29 May 2015

Light the FIRE! Can I Retire Now?

This was the first time I came across the term: FIRE (by Googirl). Or to elaborate, that's Financial Independence, Retire Early.

Quite a catchy tag line. Achieving the left gives the option to exercise the right.

I view Financial Independence as the situation when my passive income can support a desired lifestyle.

For me, it works out to be an investment portfolio of $2.5m if before age 65, or $1.8m if at statutory retirement age of 65. The reason for that difference is the additional payout from CPF Life payout by then, and because parts of my current investments are using CPF funds and Supplementary Retirement Scheme (SRS) that are locked up till age 55 (the excess beyond the minimum sum from CPF Retirement Account can be withdrawn) and statutory retirement age respectively.

Alternatively, if I strip away these, I could likewise retire on a portfolio of $1.8m anytime if they were all using fluid cash based investments. Why $1.8m? Because at a 4% dividend/coupon payout or withdrawal rate, a $1.8m portfolio would give me $72,000 per year. That's $6,000 a month. I think it's enough for my wife and I.

Howzabout $1.8m in bonds from Bonds@FSM (see Bondsupermart)? That's like 6 blocks of bonds at about $250,000 each. A bit too much for me to stomach for now. I prefer wider diversification at this accumulation stage. But it is certainly one way.

If I were nearer retirement age, it might still prove to be attractive. A yield-to-maturity of about 4% seems achievable based on the various Singapore corporate bonds presently available.

A search on Bonds@FSM based on a yield-to-maturity above 4% with a time span of above 10 years threw up 17 options. Most are familiar names from the Singapore Stock Exchange. Many of these had yield-to-maturity in the region of 5% to 7%. Obviously, there are higher risks for the higher yield end of the scale (e.g. Olam and Hyflux). And interestingly, all are "perpetuals".

Another way of thinking about above is that every $300,000 worth of bonds at 4% yield would generate $1,000 of income per month.

What's your magic number?

The Good News About Retirement

27 May 2015

Rags to Riches, Riches to Rags

The path to rapid riches end in tatters. It's been one article like that after another in the papers. Oil pods, gold scams, distressed properties both overseas and locally.

A pity to the many who found themselves in such shoes. Was it greed or ignorance? Neither is a good excuse.

Was just talking to a friend earlier. He had invested in some "gold" scheme and has not seen his money come back. It was a $5,000 write-off for him. At least it wasn't some epic major amount and he could live with the loss. But as he said, "can't afford to keep losing like this!"

Anything exotic and unusual could be an opportunity or a scam waiting to fall victim to. Between the gain versus the loss, are you able to withstand both? When stepping into the unknown, best not to commit what one can't afford to lose. It's also called risk management.

The Allure of Gold - Treachery of the Glitter

25 May 2015

Medishield Life - Verification & Information

Seems like we need to verify the household data for Medishield Life at this
link. It's a simple check to confirm the members of the household, contact number and e-mail.

The website at the link also has comprehensive information and calculators related to Medishield Life. The calculator can be used to provide an illustration of the payments needed for the household members for the next 5 years.

Medishield Life replaces (upgrades) the existing Medishield hospitalisation insurance scheme under CPF. This is one type of must-have insurance for every person. 

Existing private integrated shield plans (e.g. IncomeShield from NTUC Income, PruShield from Prudential, etc) are built on top of this - i.e. the private insurers provide additional coverage on top of the underlying Medishield Life.

Even if there are pre-existing illnesses that such private integrated shield plans don't cover, the underlying Medishield Life will still cover those (there may be some loading from CPF).  But of course, that would be without whatever additional benefits the private plan would have provided.

Thank Goodness We Had Medical Insurance!

23 May 2015


From Fundsupermart comes a new offering: Bondsupermart (or Bonds@FSM). Now we have another avenue to buy government and corporate bonds directly without having to go to the banks.

I like FSM's application interface. They tend to spot pretty clean and intuitive user interfaces.

I was initially pretty excited as I thought they were offering these bonds within reach of retail investors. Alas, not quite. They still require that the bonds be purchased in lots of at least 250,000 units (~$250K) per bond (typically).

So it is available to retail, but would require hefty investments to buy into. Nonetheless, it is an option. Need to understand their sales charges. These are documented on the website.

Saliva drip drip. For an investment of $250,000 at 4% (assuming yield to maturity of 4%), that's $10,000 per year. There are several perpetuals from blue chip companies.

Wish there was some way that those bonds can be retailed in lots of 10,000 units instead. I would definitely want it for my 10-20% bond component of my investment portfolio. But at $250,000 or more per pop, it's a bit over my head for now.

Singapore Savings Bond

21 May 2015

What Do You Do If You Get Laid Off?

Last weekend, wifey and I were at a neighbourhood coffeeshop for a cuppa. This coffeeshop is always crowded on the weekends. Families having a weekend breakfast, gatherings of elderly folks having a coffee and a smoke, and the occasional individuals and couples. As it was crowded, we shared a table with another gentleman. The gentleman was enjoying his own cuppa and welcome us to join him.

It turned out to be quite an unexpected morning as he had quite an interesting story to share. He used to work as a technician at a telco earning $2,000 per month. Unfortunately, his work was outsourced and to his great disappointment, he was laid off. For months, he could not secure another decent paying job. With a family of five to feed, this was a very serious problem for his family.

He decided that some income was better than no income. So, he finally took up a job as a bus driver, earning an income of $1,200 per month (early 2000). It was tough work. He had to wake up at 3 am in the morning to get to work, where he then drove a bus for 9 to 10 hours each day. It took quite awhile for him to get used to it. Eventually he did. The pay sucked.

But that was then. Today, he said that the pay has improved dramatically, especially in recent years. Now he earns well over $3,600 a month after deducting CPF. That kind of explains the increasing cost of operations for public transportation companies.

He has a few daughters who are still at school going age. So long as he has good CPF savings, he felt he could afford to use his CPF to pay for his daughters education. So having a job that also contributed to his CPF was important for him. He was very appreciative of the safety net that CPF has provided him.

Seems like a tremendously hardworking gentleman. Somebody who embodies the spirit of earning his keeps, living within his means, responsibly bringing up and supporting his family, and an emphasis on providing for his children's education.

I like him. A nice conversation to start the morning. Great to have made his acquaintance.

18 May 2015

A Fantastic Investment Deal at the Bank - Or Maybe Not

I received a call from a relative recently. She was at a bank. Apparently, she had a fixed deposit that had matured and she wanted to cash out. The Bank Officer had proposed that she invest the cash in a Unit Trust offering a return of 2% per month. She was pretty excited. I laughed.

Obviously it wasn't a Bank Officer. It was one of those Customer Relations Executive (CRE) pedaling investment products to the innocent individual.

At 2% a month, I told her to ask the CRE to put that down in writing and guarantee it. If it was so good, I also want. I laughed big time.

I then asked if the CRE had told her how much they charge for the sales charge. Apparently, the CRE had said that they were offering a *huge* discount, reducing from the usual 5% to *just* 3%. Come on, Fundsupermart and POEMS charge a lot less.

The relative of mine had an interesting reaction to all these. She said, "I knew it, it's a con job! Never mind, I'm keeping the money in my savings account."

Oh dear. Sigh.

15 May 2015

A Millionaire and Yet Completely Broke

How does a multi-millionaire become a bankrupt? Time's story about Allen Iverson is instructive. Allen was a NBA basketball star who earned an income of US$145 million over a 15 years playing career. That's a shitload of income. It's almost US$10 million a year. Yet, he appears to be completely broke now. Broke. Zero.

How did it happen? Simple. Not living within his means. It's a lifestyle of extravagance, indulgence to the extremes, and a complete lack of prudence in financial planning. Perhaps none at all? Almost.

Luckily for him, as broke as he is now, there is a silver lining. He has a lifetime endorsement contract with Reebok for which a $30 million trust fund has been established. While he will not be able to touch that till 2030, at least thereafter, his golden years will still be taken care of. Let's hope he doesn't blow that too! It's the money he doesn't have his hands on that is going to save him. Meanwhile, he will have to figure things out and live with regrets for another 15 years.

A colleague was sharing about the mental stress his wife-to-be and him were having. They are getting married soon. Their house has come, and the wedding is coming. All seems great. I thought he was going to tell me how happy they were. Problem is, the money's gone. They have run down their cash to zero. Any additional expenses and they would be like Allen Iverson.

My advice to him was that he had better learn to live within his means. He may have to forego some of his wants and trim expenses. As he would be receiving a pay increment soon, I suggested to him - set up another bank account and keep your itchy hands off it. Henceforth, for any additional increment he gets, automatically GIRO over the pay increment to the other account. And then use that account for investments for whatever longer term needs he would have, rather to spend on immediate wants. That would effectively force him to avoid inflating his lifestyle.

I hope he finds the courage and commitment to strike that balance.

For other stories: 
Condo, Wife, Kids and a Taxi
Cashflow: A Tale of Stable Income

11 May 2015

Singapore Savings Bond - As safe as it can be [updated]

Plenty has been said about the Singapore Savings Bond (SSB), so enough said on the general idea. We will have to wait till the second half of the year however to understand better how do we, as lay peons, go about investing into it, and if there are limits for each investor. Is this yet another Singapore-only innovation?

Interestingly, it was in fact announced during the week of the most momentous event in Singapore's history. But it probably went low key because of it. The blogging community largely also respectfully abstained from publishing during that week.

It looks like this is a manifestation of the idea previously mooted about an inflation-linked bond. Though not quite the same, it does offer semblances of it. With its pegging against the prevailing Singapore Government Securities (SGS) Bond, the current rates range from the low end of 1% to 3%. These rates would of course vary over time depending on how SGS Bonds fair. The prevailing sentiments is that bond rates are likely to go up over time as interest rates rise.

[This is not to be confused with bond "yield" which has an inverse relationship.]

While it doesn't yet hit the above 4% that I was looking for, nor was it the mechanics that I thought would materialise, still, it's a positive move forward. There is hope.

From casual chats with relatives and friends, many still do not understand. Some think it's a one-off affair, like the sale of the special series of Singtel shares when it was first publicly listed. Others, who belong to the the-government-is-out-to-con-me-no-matter-what-they-do camp viewed it as yet another scam that will take away their money. One simply asked, which bank is this?

Personally, I have yet to understand how SSB works from the government point of view. How is it self-sustainable and implemented to support the system? I would vaguely guess that it rides on the underlying SGS Bond as an implementation.

What can I use such a scheme for? Some personal views:

  • The 6-month salary worth of cash reserves to deal with unexpected emergencies, assuming liquidation is straightforward and fast enough.
  • Part of the 10% component of my investment portfolio that I want to keep - i.e. with a lower risk profile.
  • Kids education fund as it runs into the final 5-10 years, depending on how risk adverse I am.
  • A safe fund being built-up for some mid-term but uncertain intentions (e.g. buy house, car, etc), for which plans may not unfold over a 5-10 year horizon.
Some of my relatives are so risk adverse, they will never ever ever want to invest in shares and such. For them, the SSB is definitely a better solution than leaving their cash collecting flakes of particles (otherwise known as "dust") in a bank savings account and in fixed deposits.

By the way, a Central Depository (CDP) account is needed. Do you have one yet?

On a separate note, SGS Bonds (not to be confused with SSB!) can also be bought directly by retail investors through the local banks, but require $250,000 at par ($1 per unit). Alternatively, they can also be bought off the secondary markets via Fundsupermart or from the Singapore Stock Exchange in lots of 1000 units at the traded price.

p/s: We really love our Three Letter Abbreviations (TLA).

01 May 2015

2 Portfolios of ETFs - Growth vs Income [updated v2]

I was considering how I might structure a portfolio based purely on Exchange Traded Funds (ETFs) that are available on the SGX (Exchange Traded Funds - Navigating Through the Maze).

The idea was to build a portfolio that is globally diversified across market regions, complemented by a smaller percentage in alternatives like commodity, and weighted with a home bias for Singapore.

I came up with the below.

Growth Portfolio

In general, ETFs that used the full replication method are preferred over those that are synthetic. Such ETFs hold underlying stocks that are reflective of the index it is attempting to track. Synthetic ones are using other more exotic means to track the index, such as by swaps. As such, they carry additional risks.

15% US - SPDR S&P500 US$ - XD [Full replication]
15% Europe - DBXT MSEurope US$ - Reinv [Full replication]
15% Asia ex-Japan - CIMB S&P Ethical Asia Pacific - XD [Physical replication - sample]
15% GEM - Lyxor EM Mkt US$ - Reinv [Synthetic] or DBXT MSEmer US$ - Reinv [Synthetic]
5% Japan - DBXT MSJap US$ - Reinv [Full replication]

20% Singapore - Nikko AM Singapore STI ETF - XD [Full replication] or SPDR STI ETF 100 - XD [Full replication]
5% ASEAN - CIMBASEAN S$ - XD [Physical replication - sample] 
5% Commodity - Lyxor Cmdty US$ - XD [Synthetic]
5% Commodity - GLD US$ [Full replication]

Income Portfolio

However, if my aim is to have a portfolio that would give out a dividend income stream, I guess I would pick the following instead:

20% US - SPDR S&P500 US$ - XD [Full replication]
20% Europe - Lyxor Europe US$ - XD [Synthetic]
20% Asia ex-Japan - CIMB S&P Ethical Asia Pacific - XD [Physical replication - sample]
5% Japan - Lyxor Japan US$ - XD [Synthetic]

20% Singapore - Nikko AM Singapore STI ETF - XD [Full replication] or SPDR STI ETF 100 - XD [Full replication]
10% ASEAN - CIMBASEAN S$ - XD [Physical replication - sample] 
5% Commodity - Lyxor Cmdty US$ - XD [Synthetic]

In this instance, I dropped the Global Emerging Market (GEM) as there does not seem to be any that gives out dividends. There is probably difficulty to efficiently replicate the GEMs. Instead, I've substituted in an ASEAN fund as a close proxy. Likewise, Gold was also dropped.


In both cases, capital top-ups and dividends received would be reinvested during the build-up years (before retirement) by buying ETFs to bring the portfolio closer to the desired ratio annually (or twice yearly).

Do these look reasonable?

Warning: Both portfolios are purely 100% in equities and resources. There are no bond components suggested and these should be considered for more risk-balanced portfolios.

[Updated: 1 May 2015:
Replaced the Lyxor Asia ETF which was a synthetic replication with CIMB S&P Ethical Asia Pacific ETF which uses partial physical replication. Both are dividend paying.]