A letter from a 24-year-old fresh grad.

About a month ago, I published a very bracing email from a 66 year old retiree. The email affirmed that I have done good with my blogging efforts and I felt very much encouraged.

Of course, there are people, including eminent bloggers, who have been quite outspoken that my emphasis on investing in S-REITs in the last few years is only suitable for people who are older because they probably require a consistent income stream as they near or are in retirement.

My own stand has been and still is that what we invest in depends on our motivations for being invested. There is certainly nothing wrong with the young investing for income if that should be their inclination.

Today, I received an email from a 24 year old who has freshly graduated from the university.  He gave permission for me to publish his email which shows how pleased he is to be investing for income.

Hi Ak,

 

I've been a really avid fan of your site. I'm a 24-yr old fresh grad, who started investing 3 years ago.

 

When i first started, I read your blog with much interest, but great apprehension, because I didn't know much about investing early on.

 

After building a core portfolio, centering on S-Reits, my investing journey has been nothing but awesome.

 

First REIT is my best performing investment, and I would not have even bothered to look at it, if it weren't for your perspective.

 

In fact, my 3 year annualised gains for my entire portfolio is 22.67% per year! (In most part, thanks to you!)

 

So from the bottom of my heart, I sincerely thank you for all the good work that you have done, and for all the time and effort for crafting such good analysis and entries. :)

Sincerely,

ZZ

 

There isn't a holy book that everyone has to follow to invest in the stock market as far as I am concerned. There is more than one road to Rome and because others walk a different path from us does not mean that they are walking through rubbish.

 

There is room for diversity in this world and if a road takes us to where we want to go, it is in the right direction. Of course, we must first be clear on where we want to go and that is something we have to decide for ourselves.

 

Related posts:

1. A letter from a 66-year-old retiree.

2. Wealth creation in the stock market.

3. Market gyrations, my portfolio and a sabbatical.

 

Achieving $1m in retirement funds: Epilogue.

This is the final blog post which should be read together with the two I wrote this weekend to encourage young people to save and to invest in the stock market.

The aim of  "Retiring a millionaire is not a dream!" is to shake all negativity from the mindsets of the young who think that it is impossible for them to have S$1 million in cash (without counting the money in their CPF or selling their HDB flats) when they retire at age 65 in the distant future.



With the help of numbers provided by The Business Times, the companion blog post "What is S$1 million dollars at retirement? Peanuts?" aims to demonstrate how $1 million is enough for retirement expenses, given certain assumptions.

In this final blog post which would complete the trilogy of blogs, I am going to tell you that there is no need to constantly invest to achieve a 5% annual return on your investments. Then, why did I bother to say that in the first instance?

Simply because it was the easiest way to illustrate how being disciplined savers who invest our savings, we could make reality out of a dream.

You know what is the best way to make money from the stock market?

It is to buy at the depths of a bear market when even the best blue chips are bombed out. During the GFC, I bought many more units of First REIT at 42c and LMIR at 18.5c. During the deep correction at the end of 2011, I bought more AIMS AMP Capital Industrial REIT at 95c. There are many such examples.

However, without any money put aside, there is no way we would be able to take advantage of opportunities to buy on the cheap!

Indeed, we might not even have to wait for a bear market to buy bombed out stocks as mispricing by Mr. Market could happen anytime and my large purchase of units of Saizen REIT at under 13c per unit middle of last year is a good example.

So, once we have savings put aside for investment, we should hedge by investing some of it but we should not invest all of it because we must always have a war chest ready to take advantage of any mispricings by Mr. Market.

We want to buy low and sell high. This means to sell stocks which are overvalued and to buy stocks which are undervalued. The former usually takes place in times of great optimism while the latter usually happens in times of great pessimism. Doing this will make us quite a bit of money from the market. Add to this our monthly savings and any dividends received, we would do quite well.

Making financial projections with average rates of return is all fine and good in theory but, in practice, making money from the stock market requires a little more diligence on our part but it is definitely not rocket science.

With this, we end this weekend's trilogy of blog posts which hopefully have demonstrated to the 25 year old reader whose email started all of this that his scepticism could be put to rest. The ball is now in his court.

Related posts:
1. Retiring a millionaire is not a dream.
2. What is S$1 million at retirement? Peanuts?

Marco Polo Marine: Will buy more on pull back.

Marco Polo Marine is a turnaround story which is simply at the right place and at the right time. Of course, they have also positioned themselves to ride the next wave up. In the shorter term, however, we could see some weakness in its share price.

A retracement could see share price declining to the top of the recent base formation at 37c, give or take 0.5c, where we should see very strong buying interest. The formation of a white candlestick with a very long upper wick on the back of heavily increased volume in the last week suggests that a pull back is a strong possibility.

Weekly chart.

I would definitely buy more if support at 37c should be tested as the reaction to Marco Polo Marine's much improved numbers including the listing of its subsidiary in Jakarta seemed relatively muted. Marco Polo Marine's valuation is inexpensive compared to peers even at the high of 43c a share last week.

When Marco Polo Marine's numbers continue to improve and good news continue to be announced, more market participants will become believers and buy the stock. That is when we would see a truly breathtaking winning streak.

Related post:
Marco Polo Marine: Longer term buy on weakness.

CapitaMalls Asia: Buy more at $1.93.

Thanks to accumulation at much lower prices, my long position in CapitaMalls Asia is firmly in the black. The question I am faced with now is whether to sell.

Breaking out of a double bottom formation almost one year ago, the share price of CapitaMalls Asia has been climbing a wall of worries. On the weekly chart, the uptrend is clear to see. Could this continue? It could, of course.

Weekly chart.

However, with the MACD histograms not forming higher highs, we could see a pulling back in share price. When? That is harder to say.

This possibly impending weakness is, however, likely to be short lived as the CMF shows smart money pouring back into the stock. Hence, a pull back to support is likely to see strong buying interest.

Drawing a trendline to connect various lows, it is easy to see that the 20w MA is the support to watch. Using Fibo lines, we get a rough idea of where is the support in dollar terms in case a retracement should take place. In this case? $1.93 seems likely.

Remember, as always, that TA is about probability and could help to optimise returns but there is no certainty.

What is S$1 million at retirement? Peanuts?

In my last blog post, I made certain assumptions which would see a 25 year old saving and investing S$650 a month today having S$1,000,000 by the age of 65. As the blog's purpose was to show that retiring as a millionaire is not a dream, I only had to show that it is indeed achievable.

The next question which is of relevance is whether we can retire with S$1 million in cash in Singapore? This led me to search through my stack of The Business Times because I remember reading a recent article on this.

Cai Haoxiang wrote a piece on 7 January 2013 in The Business Times on the topic. In the article, he made certain projections as to what an average household's expenses on a monthly basis could look like in 2042. The projections were made using the Household Expenditure Survey 2007-2008 from the Department of Statistics as a base.

It was revealed that from 1997-1998, an average HDB household's expenses was S$2,681 and 10 years later in 2007-2008, it was S$3,138 or an increase of 17%. By 2042, assuming a core inflation of 2%, an average HDB household's monthly expenses would become S$6,400.

So, over a 34 years period, expenses could increase by some 104%. Let us assume that expenses would increase another 17% over another 10 years like it did from 1997/98 to 2007/08 and we would see monthly expenses for an average HDB household at S$7,488 a month.

S$1 million in the bank would last an individual 133 months or roughly 11 years assuming that the banks did not pay interest on savings and that there would be no inflation. Of course, these assumptions are unrealistic but we get an idea of how things might look like then. So, S$1 million would only last 11 years from 2052?

Let us not be too pessimistic. Remember that the survey is about average HDB households. What is an "average" household like?

In the article, it was mentioned that an average household would mean one with 3 to 4 members. However, it is unlikely that by the time we retire at age 65, we would still be supporting children or our parents. OK, with the former, it is possible if we became parents in our 50s and with the latter, it is also possible if our parents had us when they were very young or are of hardy stock.

However, these would be more exceptions than the norm, I would imagine. As both husband and wife retire in their 60s, it would be more realistic to imagine an average household with only 2 members, therefore. Then, their average monthly expenses would be much lower than a household with 3 or 4 members. Sounds less scary now, doesn't it?

Less scary it might sound but is S$1 million still enough for a couple of retirees in their 60s to live off in Singapore? Enough is really subjective, isn't it? So many questions need to be asked but with a household size of 2 average elderly folks, it could actually be enough.

Remember how I made the assumption of a 5% return on investments in my last blog post? If the 25 year old reader should stay invested, by the time he is retired at age 65, his S$1 million portfolio would be generating S$50,000 annually. Instead of re-investing the gains, it would be time to use it for his expenses in his golden years.

Now, let us not be chauvinistic. Let us assume that the future wife of the 25 year old reader should do the same thing he should be doing, setting aside S$650 a month in savings for investment and at the same rate of return, she could retire a millionairess! At age 65, her portfolio would also be generating S$50,000 annually assuming a 5% annual return.

Pause and imagine that. Smiling?

Remember that the journey is the hardest at the beginning. I would even describe the early years as being rather miserable. So, every time you are tempted to stray, every time you are thinking of giving up, come back and read these blog posts.

We don't have to be very rich when we retire but we should have enough and we should be happy.

Related posts:
1. Retiring a millionaire is not a dream.
2. To be a happy peasant.

Retiring a millionaire is not a dream!

I recently received an email from a reader in his mid 20s who just joined the workforce. Reading my blog at the recommendation of a friend, he wrote that he felt encouraged and sceptical at the same time. 

He wondered if it is really possible for him to become a millionaire (without having to sell his future flat) when he finally retires. Do you feel the same way he feels?

If we were to squirrel away $50 more per month in a biscuit tin from age 30 to 60, we would save another $18,000!




With the increasingly high costs of living in Singapore, it is easy to think that it is no longer possible to retire wealthy and having a million dollars in liquid assets seems to be a popular yardstick. 

I have a feeling that this belief is widespread amongst the young and, perhaps, the slightly less young too. 

This belief is very dangerous! It could be a self fulfilling prophecy!

Hey! Young people out there, listen up! You can become a millionaire by the time you reach retirement age or earlier! What's more, this is possible without even counting the money in your CPF or the value of your flat! 

AK is not pulling your leg. It is true.

I don't know how much money you make a month. I don't know how much money you spend a month. 

Of course, you know that I would say you should increase your income and reduce your expenses as the first step to wealth building. You already know that.

I won't tell you how much money you should spend a month. How could I tell you? Everyone's circumstances are different.

What I can tell you is how much money you should at least save a month! 

Now, based on this and with the knowlege of how much money you are spending every month, you would know how much money you must make a month to achieve the target of having a million dollars in liquid assets by the time you reach retirement age.

Young people have the most valuable asset in the world and that is time! Young people have time on their side.

The younger we start saving and investing for our retirement, the easier it is going to be. I know we hear this all the time from insurance salespeople and often, we brush them off because we believe that they are just out to make money from us. 

Well, AK is not an insurance agent and I am not going to make money from you listening to me. So, don't brush me off.

So, listen, what the insurance salespeople say is true. Yes, it is.





Now, let's work our calculators!

How much should we be saving and investing every month if we would like to have a million dollars in liquid assets by the age of 65?

Taking the example of the 25 year old reader who wrote to me, S$650, give or take a few dollars. Yes, only S$650 a month! Accumulate savings, buy stocks of good companies with about 5% dividend yield a year and re-invest the dividends. 

Saying nothing of possible capital gains, voila, you would have $1,000,000 by age 65!

The power of compounding is amazing and I have blogged about how money in our CPF-SA will grow 50% every 10 years even if we were to stop contributions today and this is from an annual interest of 4%!

What about the not so young? Well, if we start at age 30, we would need to put aside about S$880 a month. Not so bad. 

What about age 35? Ah, S$1,200 a month. Still manageable. 

Then, age 40? Hmmmm... S$1,680 a month. 

Later at age 45? S$2,430 a month! 

Wah! Sorry, I shouldn't shout.

OK, don't ask me for the monthly amounts for age 46 and above. I am in cold sweat.





Now, when I blogged about my passive income from S-REITs, I said that it is always hardest at the start. The Chinese say 凡事起头难. Hard to start but start we must.

To the 25 year old reader, believe me when I say that if you keep at it, your annual investment gains will eventually exceed the annual sum that you are saving and investing. 

Yes, your annual investment gains will exceed S$7,800 at some point in time and it will continue to grow if you continue to do the right thing.

Now, pause and picture that. Are you smiling?

If you know anyone who feels the same way this 25 year old felt, tell them that AK will shake them hard by the shoulders. 

Nah, let's not be violent. 

Just tell them to read this blog post. 

It won't take too much time but it could change someone's life.

Remember, all of us can do it!

Related posts:
1. 7 steps to passive income from stocks.
2. If we are not rich, don't act rich.
3. Warren Buffet, the world's greatest money maker
4. Rich Dad, Poor Dad: 2 are better than 1.
5. Recommended books for FA and TA.
6. 7 money habits of AK71's.
7. What is $1 million at retirement?
8. Achieving $1 million in retirement funds.