29 September 2014

Saving Money from Not Owning a Car

Cars really cost a bomb these days with the ridiculous Certificate of Entitlement price tag. It's hard to get any decent family car for anything less than $100,000.

In my past buy years ago, I was able to pay down quite a bit upfront and took up loans at about $500 per month.  I figured that it would cost about $1,000 per month after amortising in annual insurance and road tax, as well as petrol consumption and routine preventive maintenance.

Then I figured, what if I don't drive to work? I took the bus and train to work, and took cab to get home at night. Buses and trains are cheap. But cab rides are not. It costs about $25 per ride for me. Assuming I do that about 20 times a month, that works out to be $500 per month. Still cheaper than owning and operating a car. Definitely a better deal. And I get 'chauffered' home too!

However, cab rates have been on the rise. And traffic conditions haven't been great either. My ride typically took 40 minutes on a good day, and can be as long as an hour on a lousy day. Especially when it is raining, when there is an accident or road work along the way. Lots of time spent waiting for a cab too.

I came to realise that I could sometimes get home faster by taking the bus and train instead. It's also an hour's journey. Cost a lot less, and I get a bit of exercise from walking at the same time.

Come to think of it, $500 a month avoided would amount $6,000 a year saved. That's a lot when invested and compounded over 20 years. In fact, if this sum was placed into the Supplementary Retirement Scheme, that would generate further tax avoidance as well!

So, operate a car, take cab, or stick to cheap public transportation? It's all about the Maslow hierarchy of needs. For now, I will generally stick to BMW (Bus, MRT, Walk) and the occasional cab.

26 September 2014

Lower Expense Ratios for CPFIS Unit Trust Funds

From a Business Times report, it looks like CPF Investment Scheme (CPFIS) is going to see limits to the Expense Ratios of authorised unit trust funds being lowered. Money market funds for instance will be lowered form 0.65% to 0.35% while higher risk funds (typically equities) will be lowered from 1.95% to 1.75%.

Generally, it's a good idea for unit trust funds to have lower expense ratios as that means less leakage for investors. I guess less profits for fund houses. Some may well exit? My guess is that it will lead to less choices available for unit trust investors using CPFIS.

I wish there could be more fund houses that offer index funds for unit trust instead. The fund houses wouldn't need a large (and hence expensive!) investment team to do stock picking since they would only need to track the index. It would provide investors with a well diversified albeit 'lazy' approach in lieu of buying ETF from the stock exchange.

Currently, there are only the Infinity (US, Europe, Global) series of unit trust that are like that. Unfortunately, their expense ratios do not match up as well with ETFs as they are still comparatively high.

Inspirations from a Lin Dan Badminton Match - Traits of an Investor?

On Friday afternoon (26 Sep 2014), I had the opportunity to watch a Round of 16 badminton men's singles match of Asian Games 2014, pitting Lin Dan (China) against a Hong Kong player. By no means was it a pushover match. But what was inspiring was the way the game went towards the end.

Lin Dan had won the first game, and this was the second game. He was down 20-13. It looked like it was headed towards a third game. How to survive so many game points? But point by point, he clawed back, patiently, determined, unfettered - 9 points in total. Ultimately it ended 22-20 as he beat his worthy opponent. Class triumphed. Sparkles of the talent in him in the last few points secured.

Patience, determination, with an end in mind. Are these the traits needed for an investor as well?

Patience. Stick with a winning strategy. One that works over the long term. Exploit the time value of money.

Determination. Even as market gyrates on its ups and downs, withstand it. Avoid the urge to trade aimlessly.

An End in Mind. Know what the end goal is and compound the investment towards the end target, whatever it may be for the individual - $1m, $2m, whatever.

I wait in relish and hope for a final match up once again for a rematch between Datuk Lee Chong Wei (Malaysia) and Lin Dan (China).

Money as You Grow - Financial Education Resources

Resources on Financial Education are just plentiful on the Internet. Here are several:

Many blogs on the subject of Personal Finance and Investment provide wonderful introductory explanations of these topics.  Investopedia is probably the most comprehensive, the ultimate Wiki for the investment peons.

Orcam Group Educational Resources does a decent job of extending the educational materials further.  You may want to give it a go.

For a kids friendly version, you may want to try the Secret Millionaires Club for a cartoon web series hosted by Warren Buffet.  Warren shares a piece of wisdom in each episode.  Guess he gave up on the adults and decided to start working on the kids instead!

Money as You Grow is a financial education package for children. It is for the US market, with different activities for children at different ages from 3 to 18+.

For Singaporeans, a very good source is the serious of talks organised by SIAS MyMoney series to educate Singaporean investors.

CPF has also been publishing periodically their In Touch magazine to better explain the CPF system and all its intricacies, as well as articles on health and financial education:

SGX is generating a suite of SGX E-Videos to educate the investment public at large. They appear to be in the midst of production, with more videos planned. The clips are actually published on YouTube.

Happy surfing!

16 September 2014

Cessation of IShares ETF

Seems like IShares will cease offering several Exchange Traded Funds (ETF) to retail investors in Singapore from 14 Oct 2014. These include:
  • IShares Core S&P500 ETF
  • IShares MSCI Singapore ETF
  • IShares US Technology ETF

The funds will still be listed on the SGX and a market maker will still be active to enable trading of the shares. Looks like an exit.

Not sure why they're exiting. Perhaps the take up volume has been too low to be worth their while. There is another ETF available for the Singapore fund, so that's not too bad. But looks like retail investors will have to turn to the US stock market to invest in S&P500 or US Technology ETFs.

The usual discussions that compare Unit Trust versus Exchange Traded Funds have never shed insight on something like this happening to ETF - i.e. "shelving". It's more commonly seen with Unit Trust as those with poor performance tend to be closed at some point, leading to survivorship effect - i.e. the remaining funds appear to show good track records, and hence create the impression that an investor can get good returns from Unit Trusts.

I wonder what will be the effect on the bid/ask price from here on? The last traded price was around US$199.

Thumbs down.

15 September 2014

Retiring at Age 60 at $2,000 a Month

TODAY had an article about the lovely Tey family of four. The husband is age 37 and wife is 36. Their two daughters are 6 and 2 years old. The couple plan to retire at age 60 with a monthly income of $2,000 per month for 30 years. By age 60, their kids should have completed their tertiary education as well.

It is commendable that they project their income need to be so low. I would assume that they are living in a HDB flat, no aircon, no car, no health issues and no parents they have to look after.  Possibly no mobile phones, no cable TV as well? Else, it's difficult to see how $2,000 is viable.

The couple appear to be risk adverse and have largely socked away savings in fixed income products. Not going to go far with this risk adverse posture. But they don't really have the need to take higher risk given their very low target. Thought they still have time on their side. 23 to 24 years in fact.

My first impression was that $2,000 is easy. If they are both earning a healthy salary and sock up their CPF-SA to the max, they would more than meet that retirement need without requiring further retirement funds. But they would have to tide through the first five years of retirement (age 60 to 64) with another $120,000. Doesn't seem difficult.

I was surprised that the article mentioned $800,000 as the retirement savings goal to fund this retirement. As I mentioned earlier, just max out the CPF-SA (CPF-Life) for both, plus another $120,000, and they would be well on their way. To be on the safe side, add more for an emergency fund. Perhaps they are not Singaporeans?

Even if the retirement is to be funded without the use of CPF-Life payout, I was wondering why $800,000 is needed to meet the $2,000 a month goal? Using the 4% extraction norm, $800,000 would offer $32,000 a year, or $2,667 a month. That's far more than necessary. Alternatively, if we assume $2,000 x 12 months x 30 years, we get $720,000. Again, $800,000 seems excessive. Probably inflation has been factored in, which is reasonable. Otherwise, without factoring for inflation, $600,000 (@4% dividends/income) should do it. Such a later approach carries risk of course if the underlying portfolio value drops.

How would this plan de-rail? My thoughts are:

  • Unfunded education expenses for their kids (also mentioned in the article)
  • Expensive overseas holidays
  • Medical crisis
  • Inflation spike (Internet, phone, power/gas/water utilities, food) 
  • Bought a condo
  • Bought a car
  • Took silly risks with their retirement portfolio (like oil pods, gold and property scams, etc)

Wish them all the best and a steady route to retirement.

Disclaimer: This is just a personal opinion, I'm not a financial advisor, nor trained in the art.

10 September 2014

Gaining Investor Knowledge through E-Videos at SGX Academy

Looks like SGX is generating a suite of SGX E-Videos to educate the investment public at large. They appear to be in the midst of production, with more videos planned. The clips are actually published on YouTube.

For other sources of education materials, you may want to also refer to other resources mentioned at: Investopedia, the Secret Millionaires Club and MyMoney

Financial education resources are plentiful on the Internet. All one needs is access, time and willingness to learn.

09 September 2014

Giving Back to Society - SG Gives

Lee Chin Wai blogged in Giving Back to Society about SG Gives, a portal for the public to donate to charitable causes in Singapore. I felt this is a worthy cause to promote. So, I'm lending support by adding this link at my blog as well.

According to the SG Gives website, it started in 2010 as an initiative of the National Volunteer & Philanthropy Centre (itself a non-profit organisation) to facilitate the improvement in quality and quantity of giving through a low cost, high reach tool for charities (excluding religious bodies) to raise funds.

For a tax savings perspectives, you may want to read Giving from the Heart - 80 Good Deeds as well.

08 September 2014

SIA - Potential Stone

This takes the cake for the most original stock recommendation I have ever seen. Normally we see recommendations of "Buy", "Accumulate"/"Add", "Hold" or "Sell".

This recommendation from several months back on SIA's shares actually said "Potential Stone"! Gee wheez. Fascinating. The analyst must have been pretty high that day.

Come to think of it, hardly ever see any that says "Sell". I guess when they say "Hold", they really mean "Sell"?

02 September 2014

Hour Glass - Tick Tock and One Becomes Three

Interestingly, Hour Glass is planning to split its shares at a ratio of 3 shares for every 1 share held - see Hour Glass Announcement. All else being unchanged, that would mean that the share price will drop to one third the current price when that takes place. At about $1.80 per share right now, that would make it $0.60 per share thereafter.

While it could possibly make their shares more affordable for trading, I'm not sure that it offers any tangible benefit. $1.80 per share isn't that far out of reach for retail investors. This is unlike those Jardine shares that require tens of thousand dollars. Besides, the new lot size of 100 shares will kick in by Jan 2015. So it's only $180 to own 100 shares.

So what then is the real benefit to split now? I view with some serious concerns, particularly in light of the break-up of the husband and wife team that used to run this company. Their son is running it now. What does the future portend?

Retail Bonds for Retirement Income (My Name is Bond)

I had previously griped about the lack of access for retail investors to invest into bonds in 5 Wishes for X'mas 2014.

"Why can't those 5%, 6%, 7% coupon paying bonds be made available to retail investors? At $250,000 a pop, they're completely out of reach for most. Why the exclusivity when bonds could really lower the risk profile of an investor's portfolio? Imagine all those education and retirement portfolios aiming to get a reasonably safe yield or 4% extraction for retirement?"

Well, the good news is that the Consultation Paper on Facilitating Bond Offerings to Retail Investors (MAS) is out! Looks like there is a good possibility that retail investors would in due course be able to invest in bonds at smaller lot sizes.

Yet another of my early X'mas wish list being realised.

Unfortunately, if the smaller lot size for bonds is only offered through retailing in the secondary market, retail investors may not gain the full benefit of the bond coupon rates as it could very well normalise back to the risk-free level of the prevailing risk-free market rates of SGS bonds, padded with a difference based on the risk profile of the underlying company?

It is after all a consultation paper and the final form could still evolve. In any case, it is an interesting development.

Wouldn't it be great to be able to take $100,000 (excess above minimum sum from CPF at age 55) and invest in a range of bonds at $10,000 per series, giving >4% coupons (i.e. >$4,000 per annum or >$330 per month)? That's a personal bond unit trust!