A fortnight of banking crises and what did I learn?

Three signs of a banking crisis.

First is credit risk.

This is when loans turn bad and debtors are unable to make repayments.

Other assets can also turn bad and are unable to generate income required to make loan repayments.

We could see this playing out in the U.S. commercial real estate sector.

It also means it will be harder for certain borrowers to access credit.

Refinancing also becomes difficult as banks become more selective and risk averse.

Credit will tighten significantly as there will be heightened scrutiny of borrowers' credit worthiness.

Second is liquidity risk. 

We might see withdrawals by depositors exceeding the available funds held by the banks.

This could lead to panic and runs on banks.

We saw this happened to Silicon Valley Bank in the U.S.A.

Later on, we also saw depositors withdrawing large amounts from First Republic Bank.

Even the $30 billion infusion provided by 11 big U.S. banks was insufficient.

Both S&P and Moody's downgraded First Republic Bank to junk.

Third is interest rate risk. 

Rising interest rates reduce the value of long duration bonds held by banks.

This leads to weaker balance sheets.

In case many depositors need to make large withdrawals at the same time, banks might be forced to realize those losses by liquidating these long duration bonds.

Funding cost for banks can also rise further as they pay more to their depositors.

Funding cost could, in some instances, be higher than what banks receive in interest payments. 

This could be the case if many long term loans on fixed rates were taken by the banks' customers before the interest rate hikes.

What is a systemic banking crisis?

A systemic banking crisis occurs when a large number of banks in a country have solvency or liquidity problems.

It could happen because of external shocks or because failure in one bank or a group of banks spreads to other banks in the system.

So, this explains why the U.S. regulators took over Silicon Valley Bank and Signature Bank very quickly.

It also explains why they moved to guarantee all deposits, even those larger than $250,000 insured under the F.D.I.C.

It was to prevent the failure of these two banks to spread to other banks in the system although in so doing, the U.S. regulators created a moral hazard as bad actors are not punished but bailed out.

Systemic banking crises are financial nightmares. 

These crises often result in deep recessions for the countries concerned.

This is because banking crises usually affect consumer and business confidence.

Spending, investing and lending on all fronts reduce because of extreme fear.

Banking crises in major economies could also spread to other countries, resulting in a global banking crisis.

This is called a contagion.

This is why the Swiss authorities assigned partial blame for the collapse of Credit Suisse to the recent U.S. banking crisis.

After all, often, it is a crisis of confidence arising from heightened fear that is more damaging to the banking system and economy than any other crisis.

We could yet see Mr. Market going into another depression as an economic recession looks more likely now than ever to hit the U.S.A. in the not too distant future.

Recently published:
DBS, OCBC and UOB test supports. Bitcoin to $1m a coin?

Ticketing for "Evening with AK and friends 2023" is ongoing.

Fear is palpable! Market crashing again? Reminders.

The week started with the shutting down of Silicon Valley Bank and Signature Bank by U.S. regulators.

The U.S. regulators announced measures which ultimately bailed out the banks.

Then, we saw Credit Suisse reporting "material weaknesses" and the Swiss National Bank stepping in to backstop the troubled bank.

Credit Suisse took a 50 billion Swiss Francs loan from the Swiss National Bank to strengthen liquidity.

Then, a consortium of 11 largest U.S. banks rescued First Republic Bank, the 13th largest bank in the U.S.A., by jointly depositing US$30 billion in the troubled bank.

After all that happened, Mr. Market ended the week with a dramatic down day in the U.S. stock market on Friday.

The Fed increased interest rate a year ago in March 2022 for the first time since 2018. 

Since then, the rapid rate at which interest rates have been increased has caused a lot of pain for homeowners as well as investors in the real estate space.

The pain is most keenly felt in the high growth but negative earnings tech space and if you are a tech investor, you know this firsthand.

The people who said that something would break under the growing pressure of such rapid rate hikes are now looking rather prescient.

What would they say now?

Not surprisingly, that things will continue breaking as long as the Fed continues to hike interest rates.

With the ECB having hiked interest rates in the EU by another half a percentage point, the Fed is probably going to hike interest rates in the U.S. next week too as they stick to their plan to fight sticky inflation.

Mr. Market, already jittery, while initially assured by the show of solidarity in the U.S. banking industry, became depressed again on Friday when First Republic Bank suspended dividends.

In an environment where depositors could lose their savings and where investors in both stocks and bonds are losing money, heightened volatility in the stock market is unsurprising.

Fear is palpable.

It drives Mr. Market into self-preservation mode.

If the confidence deficit continues, then, more money could flow to the perceived safety of U.S. government bonds, and we could see yields lower.

During the COVID-19 pandemic, I blogged about how I was worried because my passive income was reduced due to my businesses either suspending or reducing dividends.

My relatively high level of CPF savings was the only "investment" that continued to pay what I expected it to pay, uninterrupted, which highlighted to me the importance of having an allocation to high quality fixed income in any portfolio.

So, I can understand Mr. Market's negative reaction to First Republic Banks's decision.

Many people depend on dividends for a living or to at least fund part of their expenses.

The still troubled bank saw its stock price recovering from a day ago on Thursday only to see it plunging 32% on Friday.

When the bear comes out of its cave, none is spared, and we saw the stock prices of large U.S. banks beaten down too as even JP Morgan saw a 3.78% decline in its stock price.

When Mr. Market is gripped by fear, he becomes irrational, and the baby gets thrown out with the bathwater.

As U.S.A. is still the largest economy in the world, what happens there often spreads to the global markets.

So, we could see Asian markets echoing that fear in the U.S. stock market.

I have said many times before that we cannot predict what will happen but if we are prepared, we need not worry and we could instead benefit.

Don't be overly pessimistic.

Don't be overly optimistic.

Be pragmatic.

This week, I was on steroids. 

I have published too many blogs regarding the stock market and what my plan might be.

So, if this is your first visit in as long a time, you will have a lot to read.

Have a good weekend.

Recently published:
US$30b rescue! T-bills 3.65%! Banks or REITs?

Ticketing for "Evening with AK and friends 2023" is ongoing.

Evening with AK and friends 2023. Confirmed.

On 19 February, when I blogged about "Evening with AK and friends" coming back this year, I wasn't bluffing.

Still, it does feel somewhat surreal because I didn't plan to do this. 

The whole thing happened rather spontaneously in response to readers' comments.

I know that my blog isn't as well set up and that some readers have trouble getting updates.

At least, that is what I have been told.

Some readers asked if they could reserve seats for the event but, unfortunately, the ticketing system isn't smart enough to do it.

So, blogging about the event before ticketing starts is probably the best option as it, hopefully, gives readers who might only check my blog once every few days a better chance to secure a ticket.

Ticketing for the event will start on 13 March 2023 (Monday) in the afternoon.

Date and time of event:

10 May 2023 (Wednesday.)

7.00PM to 10.00PM.

Location of event:

Lifelong Learning Institute.

11 Eunos Road 8, Event Hall 1-1, Singapore 408601.

Total number of seats:

300 only.

Ticket price:

$38.00 each.

Auspicious number!

Although the event starts at 7.00pm, please try to arrive earlier for registration at the door.

Otherwise, my friend, Kenji, who is helping me to organize the event is going to be overwhelmed.

Maybe, 15 to 20 minutes earlier.

Another important reminder.

Please have your dinner before coming to the event. 

You might also want to bring a bottle of drinking water and maybe a snack.

Not for AK but for yourself, of course.

We will try to have a break every 50 minutes or so but there wouldn't be enough time for you to go get dinner during the breaks.

Photo taking with AK is a must and that is what the breaks are for, of course.

I know a reader who pinned his photo taken with AK on a corkboard in front of his computer desk with the words "IF AK CAN DO IT, SO CAN I!"

Win liao lor!

He got good value for his money!

Yes, remember, come for the fun and laughter.

"Evening with AK and friends" is just an epic chit chat session. 

It is definitely nothing profound.

If you think AK might be sharing some hot and steamy stock tips, don't come.

You have been warned.

So, if you are absolutely sure you still want to attend, please bookmark my blog and come back on 13 March 2023 (Monday) after lunch in the afternoon to get your ticket.

I will publish another blog with updates then.

Recently published:
Buy bonds, not stocks in 2023?
Related post:
Evening with AK and friends 2023. Incoming!

US$300K portfolio sunk. Buy bonds, not stocks in 2023?

Reader says to AK:

Bond yields are rising again.

T-bills and Singapore Savings Bonds are looking  more attractive again.

I know you have always put money in your CPF account and, now, you are putting money in T-bills and Singapore Savings Bonds too.

I am now wondering if I should follow.

The Federal Reserve will continue to pursue their plan to keep increasing interest rates until stubbornly high inflation is under control.

We could see Fed Fund Rate at 6% or more.

This is going to impact earnings badly, crush equities and REITs, sending economies into recession.

I am worried about a hard landing and I am at a crossroads trying to decide if I should partially or wholly liquidate my US$300,000 portfolio or what is left of it in the US stock market which includes tech names. 

I also have exposure to US commercial REITs listed on SGX.

(Sensitive details omitted.)

Put more money into fixed income like you?

What is the best way forward?

I know you would say you don't give advice but please talk to yourself on this.

AK says to reader:

Let me cut to the chase.

You have misunderstood what I have been doing or at least the purpose of my actions.

It is true that I have always done voluntary contributions to my CPF account even as a "young" retiree, maxing out the annual contribution limit.

If you remember, it is not only because I think of the CPF as a risk free and volatility free AAA bond which pays a relatively attractive coupon.

It is also because I have always believed that we need some high quality bonds in our investment portfolio.

An investment portfolio that is 100% in equities is probably going to be more volatile and not everybody has a strong enough situation to accept more volatility.

It is also about not putting all our eggs in one basket because we don't know what we don't know.

Watch (or listen) to new YouTube video on buying bonds or stocks in 2023 by AK Production House:

As for my increased activity in the Singapore Savings Bond space, it is just a replacement for my activity in the CPF space.

I am not increasing allocation to fixed income in this instance, therefore.

As for my increased activity in the T-bill space, I am mostly just locking up money which was locked up before.

If that sounds like money which I would never have put in the stock market anyway, it is exactly that.

I am still very much invested in the REITs and businesses which I blog about regularly.

I think you know this but you might have been thinking a bit too much and need to clear up the mind fog.

Of course, I must say that I do not invest in the US stock market, tech stocks or not, and I do not have any exposure to US office REITs.

So, the equities and REITs in my investment portfolio would look very different from what you have in yours.

However, I will say that if you are losing sleep because of your investments, you could have put in more money than you should have and, in such an instance, reducing exposure to a level which gives you some solace might be a good idea.

Watch (or listen) to new YouTube video on buying US office REITs by AK Production House:

If I were you, I would go back to basics, especially if you are 100% in equities and if you do not have CPF savings.

Do you have an adequate emergency fund? 

If you do, that is the money you can put in T-bills and Singapore Savings Bonds. 

Why?

Well, that is money which should never be put to work in equities anyway.

Quite simply, if you should ever need the money in an emergency, you don't want to be at the mercy of Mr. Market.

You don't want to be in a situation where you must accept whatever price Mr. Market should offer because you don't have a choice.

An emergency fund is insurance.

I know some investment "gurus" say we don't need an emergency fund but it really is necessary.

I know some people would use their emergency fund to buy stocks but that is so wrong.

An emergency fund is not an opportunity fund!

What if an emergency should come hot on the heels of a supposedly good opportunity?

Swans are not all white in color.

I am going to leave a link to a blog which you might or might not have read before as I think it will be helpful to you.

You might want to take a break from the stock market if things are freaking you out.

Peace of mind is priceless.

Watch (or listen) to new YouTube video on retirement income for life by AK Production House:

References:

1. Buying US office REITs in 2023?

2. Survivability and opportunity in times of distress.

Related posts:
1. Largest investments.
2. T-bills, SSBs and CPF.

The Business Times, 6 Mar 23:
Holding cash will be a winning strategy in 2023.

SSB, T-bill, CPF & UOB ONE. Use them. My plan.

A few months ago, I said that it made more sense for me not to do voluntary contributions to my CPF account and to buy Singapore Savings Bonds (SSBs) instead. 

That was when Singapore Savings Bonds were offering 10 year average yields of more than 3% p.a. and it happened for 3 months in a row in 4Q 2022.

Money meant for voluntary contribution to my CPF account in January 2023 were all very nicely deployed into SSBs without any leftovers.

This year so far, SSBs have been offering lower than 3% p.a. in 10 year average yields which is less attractive than the what my CPF account offers.

Of course, what the CPF offers each of us is different based on our age group and how much we have in the Medisave Account. 

The percentage allocation to the Ordinary Account, Special Account and Medisave Account would be different from person to person and could result in a different average interest rate for each of us.

Anyway, before I veer farther off track, if the SSBs continue to offer a lower than 3% p.a. in 10 years average yield for the rest of the year, I am not worried as I would resume voluntary contribution to my CPF account then.

I could do this in the month of December instead of waiting till the new year which was what I had to do in years past.

This is because I have yet to do any voluntary contributions this year, of course.

So, one month in advance for a one month extra interest income.

For now, I will wait and see what the SSBs will offer in the months ahead all the way till December.

After all, the Fed is not done raising interest rate yet with probably a couple more hikes incoming.  

I know many are saying that inflation has been tamed but if inflation in the USA remains elevated, there could be more than just a couple of 0.25% hikes left to go. 

In such a case, we could see yields going higher especially if the US dollar strengthens against the S$.

In case you are wondering why the strength of the S$ is a relevant consideration, it is quite simple. 

A stronger S$ means our country would not have to offer higher yields to compensate bond holders because the S$ is more valuable and bond holders would gain from the exchange rate.

I am veering off track again.

Anyway, what is the plan or, more accurately, my plan?

1. Set aside $42K from my passive income generated this year for voluntary contribution to CPF in 2024.

Money meant for voluntary contributions can be deployed in December 2023 while money for top up to the Medisave Account will be deployed in January 2024.

2. Wait and see if SSBs offer more than 3% p.a. in 10 year average yield in the coming months.

If they do, deploy funds meant for the CPF in 2024 into SSBs instead.

If they don't, use the funds to get 6 months T-bills as long as the yield curve remains inverted which means the front end of the curve remains more rewarding.

Total amount to be deployed this way is $38,000.

3. The strategy of using 6 months T-bills can only extend till June or July 2023 because I will need the funds to be ready for voluntary contribution to my CPF account in December 2023 or January 2024.

If SSBs continue to offer lower than 3% p.a. in 10 year average yield from August to December or the last 5 months of the year, any money meant for CPF voluntary contribution coming in after July 2023 will have to sit in my UOB One Account.

I do not enjoy the highest tier interest rate offered by UOB One Account as I do not have any earned income to credit. 

However, it still offers a relatively attractive interest rate at least for money which cannot be locked up for a few months.

All I have to do is to spend $500 on the UOB One Card and have 3 monthly GIRO transactions.

I meet these conditions every month, anyway.

If you are new to eavesdropping on AK, I do have a significant exposure to equities while the CPF, SSBs and T-bills together form the fixed income component in my portfolio.

See:
Banks and REITs dividend machines? T-bills, SSBs and CPF?

I am mental and this blog is really more for myself as I don't want these thoughts to keep circulating in my mind.

You have been warned.

I use my blog as a "Pensieve."

What is a "Pensieve?"

You didn't watch the Harry Potter movies?

"The Pensieve was a magical device used to review memories." 

Source: Harry Potter Wiki.

My mind feels lighter now.

Recently published:
Changes to portfolio in Jan 23.

Related blogs:
1. CPF or SSBs?
2. Growing passive income?
3. $1.1m in CPF savings!

Banks & REITs Dividend Machines? T-bills, SSBs & CPF?

If you have been following my blogs, you might remember that I have been buying T-bills and Singapore Savings Bonds. 

The plan is to continue maintaining a meaningful fixed income component in my investment portfolio.

Of course, if you have been following my blogs for even only a couple of years, you would know that I have been maxing out voluntary contributions to my CPF account. 

This is because I treat the CPF as an investment grade sovereign bond.

However, for most of us, fixed income alone is not enough if we want to achieve financial freedom.

If I had parked my money only in fixed income, I would not have been able to achieve financial freedom.

I definitely would not have been able to retire before I turned 45 almost 7 years ago.

So, what to do?

We should invest for even higher returns. 

We should also be investing in equities for income.

A big investing theme in my blog for many years now has been to invest in DBS and OCBC, with UOB being added during the pandemic bear market.

I have also mostly been successful investing in some REITs like AIMS APAC REIT, for example.

For most of us, investing in equities is one of the least demanding methods to generate passive income as it has a relatively low barrier to entry.

With smallish sums of money, we can invest in bona fide income generating assets and businesses. 

These are businesses which have the ability and will to share the fruits of their labor with investors.

Investing for income is not sexy and doesn't send my heart racing which is not a bad thing if you have a weak heart like mine.

The bulk of my returns from the stock market is in the form of dividends and I blogged about receiving $2 million in passive income over the last 13 years.

However, to be honest, investing for income can be risky too if we do not know what to avoid.

If we want to be successful as an investor for income, just staying near the shore, we might not catch enough fish to make it.

If we venture farther out to sea in search of bigger schools of fish, we might get hit by a gigantic wave in the form of Eagle Hospitality Trust, for example.

(If you want to read more on how I avoided the landmine that was Eagle Hospitality Trust, a quick search will find you those blogs I published.)

So, how like that?

Our chances of success will be better if we are well schooled (pun intended) to navigate open water.

We can do some self study (and I have a book list in my blog's right sidebar titled "Food for thought") if that is the way we choose to go.

For those who prefer structured guidance, however, there are always courses which can do the job of educating us.

I was the first blogger to ever endorse Dividend Machines and I have attended the classes too.

If we are interested in having structured guidance, don't drag our feet as Dividend Machines is only available once a year.

Miss this and we would have to wait another year.

For many years now, Dividend Machines is the only investment course I promote in my blog as I feel it is truly value for money.

Dividend Machines will not cost us an arm and a leg but don't take my word for it.

Find out more for yourself:

Dividend Machines 2023

Hop to financial freedom in the Year of the Rabbit!

If AK can do it, so can you!

OCBC and IREIT Global: Missed the boat?

This blog is in response to a reader who asked if he has missed the boat for OCBC and IREIT Global?

It feels like it has been some time since I had a blog like this.

Very rare.

If you like such blogs, hope you enjoy this one.

AK says to reader:

OCBC's chart shows a strong upward momentum in the MACD but the MFI shows that it is borderline overbought. 

Testing resistance now at $13 and if it fails to break resistance, the immediate support is at $12.50 which is provided by a rising 50 days moving average. 

A stronger support is the longer term 200 days exponential moving average which is now at $12.15 but as it is still rising, at this point, this support price will move higher over time. 

OCBC's chart.

Likewise, IREIT Global's chart shows a strong upward momentum in the MACD but the MFI has dipped and is no longer in overbought territory which gives it a bit more room to move higher with less resistance. 

Unlike OCBC, however, IREIT Global's 200 days moving average is still declining but very slightly so which means it is unlikely to be a strong support although this is where IREIT Global's price is currently sitting.

In a relatively buoyant market, to be fair, even a weak support is more likely to hold.

If this support breaks, then, the rising 50 days moving average should provide the next support which, at this point, is at 52 cents.

As this support is rising, it is likely to be relatively strong even though it is a shorter term moving average.

It is also interesting to note that the 50 days moving average formed a golden cross, a bullish crossover with the flattening 100 days moving average in the middle of January. 

IREIT Global's chart.

In summary, both OCBC and IREIT Global's charts show that they have emerged from their multi months bottoming process and they are unlikely to retest their October 2022 lows anytime soon. 

As usual, remember that technical analysis is about probability and not certainty. 

More importantly, mental AK is just talking to himself, as usual.

Recently published:
1. Bankruptcies & property auctions...

2. Fed's 0.25% hike, stocks & bonds.

3. Have $10K? Save or invest?

My take on Fed's 0.25% rate increase, stocks and bonds.

So, the Fed has increased interest rate by 0.25% and Mr. Market likes it.

Tech stocks are higher and even Bitcoin is higher. 

It is not surprising as these are assets which thrive on lower credit cost.

Wait.

Did you say lower credit cost?

But the Fed is not lowering interest rate.

They are still increasing interest rate.

Less steeply, for sure, but still an increase.

Well, you know what they say about Mr. Market being forward looking by 6 months to 9 months?

It could be that Mr. Market thinks that the Fed will reduce interest rates towards the end of the year.

Alamak.

How like that?

Throw all our money including the kitchen sink into tech stocks and Bitcoin now?

Well, I am sure some will do that.

I remind myself that joining Mr. Market's exuberance party could end badly and for those who were bitten before, they would probably be rather shy now.

Anecdotal evidence shows plenty of interest in  quality fixed income.

If we can get around 4% p.a. yield from risk free and volatility free bonds and fixed deposits, as investors for income, there is really no reason to put  money in tech stocks which pay little or no dividends.

Apple is a tech stock that is all about growth but I wonder if it can continue growing as much as it grew in the past and what is its dividend yield even at the current price? 

1%?

What about Tesla? 

You mean the company run by the arguably manic Elon Musk who sold billions of dollars of its stock to buy Twitter which he then went on to steer towards the verge of bankruptcy?

Elon Musk threw Tesla's common shareholders under the bus was what AK said to himself.

I am not telling anyone not to buy stocks of Apple or Tesla.

I am just reminding myself why I am not a fan.

Having said this, just like my take on Hang Seng Tech ETF, I think these tech stocks are probably pretty good for trading.

So, for anyone who has the inclination, they could make a bit of money trading these stocks as volatility is the friend of a skillful trader.

The more important word here is "skillful" and not "trader."

(Hint, hint, nudge, nudge, wink, wink.)

Having said this, I have to confess that a slowing down of the Fed's rate increase is a good thing for my "tech-less" investment portfolio too.

Why?

It is good for the REITs, of course.

So, REITs are the same as tech stocks lah, some readers might think.

Well, same same but different.

REITs generate income and share income with their investors.

REITs don't care about growth at any cost, especially not burning money in an effort to grow.

(Looking at GRAB and SEA sideways.)

Having said this, REITs can deal with higher interest rates as long as they are not sky high.

Younger readers might think that the current interest rates are sky high but they are really not that high.

I think interest rates have normalized which isn't a bad thing as money should not be free or almost free anyway.

Cheap money encourages reckless behavior.

More people would benefit from having a greater degree of financial prudence and a higher interest rate is like the cane that stands ready to whack bad actors.

Oh, no, I am rambling again.

Let me wrap this up.

I remind myself to stay grounded.

Higher interest rate is a good tailwind for our local lenders which is good for me.

Slowing interest rate hike is good news for REITs which is good for me.

Interest rate is not being reduced but remains high which is a reminder to stay financially prudent.

Higher interest rate is good for savers and if we are prudent, we are saving money which means higher interest income (which is good for me.)

Yes, the current environment rewards the financially prudent better than before.

It isn't all doom and gloom.

I recently produced a YouTube video on this:

Now, I will try to learn from Mr. Market a bit. 

If I try looking forward, if the Fed should stop increasing interest rate after another one or two hikes of 0.25%, I think we could see yields fall.

This is because Mr. Market might rush in to secure the highest possible yield and with greater demand, bond prices go up and yield goes down.

In such an instance, I might resume voluntary contributions to my CPF account which pays an average of 3% p.a. in my case.

This month's Singapore Savings Bond's 10 year average yield is 2.9% p.a. which is a no go for me.

Wondering why this blog sounds a bit off?

It is because I had a nightmare, woke up very early and couldn't get back to sleep.

Still sleepy but I have to go to the hospital later for a check up.

OK, enough talking to myself.

Have a good day!

Recently published:
Have $10K? Invest or save?

Reference:
Largest investments updated.

Have $10K? What to do? Invest or save?

I blog about the importance of having an emergency fund from time to time.

More importantly, we should have an adequate emergency fund.

However, there is another fund that I don't blog about as often.

The last time I blogged about it could have been many years ago.

So, unless you have been following my blogs for many years, you might not have heard of it.

I called it "convenience cash."

I like to keep cash at home which is able to cover around two months worth of routine expenses.

This is because in case I am unable to withdraw cash from my bank accounts for an extended period of time for some reason, I have some cash on hand.

Of course, things have changed a lot in the last 10 years and, especially in the last 2, so many things have gone digital.

So, is there still a need to keep so much "convenience cash?"

Now, I suppose I have to say I still do it really because I am mental.

Anyway, the amount of "convenience cash" I have at home, without me knowing, has grown to be quite a sizeable amount.

See my "convenience cash" in 2014:

Convenience cash.
 

I don't like going to the banks, if I can help it.

So, all the birthday and CNY red packets I received from family members and also money people paid me whenever I helped them buy stuff just got stashed in a drawer.

Today, I opened that said drawer to "deposit" my CNY red packets and I just thought of taking a tally.

OMG!

I have more than $10K in cash stashed away.

With interest rates so high now, I could possibly get $400 in interest payment if I were to place the money in a 1 year fixed deposit which pays 4% p.a.

$400 can sustain my lifestyle for a week easily!

I know OCBC is offering 4.08% p.a. for 8 months FD but they need a minimum of $20K placement.

Not enough.

CIMB only needs a minimum of $10K for their FD promotion.

So, I checked CIMB for the latest rates, being the first day of a new month.

OMG!

CIMB's promo rates have reduced drastically!

6 months FD now pays 3.7% p.a. instead of 4% p.a.

12 months FD now pays 3.5% p.a. instead of 4.2% p.a.

Sadness.

How like that?

What is a retiree like me to do?

I decided to "tikam" 6 months T-bill instead.

Hope to get a cut-off yield of at least 3.9% p.a.

Will try $5K for the T-bill closing today and another $5K for the T-bill closing on the 15th.

If you are new to my blog and wondering if you should do the same, please take note that I am doing this because I already have a significant exposure to equities.

Don't anyhow follow social media influencers.

(Hint, hint, nudge, nudge, wink, wink.)

See:

My largest investments (4Q 2022.)

I have always said that having a meaningful exposure to fixed income is a good idea because it reduces risk and volatility in our portfolio.

However, fixed income paid relatively poorly until recently.

Fortunately, in Singapore, we have the CPF which, to me, is akin to fixed income and it offers reasonably attractive interest rates. 

So, the CPF was my preferred tool to maintain a meaningful exposure to bonds until recently.

This year is the first year I am not making voluntary contributions to my CPF account.

Money went to Singapore Savings Bonds in 4Q 2022 as they pay better than the CPF and do the same thing the CPF does for me.

See:

SSB or CPF? No brainer?

Oh dear, I am beginning to ramble.

This is supposed to be a quick blog about my money counting adventure at home and what I plan to do with the money.

Yes, AK is an adventurer and not only in Neverwinter and Teyvat!

Anyway, I should stop.

If you want to know what I think we should do before we start investing our money, I have many related blogs on the matter.

You might want to start with this blog:

Graduating soon? First steps.

If you are more advanced, read these blogs:

Investing peace of mind.

Buy bonds but which ones?

Gambatte!

My latest YouTube video on CPF:

Using CPF-OA for 4% T-bills in January 2023.

I applied for both 6 months T-bills this month.

The first one had a cut-off yield of 4.2% p.a.

The second one had its auction today.

Cut-off yield at 4.0% p.a.

My non-competitive bid was fully filled.

I continue to add to the bond component of my portfolio. 

I am using dividends from my investments and also some money from maturing fixed deposits to do so.

Today, I also applied for the 1 year T-bill which, unlike the 6 months T-bills, is only offered 4 times a year.

Source: MAS

The auction results for this month's 1 year T-bill will be announced on 26 January.

Why did I apply for the 1 year T-bill?

I didn't plan to do it but I had to meet my banker at the bank to collect Chinese New Year notes.

It is the usual once a year visit to the bank for me.

Then, I thought I might as well apply for the 1 year T-bill with my CPF-OA money.

I mean I was already at the bank.

Not having to join a long queue at the bank also helped in making the decision to make the application in person easier for me.

As it is costlier and still more troublesome to use CPF-OA money to apply for T-bills, a 1 year T-bill is also more attractive than a 6 months T-bill, everything else being equal, I feel.

I will very likely lose an additional 2 months of CPF-OA interest income but as long as this 1 year T-bill cut-off yield is not too low, I will get some extra pocket money.

Yes, I know, the money can only be in my pocket almost 4 years from now when I turn 55.

This is a reason for accounting for my CPF interest income separately and not lumping it together with my yearly passive income updates.

The interest earned isn't money I can utilize right away.

It isn't near money.

Still, nice to have, I guess.

Moving money from the CPF-OA into T-bills doesn't do anything to my investment portfolio in terms of the bonds to equities ratio, of course.

It just means that my CPF account which I consider part of my bond holdings will get a slight boost.

How much might this boost be?

Well, let us assume I moved $200,000 and the 1 year T-bill cut-off yield was 4% p.a.

Doing a back of the envelope calculation, 1 year CPF-OA interest income would have been $5,000.

4% p.a. 1 year T-bill would yield $8,000.

So, might be grossing $3,000 more.

However, as I probably would not get any interest income from the CPF-OA for an additional 2 months, I would lose another $833 in CPF-OA interest income.

So, the net gain might be closer to $2,166.

For a whole year and with a relatively large sum of $200,000, I don't think the gain is a big deal.

Of course, if we were to move a sum twice or thrice as much, in absolute dollar terms, it might be more interesting.

If I did not have the kind of money I have in my CPF-OA and if I had to join a long queue at the bank, I don't think I would have bothered to make the application.

I know some people are pretty sensitive about this topic.

I hope I did not offend anyone by saying this.

Just me talking to myself, of course.

Anyway, will wait for the auction results now.

Hopefully, my application is fully filled or else the cost would be even higher.

We are not risking a loss of 0.05% p.a. interest but 2.5% p.a. when we use our CPF-OA money.

So, going for competitive bidding makes better sense.

This is in case the unthinkable happens.

The unthinkable?

Imagine a large number of people placed their bids for a 2% p.a. yield and imagine if the cut-off yield was 2.01% p.a.

That would be a most stunning OMG moment!

Just thinking of the possibility is giving me an anxiety attack!

Don't play, play!

Having said this, I put in what I felt was a sensible bid and did not put in an extremely low bid.

I know some people are still waiting for me to say something else.

You want to know what was my bid?

I know.

AK shy lah.

OK, I tell you.

Higher than 3% but lower than 4%. 

Win liao lor!

Good luck to us all!

GONG XI FA CAI!

References:
1. T-bill at 4.2% p.a. investor profile.
2. My largest investments updated.
Recently published:
$1.3m! Average but rich!