Ever since the CPFB introduced a colorful pie chart of our CPF savings a few years ago, I would look forward to mine every year like a teena...
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It was something I played but only for a bit and I enjoyed the anime.
I didn't have a deck of my own as it was too expensive to build one.
I had to use a friend's deck.
It was so long ago.
Old brain.
So rusty.
It is a strategy game that really tests my ageing brain which is a good thing.
Helps to slow the onset of dementia, maybe.
Anyway, like I said in a previous blog post, I have been contemplating just buying T-bills and bonds from now on.
Of course, if the yields decline, I could always go back to making contributions to my CPF account.
Regular readers know that I treat my CPF savings as an investment grade bond component of my portfolio which pays reasonably attractive coupons.
This way, I would continue to grow the risk free component of my investment portfolio.
I must realize and embrace the fact that I don't really have to take on more risk anymore although I could still buy more stocks if Mr. Market goes into another severe depression.
Like I said several times before, that would be the time to dismantle my T-bill ladder.
Doing this, buying T-bills and bonds in the meantime, price volatility on the portfolio level would reduce over time.
The last T-bill auction saw a cut-off yield of 3.74% p.a.
Until the Fed reduce interest rate, I am expecting similar cut-off yields for the time being.
I have put in a non-competitive bid for the upcoming auction happening on this Thursday, 18th of January.
The latest Singapore Savings Bond is offering only 2.81% p.a. in 10 years average yield.
So, that is an easy skip for me.
In any case, I am in no hurry to buy more Singapore Savings Bonds since whatever I want to buy to replace voluntary contributions to my CPF account in 2024 was filled last year.
If the yield remains low for the rest of the year, I will go back to doing voluntary contributions to my CPF account in 2025.
I don't usually look at my CDP statement these days because I really dislike looking at it online.
So uncomfortable.
I miss the paper statements so much.
Yes, I know the argument for going green but I am not sure that going from chopping down trees to guzzling energy in data centers is a good trade or not?
After all, we can replant trees but unless we are using renewable energy, data centers are big polluters, if we think about it.
1. SSBs
Anyway, I had to check my CDP statement just to be sure that my paper records are accurate for Singapore Savings Bonds.
As it turns out, there was a Singapore Savings Bond which I thought of buying but wasn't sure if I could.
"Although I am sticking to my strategy of growing the investment grade bond component of my investment portfolio, there might no longer be a hurry to lock in higher yields for the longer term now."
I said that because we could see yields staying higher for longer.
So, I have been nibbling at Singapore Savings Bonds in the past 2 months.
This month's offer by MAS is 3.4% p.a. in 10 year average yield which is a tad higher than 3.32% p.a. we saw last month.
I will be nibbling again.
How much is that exactly?
Only $5K.
That qualifies as a nibble for me.
Q4 and Q1 are going to be leaner for me in terms of passive income I receive from my investments.
So, I will have to be more careful with money.
As for T-bills, I will continue to maintain the ladder from the next auction.
I won't be strengthening the ladder for a while as I set aside some funds for the purchase of SSBs.
Someone actually suggested that I rejoin the workforce so that I wouldn't have to do such juggling act when it comes to money.
Of course, I share my CPF numbers at the start of every year, showing how much interest income is paid to me.
This interest income is not included in my quarterly passive income update.
Why?
The CPF interest generated is not immediately available for withdrawal to be used in any way we like.
We will be allowed to withdraw any CPF savings in excess of the Full Retirement Sum and the Basic Healthcare Sum when we turn 55 and not earlier.
My quarterly passive income report has always been about income generated by my investments in the stock market.
This year, however, my investment portfolio also includes bonds.
In the last one year or so, with bond yields much higher, I have also been buying Singapore Savings Bonds and T-bills.
So, my quarterly passive income report this year has another flavor.
A sprinkling of fixed income.
With bonds being much more rewarding now than 1 year ago, I am going to continue strengthening my T-bill ladder and, hence, enlarge the bond component of my portfolio.
I am a lazy fellow and would always go for low hanging fruits first.
Taking advantage of the CPF-SA and the CPF-MA was an easy decision so many years ago.
Taking advantage of the higher bond yields now is another easy decision for me.
To be sure, the coupons received from bonds will not make an earth shattering difference to me even as they nudge my quarterly passive income a little higher.
However, if we focus on this difference, we are missing the point.
What's the point then?
This is risk free and volatility free.
There is assurance that we will get paid during good and bad times.
This is very comforting to me.
Having such a component in my investment portfolio helps to smooth out rough patches which are bound to appear from time to time.
All else being equal, I will continue to increase exposure to this asset class in 2024.
Before I start doing other stuff today, I decided that I would quickly talk to myself about my 2Q 2023 passive income, and also what I plan on doing for the rest of the year in the investment space.
When I talked to myself about my 2Q 2022 passive income, I titled it "Stronger with changes."
In 2Q 2022, total passive income received was about S$63,980.
It was an impressive 42% year on year increase.
Since then, I have continued to re-allocate resources although on a smaller scale.
This exercise has proven to be fruitful as 2Q 2023 passive income came in at $79,774.61.
This is an almost 25% year on year increase.
Hence, the unimaginative title for this blog.
"Stronger again!"
Higher dividends from the following entities did most of the heavy lifting:
1. DBS
2. OCBC
3. UOB
4. Wilmar
5. ComfortDelgro
6. AIMS APAC REIT
These are some of my largest investments.
So, the higher dividends from them have an outsized impact which more than compensated for the reduced dividends from some of my smaller investments for income such as Ho Bee Land and VICOM.
To be fair, not all of my smaller investments for income reduced dividends.
Raffles Medical Group and Hock Lian Seng paid higher dividends, for examples.
Passive income in 2Q 2023 also benefitted from contributions by Singapore Savings Bonds and T-bills.
These were missing in 2Q 2022.
I will continue to re-allocate resources in my investment portfolio for the rest of the year.
This means moving funds into investments which I feel would generate meaningful income for me while maintaining relatively strong balance sheets.
I would also inject fresh funds into my portfolio whenever circumstances permit.
While re-allocation of funds is for increasing my investments in businesses like OCBC and UOB, the injection of fresh funds is probably going to the strengthening of my T-bill ladder.
This strategy will help to ensure that I maintain a more meaningful exposure to quality fixed income which is relevant to a person with circumstances like mine.
I am more interested in having a stronger base for my investment portfolio which ensures stability.
If I have should have more excess funds to deploy, I would increase exposure to Wilmar if its common stock should decline to $3.50 or even $3.00 a share.
The same goes for ComfortDelgro if it should ever decline to $1 a share or lower, all else being equal.
As I did not participate in AIMS APAC REIT's recent rights issue, I must expect a reduction of approximately 10% in my passive income from the REIT in future.
Even if I did participate in the rights issue, I would still experience a reduction in my passive income from the REIT unless I applied for more excess rights so that the total number of rights units was 3x that of my entitlement.
Of course, I would have to be successful in getting those excess rights as well.
I have instead decided to channel more funds to IREIT Global's rights issue to apply for more excess rights which would generate more passive income for me.
To be realistic, I am unlikely to get all that I have applied for.
Even if I should be unsuccessful in getting any excess rights, as IREIT Global's fund raising exercise does not have a private placement component which I am not invited to, I would not see any dilution which would lead to a lower DPU.
If I should be successful in getting even some excess rights, it would mean having a bigger share in some attractive properties which are already generating income.
Having said this, any injection of fresh funds is likely to be a slow trickle as I have limited excess funds after taking into consideration my commitments.
I think that is all for now.
Until the next time I talk to myself, remember this.
If we are interested in achieving financial freedom, investing in bona fide income producing assets can only be a good thing.
This blog is just a bit longer than the video because I had a bit of problem with the voice recording.
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I have been asked many times before if I was ever bored in my early retirement.
To be quite honest, I find that question boring.
It was never something I was worried about because I was never married to my job.
I had many things I wanted to do but just didn't have the time for them.
So, I tell people that I am as busy now in my early retirement as when I was gainfully employed.
What I did worry about was whether I would have enough funds to retire early?
I was worried if I planned it right as I didn't fancy the possibility of rejoining the workforce.
That was during a time when I didn't know what was LEAN F.I.R.E.
Of course, if you have been following my blogs, you know what I think of that idea.
Having said this, all of us have different circumstances and, to be fair, LEAN F.I.R.E. could work for some people.
However, for people like me who have aged parents and for those who have children, if we want to retire early, it is financially more demanding.
We cannot afford to be too optimistic that things will work out on their own somehow.
There is only so much belt tightening we can do if things do go wrong.
For people who have dependents, early retirement is more demanding as we have to ensure our financial resources are sufficient to support more people.
Although my passive income seems massive to some people, once we take into consideration my expenses, it doesn't leave much room for error.
I don't track or blog about my expenses in detail, but I have blogged about my budget in whole numbers before.
In an earlier blog in 2019, I said I would need around $120,000 in passive income to cover my own expenses, parental support and CPF contribution.
$40,000 per item.
Then, in another blog sometime later, I said that given the higher inflation we were seeing, I would increase by 20% the money for my own expenses and parental support.
That would bring total passive income required yearly to $136,000.
Fortunately, passive income generated by my investment portfolio, excluding interest earned in my CPF account, has been able to cover this.
Of course, regular readers know that I will not be making any voluntary contribution to my CPF account in 2023 and 2024.
This is because money earmarked for this purpose has been used to buy Singapore Savings Bonds when they offered 10-year average yields of more than 3% p.a.
My plan is still to continue saving money in my CPF account or buying Singapore Savings Bonds till I turn 55.
When I turn 55, I could continue with this plan, or I could decide to enjoy life a little more.
I was more inclined towards continuing to save more money in the past, but the COVID-19 pandemic got me thinking.
Life could be cut short quite unexpectedly.
Yes, the COVID-19 pandemic changed the way I look at many things, including investments.
So, there is a high chance that in another few years from now, I would only need $96,000 a year in passive income as I stop earmarking money for CPF contributions.
Just need money to cover my own expenses and parental support.
Of course, we don't live forever.
Although I wish my parents would be around for a long, long time, I am not sure they want to outlive me.
The day I become an orphan, I would only need $48,000 in passive income per year, all else being equal.
When I think of this, melancholy sets in.
It is bittersweet.
OK, I shan't be maudlin about it.
I am just going to talk about finance here.
Well, it seems that, over time, I will become richer than I ever was without having to do anything differently from what I am doing now.
My investment portfolio should still be generating passive income and even if that doesn't grow, over time, my wealth could grow as my expenses shrink.
I don't think I would ever need to draw on my CPF savings.
So, over time, just from compound interest, that should grow too.
Anyway, what is the message here?
Early retirement is definitely financially more demanding for people with dependents.
However, if we are able to achieve this, we are likely to do better financially over time even when we become aged.
Just remember that we cannot be too adventurous, and we should be able to avoid financially catastrophic mistakes which might force us to rejoin the workforce.
Anyway, this is just me talking to myself about my experience and perspective.
If you have made it this far, you could be just as mental as me.
As for the Singapore Savings Bond offered this month, the 10 year average yield is 2.82% p.a.
This is just a very little bit higher than the 2.81% p.a. offered last month.
Fortunately for me, where Singapore Savings Bond is concerned, my mission for the year is complete.
So, is this something I am looking at just for fun?
Well, partly for fun.
I am also interested in monitoring this for a practical reason.
If the 10 year average yield should go above 3% p.a. again, I could bring forward the plan to inject funds into my CPF account in 2025.
After all, the funds I have used to purchase Singapore Savings Bonds this year were earmarked for CPF voluntary contributions in 2024.
Unless interest rates for CPF OA and SA increase meaningfully, it still makes more sense for me buy Singapore Savings Bonds as long as their 10 year average yield is higher than 3% p.a.
Oh, I produced a YouTube video recently.
Please watch only if you want some comic relief and have a good sense of humor.
You have been warned.
Just talking (and giggling) to myself, of course.
T-bills are still offering more attractive yields than the CPF ordinary account.
This is because the front end of the yield curve is still elevated.
An inverted yield curve has historically been a pretty reliable indicator of a coming economic recession.
This is another reason for having a meaningful exposure to fixed income.
If a recession should hit, the equity market would likely see drawdowns.
Then, I could dismantle my T-bill ladder to increase my exposure to equities.
We have both Singapore Savings Bond and T-bill allotment results today.
As I increased the amount of money for both, I was crossing fingers for a full allotment in Singapore Savings Bond and also a relatively good cut-off yield for the T-bill.
Getting a full allotment in Singapore Savings Bond would not only mean mission accomplished with regards to money meant for voluntary contribution to my CPF account in 2024.
It would also mean possibly locking in a 10 year average yield of greater than 3% per annum which we might not see again from a Singapore Savings Bond for some time to come.
This is a possibility with interest rates softening in recent months.
If I did not get a full allotment and if the 10 year average yield of Singapore Savings Bonds offered for the rest of the year should be lower than 3% per annum, then, I would have to do a voluntary contribution to my CPF account in the month of December later in the year.
Well, it seems that luck is on my side.
A total of $700 million was offered in Singapore Savings Bond but the applications within individual allotment limit totaled $697.2 million.
So, my application with a sum of $22,000 was fully allotted.
Mission to put $38,000 meant for CPF voluntary contribution in 2024 to work for a higher average yield is accomplished.
I will have one less thing on my mind and this makes me happy.
As for the 6 months T-bill, I have always placed non-competitive bids when using cash on hand since I am only a small timer.
Anyway, even a 3.65% cut-off yield would still be more attractive than fixed deposit rates offered by DBS, OCBC or UOB now.
The fact that the "interest" is paid at the start of the 6 months term means that the effective interest rate is actually higher too.
The latest auction's cut-off yield is 3.83% p.a.
This is a positive surprise as I had expected the cut-off yield to trend lower after the last 6 months T-bill's cut-off yield of 3.75% p.a.
This is doubly or triply good news for me since I had put in a non-competitive bid with a sum of $15,000 instead of $5,000 which I had originally planned to do.
My T-bill ladder is complete and the plan is to continue rolling funds from maturing T-bills into new T-bills as long as the front end of the yield curve remains elevated.
Make hay while the sun shines.
I am still on the path to preserving capital, believing that cash is not trash in the current environment.
With so many things that could go wrong in the world nowadays, it is probably not a bad idea to be slightly more defensive.
As an retiree investor for income, it gives me greater peace of mind to reduce beta or volatility in my portfolio.
This is done while ensuring that my investment portfolio continues to generate sustainable passive income for me now and in the future.
For sure, not everyone will find this path that I am on an interesting one as it is probably quite boring.
However, we can all come up with a plan to invest in bona fide income generating assets if we want to achieve financial freedom.
This is a quick update on my plan to save for income published in a blog at the beginning of April.
Back then, I said that I should be able to set aside $10,000 to apply for Singapore Savings Bond this month.
However, I have increased that figure to $22,000.
This is because a 5 months fixed deposit placed with DBS matured and I forgot I had it.
So, with more money at my disposal, I have decided to apply for $22,000 instead of $10,000.
Why $22,000?
If I should be successful in getting a full allotment, together with the $16,000 in Singapore Savings Bonds allotted in March, I would have hit $38,000.
$38,000 is the amount I had planned on setting aside for voluntary contribution to my CPF account in January 2024.
"A spokesperson for Hong Leong Finance said that rates for fixed deposits have generally dropped slightly in the past two months.
"Singapore Overnight Rate Average (SORA) remains relatively high and inflationary risk will take time to ease.
"At the back of an uncertain economic outlook, rates are likely to soften later in the year.
"A Maybank spokesperson highlighted the impact of US Federal Reserve interest rate hikes on interest rates in Singapore.
"As Singapore dollar interest rates have a positive correlation to the US dollar, we can expect that if inflationary pressures recede, interest rates should soften if there is a recession risk." Source: CNA.
So, for anyone with a fixed income component in their investment portfolio, it is probably not a bad idea to lock in higher interest rates now, if possible.
I will talk a bit about what has happened in the fixed income space first.
As expected, the latest 6 months T-bill auction closed with a higher cut-off yield of 3.85% per annum compared to the previous issuance which had a "shockingly low" cut-off yield of 3.65%.
A couple of weeks ago, I produced a video which shared my thoughts on what a further interest rate hike by the Fed would mean for certain assets.
You can watch or listen to it here:
The latest Singapore Savings Bonds offer which closed on Wednesday was oversubscribed.
A higher 10 year average yield of 3.15% per annum attracted Mr. Market's attention, no doubt.
3% per annum 10 year average yield, I believe, is the threshold to watch.
The Singapore Savings Bonds which were undersubscribed earlier in the year offered lower 10 year average yields of 2.97% and 2.9%.
As long as the 10 year average yield is above 3% per annum, it makes more sense to me to put money in Singapore Savings Bond than to do voluntary contribution to my CPF account.
My application for the latest Singapore Savings Bond with $16,000 of money which would have been earmarked for CPF voluntary contribution in 2024 was fully allotted.
After this, I would have another $22,000 from future dividends to deploy to either Singapore Savings Bond or CPF for the rest of the year.
Total amount of money to be deployed this way in 2023 is $38,000.
Not to rehash too much, I am providing links to two blogs about changes to my portfolio in the months of January and February here:
You might want to watch or listen to a YouTube video I produced on AIMS APAC REIT here:
CapitaLand China Trust's much higher DPU was surprising because I remember reading somewhere that their DPU reduced.
I checked and apparently, there was a 2 cents per unit entitlement declared.
If not for this, DPU would have been much lower at 1.4 cents instead of 3.4 cents.
OK, they give, I take.
If things do not improve significantly from here and if I do not put more money to work, then, year on year, I could see a decline in passive income in 1Q 2024.
Of course, what I receive in passive income for the whole year is more important than what I receive in a single quarter.
If 1Q 2024 should turn in a lower amount of passive income, hopefully, 2Q and 3Q in 2024 could help make up for it.
In the same vein, I am looking forward to passive income in 2Q and 3Q this year as, for me, their numbers are usually much bigger compared to what 1Q and 4Q bring to the table.
Having said this, my portfolio's 1Q 2023's performance is not too bad.
It is the result of putting more money to work and also the higher income generated by a few of my investments.
To be honest, it definitely benefitted from a splash of luck too.
It is important to remind myself that luck is unreliable and we should always be prepared for crises.
Pertaining to this point, you might be interested in this YouTube video I released recently:
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