A lazy and fool proof way to investing for income?

Reader says...

I attended your AK with friends on Friday (15 July) and came away a bit disappointed. 

Not because you did badly (in fact you were the most impressive of the 3 presenters), just that I went into the session with certain expectations of what I could potentially learn from you which was met only partially. 

I didn't expect it to be a Q&A forum (this is my first AK session) and a session about specific stock/REIT question after question. I was hoping that there was a more in-depth discussion about underlying concepts or a mindset to approaching investments/income investing. Yes there were sprinkles of that but it's probably safe to say the session was dominated by the "what is your view of Centurion, or Sembawang, or Soilbuilt REITs....". You get the drift.

My goal is, like a lot of people, comfortable retirement and maintenance of my current lifestyle with a predictable stream of income. 

Objective - As I have a day job, and I suck at investing, I want to achieve my goal above by having a dummies methodology to invest in REITs or other income generating investments without a lot of decision-making (I'm lazier than you). I'm not looking at super returns, around 5-6% or so would do as long as they are predictable (more or less). 

Seriously, I am not suited to do investments and I have made a lot of investor mistakes (loss aversion, recency bias etc). What is in my favor is a fairly solid investment foundation and from there, I want to build on it by making a reasonable amount of return with reasonable predictablity, and without needing to make a lot of decisions.

That's why REIT investing appeals to me. My sense is the analysis for REITs is lesser than that of a stock such as DBS (which you mentioned quite extensively on Friday). I was hoping to narrow down the time and effort to do analysis on REITs.

I will continue to focus on your REITs related blog posts (especially those on the right hand side bar) but have already benefited from your advice on CPF (I'm going to top up my mum's CPF RA to earn a blended 4.45% returns and maintain some liquidity by drawing a monthly sum from her account over 5 years.) 

AK says...

Oops. Yes, "Evening with AK and friends" is Q&A. I assume that the audience are all my readers and that they know my approach to achieving financial freedom. "Evening with AK and friends" is for further interaction, face to (masked) face. ;p

If you are a lazy guy like me, yes, make good use of the CPF which you have started doing. That is as good as it gets when it comes to fixed income instruments. It is really a AAA rated sovereign bond with an annuity thrown in.

REITs? Well, it isn't as simple as you think. Investing in REITs looks simple now because conditions are relatively benign for REITs. Of course, for the income investor, REITs are still relevant instruments. 





Keep reading. Keep learning. 

I am still learning too. :)

You might want to consider regularly socking away some money in an ETF that tracks the STI. ASSI guest blogger, Matthew Seah, blogged about this strategy before and you will find his name in the left side bar of my blog. Click on his name and you will see all his blog posts.

Investing for income, focus on the business and its ability to generate income and willingness to share that income with you. Try not to be (too) emotionally affected by price volatility.

Start investing but keep a war chest ready to buy more if Mr. Market goes into a depression. Do this and, given enough time, you will do well enough. :)





Related posts:
1. Risk averse? STI ETF, REITs or stocks?

2. Create another stream of income with $500K?

3. Retire with an investment grade bond and annuity.

4. How younger members can get 6% interest from CPF?

5. Reader's insights into AK the investor.

3 questions on investment strategy.

Omg! You actually reply! Thanks a lot really appreciate it!

Ok sorry but i have more questions!

1.       I read an article on facebook (sponsored article), that says if you are 30 years old you need to saveabout $700 per month on a 6% yield in order to hit i think 1m by age 65.

a.       What I want to know is, does the funds like CPF or anything other things that provides that so call xx% calculated on an annual basis? What i mean is that is there a difference if i were to save and invest lets say $1000 every month into something or at the end of the year i just invest $12000? Will i get the same returns?

b.       Next part of the question is Would it be better to have regular buy ins of a stock or REITs compared to 1 lum sum? The question mark that i have is the effect of compounding effect which you mentioned many times on your blog especially with CPF.

                                                               i.      My thoughts are that if i have an emergency fund already saved up and stashed away, calculated my monthly expenses and know how much i can spare per month in excess to invest and already have a war chest in your terms. I should first put this war chest to use to obtain dividends in terms of cash flow now at the rate of perhaps 5,7,9% whicever. And then coupled with the monthly excess that I have build up another war chest to buy in regularly? There are definitely pros and cons such as if i use everything in the war chest and have no cash upfront, then I wouldnt be able to make use of events such as the GFC to stash on more cheap buys. But just would like to know your thoughts on my thinking process and any advice on that?

2.       If i have investments in unit trusts currently, should i sell them off so that I can go into stocks and reits?

a.       I basically went into them for their historical dividends based on the information given on fundsupermart. Of course for some there were capital gains and some losses. So no read up on company fundementals, no fa or ta and just went in.

3.       I am a self employed so there is no employer contribution for cpf. Shd i then make a monthly contribution or wait till before dec ends then make a lum sum? How is the interest calculate in that case?

a.       Since that i am self employed, which option shd i go for, using the sum of money i have to top up cpf? Or use that same sum of money to buy into reits or stocks?

Thanks alot!
W

Hi W,

1 a. There will be a difference. See this:
http://singaporeanstocksinvestor.blogspot.sg/2015/01/cpf-minimum-sum-top-up-and-interest.html

1 b. Investing a fixed sum regularly or dollar cost averaging is a tried and tested approach. You become less concerned with volatility. However, having a war chest ready to buy more when Mr. Market feels depressed is a good idea. Nibble most of the time and gobble sometimes.
See this:
http://singaporeanstocksinvestor.blogspot.sg/2013/08/are-you-ready-to-come-out-on-top-from_22.html

2. I won't tell you what to do but I have given unit trusts a wide berth for many years.

3. See answer to 1a above.
I treat the CPF as a long term investment grade bond which pays an attractive coupon. Whether we believe in having an instrument like this in our portfolio will shape our decision to top up our CPF accounts or to put everything in the equities market.

Best wishes,
AK

Related post:
Building a cornerstone in retirement funding.