Why have bonds in our portfolio and which ones?

I had a lengthy conversation with a friend on bonds. He bought into Aspial's 5 year bond that carries a coupon of 5.25% a few months ago at the recommendation of his father. 

When I asked him why did his father recommend the bond to him, he said his father felt good about it.

It boggles my mind, really, to be able to plonk down $XXX,XXX based on feeling good.




Actually, many people in this (still) rather low interest rate environment are taking more risks to get higher returns on their money. 

There is nothing wrong with this but they seem to be taking risks they don't understand or they might understand but have underestimated.

Well, it could be a case of ignorance is bliss if nothing goes wrong and they get their regular interest payments in the next few years and also their capital at maturity.

Why AK so kaypoh?

Bad AK! Bad AK!

Recently, I got this message:

Hi Ak, disturb u again
Saw on your recent post, you have purchase the perrenial bond.

I am first time in bond, what is the risk of bond?

Does the bond rate fixed?

If the company does not go bankrupt, mean I can get promised rate end of years?

Alamak. I think that it is time for another blog post.

I hear people saying that they put some of their money in bonds for diversification. 

They don't want all their money in equities. This is actually quite prudent.




However, for many, the prudence ends there because they think that as long as they have a good percentage of their portfolio in bonds, they have done a good job of diversification.

For example, my friend who plonked down $XXX,XXX in Aspial's recent bond offering told me he has maxed out his allocation to bonds in his portfolio with that one bond! 

Has my friend done a good job of diversification for his portfolio?




When we talk about diversification, it is to reduce the volatility of a portfolio. 

In the long run, all assets in our portfolio should ideally produce positive returns but do not move up and down together.

The idea about having bonds in our portfolio is that prices of bonds and equities move in opposite directions. 

However, this is only true if we are talking about certain types of bonds.

A sovereign bond that is issued by AAA rated country like Singapore or a high quality investment grade corporate bond add stability to an investment portfolio. 

They are less volatile in price.




When we park our money in bonds which are of questionable quality, we are not reducing risk nor volatility in our portfolio.

Do you wonder why is this so?

Lately, we have been talking about interest rate risk. 

We have been talking about how rising interest rates would put a downward pressure on bond prices. This is especially the case for long term bonds and perpetual bonds.

So, if we value peace of mind, avoid long term bonds and perpetual bonds. 

Also, avoid bond funds as they have no maturity dates and are like perpetual bonds.

Now, it stands to reason that when the economy does badly and the stock market plunges, investors seek safe harbours for their money. 

High quality, investment grade bonds are one of the things they would go for.

In a bear market, stocks of weaker companies or businesses of the more speculative kind get sold down more aggressively and, together with them, the bonds which they issued. 

Mr. Market is not worried about interest rate risk in such an instance. 

Mr. Market is worried about the risk of default.




Where is the supposed stability that comes from diversifying into bonds then? 

Bought the wrong bonds. So, no stability lah.

So, if you have bought some bonds and because of that, you think you have added stability to your portfolio, think again.

What are the bonds you have in your portfolio?


Related post:
1. Singapore Savings Bond.
2. Lost money in a bond fund.
3. Perennial's 3 year bond.
4. CPF as a AAA rated sovereign bond.
5. Perpetual bonds.

Don't thank AK but thank yourself in future (UPDATED).

My blog was born in December 2009 on Christmas Eve. 

When asked if I expected things to develop the way they have developed in recent years, the answer is always "NO". 

Sometimes, I would answer "I have created a monster" because my blog and its related activities are demanding more of my time than before. 

I am fully aware of one of the risks my blog is facing because blogging is a hobby and I enjoy it because it is a hobby. 

The day blogging becomes work, I might no longer enjoy it. 

It is about setting a more leisurely pace so that it remains a hobby I enjoy.

Having said this, blogging comes naturally to me because I enjoy writing, sharing ideas I believe in and ideas which have worked for me. 

So, this is the writer and teacher in me rolled into one. 

In a nutshell, through my writing, I enjoy helping people to help themselves.

From the many emails and messages I have received from readers, I discovered that my blog has been helpful and many people have made positive changes in their lives because of my blog. 

This is probably the most rewarding aspect of blogging for me.

I have shared some encouraging messages from readers before and here are a couple more which I received recently:

Hi AK,

Thanks for speaking to yourself all these years!

I've been eavesdropping !

Introduced a friend who was a terrible spendthrift to your blog last year - and is so glad to find that she has started saving quite a bit!

Our tag line now is "what would AK do?" Ha!!!!

Many thanks for your friendship !




And


Hi AK, 
 After seeing saizen rise today(my biggest holdings), I just wanted to drop u a msg to thank u for opening sharing all your thoughts through social media!

I think I am beginning to understand and appreciate your investment strategy especially after seeing u add ARA and Vicom recently.

Your strategy seems to be within a fixed framework of investing for income but u are flexible as well. Just like water in a cup. Haha. 

Flowing but contained. (Am I making sense?) 

I am referring to your recent sale trades of Sembcorp and Wilmar.

You don't seem to be fixated on holding forever but at the same time not jumping in and out through trades. 

 All in, thank u and hopefully many more people will appreciate what u do!

I cannot publish all the messages, of course, but to all the readers who have sent similar messages to me before, thank you for making the effort to write.

I hope that talking to myself in my little corner of cyberspace will continue to help people who are listening in. 

I hope that we will all make incremental positive changes in our lives to have a financially more secure future. 

For most of us, the desired outcome will take many years to achieve. 

We might feel tired or even demoralised at times but remind ourselves that as long as we are moving in the right direction, we cannot be wrong and we are getting closer to our goal with each passing day. 

We will see the light at the end of the tunnel and we will thank ourselves in future.

Related post:
How to have a comfortable retirement?

Saizen REIT: Received a firm offer and unit price jumps.

Messages were coming in fast asking me what was happening to Saizen REIT as its unit price shot up. Well, this happened:

Further thereto, the Manager wishes to announce that the Manager has received a firm offer in relation to the assets of Saizen REIT which the Evaluation Committee and the joint financial advisers are currently reviewing and evaluating. No definitive agreements have been entered into and there is no assurance that the offer will be accepted and that definitive agreements will be entered into.

 

 Earlier in the year, I had a blog post on how undervalued Saizen REIT was. Of course, it wasn't really a new angle on the REIT as I blogged about it many times over the last few years.

In that blog post back in April, I asked if investing in Saizen REIT was a good idea for you. Whether it was a good idea would depend on your motivation and your temperament.

Although deeply undervalued, I said "whether the value could be unlocked and returned to unit holders is much harder to say. Could we see an acquisition by a residential J-REIT?"

I also said that "anyone who is buying into Saizen REIT, hoping for value to be unlocked, will have to be patient and also remember that it might or might not happen."

Of course, regular readers know that Saizen REIT is a big part of my portfolio for years. I have been patiently waiting for value to be unlocked and while I waited, I received regular dividends.

It is not a bad thing to be paid while we wait, I feel.

So, what did you do?

Announcement: here.

Related posts:
1. Saizen REIT: Deeply undervalued?
2. 9M 2015 passive income from S-REITs.

What should I do after losing money in a bond fund? (UPDATED JULY 2018)

UPDATED JULY 2018

In an environment of rising interest rates, bonds especially longer term ones are unlikely to do well.

Bond funds without any maturity date are probably in the same boat or worse.

Hold for another 2 or 3 years and wait for market to bounce back?

That is a salesperson talking.

Never ask a barber if we need a haircut.

No one cares more about our money than we do.

Not interested in reading up and have no idea about investments?

Be interested and ask pertinent questions or you will be doing yourself a great disservice.





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


Earlier this year, when I delivered a talk one evening to a group of investors, one lady told me she just got into a bond fund then and after listening to me, she asked if she should get out of it.

I told her I couldn't make the decision for her.

It was her call.





I was reminded of that encounter because of this recent email from a reader:

Hi AK,

I have invested my SRS money with XXX fund beginning of this year, at that time I am not interested in reading up and have not much idea about investment.

I was told the fund has a loss of 3K out of my invested 10K now.

The agent told me I need to give him 2 -3 years and wait for the market to bounce back.

The fund consist of bonds and I just concern with the increase of interest rate may make the situation worst. 

What will you do if you were in my shoes ? 

I have ran the figure on excel, to make back 3K of lost based on 7K capital with 4% return a year , I need 11 years :(

Please start to talk to yourself already and I know your disclaimer by heart :p

Many thanks, J. 
 

My reply:

Hi J,

The XXX fund you got into earlier this year sounds like a bond fund.

It is one of those things that I said I wouldn't touch with a five feet pole in anticipation of rising interest rates.

Unlike equities which can recover because of improving fundamentals even when interest rates are higher, bond prices move in the opposite direction of interest rates.

Ask your agent what made him tell you that the bond fund will recover in another 2 or 3 years?

Is he merely speculating? We want to give him a chance to explain himself.

We are reasonable people, I am sure. ;)

Best wishes,
AK


Unless we have very good reasons, don't be bonded.





Related posts:
1. Buy a bond fund?
2. SRS: A brief analysis.

Sabana REIT: What is a fair price and what could they do?

The last time I blogged about Sabana REIT was in February this year.

I suggested that we might want to view some assertions in cyberspace that Sabana REIT offered great value for money because of its relatively high yield and rather big discount to NAV with a dose of scepticism.

What I was most concerned about was the matter of expiring master leases, 11 in all.

Subsequent to the end of 3Q 2015, the Manager converted one building, namely 23 Serangoon North Avenue 5, from master lease to multi tenanted.

The Manager is in the final stage of negotiations for remaining 10 master leases slated to expire in 4Q 2015.

Source: Press Release.

 What is the occupancy of 23 Serangoon North Ave 5? I very much doubt that it is 100%. DPU is already lower in Q3 and it is likely to take another hit in Q4 as property income reduces and operational cost goes up because of this development.


Also, the language lacks transparency. When we hear "final stage of negotiations", we get the impression that negotiations are likely to be successful.

However, realistically, we should be prepared that more properties would be converted from having a master lease to being multi tenanted.

A lack of transparency makes it difficult for anyone to estimate what is truly a fair price to pay for Sabana REIT. Annualising Q3's DPU of 1.77c is a mistake but let's do it anyway. 7.08c. With a unit price of 78c, we are looking at a 9.07% distribution yield.

If Mr. Market is willing to pay 78c a unit, my interpretation is that Mr. Market is probably expecting quarterly DPU to decline to 1.56c or a 12% decline from 1.77c in due course. This would give an eventual 8% yield at 78c a unit.

Now, is Mr. Market right?

Well, we know the saying that Mr. Market is always right but if the DPU should decline by much more, what then?

We should be able to make a more accurate guess by end of the year and be dead sure by end of 1Q 2016.


So, if we are buying Sabana REIT with the understanding that DPU would probably reduce quite significantly and are comfortable with it, then, 78c a unit might be a fair price to pay for us.

However, if we feel that an entry price of 78c a unit with an estimated 8% yield a few months down the road would not sufficiently address some other risks such as:

1. Rising risk free rates means Mr. Market might demand a higher distribution yield. All else being equal, unit price would have to decline.

2. Rising interest rates also means a higher debt burden which would weigh down DPU. Maturing debt in 2016. $138 million. Would cost of debt increase?

3. Expiring leases in 2016. About 11.4% of NLA is expiring in 2016 and that includes another master lease.

4. Declining interest cover ratio. It has dipped below 4x and is now lower at 3.8x.

5. Possible decline in value of properties. This would impact gearing level.

We won't be wrong to ask to what degree has a unit price of 78c a unit taken all these in?

If Sabana REIT is confident that its NAV/unit of $1.04 or so is realistic, then, I would like for them to sell some of their properties. That is probably the best way to see if the valuations are realistic. 

Of course, the reason for this suggestion is really to unlock value for the shareholders and strengthen the REIT's balance sheet.


Related post:What is the right price to buy into Sabana REIT?

Sabana REIT's Presentation in September 2015 for investors: here.

SP Services say total amount payable is $0.00! (AK uses his air con more but keeps the bill in check.)

(Update 4 Jan 17): 
AK has denied SP Services some revenue! Happiness is a utility bill that looks like this.

All thanks to the really cool weather recently (and not the miserable reduction in electricity tariff).
-------------
Since having my own place once more, I have had discussions with friends on more domestic topics like the household utility bill. In all these discussions, I discovered that my utility bill is relatively low.

My consumption is below the national average for my house type, apparently.

What about my bill in dollar terms?

It has remained more or less the same compared to my utility bill a few years ago when I had my old place and stayed there for 4 years or so, $100 a month, give or take a few dollars. I think this is quite remarkable.

I absolutely cannot live without the air con being on at home. If I am home, the air con and air purifiers are on. Since I am home for many more hours now each day compared to a few years ago, the air con is on for many more hours per day too.

I also watch more TV now as I have more free time. I like watching the Travel Channel, HGTV, Discovery Channel, National Geographic and the History Channel. 

I have a 40" Full HD LED TV now compared to the 26" LCD TV I had in my old place before I replaced it with a 32" LED a year before I sold the place. I think my many TV watching hours now should consume more electricity.

How is it that my utility bill has not gone up much?

I think it is fair to say that the air con probably consumes more electricity than other electrical appliances at home. So, the first thing to do is to make sure to insist on having the energy saving Invertor technology. 

4 ticks, nothing less.

Then, I will usually set the air con temperature to 24 degrees centigrade. On a very warm day, maybe, 23 degrees centigrade.  

The lower the temperature we set, the higher the energy consumption. So, 23 degrees centigrade is usually the lowest I would go.

I have a friend who sets the temperature to 18 degrees centigrade at home as the norm. That is freezing and sends the energy bill through the roof!

Well, since moving to my new place, I got acquainted with my new Invertor air con which has a neat dehumidifier function. This function removes moisture from the air.

Often, we feel warm because of the high humidity level in our climate. The human body is not able to cool itself as well in a humid environment. If we are able to lower the humidity level in a room, our body will feel cooler naturally.

If we set the air con to dehumidifier mode, it lowers the humidity level in the room to about 60%. This is much lower than the usual humidity level in Singapore.

What does the symbol look like? 

A couple of  water drops. Unfortunately, you won't find this mode in older air cons.

If you have Invertor air cons at home and if they are quite new, they should have the dehumidifier mode. If you cannot live without the air con on at home, try this mode. It should lower energy consumption and you should see some savings.

When I go to bed, I would switch the air con back to the regular mode, the one with the snow flake symbol. 

This lowers the humidity level as well as the temperature in the room. 24 degrees centigrade, of course.

It keeps the room cool enough and I don't even need to use a blanket. Just need to wear socks to bed. 

I hope I have not put anyone to sleep with this blog post. Zzzzzz.
Related posts:
1. Photos of AK's home.
2. What can we do to survive the haze?

InvestX Congress 2015: Chit chat with readers.

Happy that I got to meet many readers at InvestX Congress 2015. 

I was part of the 4 member Q&A panel at the end of the day and because not everyone got to ask me the questions they had, I stayed back till 7.30pm to continue chatting with readers who came up to me. 

I hope I answered all their questions and, more importantly, got them thinking about their own strategies. Yes, it is important to have our own strategies. 

Don't simply do what I do because you like to build passive income. Not everyone can do or should do what I do. 

Remember: 
Have a plan, your own plan.

I received quite a few emails and there will probably be a few more to come. I would like to share a couple of emails from readers here and I hope they inspire:

Hi AK,

Re your articles related to saving, I had cut my morning gourmet coffee from 5 times / week to 2 times per week, every 5 cups  purchased , I get 1 free coffee :) still can't cut down totally, enjoying sitting in the cafe before start working.

I bring breakfast, lunch and fruit to the office regularly except when I meet friend for lunch. When I lunch out I try to cap at 6sgd per meal (work in CBD). 

I start to track my expense and had established a budget for 2016. I have decided it will be a frugal year for us. Extra money goes to investment. 

I have purchased my first 4 stocks in my life and more to come as I learn. 

For tomorrow, I will wake up early to pump milk for my baby boy, take MRT and bring my breakfast to attend the event of the year :) Thanks for sharing and always be there to answer our email.

Hi J,

It sounds like you have a plan and making progress too. Good on you! :D

I think you will see that every dollar does add up over time. :)

Hope you enjoyed InvestX 2015. ;)

Best wishes,
AK




Dear AK,

I finally got to meet you in person :)

I shall try to keep this short and sweet because I'm sure many readers email you, comment on your blog and your active blogging takes up quite a bit of time.

You were the one that sparked my interest in investing and also providing avenues of learning i.e. Dividend Machines, InvestX Congress 2015. From there it has encouraged me to keep learning and also sharing with others what I have learnt (as much as it's very basic).

I don't have much to ask you right now because I should put in the effort/due diligence in learning and forming my foundation from your blog and the treasure trove of previous posts as well as books, the internet, seminars/talks etc. I just have to put in effort searching through your blog with the search function or follow related posts.

I'm a newbie hence I want to keep and open mind and consider as many perspectives as I can. I never knew of the existence of "shorting". Sell High, Buy Low. I was like huh what magical technique this is. There's so much to learn out there! I only scraped some simple concepts of TA like Moving Average and CCI, which admittedly I have yet to fully internalize. Off to "investing/trading" school for me :D

I would like to thank you again for sharing your knowledge freely. I'm sure you get it often but I really mean it each time I say it.

F

Hi F,

I am happy to see so many readers at InvestX 2015. 

I am always happy to talk to myself as long as people are interested in listening. ;)

All of us were newbies at one time. 

The learning process these days is probably a bit less daunting and a bit more fun thanks to the internet. 

It is easier to get our hands on information and also to be educated. I am sure you will do well in time to come. :) 

Best wishes,


If you went for InvestX Congress 2015 and would like to share with me what you think of it, please leave your thoughts in the comments section below.

Source: The Fifth Person.

Thank you and have a good day!


Related posts:
1. Greater financial well being is not beyond us.
2. Heart to heart talk on achieving financial freedom.
I keep saying that all of us have difference circumstances in life. We might make very different choices in life and with those choices, there are pluses and minuses. We must make the best of our situations and, if possible, improve on our situations.
3. AK is a panelist at InvestX Congress 2015.

Invest for income and ignore the two Ms.

Who are the two Ms?

An email from a reader says...

Hi AK,

I followed you and bought XXX because I want to have passive income. 

The price is now down. 

I don't blame you. 





I made the decision to follow you. 

However, I worried and I got more worried after talking to someone in a forum. 

He said I am just taking back my own money when I get the dividend now. 

Can you talk to yourself on this? Thank you.

YLF

It is a journey.

AK says...

Hi YLF,

I gave some thought on how to answer your question. 

Hmmm, let me tell you a story of two investors, A and B.

A and B decided to invest in XXX because they liked the business and XXX also paid a good dividend. 

A few months later, XXX's stock declined in price. 





The business had not changed and, in all likelihood, it would still pay the same dividend.

A said that he had lost money and that when XXX paid him dividend, it was like taking back his own money. 

When he got the chance to break even, he sold and was happy.

B said that a lower stock price meant that he could increase his investment in XXX for a higher dividend yield because nothing else had changed. 

He was quite happy and bought more of XXX's stock.

As XXX's business was still chugging along nicely over time, B continued to receive meaningful dividends year after year even as the stock price went up and down over time. 

B was quite happy.

A became sad again.

Best wishes,
AK





There might be cases when a dividend is a return of capital. 

We can tell when we look at the financial statements if that is the case. 

In such an instance, we could say that we would be taking back our own money when paid the dividend. 

However, to say that we are taking back our own money when we receive dividend from a company because its stock price has declined from our entry price is either mischievous (if the person is in the know) or misguided (if the person is not in the know). 

The two Ms revealed.





Prices go down and prices go up. 

It is normal.

If we are investing in a good business with money we do not need for anything else and if the business pays regular dividends, we can hold forever.

If we can hold forever, short term movement in prices doesn't mean anything.

As investors, we should have the stomach for some volatility or else the stock market is a bad place for our money.





"Our favourite holding period is forever."
Warren Buffett


Related post:
1. Does AK have anything uplifting to say?
2. "Patience is sometimes the hardest part..."
3. How to save 100% of your pay?

Delaying gratification and getting stuff we want for free.

What does the word "resist" mean?

I have mentioned delaying gratification and the pluses of doing so. Well, you know, here and there.

This is taken from a longer email by a reader:

"My girlfriend saves money so that she can go travelling. I tried suggesting we should save money to invests for passive income but she argues that now if we don't travel now, in the future we wont have time and money after being married and have kids."





Alamak! Domestic squabble alert!

I actually said:

"I don't know how to answer your question regarding your disagreement with your girlfriend. The coldest thing I could say is to find a partner who shares your goals and beliefs. Yikes. You really have to sort this out yourself."


I am terrible, I know.

Bad AK! Bad AK!

I like sharing the story about how Jim Rogers convinced his first wife when they were newly weds not to use her savings to buy a sofa she liked. 

They could still use their old sofa. 

They later got the sofa for "free", using money generated by her savings which he invested. 

Nice!

Wouldn't it be better if we were able to use money generated by our investments to pay for stuff we want (overseas holidays included) instead of using money we had saved from our earned income?





I have also shared my own story about how dividends from my investment in ST Engineering paid for my annual holidays to Japan for a few years in a row. 

I remember telling my dad this when we were on the bus to the airport at the end of a holiday in Osaka. 

He smiled indulgently. I didn't think he believed me then.

Anyway, the sooner we realise the benefit of delaying gratification and the sooner we start investing for a more secure future, the better.





Do you believe me?

Related posts:
1. Two questions which help build wealth.
2. The mystical art of wealth accumulation.
"
Cookie Monster learns a lesson.

Perennial's 3 year 4.65% bond: Good enough to buy?

A fellow blogger compared the 4.65% coupon offered with what we could get if we were to park our money in the Singapore Savings Bond (which is risk free) for 10 years.

Holding the SSB for 10 years would get us a yield of about 2.8% p.a. I have left a comment that, to be accurate, we should compare the coupon with what we could get in the SSB for 3 years.

Of course, the bonds are not strictly comparable since the SSB is really AAA rated as the borrower is the Singapore Government while PREH does not have a rating.

The question, then, is whether the coupon offered by PREH's bond compensates us for the risk we have been asked to assume as money lenders.

Perhaps, it would be better to compare this with another corporate bond. If we were to compare this offer with another corporate bond, we could compare this with the 7 years bond issued by Frasers Centrepoint Limited (FCL) earlier this year.

FCL's bond has a coupon of 3.65%. This offer by PREH is for a much shorter 3 years and has a coupon of 4.65%. If FCL were to shorten the holding period from 7 to 3 years, their coupon would probably have been much lower.

I have received several messages from readers asking if I think this bond by PREH is a good buy. Regular readers know that I won't answer such a question with a "yes" or "no".

I will say that a 4.65% coupon for a much shorter 3 years compared to FCL's 7 year bond which has a lower 3.65% coupon helps to compensate for the risk which I identified in an earlier blog post regarding PREH.

Related post:
1. FCL's 7 year 3.65% bond.
2. PREH: A nibble?
3. Singapore Savings Bond: Good or not?

The public offer will open for subscription at 9am on Tuesday and will close at 9am on Oct 21.

Use fixed deposits for emergency fund and war chest. (With a section on OCBC 360, UOB ONE and CIMB savings a/c.)

In a few blog posts and comments, I have mentioned how I like to park emergency funds and a portion of my war chest in fixed deposits. 

Fixed deposits offer higher interest rates than savings accounts and are liquid enough to be considered near money.

I have been asked before how I go about doing it and although I am pretty sure I have mentioned it before in my blog, I am not sure if I have done it clearly. 

Anyway, I guess I shall try to do a better job in this blog post.





EMERGENCY FUNDS

For emergency funds, first, we have to determine how much we need to have in order to maintain the lifestyle we currently have in the event that our income stream disappears. 

Then, set aside this money. (For my thoughts on how to determine how much we should put aside, please see related post no. 1 at the end of the blog post.)

If we have determined that $50,000 is what we need in our emergency fund, then, look for the best fixed deposit deals out there. 





Check what are the minimum amounts required by the different banks to qualify for special interest rates. 

If the minimum amount required is $25,000, then, split the $50,000 into two portions. 

In the event of an emergency, we could opt to break only one fixed deposit while the other fixed deposit continues to earn higher interest, for example.

Also, as interest rates are expected to rise in future, try not to lock the money in a fixed deposit for longer than 12 months unless the offer is compelling. 

What is compelling? 

Well, interest rates are expected by some experts to go up by another 0.5% or 0.75% by end of next year. 

So, we could use that as a guide as to how much more a 24 months fixed deposit should pay. 

For sure, otherwise, I wouldn't go for 24 months or 36 months fixed deposits.

Don't restrict ourselves to what is being offered by the three local banks. 

Often, the foreign banks offer higher interest rates for fixed deposits. 

If we can get relatively attractive interest rates for a 6 months or 9 months placement at these banks, why not?





WAR CHEST

What about money in our war chest?

I believe I mentioned before how I use the concept of laddering with fixed deposits. 

This is especially pertinent for the money in my war chest. 

The basic idea is to have one or two fixed deposits maturing every other month or so. 

This is to ensure that I will have more funds available regularly, more funds from maturing fixed deposits that will add to my regular income, passive or not.

These are funds which I could use to invest in opportunities if they presented themselves. 

Otherwise, the funds and regular income, if any, go into a new fixed deposit or two.

For example, I had two fixed deposits which matured earlier this month. 

I had thought to keep the money close to me in case the stock market should continue its decline from August. 

As the stock market seems to be recovering nicely, I decided to lock away some of the money in two new fixed deposits last weekend, one maturing in April 2016 and another one in July 2016.

Right now, I have 7 fixed deposits and they are maturing in December 2015, April 2016 (2x), May 2016, June 2016, July 2016 and November 2016. 

The chance that I might have to prematurely terminate one or a few of these fixed deposits still exists, of course, but with laddering, staggering the maturity dates, I hope I wouldn't have to. 

I would like to have my cake and eat it too. Who doesn't?





OCBC 360, UOB ONE & CIMB

I hope I do not have to prematurely terminate any of my fixed deposits and the likelihood is reduced by the good size float I maintain in OCBC 360, UOB ONE and CIMB savings accounts, all of which offer higher interest rates for our savings without any lock up period.

However, these accounts only pay higher interest rates on savings provided that certain conditions are met. 

The amounts that could benefit from higher interest rates are also capped at $60K for OCBC 360 and $50K for UOB ONE.

For people who have more than $110K in savings or who are unable or unwilling to jump through hoops to get the higher interest rates, they might want to consider making good use of fixed deposits since CIMB only pays 0.8% in interest although their latest offer, the CIMB Fast Saver, offers 1% in interest for the first $50K in savings and 0.6% for anything above that.





I want to conclude by saying that for those of us who are less disciplined, even if we had $110K or less in savings, it would make sense to park our emergency fund (and even our war chest) in fixed deposits and not in OCBC 360 or UOB ONE. Why?

Well, after all, money in fixed deposits is slightly farther away compared to money in a savings account. Fixed deposits have locks.

Related posts:
1. How much should we have in emergency fund?
2. A special chest for emergency fund.
3. Getting paid more while waiting for opportunities.
4. UOB ONE or (new) OCBC 360?
(BOC's offer and updated OCBC 360 included.)
5. Standard Chartered Bank Bonus Saver?
(Added in July 2017.)