tzlee.com/blog

Tag: Investment

  • Investment portfolio review

    Earlier this year I wrote about the lessons I’ve learnt and how I’ll be reshuffling my investment portfolio; the year has come to an end so it is time for my annual review.

    I’ve reduced the losses on my CPF investment. I was at -32% at the beginning of this year, and is now at -27%. This was achieved by switching out of high risk funds and then maintaining a 50/50 split between low risk Singapore-based bonds and equity funds. When the balance between them spreads ~3-5%, I use a partial fund switch to re-balance, maintaining as close to the the 50/50 split as possible.

    I’ve also significantly reduced the losses on my cash based ILF with Prudential. I applied the same technique as my CPF investments above, and will be surrendering the investment later this month as it has broken even.

    I have also had nett positive gains on my entire SGX portfolio, and will be looking to sell some positions since I anticipate another plunge early next year as oil prices fall and interest rates rise.

    I will also be reviewing my other insurance policies (for protection, not investment) this month and will write separately on this subject.

    I feel extremely comfortable now that I have established various mechanisms to track my income, expenses and assets. When I am asked specific questions about my financial health, I am usually able to provide detailed and accurate answers — this is the key to good financial management and knowledge.

    I share with my spouse, family members and close friends what I have learnt and feel happy that I am able to help others better manage their finances.

    The most important lesson learnt this year is that any form of investment requires active management.

    With that, I look forward to 2015 where I will be venturing into another major financial phase — real estate investment.

  • Investment portfolio reshuffle

    Earlier I wrote about the painful (and expensive) financial lessons I learnt over the last few years. I’ve been reading books and articles and will slowly reshuffle my investment portfolio.

    My current investment portfolio looks like this:

    • My nett investments are approx. 25% of my cash, i.e. if I have $20K cash, I would have $5K of investments (total $25K).
    • Around 30% of my investments are in Prudential ILFs and not doing very well.
    • The remainder are in SGX in various stocks and REITs.

    (more…)

  • Financial Lessons

    Several times a year for the past few years I would revisit and update a spreadsheet that I created sometime back in 2010/2011 to track my (and wife’s) financials. It tracks our incomes, expenses, investments and assets and gives a projection of savings over a time horizon. Ever since we got married and bought a property in 2009 (with a loan, of course — as most Singaporeans do) I was concerned about the $200K+ property debt I had incurred; I worry that I may not be able to pay it off — let alone “retire” comfortably although I do not really buy the idea of a retirement. I believe in a working retirement, but this will be a topic for another day.

    The intent of this blog post is to share with you several expensive and painful financial management lessons I have learnt over the years. I know that it may be too late by the time people read this (as is usually the case) but hopefully those who follow my blog will be able to share their experiences or gain some good knowledge before shit hits the fan.

    This entry will be more of a summary since I will not be able to cover everything in a single post. I will try to write detailed follow-ups in the near future, and possibly also use this to track/share my investment moves and progress over time.

    A little history

    In 2009, I bought my current 5-room HDB flat with zero — yes $0 — COV. I was lucky to have bought it during a minor downturn in the property market. Even then, it was rare to buy a flat with no COV.

    Before I purchased my property, I set aside $10K of my CPF OA monies into Prudential Investment-Linked Funds (PruLink Singapore Managed Fund and PruLink Global Basics Fund). I was lucky (or maybe not) to have done this before the government imposed a minimum balance in CPF OA before money could be used for investments. The primary goal was to prevent HDB from taking all the money from my CPF OA for the property downpayment so I’ll have some rainy-day reserve. The secondary goal was to grow my money at a better rate than the prevailing CPF OA interest rate — as of this writing, 2.5% p.a..

    In 2010, I decided to speak to a friendly financial advisor on how to grow my savings. I bought into two Prudential endowment plans (PruFlexiCash and PruSave).

    In early 2011, I received a lump-sum payout from my business and once again approached my friendly financial advisor. I invested 30% of my cash savings into more Investment Linked Funds (ILF). The funds were distributed between a mix of global equities, bonds and commodities — something I thought to be very balanced and risk averse until the markets dipped in July/August 2011 right after I invested my money. FML.

    In late 2012, I finally got my online account for Prudential working and found out that my “investments” weren’t doing very well. In fact — they were in a mess. I switched several funds around to something that was relatively stable and growing — Singapore bonds.

    In 2013, I decided to buy some shares on SGX myself after realizing my Prudential “investments” were a load of bullcrap. Listening to my old man (who by the way is not your typical uncle trading tips with other uncles at the coffeeshop; he reads lots of books, of course including Warren Buffet’s book) and his theory of “it is never the wrong time to buy for the long term”, I bought into several shares between April and May. The government announced a bunch of cooling measures that killed a large % of my real estate shares and then a big market slide in September dealt a second blow. It’s the 2011 deja-vu. How unlucky can I get?

    Fast forward to 2014

    My flat has since gained approx. 38% in (unrealized) asset value but I ain’t going to sell it just yet. However if I do sell it, the nett gain after deducting interests would probably be somewhere around 25%.

    My CPF “investment” was at -36% of its original value before I switched funds in 2012. As of this writing, it has improved but is still at a miserable -32%. This is after 5 years!

    I also learnt that my endowment plans pay hefty commission charges and may possibly not yield the projected 3-7%, but forgoing it early would mean massive losses so I’m just keeping it for the sake of keeping it. Premiums paid-to-date (after exactly 4 years) are around $26K but the current value of the policies are only around $13K. That is almost 50% of losses for early surrender.

    My cash investment-linked funds from 2011 are at -8.3% its original value as of this writing. This is after waiting it out for more than 2 years. It was even worse prior to me switching to bonds in late 2012.

    My SGX shares are at -6% of its original value as of last week when STI fell below 3,000. But after adding dividends this turns out to be not too bad — my losses are around -4% nett considering that I entered at a really bad time near the peak of 2013 when STI was >3,400. I take this 4% loss as “school fees”.

    So with 4 years of crappy financial management, I asked myself if I could have done better.

    Summary of lessons learnt

    Not all debts are bad. I believe most articles on financial prudence would advise against debt, but it is near impossible for a young working couple to own a home in Singapore without a loan.

    Don’t trust your friendly financial adviser. Even if he meant well, the training he had received may not.

    Endownment plans are bullcrap unless you are the sort who does not know how to save, then it forces you to save (somewhat).

    ILFs are the ultimate garbage. The commission charges will kill you.

    As a summary of the three points above, never trust somebody else to manage your money for you… well… because it’s not their money.

    The one thing I am not sure about yet is the stock market which I will learn about and experiment with over the course of the next one year.

    Stay tuned for further updates…

  • The truth about offsetting loans with investments

    I’ve often heard people say it is easy to overcome the low car loan interest rates. While it may be 1.88%, the effective interest rate is much higher than that, about 4%.

    And people will tell me that it is easy to find something with an interest yield of 4%.

    I tell them their maths fail. Why?

    Disregarding all risks and investment yield fluctuations, simple arithmetic says that one must invest the same amount over the same period of time as the loan quantum to yield the same returns.

    This means if you took a $100K loan for 8 years, you need to plonk $100K into an investment yielding the same interest rates for 8 years.

  • Saving is a virtue, investing is a method

    I thought this would be a very good blog entry so I decided to write it.

    I was out with my junior from Ngee Ann Polytechnic. He wanted to get himself a nice Cello before he serves NS so we went Cello shopping. After viewing some nice instruments we sat down at TCC and I had a chat with him.

    My first advice to him was not to spend his life savings on a Cello. He assured me that that was not all the money he had and he had intended to use some of his savings to invest in blue chips. My first reaction was 😮 (not bad for a 19yr old!)

    I asked him, what kind of yield are you expecting from, say, $5,000.

    “5-7%”, he said.

    “That’s pretty much nothing”, I said.

    It works out to $250-$350 per year or about $20-30 per month if the yields meet his expectations. I told him that he’s still young and while his earning power is zero at the moment his expenditures are at an all time high. I sold him a new concept that at this point in life he should first learn to reduce his expenditure because that gives a better “yield” in relative dollars versus investing his life savings of several thousand dollars, not to mention the risks of investments.

    Afterall most people spend a larger portion of their income than save and it is generally easier to save 10% more than to earn an additional 10% from the savings.

    N.B. Saving does not mean scrimping, i.e. being a cheapskate to an extent that it impacts the wellbeing of yourself and people around you.

    One way to go about doing this is to leverage credit cards with cash rebates. But the bill must be paid in full at the end of each month, i.e. do not overspend. For example I have a UOB One card that gives me approx 3% cash-back on my expenses. If I spend on average $800 a month that works out to about $20+ per month, which is about the same amount that he would have gotten if his investments of $5,000 yielded 5%-7%.

    This is just one example, and probably not the best. There are many, many of these cards out there. I heard Standard Chartered even gives you $100 for a new sign up!

    If you are a student and not eligible for a card, just get an adult to sign up for you or be your guarantor. It is actually a good way to build a positive credit rating and to learn to manage your finances.

    Of course some apply for all the wrong reason, e.g. to get discounts eating out at fancy restaurants or simply to show off. It’s not that discounts are bad but when you keep eating out for the sake of that 15% discount, you are doing it for the wrong reasons. A plate of $3 chicken rice versus 15% off a $30 buffet is not savings.

    Without self control all these credit facilities can go out of hand and that’s exactly what the banks want — for you to default payment and pay the hefty 25% p.a. interest rate and $50 late payment fee, or to buy that Prada bag and miss one of your 12-month installments.

    Saving is a virtue and one should always start with that. Investment is one of the many methods to grow your money only when you already have enough money to go around.