a bit of a sucker for special offers.

I wondered whether to tell the old couple that they should give the NTUC Fairprice housebrand chilli sauce a chance. It looked like it was twice the size of what they were thinking of buying and a third cheaper in price! More if they were to buy two bottles. For those of you who have not tried, frankly, the housebrand chilli sauce is not bad.

So, did I do it?

I was feeling a little under the weather today and one look at the couple, I decided to mind my own business. They had faces that looked like someone just stole their CPF money. Yikes!

I feel that it is unfair to accuse NTUC Fairprice of being too much in increasing the price when it is not a brand they have control over.

In fact, NTUC Fairprice do a pretty good job of offering good quality and value for money housebranded alternatives. Here are a couple of other examples I have at home:

Is there anything special about atas branded detergent?

Is there anything special about atas branded tissue paper?

We could save quite a bit of money without compromising on our quality of life if we are less picky. We would also almost certainly become wealthier and happier people in the process.

In case you are wondering if I bought one or two bottles of chilli sauce, I did the sensible thing and bought one bottle. It is going to take me quite a while to finish one bottle, after all.

Related posts:
1. Waste not, want not, save lots with Pasar brand.
2. A visit to Fairprice could teach us about stocks.

NeraTel: Is 1QFY15 a sign of things to come?

I received a message from a reader last night saying that NeraTel's profit after tax plunged 33.8% for 1Q FY15. Looks bad, doesn't it?

I was somewhat surprised at the plunge since I remember that the full year 2014 results although not positive were flattish when compared to the year before. We don't usually see big negative shifts in a single quarter in a business as usual scenario. So, it is important to ask whether the decline is due to something that has permanently damaged NeraTel's ability to deliver the goods, so to speak.

NeraTel's management has for a while now mentioned that stiff competition is impacting the business. This is the reality but given their track record, NeraTel should be able to hold their ground even though they might have to give up some margin. This is just my view, of course.

In an interview that NeraTel's CEO, Samuel Ang, gave to The EDGE, some time ago, he said that it is important to remember that revenue recognition could be lumpy because NeraTel is generally a project based business. Annualising any one quarter's results would not give an accurate picture of full year performance. Now, with this understanding in mind, the weak 1Q FY15 results become less worrisome.

The following slides are self-explanatory:

2Q FY15 results, logically, should be better, all else remaining equal.

Although the stiff competition and pressure on margins are pertinent considerations, NeraTel's track record and their continuing efforts to expand their regional footprint, especially in the generation of recurring income, will likely bear fruits in future. How long will this take before we see significant results? I don't know.

However, even as we recognise the costs of expanding their business, as long as NeraTel's current businesses continue chugging along in the meantime, I would be quite happy to wait.

In conclusion, if we believe that 1Q's less attractive results were due in part to the lumpy nature of NeraTel's revenue recognition (i.e. it is an issue of timing), then, earnings over the next 9M should make up for the weaker 1Q FY15 showing.

In my blog post dated 25 Feb 15, I said that at 76c a share then, we were looking at a PER of about 17x and that it wasn't cheap as the stock was priced at 71c a share a year before that with similar numbers. Now, with a rather reasonable expectation that the numbers might remain similar this year, the current price of 65c a share looks more palatable.

See all presentation slides: here.

Related post:
NeraTel: Still a good investment for income?

AK was at Breakthrough Conference 2015.

I was invited to give a talk at an event that happened earlier today. It was called "Breakthrough Conference" where every speaker was given 15 minutes to deliver one key idea on diverse topics such as communications, marketing, beauty, business, real estate and stocks.

Naturally, I was to talk about investing in stocks although I tried to convince the audience that I could be a candidate to talk about beauty as well since I blogged about hand moisturisers before. Don't believe me? See these blog posts: here. Say "no" to paper cuts.

I was given a lot more time than the other speakers because the organisers know that I am very long winded. They even gave me some time for Q&A. Overall, I was given almost an hour as the last speaker of the day.

Anyway, as my memory of the event slowly fades, I should quickly make a few notes on what I said at the event for readers who might want to know:

First, an introduction. AK is a blogger. AK is a retail investor. AK is a regular salaried manager who made a mid to high 4 digit monthly salary (not anymore because AK is semi retired).

I shared my journey and how I wanted to retire at age 45. See blog post: here. I realised that for a person like me, I must listen to Warren Buffett and “Never depend on single income. Make investment to create a second source.” 

I referred to a free "e-book" which is really a compilation of some blog posts which the audience could read in my blog. Click on: Retiring before 60 is not a dream. Just AK talking to himself, of course.

Investing in income generating assets is what helped me achieve financial freedom and because the organisers said in the ticketing website (i.e. Eventbrite) that the audience will learn "how to build a portfolio of stocks that pays year after year" from AK, I had to share something to that effect.

I hope the audience were not disappointed with what I shared.

AK with his FREE pre-owned iPad.
Credit: Ho Khinwai

Basically, it all starts with being financially prudent. Save money, invest and reinvest the dividends. See: The Millionaire Next Door.

Then, I shared three points:

1. Be patient. Remember what Charlie Munger said about the big money being in the waiting. See: Revisiting AK's simple strategy with Charlie Munger. Go take a look when there is blood on the street.

2. Always have a war chest ready. Unless we are born with a silver spoon in our mouth, we need to save money and build our war chest. If we do not have a war chest ready, how are we going to fight a war? Without a war chest, we won't be able to take advantage of opportunities. See: If we want peace, be prepared for war. I also made a point on how money in the war chest is not the same as our emergency funds.

3. Know what to look for as an income investor. Ask 2 questions that matter: How is the income being generated by the proposed investment? Is the income generated sustainable? I also said that asking these questions would very likely help us avoid investment scams. The second question is probably more difficult to answer than the first and I used two examples to help illustrate my thought process: Old Chang Kee and QAF Limited.

During the Q&A, I answered two questions. The first one was on SembCorp Industries and the second one was on REITs and how a rising interest rate environment would impact REITs.

Here are a couple of blog posts which I hope would be useful to the gentleman and the lady who asked the questions: 1. SembCorp Industries: Partial divestment and 2. How should we approach REITs as investments for income now?

Investing for income, depending on our circumstances, some might achieve financial freedom earlier and some later. However, if we remember to do all the right things which I hope I have neatly encapsulated in my talk, then, there will come a day when we work because we want to and not because we have to.

Of course, as always, remember that I am only sharing what has worked for me but remember that if AK can do it, so can you. Gambatte!

Related posts:
1. Journey to financial freedom is not a race.
2. Don't depend on wage increases for higher income.
3. Nobody cares more about our money than we do.

UOB One Account or the (new) OCBC 360 Account?

People have been talking about the UOB One Account and some readers asked me what I think of it. 

I said that I would like to see what the revamped OCBC 360 Account is going to look like and make a comparison.





Now, first, we look at the UOB One Account. At its simplest:

1. Start an account.
2. Get a UOB ONE VISA card.
3. Charge $500 a month to this card.
4. Maintain $50,000 in the account.
5. Get an effective interest rate of 1.6% per annum.

Now, if we were to credit our salary monthly or make 3 GIRO debit transactions per month, all else remaining equal, we will get an effective interest rate of 2.43%.

What I don't like about the UOB One Account is that the interest rates are tiered in the first $50,000. So, we really have to maintain $50,000 in the account to get the highest effective interest rate possible. If someone should maintain $30,000 and charge $500 to the UOB ONE VISA card, then, the applicable interest rate on his deposit would be 1.33%, not 1.6%, for example.




If we were to compare this with the old OCBC 360, this isn't really attractive because it was really quite easy to get 3.05% interest from OCBC 360 with their old requirements of:

1. Monthly crediting of salary.

2. Charge $400 to any OCBC Credit Card per month.

3. 3 online payments per month with the 360 account.

What about the revamped OCBC 360 account?




People who credit their salaries on a monthly basis will now be rewarded with an additional 1.2% interest for up to the first $60,000 in the account! Bonus interest is up from 1% to 1.2%. Total balance which will receive bonus interest is up from $50,000 to $60,000. Good stuff!

So, without having to do anything else, the interest rate on the first $60,000 is now 1.25%.

Then, just pay 3 bills online (yes, it doesn't have to be GIRO like UOB's requirement) and a bonus interest of 0.5% will apply. If we charge $500 (up from $400) to an OCBC credit card monthly, get another 0.5%. So, effectively, get an interest rate of 2.25% on the first $60,000.

NEW: Purchase any eligible financial product of at least the minimum amount, such as Endowment of at least S$8,000 in annual premium, or investment products such as Unit Trust or Structured Deposits of at least S$40,000 to get an additional 1%.

What about the 1% bonus interest for 12 months if we were to buy an insurance or investment product from OCBC? Er, regular readers would have the answer to this one. I won't bother with this "bonus".

For disciplined savers, OCBC 360 is going to be more rewarding too because they will pay 1% per annum bonus interest on monthly incremental balances (not the entire balance in the savings account).

To qualify, your current month’s account balance has to increase from previous month’s account balance. Incremental account balance is the difference between current and previous month’s account balance. This bonus interest will be paid on incremental account balance of up to S$1,000,000.

Since both UOB One Account and the new OCBC 360 Account will pay us bonus interest for crediting our salary monthly, unless we have 2 salaries (each exceeding $2,000) every month, we will be wondering which product is better for us.

So, how?




Ask the following questions:

1. How much do I charge to my credit cards monthly?

2. How much do I have in my savings account?

If we hardly spend any money using credit cards, the OCBC 360 Account will pay 1.25% for the first $60,000 if we simply credit our salaries monthly to the account. Paying 3 bills online is a really easy requirement to meet too. So, we will get 1.75%. With the UOB One Account, we will get nothing unless you consider 0.05% to be something.

If we charge at least $500 a month to a credit card, then, with the OCBC 360 Account, on top of what have been considered in the previous paragraph, we will get 2.25% for the first $60,000 deposited. With the UOB One Account, we will get 2.43% for the first $50,000 deposited.

In terms of interest rate, therefore, UOB trumps OCBC by 0.18%. However, remember that OCBC will pay bonus interest on the first $60,000 (i.e. 2.25% = $1,350 a year) while UOB will pay bonus interest only on the first $50,000 (i.e. 2.43% = $1,215 a year). Anything more will get an interest rate of only 0.05%.

So, if we have $50,000 in savings, go with UOB. If we have $60,000, go with OCBC.





What if we have less than $50,000? If we have less than $50,000, then, UOB's effective interest rate starts falling. Remember, UOB's bonus interest rates are tiered.

So, if we have $40,000, for example, and if we meet all the requirements discussed in the prior paragraphs, then, the effective interest rate from UOB is not going to be 2.43%. It is going to be 2.2%.

So, if we have $40,000 or less in savings, then, the OCBC 360 Account is a more rewarding choice than the UOB One Account, all else remaining equal.




I did this blog post because the question of how to choose one product or the other is a pertinent one as most of us have only one salary to credit monthly.

For those who do not have a salary to credit monthly and do not spend at least $500 a month (which could be charged to a credit card), then, the best choice could be CIMB's 0.8% interest rate for a regular savings account.

UPDATE (9 NOVEMBER 2016):

I have been too lazy to blog about the Bank of China SmartSaver which I also have. This is another product which makes people jump through hoops to get more interest income on the first $60,000 of savings.

Those hoops have just become a little harder to jump through:

Click to enlarge.

The changes to Bank of China SmartSaver will benefit higher income customers and bigger spenders. So, it might be good news for some people.

To find out more about Bank of China SmartSaver, go to their website.



-----------------------------
OCBC 360 UPDATED AGAIN:
See: OCBC 360 updated (and downgraded) again.
(1 March 2017)

Related posts:
Getting paid more while waiting for opportunities.

What did AK buy in the stock market in the last 12 months?

A reply to a fellow blogger inspired this blog post as I looked back at my "nibbles" in the stock market in the last 12 months (since May 2014). They are:

1. Ascendas Hospitality Trust
2. Wilmar
3. Soilbuild Biz Space REIT
4. SembCorp Industries
5. SembCorp Marine
6. OUE Limited
7. ST Engineering
8. SATS
9. Accordia Golf Trust
10. WingTai
11. Marco Polo Marine
12. Singapura Finance
13. Hong Leong Finance
14. NeraTel
15. PREH
16. Yongnam


Quite a mixed bag.

I am sure all of us have our reasons for our investments. To be doubly sure, it is always good to see if we are able to articulate the reasons through writing, even briefly, and see if they make good sense.

Ariake Sunroute.

From the list, it is clear that there is a slant towards investing for income but with less reliance on REITs and business trusts. Although I turned cautious some time ago on REITs and business trusts as their valuations became less compelling, bearing in mind also that they distribute most of their income to unit holders, leaving little to fund growth or to pare down debt, I still believe that they remain relevant instruments for the income investor. The REITs and business trusts in the above list are #1, 3 and 9.

I continue to like NeraTel (#14) for income and potential growth. I added to my position as its stock price declined not too long ago. I believe that a DPS of 4c is undemanding and could be maintained as there are indications that future growth will be funded through debt. A judicious amount of leverage is good for the company if they are able to improve ROE.

I also increased my investments in selected blue chip companies as their stock prices declined. I believe that their businesses are going through temporary bouts of weakness. These are companies which are likely to do well in future, current rough patches notwithstanding, and are unlikely to go kaput in the meantime. They also pay dividends and I like to be paid while I wait. These are #2, 4, 5, 7 and 8.

SembCorp Industries.

As interest rates are rising, financial institutions are likely to do better. I increased my investment in Singapura Finance (#12) and also initiated a position in Hong Leong Finance (#13) on weakness in their stock prices. Interest income accounts for about 80% of their total income as compared to 60% for banks. I believe that earnings will likely improve as interest rates normalise (i.e. rise) in future. Trading at a fair bit of discount to their NAVs, they are also known to pay meaningful dividends. I am quite happy to be paid while I wait (again).

There are a handful of investments which I made in property companies in the last 12 months. These are #6, 10 and 15. Although things are likely to remain challenging for them in the near term, I chose to invest in these three companies because of rather specific reasons apart from the fact that they are pretty undervalued relative to their NAVs. In short, I believe that there could be specific catalysts for each of them to do better in time to come. Built on expectations with margins of safety, these positions are smallish in size.

Marco Polo Marine (#11)  and Yongnam (#16) are probably not going to pay dividends for a while. They were both relatively big investments for me at one time or another but they were pared down under different circumstances. As their stock prices suffered, I feel, excessively from Mr. Market's pessimism, I added to my much reduced long positions recently. Both companies are trading at huge discounts to valuations and have potential catalysts which could excite Mr. Market again in future.

Marco Polo Marine.

CONCLUSION

I will continue to receive meaningful income from my investments in the stock market this year even if stock prices should decline. As long as the businesses I am invested in are able to do well in future, I should stay invested, have a war chest ready and buy more on weakness. If valuations do not become more compelling, I will simply channel dividend income to my war chest. There is nothing wrong with sitting on money and doing nothing if nothing is worth doing.

I have a handful of positions which I feel are more speculative in nature and, although they could turn out to be hugely rewarding in time to come, I have been careful to size them appropriately. In total, they do not cost more than what I could recover easily within a year from my other investments in the stock market.

It doesn't matter how big or small our portfolio is. If we are clear minded as to why we are invested, if we have a war chest ready and if we have sized our positions appropriately, we should be able to sleep well at night. Having peace of mind is most important.

Some related posts:
1. Ascendas Hospitality Trust: A nibble.
2. Soilbuild REIT: A nibble.
3. Accordia Golf Trust: A yield of 12.16%?
4. AK went shopping in the stock market.
5. OUE Limited: A nibble.
6. Incomplete analysis of Wing Tai Holdings.
7. PREH: A nibble?

What is AK's way of investing in stocks?

This was a rather amusing exchange (which went on to become quite exasperating):

E:
saw your blog
can i know how you invest?

Assi AK:
If you want to learn how to invest, I don't really teach in my blog. 

I am just blogging my experience.

You might want to go to the right side bar of my blog and you will find some recommended reading material under "Food for Thought".





E:
Why don't you share how to invest?

Assi AK:
Everyone will find his own way. 

I share my way in my blog. 

You are welcome to read my blog but you will have to decide if is suitable for you.





E:
After reading your blog I still don't know your way???

Assi AK:
Alamak...

Read a bit more and see if you can find the way. 

If still cannot, then, I think I lost my way liao.

E:
can lost your way like you?

Assi AK:
Yes, people follow me and fall into longkang sometimes... -.-"

E:
why?

Assi AK:
then no chance to fall into longkang lor

E:
Then how?

Assi AK:
Don't follow me lor ;p





E:
Why not?
How?

Assi AK:
You can follow me using the options available in the left side bar of the blog.

E:
What options?

Assi AK:
Check my blog. 

You will see in the left side bar.





E:
u are value investor?

Assi AK:
I like good deals, for sure, but I am not pure value investor.

Mostly, I like stocks which generate meaningful income regularly for me.

E:
so you buy dividend stocks only?

Assi AK:
nope
I am not a pure income investor either

E:
so what are you?





Anyone has an answer?

Related post:
Have peace of mind as an investor.

Can we retire at age 40 with peace of mind?

I am sure that some of us have thought of when we might be able to retire from active employment before. So, this conversation with a reader might be of interest to some:

Reader says...

I am 32 this year and I planned to achieve financial independence by 40. I actually realised it is easier to achieve lump sum cumulative retirement fund than passive income > expenses. 







Few reasons:

1) returns are ups and downs

2) To generate a decent passive income, the invested amount must be at least $600,000 to generate $30,000 at 5%.

3) I don't really need that much money to live the life i want, so about $550,000, coupled with my private annuity and CPF Life will be sufficient.

4) Invest in safe money instrument such as Singapore Saving Bond, OCBC 360, and so on to get between 2-3% return.

5) Once a while gain some profits from Bear markets or obviously under-valued shares





I think passive income is great because it generate lifetime income, but I still think it is not a must for early financial independence.

Based on your financial knowledge, you think my figures and reasoning are sound?

I actually felt topping up CPF is not an option for me because I got child, NS, annuity and other relief that I can be exempted from taxes for years. Since obviously I don't have spare cash as I am aiming for early retirement, I think topping up CPF is a no go, right?

Retire with peace of mind.

My reply:

If we have a very simple lifestyle, we don't need too much money to be financially free. You are absolutely right. Everyone will have a figure in mind, I am sure. So, how much do we need? This is very subjective.

I cannot tell you if your figures are sound enough for what you have in mind. Only you will know this, even if it is just an estimate. ;)

Is your reasoning sound? 







Well, if we wish to retire very early and retiring in our 40s is considered very early by most people, I feel that we need a bigger buffer unless we are willing to consider the option of re-joining the workforce if things should go wrong.

If we do not invest for income, retiring at 40, $550,000 in savings won't last very long especially with a family to support. 







The CPF Life will only start paying us at age 65. OCBC 360 only pays a higher interest on the first $50K and once you stop working, you will lose that extra 1% interest from salary crediting. 

SSB, you will only get the full coupon of 2+% if you hold for the full 10 years. It isn't very liquid that way.

Inflation is probably the biggest threat to your plan. 







Investing for income, the returns could keep pace with inflation or even beat inflation. 

Not investing for income, it is likely that your wealth will shrink in value, year after year.

For me, it should be about having a level of certainty that our assets are not being chipped away in our retirement and that they are, in fact, generating meaningful income to help fund our retirement. 

Then, we can retire with peace of mind. :)







I certainly do not know everything and, perhaps, this blog post will generate a meaningful discussion which will provide different points of view.

Related posts:
1. National Day Rally: Retirement adequacy.
2. Retiring before 60 is not a dream.
3. Millionaire or not, plan for retirement.

Wake them up before they get financial nightmares.

I remember when I was a boy, I sometimes had to help wake my siblings in the mornings. 

Sometimes, they were the ones who had to wake me up in the mornings. 

We looked out for each other because we didn't want anyone to be late for school.

When a reader wrote to me in FB to say he woke up after reading my blog, I asked him to help wake his friends up as well. 

I am sure we want everyone around us to be prepared financially for retirement too. 

I am sure we want our friends and family to be financially secure.

My task as a blogger, I feel, is easier because people who are willing to listen will read blogs like mine. 

Targeting people who we believe need to make changes to their money habits and to sit them down to talk about it is a more delicate task. 

It is a sensitive topic, after all. 

Good intentions could be misinterpreted.





Well, let us try to make a difference, anyway. 

They might not see the light now but the suggestion we have planted in their minds might grow and blossom one day. 

They might or might not remember who planted the seed by then but that shouldn't be important to us. 

If they do change for the better, I am sure we would be happy for them.




Related posts:
1. Wealth is attracted or repelled by habits.
2. Ambassadors of financial freedom.