Ah, finally, another opportunity!
Gentings is offering Perpetual Bonds at a rate of 5.125%. After 10 years (18 Oct 2022), if not redeemed, the rate increases to 6.125% thereafter. The perpetual bond is recallable/reedemable in 2017 (5 years). Minimum subscription to its IPO is $5,000, and in increments of $1,000. Distribution is twice yearly on 18 Apr and 18 Oct.
There are many risks involved and one should check out the prospectus in detail. From my perspective, it sounds like a reasonable deal, so long as Gentings doesn't fold over the next 20 years. Would have been even better if the rates were higher! One can only wish.
Investment through the ages, from cradle to grave.
10 April 2012
03 January 2012
Capita Mall Asia Bonds (5 + 5 years)
Capita Mall Asia (CMA) is first off the block, offering a 10-year bond for the first 5 years at an interest rate of 3.8%, with pay outs on 12 Jan and 12 Jul each year, and callable in part or in full after 12 Jan 2017. If not called, the interest will increase to 4.5% for the next 5 years, maturing on 12 Jan 2022.
Applications are open from 3 Jan 2012, 2 pm to 9 Jan 2012, 2 pm, at a minimum of $2,000 and in increments of $1,000.
Not eligible under CPF Investment Scheme and Supplementary Retirement Scheme.
Details at SGX Website
Applications are open from 3 Jan 2012, 2 pm to 9 Jan 2012, 2 pm, at a minimum of $2,000 and in increments of $1,000.
Not eligible under CPF Investment Scheme and Supplementary Retirement Scheme.
Details at SGX Website
01 January 2012
A Year of Retail Bonds and Preference Shares
It's 1 Jan 2012, and morphing shortly to the Year of the Dragon.
News seem to suggest that there will be a sprinkling of companies raising funds through Retail Bonds and perhaps Preference Shares. Chances are good as credits are likely to be tight. So this is one avenue for companies to secure credit. Hopefully, these will be priced at more exciting levels, offering above 4% annual pay out?
I keep seeing comparisons that people make between the yield of REITs, comparing against bond coupon rates, and similarly, preference shares. However, there is a big difference involved concerning the principal amount. In the case of REITs, the yield is dependent on the current stock value of the REIT, so it will fluctuate. In contrast, the coupon and dividend payment of bonds and preference shares are based on the original face value (or par value) and is not dependent on the trading value of the bond/preference-shares.
To illustrate, if the REIT was priced at $1.00 per share, a 5% dividend would give $0.05 per share. In the following year, if the REIT collapses to $0.50 per share, a 5% dividend would give only $0.025 per share. For the REIT to continue giving out the same amount of $0.05 per share, it would have to pay out a dividend of 10%. Whether the later is possible depends on its business revenue generated.
In contrast, a bond would be priced at $1.00 per unit. If it has a 5% coupon payout, one gets $0.05 per unit every year until maturity, where the bond is then redeemed by the issuer at the original capital of $1.00 per unit. The coupon payout does not fluctuate. On the secondary trading market, the bond would be trading at values, and that does fluctuate. But that does not affect the coupon payout. It only has an impact if one needs to sell it off before maturity.
It is similar for preference shares. For non-cumulative preference shares, the difference would be that there may be no payout if the underlying stock does not as well. So it's important that such companies are well managed and have a consistent history of always paying out. In the case of cumulative preference shares, any payout missed in one year gets carried over to the next - i.e. cumulative. Some of the preference shares are "perpetual", and may never be redeemed.
[SGX List of Preference Shares]
The Toto special for New Year is estimated at $3 million. If one was to win this sum, and invest the winnings in a series of bonds and preference shares (diversification!) that gives an average of 4% coupon/dividends, that's $120,000 per year perpetually! Not bad.
One can dream. Buy a ticket today for that HOPE - a four letter word.
Disclaimer: Winning is not guaranteed. *grin* Happy New Year 2012!
News seem to suggest that there will be a sprinkling of companies raising funds through Retail Bonds and perhaps Preference Shares. Chances are good as credits are likely to be tight. So this is one avenue for companies to secure credit. Hopefully, these will be priced at more exciting levels, offering above 4% annual pay out?
I keep seeing comparisons that people make between the yield of REITs, comparing against bond coupon rates, and similarly, preference shares. However, there is a big difference involved concerning the principal amount. In the case of REITs, the yield is dependent on the current stock value of the REIT, so it will fluctuate. In contrast, the coupon and dividend payment of bonds and preference shares are based on the original face value (or par value) and is not dependent on the trading value of the bond/preference-shares.
To illustrate, if the REIT was priced at $1.00 per share, a 5% dividend would give $0.05 per share. In the following year, if the REIT collapses to $0.50 per share, a 5% dividend would give only $0.025 per share. For the REIT to continue giving out the same amount of $0.05 per share, it would have to pay out a dividend of 10%. Whether the later is possible depends on its business revenue generated.
In contrast, a bond would be priced at $1.00 per unit. If it has a 5% coupon payout, one gets $0.05 per unit every year until maturity, where the bond is then redeemed by the issuer at the original capital of $1.00 per unit. The coupon payout does not fluctuate. On the secondary trading market, the bond would be trading at values, and that does fluctuate. But that does not affect the coupon payout. It only has an impact if one needs to sell it off before maturity.
It is similar for preference shares. For non-cumulative preference shares, the difference would be that there may be no payout if the underlying stock does not as well. So it's important that such companies are well managed and have a consistent history of always paying out. In the case of cumulative preference shares, any payout missed in one year gets carried over to the next - i.e. cumulative. Some of the preference shares are "perpetual", and may never be redeemed.
[SGX List of Preference Shares]
The Toto special for New Year is estimated at $3 million. If one was to win this sum, and invest the winnings in a series of bonds and preference shares (diversification!) that gives an average of 4% coupon/dividends, that's $120,000 per year perpetually! Not bad.
One can dream. Buy a ticket today for that HOPE - a four letter word.
Disclaimer: Winning is not guaranteed. *grin* Happy New Year 2012!
28 December 2011
Non Convertible Preference Shares III
[This is an update of a previous post.]
Hyflux 6.0% - Cumulative NCPS
UOB 5.05%
- 15 Sep 2013 @ 5.05% (15 Mar, 15 Sep)
- 15 Sep 2018 @ as above [2nd maturity date]
OCC 5.1%
- 20 Sep 2018 @ 5.1% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 2.5% (20 Mar, 20 Jun, 20 Sep, 20 Dec)
OCC 3.93%
- 20 Mar 2015 @ 3.93% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 1.85% (20 Mar, 20 Jun, 20 Sep, 20 Dec)
OCBC 5.1%
- 29 Mar 2013 @ 5.1% (20 Jun, 20 Dec)
OCBC 4.5%
- 28 Jan 2013 @ 4.5% (20 Jun, 20 Dec)
OCBC 4.2%
- 14 Jan 2013 @ 4.2% (20 Jun, 20 Dec)
SOR refers to the Swap Offer Rate.
For an elaboration to understand about these preference shares, you may want to examine this talk on Comparing Bonds from an SIAS MyMoney investor education programme.
For the latest, refer to SGX List of Preference Shares.
You may also be interested in SGX List of Retail Bonds. As an example, "LTA n4.17% 160510" means that the bond issuer is LTA at a coupon rate of 4.17% per annum and matures on 10 May 2016.
Traded on the SGX, NCPS are traded like shares (which means the bid-ask price fluctuates), but gives out dividend/coupon payments like bonds. There aren't that many such NCPS, and they're most likely from the 3 big banks in Singapore. So long as the issuers don't call back their NCPS, they will continue to pay out the dividends at the stated rate. However, some of these have 'maturity' dates where the coupon rate reverts to a floating rate thereafter. Prior to the maturity date, the bank cannot call back the NCPS.
The risk of failure stems from the issuing company going down under (you lose your pants!), or when it fails to pay out any dividends for their standard shares resulting in no dividend payout for their NCPS as well. However, the likelihood of these negative events appear slim given the strong historical performance of these Singapore banks. But then again, we've seen also big banks in the US going down under in recent history!
If one is not worried about the fluctuations of the "capital", and is happy with the dividend/coupon payout, NCPS may not be a bad option for building a "cashflow" stream. So long as the issuer doesn't call back the NCPS, you will get the annual payout (usually half-yearly or quarterly) perpetually. If they do call back the NCPS, you will get back the par value anyway.
Below are the respective NCPS. Read as such:
[NCPS]
[Date of maturity] @ [Rate] ([Dividend/Coupon payout date])
The risk of failure stems from the issuing company going down under (you lose your pants!), or when it fails to pay out any dividends for their standard shares resulting in no dividend payout for their NCPS as well. However, the likelihood of these negative events appear slim given the strong historical performance of these Singapore banks. But then again, we've seen also big banks in the US going down under in recent history!
If one is not worried about the fluctuations of the "capital", and is happy with the dividend/coupon payout, NCPS may not be a bad option for building a "cashflow" stream. So long as the issuer doesn't call back the NCPS, you will get the annual payout (usually half-yearly or quarterly) perpetually. If they do call back the NCPS, you will get back the par value anyway.
Below are the respective NCPS. Read as such:
[NCPS]
[Date of maturity] @ [Rate] ([Dividend/Coupon payout date])
Hyflux 6.0% - Cumulative NCPS
- 25 Apr 2018 @ 6% (25 Apr, 25 Oct)
- Thereafter @ 8% (25 Apr, 25 Oct)
DBS 4.7%
- 22 Nov 2020 @ 4.7% (22 May, 22 Nov)
- Thereafter @ 3-mth SOR + 2.28% (15 Feb, 15 May, 15 Aug, 15 Nov)
DBS 4.7%
- 22 Nov 2020 @ 4.7% (22 May, 22 Nov)
- Thereafter @ 3-mth SOR + 2.28% (15 Feb, 15 May, 15 Aug, 15 Nov)
UOB 5.05%
- 15 Sep 2013 @ 5.05% (15 Mar, 15 Sep)
- 15 Sep 2018 @ as above [2nd maturity date]
OCC 5.1%
- 20 Sep 2018 @ 5.1% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 2.5% (20 Mar, 20 Jun, 20 Sep, 20 Dec)
OCC 3.93%
- 20 Mar 2015 @ 3.93% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 1.85% (20 Mar, 20 Jun, 20 Sep, 20 Dec)
OCBC 5.1%
- 29 Mar 2013 @ 5.1% (20 Jun, 20 Dec)
OCBC 4.5%
- 28 Jan 2013 @ 4.5% (20 Jun, 20 Dec)
OCBC 4.2%
- 14 Jan 2013 @ 4.2% (20 Jun, 20 Dec)
SOR refers to the Swap Offer Rate.
For an elaboration to understand about these preference shares, you may want to examine this talk on Comparing Bonds from an SIAS MyMoney investor education programme.
For the latest, refer to SGX List of Preference Shares.
You may also be interested in SGX List of Retail Bonds. As an example, "LTA n4.17% 160510" means that the bond issuer is LTA at a coupon rate of 4.17% per annum and matures on 10 May 2016.
24 December 2011
Recollections of 'my' companies
It's the eve of X'mas 2011, and it's a good a time as any to take stock of events in the year that relates to companies I've taken a stake in. It's been a horrible and unforgiving year - tsunami in Japan, massive floods in Thailand and Australia, financial crisis Part II in Europe, SMRT coming out like a disaster movie, repeated floods at various parts of Singapore, and the bird flu apparently making a come back in Hong Kong.
Adampak had one of its factory underwater in Thailand when the floods hit.
Qian Hu is still fishing around and doing poorly this year after the European market tanked. Fishy.
SPH failed to deliver my papers on a few occasions. Not getting their basic service done is a bad sign. And the long time Chairman of SPH has become the President of the Republic.
In contrast, SingPost has consistently delivered my posts. But the amount of junk mails these days is simply amazing! But if it keeps the postman busy, it's good?
Singtel phone bills continue to increase throughout the year as the number of handphones I owned have gone up. How many handphones does one need? I am still not subscribing to any M1 services. What will LTE technology bring to their businesses? More data traffic is the way to go, ever since the rise of the iPhone and iPad. Long live Steve Jobs!
Still haven't bought anything from Aussino. I think I'm still happy with my bedsheets. The trouble is that these things can last quite a while. I'm not hopeful about their business.
HourGlass appears to be doing decent business. Lots of tourists visiting Singapore these days and hopefully there're there in the branded class that the newly rich patronise.
SMB United is in the midst of a takeover bid. Remains to be seen what the outcome will be.
Global Logistics Properties has dived in on the Japanese property market in the months following the Japanese tsunami and nuclear disasters. Looks like some smart moves. It's going to be sometime before we see these pan out. China and Japan are all about exports and emergent consumption. And that means there is a logistics battle to be won.
On the property front, the cooling measures seem to be gradually taking effect. Amazingly, the E-Condo I'm living in now appears to be going at twice the price I bought, and that was just 5 years ago. In land scarce Singapore, this is one area where there is no room for abundance, unless technology breakthroughs bring new opportunities. I'd stay away speculating the home properties given that these will likely continue to attract frequent policy interventions. This is one unstable "C" among the infamous 5Cs. But Capita-Commercial Trust and Mapletree Industrial Trust are alternatives in the commercial and industrial sectors (REITS) for a 'stable' income stream. That's not a bad thing.
Singapore banks have stood the test of the last two rounds of financial crisis in the US and Europe. OCBC remains healthy and I'm sure their OCC 3.93% NCPS will continue to pay out annually. How does the future hold for SP Reinsurance and Sing Inv & Finance? I'm living off their dividends.
Water is the business for Hyflux. However, I certainly wouldn't hold my breadth on Hyflux itself. It had banked on the rich African market which was unfortunately aborted by the Arab Spring. Perhaps the opportunity will present itself again. It has tried to diversify into China and we shall see how that transpires. But their overall business in water and waste should remain viable and hence Hyflux 6% CPS should remain ok for the steady income stream it produces. We need to drink, and we certainly have to shit. One can die from not being able to do either you know.
CSE Global seems to be having trouble making profits out of their software projects. It didn't help to find their customers caught amidst the rising tide of the Arab Spring as well.
Ah China! Who knows where things will go from here. One can certainly see the throngs of newly rich everywhere. And I mean everywhere. So perhaps it's healthy to benefit from their retail growth story via Capita Retail China Trust.
Tat Hong's factory near my neighbourhood seems to have either moved, or else all their cranes have been rented. Bad sign, good sign, depending which way it went. But they're likely benefiting from their business down in Australia. It's a reconstruction and recovery story after the floods in Australia had receded.
When economic woes abound, and the price of oil climbs to ridiculous levels, airlines businesses are all downhill, including filings for Chapter 11 (US)! But I believe SIA will recover and will do well again when things pick up. But one wonders how the new management team is fairing?
By a similar thread, SATS' future rests on the recovery of the air transportation business. They have just secured a contract to operate the new Cruise passenger terminal. That could perhaps help broaden their business to the sea business. In any case, they continue to have the stable business of providing food for the SAF. National Service is good for SATS.
Speaking of food, Brands products from CerebosPac is a must have booster for kids preparing for exams. What a year of exams! That's a lot of Brands Essence of Chicken. It also appears to be one of those staple items for hospitalisation gifts as well. Students and hospitals, it's all about people!
Kian Ann, Innotek, Teck Wah and Meiban Gp? Waiting for the manufacturing and engineering to recover perhaps.
With Certificate of Entitlements rising to epic proportion, car ownership has become another that has gone beyond-the-line-of-sight "C" for followers of the 5Cs. But they all need to go for annual inspections, and the number of cars aren't getting any less despite this. VICOM for next buy?
Merry X'mas!
Adampak had one of its factory underwater in Thailand when the floods hit.
Qian Hu is still fishing around and doing poorly this year after the European market tanked. Fishy.
SPH failed to deliver my papers on a few occasions. Not getting their basic service done is a bad sign. And the long time Chairman of SPH has become the President of the Republic.
In contrast, SingPost has consistently delivered my posts. But the amount of junk mails these days is simply amazing! But if it keeps the postman busy, it's good?
Singtel phone bills continue to increase throughout the year as the number of handphones I owned have gone up. How many handphones does one need? I am still not subscribing to any M1 services. What will LTE technology bring to their businesses? More data traffic is the way to go, ever since the rise of the iPhone and iPad. Long live Steve Jobs!
Still haven't bought anything from Aussino. I think I'm still happy with my bedsheets. The trouble is that these things can last quite a while. I'm not hopeful about their business.
HourGlass appears to be doing decent business. Lots of tourists visiting Singapore these days and hopefully there're there in the branded class that the newly rich patronise.
SMB United is in the midst of a takeover bid. Remains to be seen what the outcome will be.
Global Logistics Properties has dived in on the Japanese property market in the months following the Japanese tsunami and nuclear disasters. Looks like some smart moves. It's going to be sometime before we see these pan out. China and Japan are all about exports and emergent consumption. And that means there is a logistics battle to be won.
On the property front, the cooling measures seem to be gradually taking effect. Amazingly, the E-Condo I'm living in now appears to be going at twice the price I bought, and that was just 5 years ago. In land scarce Singapore, this is one area where there is no room for abundance, unless technology breakthroughs bring new opportunities. I'd stay away speculating the home properties given that these will likely continue to attract frequent policy interventions. This is one unstable "C" among the infamous 5Cs. But Capita-Commercial Trust and Mapletree Industrial Trust are alternatives in the commercial and industrial sectors (REITS) for a 'stable' income stream. That's not a bad thing.
Singapore banks have stood the test of the last two rounds of financial crisis in the US and Europe. OCBC remains healthy and I'm sure their OCC 3.93% NCPS will continue to pay out annually. How does the future hold for SP Reinsurance and Sing Inv & Finance? I'm living off their dividends.
Water is the business for Hyflux. However, I certainly wouldn't hold my breadth on Hyflux itself. It had banked on the rich African market which was unfortunately aborted by the Arab Spring. Perhaps the opportunity will present itself again. It has tried to diversify into China and we shall see how that transpires. But their overall business in water and waste should remain viable and hence Hyflux 6% CPS should remain ok for the steady income stream it produces. We need to drink, and we certainly have to shit. One can die from not being able to do either you know.
CSE Global seems to be having trouble making profits out of their software projects. It didn't help to find their customers caught amidst the rising tide of the Arab Spring as well.
Ah China! Who knows where things will go from here. One can certainly see the throngs of newly rich everywhere. And I mean everywhere. So perhaps it's healthy to benefit from their retail growth story via Capita Retail China Trust.
Tat Hong's factory near my neighbourhood seems to have either moved, or else all their cranes have been rented. Bad sign, good sign, depending which way it went. But they're likely benefiting from their business down in Australia. It's a reconstruction and recovery story after the floods in Australia had receded.
When economic woes abound, and the price of oil climbs to ridiculous levels, airlines businesses are all downhill, including filings for Chapter 11 (US)! But I believe SIA will recover and will do well again when things pick up. But one wonders how the new management team is fairing?
By a similar thread, SATS' future rests on the recovery of the air transportation business. They have just secured a contract to operate the new Cruise passenger terminal. That could perhaps help broaden their business to the sea business. In any case, they continue to have the stable business of providing food for the SAF. National Service is good for SATS.
Speaking of food, Brands products from CerebosPac is a must have booster for kids preparing for exams. What a year of exams! That's a lot of Brands Essence of Chicken. It also appears to be one of those staple items for hospitalisation gifts as well. Students and hospitals, it's all about people!
Kian Ann, Innotek, Teck Wah and Meiban Gp? Waiting for the manufacturing and engineering to recover perhaps.
With Certificate of Entitlements rising to epic proportion, car ownership has become another that has gone beyond-the-line-of-sight "C" for followers of the 5Cs. But they all need to go for annual inspections, and the number of cars aren't getting any less despite this. VICOM for next buy?
Merry X'mas!
07 November 2011
Savings is all relative
I've been giving my two school-going kids their weekly allowances. My older boy who is in secondary school is given $20 a week. My younger daughter who has reached the end of primary school is given $3 a week. Yet, the boy has practically no savings, every cent is spent. My girl on the other hand has a net savings of more than $500 (inclusive rewards, and birthday ang pows). Interesting isn't it?
One could argue that a secondary school student needs to spend more money than a primary school. Perhaps the canteen food is more expensive. Perhaps there is greater peer pressure to hang out and chill out. Perhaps there are more CCA activities in the afternoons and hence the corresponding expenses. But I suspect it's a question of being a "saver" versus a "spender"?
One interesting indicator is that whenever my son gets his allowance, he tends to spend big on the first few days of the week. Instant gratification, and consequences be damned! He can rapidly run out of cash before the end of the work and struggles to live on the balance for the rest of the week.
My daughter on the other hand has yet to exhibit these same behaviour. So there is hope yet. We shall see how things pan out next year when she is also in a secondary school.
One could argue that a secondary school student needs to spend more money than a primary school. Perhaps the canteen food is more expensive. Perhaps there is greater peer pressure to hang out and chill out. Perhaps there are more CCA activities in the afternoons and hence the corresponding expenses. But I suspect it's a question of being a "saver" versus a "spender"?
One interesting indicator is that whenever my son gets his allowance, he tends to spend big on the first few days of the week. Instant gratification, and consequences be damned! He can rapidly run out of cash before the end of the work and struggles to live on the balance for the rest of the week.
My daughter on the other hand has yet to exhibit these same behaviour. So there is hope yet. We shall see how things pan out next year when she is also in a secondary school.
30 August 2011
Detroit, Automotive Capital of the World
2008 was a watershed year for many in the automotive industry. No less so than the BIG-3 which are headquartered in Detroit, Michigan.
Along the expanse of Woodward Avenue, Detroit celebrates an annual event in the month of August each year which sees cars from the 60's and 70's gathering along Woordward Avenue for an annual drive-by (see Woodward Dream Cruise). I hear that Woodward Avenue is much like Route-66 and a nostalgic piligrimage for automotive lovers. It is quite a sight to see the many oldies, both vintage cars and drivers alike during the week of the Woodward Dream Cruise!
While it seems that the automotive industry is very much alive along the fringe of Detroit city, it seems that Detroit city itself may have seen better days. A fate similarly shared by its basketball team, the Detroit Pistons. Many dilipidated buildings abound, even within the heart of the city. For a city of its size, it seems awefully quiet, even on a typical weekday. Apparently, the city once hosted a population of 2 million. Today, it stands at a scant 750,000. Many have chosen to move out to the suburbs, where new housings are a-plenty. Perhaps the only times when the city thrives is when baseball or football games are on.
Still, there are positive signs that the city is slowly, very slowly, recovering. The automotive industry continues to dominate its industry, and hence its economic weakness. GM, Ford and Chrysler, as well as many ancillary businesses continue to recover and perhaps prosper.
A very simple lesson here: diversify.
General Motors
Along the expanse of Woodward Avenue, Detroit celebrates an annual event in the month of August each year which sees cars from the 60's and 70's gathering along Woordward Avenue for an annual drive-by (see Woodward Dream Cruise). I hear that Woodward Avenue is much like Route-66 and a nostalgic piligrimage for automotive lovers. It is quite a sight to see the many oldies, both vintage cars and drivers alike during the week of the Woodward Dream Cruise!
Woodward Dream Cruise 2011
While it seems that the automotive industry is very much alive along the fringe of Detroit city, it seems that Detroit city itself may have seen better days. A fate similarly shared by its basketball team, the Detroit Pistons. Many dilipidated buildings abound, even within the heart of the city. For a city of its size, it seems awefully quiet, even on a typical weekday. Apparently, the city once hosted a population of 2 million. Today, it stands at a scant 750,000. Many have chosen to move out to the suburbs, where new housings are a-plenty. Perhaps the only times when the city thrives is when baseball or football games are on.
Vacant buildings in the heart of Detroit
A very simple lesson here: diversify.
08 August 2011
August Does Not Augur Well - US Market
Yet another August and a tumultous one yet again. The market seems to have taken a little breather from the news that the US government wasn't going insolvent, and then decided that it still wasn't happy. Or, there were enough insider news going on that S&P was going to downgrade the US's AAA rating downwards, and the market responded pre-emptively with the inside news. Whatever it was, the rapid drop across the board and its subsequent "hut'chew" effect has caused yet another series of contagious effect.
Is this yet another once-in-three year opportunity for a Great Global Sale? It may not be a market bottom, but I certainly view this as another fascinating buy opportunity.
Is this yet another once-in-three year opportunity for a Great Global Sale? It may not be a market bottom, but I certainly view this as another fascinating buy opportunity.
04 July 2011
The Moneytree and its many branches
Since I strive to make it a point that my monthly expenses stay below my monthly take home pay, bonus is then an affair of choices. What should I do with my bonus? It seems the competing demands are a plenty:
1. Contribute to my spouse's CPF-SA account (up to $7,000) and benefit from income tax benefits and 4% returns.
2. Contribute to my spouse's CPF-MA account since it is below the threshold, and benefit from 4% returns.
3. Contribute to my kids' Fundsupermart accounts and build up their unit trust portfolio for their education funds.
4. Pay down my mortgage (2.6% loan interest) and reduce the monthly instalment payment to build up my CPF-OA (gaining 2.5% interest).
5. Contribute to my own unit trust portfolio or in my trading account to buy more good dividend paying stocks. 6-10% returns with associated higher risks.
6. Save up and keep in a Money Market Fund for vacation expenses.
7. Leave it the bank savings account, earning peanuts, but with ready cash-on-hand as part of my contingency funds.
The answer is likely a combination of above - probably 1, 3, 5, 6 and 7.
It doesn't make immediate sense right now to do 4 since interest rates are still low.
I guess I will not go for 2 either, unless I've maxed out my spouse's CPF-SA and there is no better place to make more than 4% returns.
Related:
Free "e-book": Achieving level one financial security for Singaporeans [ASSI]
1. Contribute to my spouse's CPF-SA account (up to $7,000) and benefit from income tax benefits and 4% returns.
2. Contribute to my spouse's CPF-MA account since it is below the threshold, and benefit from 4% returns.
3. Contribute to my kids' Fundsupermart accounts and build up their unit trust portfolio for their education funds.
4. Pay down my mortgage (2.6% loan interest) and reduce the monthly instalment payment to build up my CPF-OA (gaining 2.5% interest).
5. Contribute to my own unit trust portfolio or in my trading account to buy more good dividend paying stocks. 6-10% returns with associated higher risks.
6. Save up and keep in a Money Market Fund for vacation expenses.
7. Leave it the bank savings account, earning peanuts, but with ready cash-on-hand as part of my contingency funds.
The answer is likely a combination of above - probably 1, 3, 5, 6 and 7.
It doesn't make immediate sense right now to do 4 since interest rates are still low.
I guess I will not go for 2 either, unless I've maxed out my spouse's CPF-SA and there is no better place to make more than 4% returns.
Related:
Free "e-book": Achieving level one financial security for Singaporeans [ASSI]
24 June 2011
Cashflow - A Tale of Stable Income
Heard from a colleague over lunch.
He apparently bought a pair of properties for investment previously, paying down only 20% and secured loans for the rest. The servicing of the loans were offset by his rental income from each of his two properties. His tenants were all expatriate and paying tidy rentals for his properties which were located in the outskirts of the city area.
Nice cash flow - using other's people money to make money. Well done! Proud owner of several properties.
One day, one of his tenants called him to say he was being laid off, and he would not be able to continue paying his rent. My friend got pretty worried, because he would have to pay a hefty monthly sum to service his loan without a paying tenant. So he agreed to let his tenant tide over by lowering the rent, and allowed him to temporarily delay payments, hoping desperately that his tenant would be able to secure an alternate job soon.
About this time, his other tenant tried to call him on his mobile. As he described it, "I was running scared! I didn't want to answer his call. Because if he was going to tell me that he had also been laid off, I didn't know what I was going to do!"
This was in the late 90's. More than 10 years later, he's apparently in a similar state. He's starting to get worried again and is seriously thinking of getting rid of one of his properties.
He apparently bought a pair of properties for investment previously, paying down only 20% and secured loans for the rest. The servicing of the loans were offset by his rental income from each of his two properties. His tenants were all expatriate and paying tidy rentals for his properties which were located in the outskirts of the city area.
Nice cash flow - using other's people money to make money. Well done! Proud owner of several properties.
One day, one of his tenants called him to say he was being laid off, and he would not be able to continue paying his rent. My friend got pretty worried, because he would have to pay a hefty monthly sum to service his loan without a paying tenant. So he agreed to let his tenant tide over by lowering the rent, and allowed him to temporarily delay payments, hoping desperately that his tenant would be able to secure an alternate job soon.
About this time, his other tenant tried to call him on his mobile. As he described it, "I was running scared! I didn't want to answer his call. Because if he was going to tell me that he had also been laid off, I didn't know what I was going to do!"
This was in the late 90's. More than 10 years later, he's apparently in a similar state. He's starting to get worried again and is seriously thinking of getting rid of one of his properties.
02 May 2011
Pattern of Behaviour
What is it about these stocks that shows such strong correlation in their performance for the past few years? They are definitely not in the same type of business.
Steady and Rising
Steady and Rising
- Adampak - Label manufacturing (http://www.adampak.com.sg/)
- Cerebos - Brand's (http://www.cerebos.com/)
- Hour Glass - Branded watches and stuff (http://www.thehourglass.com/)
- Hsu Fu Chi - Food (http://www.hsufuchifoods.com/ - website is quite hopeless!)
- M1 - Telco (http://www.m1.com.sg/)
- CSE Global - Software business, especially for the Oil & Gas industry (http://www.cse.com.sg/)
- Innotek - Component manufacturing (http://www.innotek.com.sg/)
- Kian Ann - Construction - Heavy machinery and diesel engine distributor (http://www.kianann.com.sg/)
- SingPost - Postal/logistics services, property/rental (http://www.singpost.com.sg/)
- Sing Inv & Fin - Finance (http://www.sif.com.sg/)
- Teckwah - Printing, packaging and supply-chain (http://www.teckwah.com.sg/)
- Zagro Asia - Animal and crop bio-medical (http://www.zagro.com/)
Stock: SingPost
Despite the challenge of electronic media and the resultant cannabilisation of snail mail, SingPost remains the postal service within Singapore. Aside from property/rentals, it is also leveraging its mail distribution service to go into logistics.
SingPost: Will logistics expansion dim its attractiveness as a dividend stock? [Investment Moat]
SingPost: Will logistics expansion dim its attractiveness as a dividend stock? [Investment Moat]
25 April 2011
Credit Cooperatives
There seems to be a number of Credit Cooperatives in Singapore. These typically involve membership with regular payments (investment?) that pays out dividends in the magnitude of 3-5%. What's the catch? Is this a good avenue for wealth management?
22 April 2011
Death of INVEST
Yet another local investment/wealth-management magazine bites the dust. The latest issue of "INVEST" is its last. Over the past few years, one magazine after another have shutdown - Q, PULSES and now INVEST. It's tough to get circulation in print media going for a small market (population) when information are available real time.
FUNDSUPERMART while still alive, has reduced its frequency of circulation.
Seems the only ones still going strong are THE EDGE (weekly) and SHARES (fortnightly).
FUNDSUPERMART while still alive, has reduced its frequency of circulation.
Seems the only ones still going strong are THE EDGE (weekly) and SHARES (fortnightly).
15 April 2011
Non-Convertible Preference Shares (NCPS) II
[This is an update of a previous post.]
DBS 6.0%
- 15 May 2011 @ 6% (15 May, 15 Nov)
- Thereafter @ 3-mth SOR + 2.28% (15 Feb, 15 May, 15 Aug, 15 Nov)
DBS has announced that they are calling back this NCPS on 16 May 2011.
UOB 5.05%
- 15 Sep 2013 @ 5.05% (15 Mar, 15 Sep)
- 15 Sep 2018 @ as above [2nd maturity date]
OCC 5.1%
- 20 Sep 2018 @ 5.1% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 2.5% (20 Mar, 20 Jun, 20 Sep, 20 Dec)
OCC 3.93%
- 20 Mar 2015 @ 3.93% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 1.85% (20 Mar, 20 Jun, 20 Sep, 20 Dec)
OCBC 5.1%
- 29 Mar 2013 @ 5.1% (20 Jun, 20 Dec)
OCBC 4.5%
- 28 Jan 2013 @ 4.5% (20 Jun, 20 Dec)
OCBC 4.2%
- 14 Jan 2013 @ 4.2% (20 Jun, 20 Dec)
SOR refers to the Swap Offer Rate.
Traded on the SGX, NCPS are traded like shares (which means the bid-ask price fluctuates), but gives out dividend/coupon payments like bonds. There aren't that many such NCPS, and they're most likely from the 3 big banks in Singapore. So long as the issuers don't call back their NCPS, they will continue to pay out the dividends at the stated rate. However, some of these have 'maturity' dates where the coupon rate reverts to a floating rate thereafter. Prior to the maturity date, the bank cannot call back the NCPS.
The risk of failure stems from the issuing company going down under (you lose your pants!), or when it fails to pay out any dividends for their standard shares resulting in no dividend payout for their NCPS as well. However, the likelihood of these negative events appear slim given the strong historical performance of these Singapore banks. But then again, we've seen also big banks in the US going down under in recent history!
If one is not worried about the fluctuations of the "capital", and is happy with the dividend/coupon payout, NCPS may not be a bad option for building a "cashflow" stream. So long as the issuer doesn't call back the NCPS, you will get the annual payout (usually half-yearly or quarterly) perpetually. If they do call back the NCPS, you will get back the par value anyway.
Below are the respective NCPS. Read as such:
[NCPS]
[Date of maturity] @ [Rate] ([Dividend/Coupon payout date])
The risk of failure stems from the issuing company going down under (you lose your pants!), or when it fails to pay out any dividends for their standard shares resulting in no dividend payout for their NCPS as well. However, the likelihood of these negative events appear slim given the strong historical performance of these Singapore banks. But then again, we've seen also big banks in the US going down under in recent history!
If one is not worried about the fluctuations of the "capital", and is happy with the dividend/coupon payout, NCPS may not be a bad option for building a "cashflow" stream. So long as the issuer doesn't call back the NCPS, you will get the annual payout (usually half-yearly or quarterly) perpetually. If they do call back the NCPS, you will get back the par value anyway.
Below are the respective NCPS. Read as such:
[NCPS]
[Date of maturity] @ [Rate] ([Dividend/Coupon payout date])
Hyflux 6.0% - Cumulative NCPS
- 25 Apr 2018 @ 6% (25 Apr, 25 Oct)
- Thereafter @ 8% (25 Apr, 25 Oct)
DBS 6.0%
- 15 May 2011 @ 6% (15 May, 15 Nov)
- Thereafter @ 3-mth SOR + 2.28% (15 Feb, 15 May, 15 Aug, 15 Nov)
DBS has announced that they are calling back this NCPS on 16 May 2011.
UOB 5.05%
- 15 Sep 2013 @ 5.05% (15 Mar, 15 Sep)
- 15 Sep 2018 @ as above [2nd maturity date]
OCC 5.1%
- 20 Sep 2018 @ 5.1% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 2.5% (20 Mar, 20 Jun, 20 Sep, 20 Dec)
OCC 3.93%
- 20 Mar 2015 @ 3.93% (20 Mar, 20 Sep)
- Thereafter @ 3-mth SOR + 1.85% (20 Mar, 20 Jun, 20 Sep, 20 Dec)
OCBC 5.1%
- 29 Mar 2013 @ 5.1% (20 Jun, 20 Dec)
OCBC 4.5%
- 28 Jan 2013 @ 4.5% (20 Jun, 20 Dec)
OCBC 4.2%
- 14 Jan 2013 @ 4.2% (20 Jun, 20 Dec)
SOR refers to the Swap Offer Rate.
04 April 2011
SRS Adjustments
From 1 Jan 2011, the Supplementary Retirement Scheme (SRS) contribution limit would be raised to $12,750 from the current level of $11,475.
See: Elaboration on SRS by IRAS
See: Elaboration on SRS by IRAS
24 March 2011
When Japanese is great, when Japanese is bad?
It would seem that the nuclear meltdown risk is gradually tapering down with positive hope in sight. However, the effects of the fall-out is still propagating. Restaurants which branded their Japanese heritage were often seen as up-market. But right now, the same branding is probably a death knell. Japanese restaurants are experiencing an immense sense of emptiness with no customer in sight. Perhaps, it is now the optimal time for these restaurants to do whatever major maintenance work needed and wait out this period of fear for all things Japanese. Will these companies survive the drought in business?
18 March 2011
Japan and the Rest of the World
Understandably, the Japanese stock market is nose-diving. In the aftermath of the multiple disasters of earthquake and tsunami, and the continuing threat of multiple nuclear meltdown, Japanese businesses are deeply affected one way or another. Aside from property loss, it is also the loss of manufacturing facilities, evacuation and relocation of its workforce, dislocation of distribution facilities and networks, and the impact of energy shortage within Japan. There would probably be an even heavier sell down thereafter to convert stocks to cash to support rebuilding, especially to rebuild households. There is perhaps room for a 20-40% drop.
On the other hand, the reasons for a global meltdown of the stockmarkets weigh heavily on the unstable events in MENA and the risk of a slowdown in the 2nd largest global economy (Japan). There is perhaps room for overselling and hence an opportunity to buy in for the longer term. Certainly, there will be a need in massive infrastructure reconstruction in Japan as well. But that is probably going to be on hold till the risks at the nuclear plant are brought fully under control.
On the other hand, the reasons for a global meltdown of the stockmarkets weigh heavily on the unstable events in MENA and the risk of a slowdown in the 2nd largest global economy (Japan). There is perhaps room for overselling and hence an opportunity to buy in for the longer term. Certainly, there will be a need in massive infrastructure reconstruction in Japan as well. But that is probably going to be on hold till the risks at the nuclear plant are brought fully under control.
15 February 2011
A period of fear, A period of opportunity?
There seems to be a fair bit of fear at the moment. STI has been pulling back quite a bit over the Chinese New Year, coupled with tightening measures in China, and the domino situation across the Middle-East. I am viewing any pullback at this time as a good buy for accumulation for the long term.
The ones I am eyeballing and watching with anticipatory interest:
- SPH
- M1
- Adampak
- Guocoleisure (wait for UK recovery and impact on their UK casino operations)
- Teckwah
- Capital Commercial Trust (NAV appreciated due to mark to market value of properties)
- Sp Reinsurance
- Hsu Fu Chi
- Cerebos
- Singpost
- SATS (wait for recovery of food business in UK and appreciation of the Stirling)
- Tat Hong (wait for re-construction in Australia)
The ones I am eyeballing and watching with anticipatory interest:
- SPH
- M1
- Adampak
- Guocoleisure (wait for UK recovery and impact on their UK casino operations)
- Teckwah
- Capital Commercial Trust (NAV appreciated due to mark to market value of properties)
- Sp Reinsurance
- Hsu Fu Chi
- Cerebos
- Singpost
- SATS (wait for recovery of food business in UK and appreciation of the Stirling)
- Tat Hong (wait for re-construction in Australia)
24 January 2011
Gold and Fear
Gold
The price of gold has gone up so much over the recent years, it has reached historical heights (see Gold Index on MarketWatch). Several weeks ago, my aged mother decided to pawn away all her gold jewellery. She's getting of age and has decided that cash is more valuable to her than holding hard assets like gold jewellery. It brings to mind the saying that "cash is king". There appears to be some spectre of wisdom here. I figure when the wider populance is starting to mess around with buying-selling gold, it has perhaps just about reached a peak. Time to exit gold?
Fear & Predictions
For much of 2010, the market talk was about caution and expectations of China being a market to be as an investor.
It would seem that firstly, the market continues to climb a wall of worry as oft repeated by Wong Sui Jau's blog. If I had stayed out of the market, I would certainly have been worse off. It has clearly paid off to continue to invest in times of continued fear. The outlook continues to remain the same for the year ahead. Into the third year since the market low, it is of course a time for caution. I'm going into a infinite loop here somewhere in this argument? Hmmmm....
Secondly, China has turned out to be an underachiever in 2010 for the investor. Is it perhaps a healthy correction? For sure, all the wonderful market predictions just prove that there is no clairvoyance out there. Generally wrong. Fascinatingly, in Fundsupermart's latest issue of their magazine (which is now half-yearly), it has noted that their Country predictions have turned out to be quite poor. There seems to be no reward for timing and picking the market. I predict a second year of poor results for the China market (in so far as investors are concerned). Another infinite loop?
Accuracy
How accurate have my own prediction and stock picking turned out? So far, poorly. On at least two ocassions when I exited a position, it turned out that the price I sold at was the bottom, and subsequently recovered. Looks like I can be buy-indicator. Buy when I sell!
Analysing deeper, I realised this wasn't quite true. On several other ocassions, I have been correct, exiting as the stock started going sideways, and for months since. So what's going on here? It's the traditional historical bias of recency and loss aversion affecting the mental state! Selective information processing?
What has remained rewarding has been to stick to stocks that had a business I could reasonably understand, good history of dividend payout, a fairly stable business which did not whipsaw rapidly, and companies where insiders were also regularly buying and not cashing out (and/or company buy-back of shares).
I remain commited to a steady investing strategy.
The price of gold has gone up so much over the recent years, it has reached historical heights (see Gold Index on MarketWatch). Several weeks ago, my aged mother decided to pawn away all her gold jewellery. She's getting of age and has decided that cash is more valuable to her than holding hard assets like gold jewellery. It brings to mind the saying that "cash is king". There appears to be some spectre of wisdom here. I figure when the wider populance is starting to mess around with buying-selling gold, it has perhaps just about reached a peak. Time to exit gold?
Fear & Predictions
For much of 2010, the market talk was about caution and expectations of China being a market to be as an investor.
It would seem that firstly, the market continues to climb a wall of worry as oft repeated by Wong Sui Jau's blog. If I had stayed out of the market, I would certainly have been worse off. It has clearly paid off to continue to invest in times of continued fear. The outlook continues to remain the same for the year ahead. Into the third year since the market low, it is of course a time for caution. I'm going into a infinite loop here somewhere in this argument? Hmmmm....
Secondly, China has turned out to be an underachiever in 2010 for the investor. Is it perhaps a healthy correction? For sure, all the wonderful market predictions just prove that there is no clairvoyance out there. Generally wrong. Fascinatingly, in Fundsupermart's latest issue of their magazine (which is now half-yearly), it has noted that their Country predictions have turned out to be quite poor. There seems to be no reward for timing and picking the market. I predict a second year of poor results for the China market (in so far as investors are concerned). Another infinite loop?
Accuracy
How accurate have my own prediction and stock picking turned out? So far, poorly. On at least two ocassions when I exited a position, it turned out that the price I sold at was the bottom, and subsequently recovered. Looks like I can be buy-indicator. Buy when I sell!
Analysing deeper, I realised this wasn't quite true. On several other ocassions, I have been correct, exiting as the stock started going sideways, and for months since. So what's going on here? It's the traditional historical bias of recency and loss aversion affecting the mental state! Selective information processing?
What has remained rewarding has been to stick to stocks that had a business I could reasonably understand, good history of dividend payout, a fairly stable business which did not whipsaw rapidly, and companies where insiders were also regularly buying and not cashing out (and/or company buy-back of shares).
I remain commited to a steady investing strategy.
14 January 2011
Overnight millionaires (or not)
Fascinating e-mail this. Looks like there are millions of people supposedly declared millionaires at the stroke of an e-mail.
> We wish to notify you again that you were listed as a beneficiary to the
> total sum of US$18.5 million Dollars in the intent of the deceased (name
> now withheld since this is our second letter to you).
> We contacted you because you bear the surname identity and therefore can
> present you as the beneficiary to the inheritance since there is no
> written will. Our legal services aim to provide our private clients with a
> complete service. We are happy to prepare Wills, set-up and administer
> Trusts, carry out the Administration of Estates and prepare and administer
> Powers Of Attorney.
> All the papers will be processed in your acceptance. In your acceptance of
> this deal, we request that you kindly forward to us your letter of
> acceptance, your current telephone and fax numbers and a forwarding
> address to enable us file necessary documents at our high court probate
> division for the release of this sum of money in your favour.
> Yours faithfully,
> Anthony Wang
----- Original Message -----
> total sum of US$18.5 million Dollars in the intent of the deceased (name
> now withheld since this is our second letter to you).
> We contacted you because you bear the surname identity and therefore can
> present you as the beneficiary to the inheritance since there is no
> written will. Our legal services aim to provide our private clients with a
> complete service. We are happy to prepare Wills, set-up and administer
> Trusts, carry out the Administration of Estates and prepare and administer
> Powers Of Attorney.
> All the papers will be processed in your acceptance. In your acceptance of
> this deal, we request that you kindly forward to us your letter of
> acceptance, your current telephone and fax numbers and a forwarding
> address to enable us file necessary documents at our high court probate
> division for the release of this sum of money in your favour.
> Yours faithfully,
> Anthony Wang
06 January 2011
Blog Talk 2010
It's interesting to observe, after having posted several months on this Blog, just where the audience is from. Expectedly, while the majority of hits were from Singapore, the number two and three audiences were from US and Russia. I've a funny feeling that those from Russia are either bots, spam or scam [with apologies to innocent Russians]. As for the audience from Singapore, I figure there are a number of repeat customers who are probably accessing daily. Anonymous friends I guess. Others are from more esoteric locations. Amazing.
In terms of topics of interests, it seems that a very significant portion of views were on topics concerning Non-Convertible Preference Shares (NCPS). That is probably a reflection of market interest in income producing investment. Safe haven? I guess I would get a lot more hits if I keep talking about NCPS. But that's not my aim. So no, not going to happen.
Sadly, this Blog remains with no public "Followers". I do look forward to receiving the 1st Follower one day.
Welcome to 2011!
In terms of topics of interests, it seems that a very significant portion of views were on topics concerning Non-Convertible Preference Shares (NCPS). That is probably a reflection of market interest in income producing investment. Safe haven? I guess I would get a lot more hits if I keep talking about NCPS. But that's not my aim. So no, not going to happen.
Sadly, this Blog remains with no public "Followers". I do look forward to receiving the 1st Follower one day.
Welcome to 2011!
30 December 2010
An excursion on SRS, deferred taxation
Over the past few years, ever since I got to know about the Supplementary Retirement Scheme (SRS) and its benefit of deferred taxation, I've always assumed that it would make sense to do so only when one is on a higher tax bracket. Should I have started SRS once I had a taxable income, or should I have waited till I hit a higher tax bracket, like 17%? My instincts told me it shoud be the later. So, I decided to work out a spreadsheet to analyse further if indeed this was correct.
Scenario 1(a) - It's good to start early
I made several assumptions for the analysis. I assumed that one starts contributing to SRS from the age of 25, with an annual taxable income (pre-SRS) of $30,400, with income increasing at 10% per year [decreasing to 5% after age 45, 3% after age 50, and 0% after age 55; excellent performer who is well rewarded initially!], contributing 10% of that income each year into SRS (but never exceeding the limit of $11,475). The SRS contribution is then invested, generating a return of 6.5% annualised. At age 60, the SRS investment is adjusted to a more conservative profile at 4% annualised. Based on these, at age 65 (retirement age), the SRS investment portfolio would have grown to $1.34 million. Not bad at all! But that wasn't the point of this study.
The total tax avoided as a result amounted to $59,800. Presuming the $1.34 million SRS portfolio is then drawn down at 1/10th a year, the amount of tax paid over the 10 years would be ~$92,750. This is far higher than the $30,400 of tax avoided in the years of contribution. So indeed, it would seem that it isn't worth starting on SRS when the tax brackets in initial years are low as one would end up paying more tax than that avoided.
Scenario 1(b) - Start early, save every cent, invest every cent
However, what if the savings from tax avoidance is invested in a cash-based portfolio at the same rate of return of 6.5% annualised? It turns out that this cash portfolio would be $175,000 by age 65 (and tax free)! That certainly outweighs the tax to be paid during SRS draw down.
Scenario 2 - Accumulation begins at 40
I reworked the same scenario. This time, SRS contribution begins only at age 40, contributing the full $11,475 annually. The total tax avoided works out to $50,000. Given the lower contributions, the SRS portfolio grows only to $680,000.
In comparison, the tax to be paid during the 10-year draw down upon retirement works out to $29,100. This is less than the amount of tax avoided.
If the tax avoidance savings was invested, the cash portfolio works out to $111,000, positively widening even further the benefit from contributing to SRS.
Conclusion
So, it seems my initial assumption was correct (Scenario 2). However, if one were to start early, and consistently take the savings from tax avoidance to invest (Scenario 1(b)), it turns out to be an equally rewarding approach as well.
Disclaimer: There are of course many permutations that could be explored since there are so many parameters involved. I didn't get round to testing out the various possibilities, so there could be other outcomes depending on the parameters/assumptions used.
See also:
SRS: A Brief Analysis (from "A Singaporean Stockmarket Investor" website)
Scenario 1(a) - It's good to start early
I made several assumptions for the analysis. I assumed that one starts contributing to SRS from the age of 25, with an annual taxable income (pre-SRS) of $30,400, with income increasing at 10% per year [decreasing to 5% after age 45, 3% after age 50, and 0% after age 55; excellent performer who is well rewarded initially!], contributing 10% of that income each year into SRS (but never exceeding the limit of $11,475). The SRS contribution is then invested, generating a return of 6.5% annualised. At age 60, the SRS investment is adjusted to a more conservative profile at 4% annualised. Based on these, at age 65 (retirement age), the SRS investment portfolio would have grown to $1.34 million. Not bad at all! But that wasn't the point of this study.
The total tax avoided as a result amounted to $59,800. Presuming the $1.34 million SRS portfolio is then drawn down at 1/10th a year, the amount of tax paid over the 10 years would be ~$92,750. This is far higher than the $30,400 of tax avoided in the years of contribution. So indeed, it would seem that it isn't worth starting on SRS when the tax brackets in initial years are low as one would end up paying more tax than that avoided.
Scenario 1(b) - Start early, save every cent, invest every cent
However, what if the savings from tax avoidance is invested in a cash-based portfolio at the same rate of return of 6.5% annualised? It turns out that this cash portfolio would be $175,000 by age 65 (and tax free)! That certainly outweighs the tax to be paid during SRS draw down.
Scenario 2 - Accumulation begins at 40
I reworked the same scenario. This time, SRS contribution begins only at age 40, contributing the full $11,475 annually. The total tax avoided works out to $50,000. Given the lower contributions, the SRS portfolio grows only to $680,000.
In comparison, the tax to be paid during the 10-year draw down upon retirement works out to $29,100. This is less than the amount of tax avoided.
If the tax avoidance savings was invested, the cash portfolio works out to $111,000, positively widening even further the benefit from contributing to SRS.
Conclusion
So, it seems my initial assumption was correct (Scenario 2). However, if one were to start early, and consistently take the savings from tax avoidance to invest (Scenario 1(b)), it turns out to be an equally rewarding approach as well.
Disclaimer: There are of course many permutations that could be explored since there are so many parameters involved. I didn't get round to testing out the various possibilities, so there could be other outcomes depending on the parameters/assumptions used.
See also:
SRS: A Brief Analysis (from "A Singaporean Stockmarket Investor" website)
24 December 2010
Merry X'mas 2010
It's the eve of X'mas, and a time for reflection. Has this been a worthwhile year, and the giving done? It's a wonderful time to celebrate the decisions and the outcomes.
If only we had a place and weather like winter in Nami Island (Korea).
But we face the deck of cards we are dealt with, and remain happy to achieve what we can accomplish within those boundaries.
In any case, it's the last week to contribute to SRS and to top up your spouse's CPF! I'm done. Have you?
Merry X'mas all! May your year been a fruitful one. *burp*
If only we had a place and weather like winter in Nami Island (Korea).
But we face the deck of cards we are dealt with, and remain happy to achieve what we can accomplish within those boundaries.
In any case, it's the last week to contribute to SRS and to top up your spouse's CPF! I'm done. Have you?
Merry X'mas all! May your year been a fruitful one. *burp*
22 December 2010
Ultimate bubble in Singapore
All these talk about bubbles, and we have one ultimate one right here in Singapore. And it's just a piece of paper! Imagine, would you pay $72,000 for a piece of paper? It seems many people are doing that right now to secure the Certificate of Entitlement (COE) for the right to buy a car. *sheesh* That's the price I paid to buy make car, COE included, just over a year ago!
This craze has reached a point where of the Top 3 selling cars in Singapores, two of them are luxury cars.
I think that money is better spent investing for better returns. Meanwhile, go take public transport and live with it. Wait for this bubble to burst. If only there was a way to "short" this market.
I suppose this is one bubble the 'gahmen would have little motivation to prick.
This craze has reached a point where of the Top 3 selling cars in Singapores, two of them are luxury cars.
I think that money is better spent investing for better returns. Meanwhile, go take public transport and live with it. Wait for this bubble to burst. If only there was a way to "short" this market.
I suppose this is one bubble the 'gahmen would have little motivation to prick.
15 December 2010
A tour and a view on Korea
I've just concluded a whirlwind tour, holidaying in Korea, traversing across Incheon, Seoul, Cheju and Daegu. It was not without trepidation given the situation at the border. But it would seem that Koreans were generally nonplussed about the whole affair. The view was one of "don't care, leave them alone".
With the threat of North Korea always on their mind, defence spending will continue to be a constant burden and a drain on government coffers. Interestingly, South Korea has switched from giving rice to giving barley to North Korea, and there is an interesting logic to this. Rice can be stored, but barley cannot. Therefore, doing so is to force the North Koreans to distribute the barley to its people, rather than to store it to support the military. There is much logic amidst the madness.
In so far as unification is concerned, it is most definitely not on the cards under present circumstances. One school of thought is that only if the North develops its economy and becomes more prosperous, will unification possibility become more realistic. The thinking is that if the people of the North starts to enjoy a life of wealth, will it still ever want to go to war? Therefore, the best bet is for the North to be influenced by China as the later becomes increasingly affluent.
Having experienced early winter in North Korea, I must attest that it is really unbearable to be out in the open. Even with four layers of cloth on, headgear, glove and scarf, I was still freezing cold. With temperature swinging from 0 degrees celsius on one day, and -10 the next, the extremeties are really severe. Let alone going to war under such drastic conditions. Not anybody can operate in such conditions. The North-South situation today is very different from that of the Korean War, when South Korea had nothing but 50,000 troops then.
The welfare system in Korea seems to be one that takes care of the ageing populance. But government spending on education is probably low, consequently, the cost of education burden on the typical family is high. That explains why many Koreas choose to study overseas. Afterall, if studying at home is just marginally cheaper than studying overseas, why not consider studying overseas and pick up Mandarin or English?
I've often heard that Koreans send their girls for complete plastic makeovers when they graduate from high school, and apparently this is not a fable. In fact, it is apparently common coffeeshop talk among Korean girls to talk about the latest plastic surgery that they have done. They are so advanced in this respect that FaceShop even offers a wrinkle removal cream containing botox substance. Wrinkle-free guaranteed, for a given duration. No more painful botox injections on a six-monthly basis. Simply apply the cream whenever needed! It seems like there's much worth thinking about from an investment viewpoint on beauty care companies in Korea.
With the social belief that "man in front, woman follow behind", it seems that for the same fresh graduate seeking a job, given the same academic background and results, the man gets twice the salary expected from that of the woman. The reason for this dichotomy lies in the belief that woman will get married, give birth and stop working. Therefore, there is little reason to invest in their training and career development therefore. Korea appears to suffer from the same problem as Singapore, being perpectually short of workers. With the social expectations creating an unbalanced environment for its women, I think this is going to be a challenge and impediment to their development. Their birth rate also compares similarly poorly as Singapore, at 1.2x birth per family, and is probably going to result in an increasingly aged population and the social burden in healthcare and social needs.
On our very first day in Incheon-Seoul, we were greeted by snowfall. What a wonderful experience! They should invite their Northern neighbours to visit Nami Island for a sojourn during winter. I've never watched "Winter Sonata", which was filmed here. But, if you've been there, you'll realise how beautiful it really is. Peace and bliss.
I am remaining vested in LionGlobal Korea, an equity unit trust fund, and I remain positive about the future of Korea, despite its many challenges that it has yet to overcome, and the ever present threat of conflict with its Northern brothers.
Disclaimer: This is not a sales pitch. It is merely my own views and is not based on any economic, fundamental or technical analysis.
With the threat of North Korea always on their mind, defence spending will continue to be a constant burden and a drain on government coffers. Interestingly, South Korea has switched from giving rice to giving barley to North Korea, and there is an interesting logic to this. Rice can be stored, but barley cannot. Therefore, doing so is to force the North Koreans to distribute the barley to its people, rather than to store it to support the military. There is much logic amidst the madness.
In so far as unification is concerned, it is most definitely not on the cards under present circumstances. One school of thought is that only if the North develops its economy and becomes more prosperous, will unification possibility become more realistic. The thinking is that if the people of the North starts to enjoy a life of wealth, will it still ever want to go to war? Therefore, the best bet is for the North to be influenced by China as the later becomes increasingly affluent.
Having experienced early winter in North Korea, I must attest that it is really unbearable to be out in the open. Even with four layers of cloth on, headgear, glove and scarf, I was still freezing cold. With temperature swinging from 0 degrees celsius on one day, and -10 the next, the extremeties are really severe. Let alone going to war under such drastic conditions. Not anybody can operate in such conditions. The North-South situation today is very different from that of the Korean War, when South Korea had nothing but 50,000 troops then.
The welfare system in Korea seems to be one that takes care of the ageing populance. But government spending on education is probably low, consequently, the cost of education burden on the typical family is high. That explains why many Koreas choose to study overseas. Afterall, if studying at home is just marginally cheaper than studying overseas, why not consider studying overseas and pick up Mandarin or English?
I've often heard that Koreans send their girls for complete plastic makeovers when they graduate from high school, and apparently this is not a fable. In fact, it is apparently common coffeeshop talk among Korean girls to talk about the latest plastic surgery that they have done. They are so advanced in this respect that FaceShop even offers a wrinkle removal cream containing botox substance. Wrinkle-free guaranteed, for a given duration. No more painful botox injections on a six-monthly basis. Simply apply the cream whenever needed! It seems like there's much worth thinking about from an investment viewpoint on beauty care companies in Korea.
With the social belief that "man in front, woman follow behind", it seems that for the same fresh graduate seeking a job, given the same academic background and results, the man gets twice the salary expected from that of the woman. The reason for this dichotomy lies in the belief that woman will get married, give birth and stop working. Therefore, there is little reason to invest in their training and career development therefore. Korea appears to suffer from the same problem as Singapore, being perpectually short of workers. With the social expectations creating an unbalanced environment for its women, I think this is going to be a challenge and impediment to their development. Their birth rate also compares similarly poorly as Singapore, at 1.2x birth per family, and is probably going to result in an increasingly aged population and the social burden in healthcare and social needs.
On our very first day in Incheon-Seoul, we were greeted by snowfall. What a wonderful experience! They should invite their Northern neighbours to visit Nami Island for a sojourn during winter. I've never watched "Winter Sonata", which was filmed here. But, if you've been there, you'll realise how beautiful it really is. Peace and bliss.
I am remaining vested in LionGlobal Korea, an equity unit trust fund, and I remain positive about the future of Korea, despite its many challenges that it has yet to overcome, and the ever present threat of conflict with its Northern brothers.
Disclaimer: This is not a sales pitch. It is merely my own views and is not based on any economic, fundamental or technical analysis.
23 November 2010
Stock down, more buyers than sellers
Ok, so there're several key events these few days. Incident in Korea. China imposing further controls. Ireland forced into securing a bail-out. Thanksgiving holidays on Thursday. US floods the market by printing more bills. My cable box reboots itself again.
Is there enough to cause the overall drop in the market?
Mysteriously, I noticed many SGX stocks went down today, yet the Buy volume exceeded the Sell volume. What does this bodes?
Is there enough to cause the overall drop in the market?
Mysteriously, I noticed many SGX stocks went down today, yet the Buy volume exceeded the Sell volume. What does this bodes?
DBS Bank 4.7% NCPS - The Aftermath
So, the IPO outcome is out. And the way DBS did it, everybody who applied got something. I guess that's one way to secure 100% good feelings from all parties? DBS has certainly lived up to the intent to make this available to retail investors.
There are naysayers who argued that it's bad idea to go for this though. Their argument stems from a sense of conviction that they are good stockpickers and can secure a better rate of return from their investment.
I belong to those who would readily admit at not being able to see the future, and would rather hedge my bet. At $10,000 capital and $470 of annual returns, that gives a steady stream with fairly good assurance for the next 10 years. Something I can sleep easy with. [One is reminded of course of Lehman Brothers.]
Good enough for a trip to Bangkok annually for one? Or a day out to Universal Studios Singapore annually? Or 20 meals at Burger King for the family?
It's all about cashflow.
There are naysayers who argued that it's bad idea to go for this though. Their argument stems from a sense of conviction that they are good stockpickers and can secure a better rate of return from their investment.
I belong to those who would readily admit at not being able to see the future, and would rather hedge my bet. At $10,000 capital and $470 of annual returns, that gives a steady stream with fairly good assurance for the next 10 years. Something I can sleep easy with. [One is reminded of course of Lehman Brothers.]
Good enough for a trip to Bangkok annually for one? Or a day out to Universal Studios Singapore annually? Or 20 meals at Burger King for the family?
It's all about cashflow.
17 November 2010
A weekend at Resort World Singapore and investment cheese
It was a most hectic, satisfying and yet tiring weekend as my wife and I (and the liabilities known as kids) celebrated our wedding anniversary at Resort World Sentosa (RWS), including a day out at Universal Studios Singapore (USS) and a night stay at the Hard Rock Hotel. It was a pretty expensive but most worthwhile affair.
While queuing up for a ride at USS, my son told me why when he was much younger, he had this perverse fear of entering rides that involved 'scary' tunnels. He said that he used to see people on the rides going into the tunnels and then when they reappeared, the rides came out empty. He thought that something bad had happened to those people. He thought they had died and had been whisked away somewhere! No wonder we had to drag him screaming into those rides in the past. Revelations! Now, he's the one who want to go for those rides, and I'm the one being dragged screaming into them. *giddy spells*
Cheesy Lesson: It's the same fear when most people think about investment, that it's so high risk they do not dare to get into it. It's simply the fear of the unknown and the lack of financial education.
The Waterworld show was the same act we had seen before at other Universal Studios. The pre-show 'entertainment' served its purpose well in rousing the crowd. Consistent with the theme of waterworld, water was a-plenty. Kids just love to get wet, so they were all game for the front row seats which were guaranteed to be wet affairs. Following the show at noon, you could imagine where the big flow out crowd would head to - lunch! And so, the restaurant just outside the show venue was full and overflowing. We took a longer walk to the next zone and came to another restaurant where there was still substantial capacity. I'm sure if we were to walk further, the restaurants would be even emptier.
Cheesy Lesson: When money flows out from one market, it just goes to another. As the US market sinks with its monetary policies that investors find unattractive, the money flows to another market. Like the number of people in the park, and at the show, the nett numbers remain the same. Demand has to be satisfied. And if one were prepared to look hard enough, there will be something somewhere to satisfy the demand. Look further afield.
On the way, we walked past "Revenge of the Mummy", the sign at the front said "05 min queue". We had lunch at a restaurant serving Middle-eastern and Indian food. So it was wraps, humus and such. Done with lunch, we backtracked past the "Revenge of the Mummy" ride but decided to skip it for later. The sign said "30 min queue". We figured it would be a bit too much to take this ride immediately after lunch. Probably there would be a family of merlions had we done that. We queued up for a tamer ride to let lunch 'settle down'. It was a lengthy queue though. I think the ride was called "Treasure Hunter". But we didn't find any treasure. Following that, we finally proceeded to "Revenge of the Mummy". Strangely, there was no apparent queue. As we walked closer, we found the reason why: "Ride temporarily closed due to a technical problem." Duh.
Cheesy Lesson A: When the price is low, nobody goes. When the price goes up, everybody wants. But by then, it may be the wrong time to do so. It may already be a dead beat.
Cheesy Lesson B: If you missed an investment opportunity (like a wonderful IPO), there will be a sense of regret, or missed opportunities. But, move on. There is no point standing around waiting for it, the ride has moved on.
We checked in to Hard Rock Hotel and took turns to shower. With 4 persons, that took awhile. In the midst of this, there was a knock on the door. Wo and behold, we were served a chocolate cake, compliments of the hotel, in view that it was our wedding anniversary. Impressed we were. The cake was exquisite! Yum.
Cheesy Lesson: It's good to invest in a good stock (hotel). And it feels good to get a bit of surprise along the way, like a good dividend payout (free cake).
Dinner was a lovely affair at Starz Restaurant, which was located within Hard Rock Hotel as well. So it was convenient. The seats were comfortable, the service attentive and friendly, the food was ... just ok lah. I probably wouldn't pay that kind of price for a buffet dinner for this kind of spread. There are probably better choices elsewhere. But, what the heck, the location, the occasion, satisfaction.
Cheesy Lesson: The jury's out on this one. If a stock looks good, seems good, but the price is high, is it worth a buy? I'm not sure. If it is indeed a 'good' stock, it could well be. On the other hand, if it turns out to be a dud, it's all downhill.
Discarding the Casino, since I derive no joy from paying $100 for entry and so didn't bother, RWS and USS provide enough for a worthwhile vacation weekend. Joy.
As to who moved the cheese, go ask my son. He's busy moving the cheese in "Mousehunt". Gen Y.
While queuing up for a ride at USS, my son told me why when he was much younger, he had this perverse fear of entering rides that involved 'scary' tunnels. He said that he used to see people on the rides going into the tunnels and then when they reappeared, the rides came out empty. He thought that something bad had happened to those people. He thought they had died and had been whisked away somewhere! No wonder we had to drag him screaming into those rides in the past. Revelations! Now, he's the one who want to go for those rides, and I'm the one being dragged screaming into them. *giddy spells*
Cheesy Lesson: It's the same fear when most people think about investment, that it's so high risk they do not dare to get into it. It's simply the fear of the unknown and the lack of financial education.
The Waterworld show was the same act we had seen before at other Universal Studios. The pre-show 'entertainment' served its purpose well in rousing the crowd. Consistent with the theme of waterworld, water was a-plenty. Kids just love to get wet, so they were all game for the front row seats which were guaranteed to be wet affairs. Following the show at noon, you could imagine where the big flow out crowd would head to - lunch! And so, the restaurant just outside the show venue was full and overflowing. We took a longer walk to the next zone and came to another restaurant where there was still substantial capacity. I'm sure if we were to walk further, the restaurants would be even emptier.
Cheesy Lesson: When money flows out from one market, it just goes to another. As the US market sinks with its monetary policies that investors find unattractive, the money flows to another market. Like the number of people in the park, and at the show, the nett numbers remain the same. Demand has to be satisfied. And if one were prepared to look hard enough, there will be something somewhere to satisfy the demand. Look further afield.
On the way, we walked past "Revenge of the Mummy", the sign at the front said "05 min queue". We had lunch at a restaurant serving Middle-eastern and Indian food. So it was wraps, humus and such. Done with lunch, we backtracked past the "Revenge of the Mummy" ride but decided to skip it for later. The sign said "30 min queue". We figured it would be a bit too much to take this ride immediately after lunch. Probably there would be a family of merlions had we done that. We queued up for a tamer ride to let lunch 'settle down'. It was a lengthy queue though. I think the ride was called "Treasure Hunter". But we didn't find any treasure. Following that, we finally proceeded to "Revenge of the Mummy". Strangely, there was no apparent queue. As we walked closer, we found the reason why: "Ride temporarily closed due to a technical problem." Duh.
Cheesy Lesson A: When the price is low, nobody goes. When the price goes up, everybody wants. But by then, it may be the wrong time to do so. It may already be a dead beat.
Cheesy Lesson B: If you missed an investment opportunity (like a wonderful IPO), there will be a sense of regret, or missed opportunities. But, move on. There is no point standing around waiting for it, the ride has moved on.
We checked in to Hard Rock Hotel and took turns to shower. With 4 persons, that took awhile. In the midst of this, there was a knock on the door. Wo and behold, we were served a chocolate cake, compliments of the hotel, in view that it was our wedding anniversary. Impressed we were. The cake was exquisite! Yum.
Cheesy Lesson: It's good to invest in a good stock (hotel). And it feels good to get a bit of surprise along the way, like a good dividend payout (free cake).
Dinner was a lovely affair at Starz Restaurant, which was located within Hard Rock Hotel as well. So it was convenient. The seats were comfortable, the service attentive and friendly, the food was ... just ok lah. I probably wouldn't pay that kind of price for a buffet dinner for this kind of spread. There are probably better choices elsewhere. But, what the heck, the location, the occasion, satisfaction.
Cheesy Lesson: The jury's out on this one. If a stock looks good, seems good, but the price is high, is it worth a buy? I'm not sure. If it is indeed a 'good' stock, it could well be. On the other hand, if it turns out to be a dud, it's all downhill.
Discarding the Casino, since I derive no joy from paying $100 for entry and so didn't bother, RWS and USS provide enough for a worthwhile vacation weekend. Joy.
As to who moved the cheese, go ask my son. He's busy moving the cheese in "Mousehunt". Gen Y.
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