30 June 2014

Whole Life Insurance - a good deal or a dead deal?

My wife has a whole life insurance policy for a sum assured of $35,000 for which she has been paying $613.80 a year.  She started this policy as a teenager at a very young age of 18 and the policy has been in force for the past 29 years.

According to the latest projection from the insurer (as checked from its online portal), the projected surrender value at age 65 is $85,099. This includes both the guaranteed and non-guaranteed components.

I worked through the maths and the Internal Rate of Return (IRR) worked out to be 3.97%.

Its cash value, if the policy was surrendered now, is estimated to be $29,810. Suppose she cashed out this sum and invest at a 6.5% return, and she continued to contribute the annual sum $613.80 to this investment, she could achieve an IRR at age 65 of 4.9% for a sum of $112,503.

At 5% returns, the IRR would be 4.12%, $89,009.
At 6% returns, the IRR would be 4.64%, $104,058.
At 7% returns, the IRR would be 5.15%, $121,624.
At 8% returns, the IRR would be 5.65%, $142,108.
At 9% returns, the IRR would be 6.15%, $165,968.
At 10% returns, the IRR would be 6.63%, $193,730.

My assessment is that 6% to 9% investment return is in fact achievable with a well considered dividend-yielding value investment in SGX shares. Not unlike my fantasy soccer team.

The possibility of generating $104,058 to $165,968 by the time she is age 65, and yielding dividends of 4% would imply a passive income in the range of $4,162 to $6,639 per year.  That's $347 to $553 per month.

The current cash value at $29,810 is close to the sum assured of $35,000. She is a housewife and there is really nothing that she needs to protect with this sum of money.

Worth considering?

28 June 2014

Breadtalk revisited - A RamenPlay?

There was an occasion when I needed to go to Velocity at Novena. I flagged down a cab and promptly fell asleep. Some time later, I woke up and found myself at Vivocity. Not quite where I wanted to be. Need to be careful with places like this. Kind of recalled another time when I was took a cab to Causeway Point at Woodlands. I was nearly sent across the Causeway! Yesterday, I had an errand to run and went to Velocity once again. This time, I took the train instead.

Having just returned from a trip to Japan recently, I had this continued craving for Japanese food. So it was great to discover a RamenPlay outlet there. I decided to give it a go.

I had previously reviewed Breadtalk - A Case of Over-expanded Yeast? and mentioned that I wasn't too impressed with its RamenPlay chain. Boy was I wrong. It was lunch time and the store was crowded. The food wasn't bad either. Yummy. Location was good and clearly attracted the working class from the neighborhood. I wonder if all its stores are doing as well?

I had originally bought some shares in BreadTalk in 2012 at $0.57. And again when it went down to $0.53. Shortly after, in 2013, it went up to $0.805. I decided to sell off the equivalent amount that I had invested and held onto the balance. Amazingly, it continued to trend upwards, and more recently, reached $1.45. Given that its PE ratio had reached 29x, I decided it was time to exercise caution and trimmed my holding. It's now at $1.32.

ROA (%) 7.29 5.94 5.04 4.38 3.91
ROE (%) 19.60 17.44 15.82 14.95 15.41
DPS (SGD) 0.0083 0.0100 0.0100 0.0080 0.0180
EPS (SGD) 0.0394 0.0399 0.0411 0.0425 0.0482
[Source: POEMS, dated 28 Jun 2014]

Breadtalk remains an interesting prospect for me. Although its PE ratio had improved to 27x, it's still too high for my liking. It appears highly leveraged at ~180% of debt. Can it go all the way down to $0.73? I'll maintain watch on this stock. I like Breadtalk. Munch munch.

Disclaimer: This is not a call to buy or sell. Do make your own assessment and decide for yourself. I am not a financial advisor. I have sold down but continue to hold some shares in Breadtalk. 

27 June 2014

DIY Insurance - Buy Term and Invest the Rest

An often said advice about investing for retirement is to simply "buy term and invest the rest", rather than buying lots of endowments, insurance-linked policies and what not. The idea is to buy term insurance for protection, and invest the rest for retirement income (Bahamas anyone? Or Onsen in Hokkaido?). I do agree with this notion, provided that one is prepared to gain some appreciation about investment first. Else, one may in fact be better off going with those insurance based policies to fund protection and retirement.

Doing It Yourself

There is a portal recently started by Providend (Christopher Tan) for DIY Insurance. It offers price comparisons of insurance plans from various insurance companies. Pretty nifty. Although, the big ones like Prudential and AI are clearly absent.

I gave it a go and tried two profiles to examine how much the term insurance would cost.

20 Year Old

For a person at age 20, male, non-smoker. for a sum assured of $200,000 for death and total permanent disability, the annual premiums from various companies like AXA, NTUC Income and Tokio Marine were in the range of $294 to $315.

That seems doable for a young adult with a reasonable starting salary. For a fresh graduate or diploma holder (which is about 40-60% of each cohort), that would probably represent 10-15% of his basic salary.

Why would a young, presumably single person, need to buy such insurance? Well, it would be to provide a level of protection for one's dependents. Who might these dependents be? Could be parents, wife, and children. But more importantly, I feel that it is important to secure and have such a protection in place while one is still healthy and insurable - i.e. there are no exclusions or loading to the cost of insurance due to any pre-existing illness.

The challenge is, would a young person at this tender starting stage of his career, withstand the idea that 10% of his salary goes into an insurance for which there are no returns to be expected? The only return is only when one 'kaputs' - hits the jackpot to for early entry to the Pearly Gates! Touch wood. But this is insurance in the truest sense. Dealing with the unexpected.

45 Year Old

For a person at age 45, male, non-smoker, for a sum insured of $200,000 for death and total permanent disability, the annual premiums from various companies like AXA, Aviva, NTUC Income, Manulife and Tokio Marine were in the range of $728 to $916.

As one reaches this age, it would probably become more apparent why such a form of insurance is indeed desirable. There is now family to seriously worry about. Probably a few kids and schooling. Unfortunately, it is just as likely that by this age, one would be facing various illnesses and other complications - hypertension, diabetes, prior surgery, slip disc, etc.

From the above example, a $800,000 protection would amount to under $4,000 of annual premiums. As it is, I am paying an average of $2,000 a month on average, to achieve the equivalent protection, with investment components projected to achieve a return of $750,000 by age 62. That's $24,000 per year!

Regrets and Realisation

I would have been better of paying the $4,000 in annual premiums for the term life insurance coverage of $800,000 and take the remaining $20,000 to invest. As it is, I've been achieving an internal rate of return of 20% for the last few years of investment. Realistically though, I am only expecting 6.5% over the longer term. Regardless, I do believe that I would have generated a far better rate of return than what I'm actually getting now from the endowment and ILP insurance plans.

Had I understood this better when I was young, the premium would only have been even lower, at $1,200 a year, for the term life insurance coverage of $800,000. Wow! Missed opportunities. Quite an opportunity cost.

Over time, as one's investment grows, the need for term insurance actually will taper down since the investment component will make up the shortfall. As the kids come of age and starts working, one only need to protect the spouse. And when the whole investment portfolio has reached the point of financial independence, there is no longer a need for any term insurance coverage even.

With that, my take is that I should have bought term insurances with different timelines. If I could wind back the clock, this is what I would have done:

Age 24 - started work - buy $200,000 term for 30 years (ending age 54)
Age 27 - married - buy another $200,000 term for 30 years (ending age 57)
Age 30 - 1st child (boy) born - buy another $200,000 term for 25 years (ending age 55)
Age 32 - 2nd child (girl) born - buy another $200,000 term for 23 years (ending age 55; girl doesn't need to serve NS, so it's 2 years less)

Amount may have to be more, depending on the lifestyle to maintain. But the idea is to provide enough coverage with each additional dependent, and to cover the kids only until they start working. They ought to be making a living and contribute to the family right?

It would be really silly for a person to hold a term insurance when one is no longer working. After all, the protection is to deal with loss of income isn't it?

And as one ages and builds up an investment portfolio, the term insurance is only to make up for the shortfall to achieve financial independence for the spouse. The math is really simple, though a spreadsheet would certainly be a big help.

In Conclusion

Buy term, and invest the rest!

And oh yes, maintain a hospitalisation/medical insurance! Looking forward to clarity on the enhancements to the CPF Medishield scheme.

Caveat: The figures are illustrative and may differ depending on individual conditions.

p/s: I am not an insurance agent nor a financial advisor. This is purely my personal opinion and hindsight views for my personal and family's considerations.

23 June 2014

My World Cup Team (of Dividend Value Stocks)

Warren Buffet in several of his talks cited a hypothetical situation for the audience to consider. If you only have a ticket on which you can only punch 10 holes, and each of these holes represent one stock you could invest in, and you can never change your mind thereafter for the rest of your life, what would you choose?

[You can find some of these videos of the talks on YouTube.]

Well, it's the World Cup season right now, so in the spirit of this global event taking place in Brazil, I shall extend that to a fantasy soccer team of 11 first team players. What would my first 11 be for a team of largely dividend-yielding samba stocks?  

I am going with a conservative and defensive oriented 4-4-2 formation.


There can only be one goalkeeper. This guy has to ensure that the opponents would not score and is the last man. For this, I would go with (1) OCBC. A big strong and friendly bank to hold the last line.


For my defenders, I'm going with the two things that are the cause of  lots of heartburn - property and cars. The main reasons for our high headline inflation. Defensive stocks with high yields.

For property, I'm going with a couple of REITS, namely, (2) Capita Commercial Trust, (3) Capita Retail China Trust and (4) Mapletree Industrial Trust.  So that gives me 3 REITs covering commercial, retail and industrial properties. 

To round off the fourth player, I would go with (5) Vicom, a proxy play for car ownership.


Midfielders need to control the play. They have to create opportunities for offensives, and at times have to roll back to the defensive. For this, I would go with (6) Boustead, (7) Hour Glass, (8) Kingsmen Creative and (9) SATS.


For the offensive play, I am looking for potential value-growth players that may not be as yet high yielding but have the potential to go far. For this, I pick (10) Global Logistic Properties and (11) Yangzijiang. Exposure to China, Japan and interestingly Brazil. 

It's pretty much a 80-20 rule. So that rounds up my first 11. What's yours?

[Disclaimer: I hold all the above stocks. But this is not a recommendation to buy any of these. Do make your own assessment before investing, always.]

Retiring single and on $2,000 per month

The Case

One of my sister is only a fistful of years away from retirement. Her lifestyle is generally a frugal (if not miserly!) one. She has no mobile phone, no cable TV, no aircon, no car (in fact, no license!). Single and hence no kids either. Zilch. Simple lifestyle, doesn't cost much. A Mustachio lifestyle!

She lives in a HDB flat that has been fully paid for. My mother has in fact set aside a sum of money that will pay for all the utilities (water and electricity) for at least another 20 years. Maybe less if the price of utilities inflate.

She has some 'vice' though. She likes to travel. Occasionally, she also seems to splurge quite a bit on geomancy ornaments and temple offerings. Hobby and beliefs.

Retirement Income - The Current Situation

She said she expects to receive about $800 per month from CPF Life. I figured she would probably survive on under $2,000 a month. With $800 already coming from CPF Life, that's a shortfall of only $1,200. That doesn't seem difficult. I figured if she could invest a sum of $360,000 at a 4% yield, she would have a perpetual income to meet that gap. Didn't seem difficult at all since she had not touched her CPF for anything her entire life.

Out of curiousity, I asked her how she planned to make the difference. Turns out she had invested in some insurance scheme that would also generate a sum at the end of 10 years to grow her retirement pot. I don't know what she specifically bought, but I'm sure there must be an insurance component within. So I asked her, what the coverage was for since she didn't need to protect anyone else upon her death? There was a bit of awful silence as the realisation sank in.

Never mind. At least, the money wasn't sitting in a bank account rotting away. Hopefully it's not a Lehman Brothers sob story all over again. On the other hand, she did make a reasonable decision to leave the bulk of her money in CPF as she didn't know what to do with it otherwise. At least that would still compound at 2.5 to 5%.

Interestingly, she does buy stocks. But she's the kind that dabble in trading by buying on rumours, analyst buy calls, and get a hearth-thumping fillip from 3 cents changes in stock prices. You can pretty much guess that she's really into those penny stocks. Risky. Guess that counts as another vice?

Retirement Income - Alternative Options

I thought about this over the rest of the weekend and wondered how that 4% yield could be achieved.  I came up with a couple of possibilities, constrained by the desire to keep a lower risk profile:

Dividend-Yielding Stocks.

Buy a number of dividend yielding stocks and live off their dividends. I suggested she examine several stocks like Vicom, SATS, SPH, HourGlass, Boustead, and complement these with a bunch of REITs. I figured the stocks would generate 3-5% while the REITS would generate 4.5-7%. The upside is that some of these stocks could appreciate in value. Of course, that also come with the downside that the reverse could also happen.

Perpetuals and Bonds.

Presently, there are a few publicly traded perpetuals and high-yield bonds on the SGX - e.g. Hyflux6%CPS10, GentingSP5.125%Perp and Olam6.75%b180129US$. At 5.125% to 6.75%, seems like a combination of these could be a viable option. The yield-to-maturity (YTM) would be a little lower given that these are currently trading at above par (e.g. Hyflux's perpetual is trading at $106.8 for $100 par value on 23 Jun 14). Can't see the downside other than the underlying company folding or becoming unprofitable and hence unable to pay the coupon. The payout is otherwise fixed and would not fluctuate.

Bonds ETF.

What about buying a whole market of bonds instead? Was checking out iShares J.P. Morgan Asia Credit Bond Index ETF ("IS ASIA BND 10S$D") and noted that it holds bonds weighted towards Corporate bonds, with some sprinkling of Government bonds of Asia Pacific countries. Looks like at least 70% are investment grade. The yield seems to be about 4-5%. I believe its Expense Ratio is 0.5%. Seems doable.

Bonds Unit Trust

I also explored Bonds Unit Trust that provide regular dividend payout. But none seems suitable for the desired profile. Either dividend payouts would be too low (<4%), or risks seem high. Did I miss something?

A Matter of Choice

What would you choose?  Are there alternatives?  I greatly welcome any views and insights.

Union Pacific - Choo Choo Train, Ran Away

[Source: Union Pacific]

When Berkshire Hathaway swallowed up BNSF Railway, it also disposed all its shares in Union Pacific that it had previously held. The reason for doing so didn't seem to be a case of negative views on Union Pacific, but rather, to avoid complications over anti-monopolistic concerns from regulatory bodies arising from Berkshire owning two big railway companies. The rail business seem to be experiencing a boom of late.

Can't buy BNSF, but Union Pacific is certainly available. So I looked at its financials.

Its debt levels seems low at the 40-50% bracket, compared to most US companies.

Dividend yield isn't yet great at below 2% with a payout ratio of 32.35%. But its DPS has been growing steadily year on year. In fact, its DPS has more than doubled over the last 5 years. In addition, its DPS has remained significantly below its EPS each year. Looks like it has a lot of room to continue on this trajectory of DPS growth.

Margins look great with gross margin at 73.47% and net profit margin at 20.25%. Which suggests that this is a very profitable business. PE ratio may be a bit on the high side though.

My previous impression was that the rail business is a capital intensive business. Seems like that doesn't detract from its profitability. I was probably influenced by the situation faced by our very own SMRT. After years of being seen as a great defensive dividend stock, all it took was one wonderful massive train breakdown incident and voila, end of party. It went south rapidly and stayed that way for much of recent years.

Rails are sticky business. It's difficult for new entrants to come in. One has to lay lots of line to create the network and invest in a lot of assets (trains, switching systems) to get going. I don't think there will be any new competition anytime soon in the US. For a large country like the US, rails make more sense than airlines and shipping lines to move large volumes of goods around. Airlines can move stuff fast, but they are notoriously difficult to make the margins and can't carry much. Ships need a lot of upkeeping and fuel, and can't reach land-locked areas. Rails appear to have that significant niche.

Ratios & Other data
ROA (%) 4.62 6.52 7.47 8.55 9.06
ROE (%) 11.72 16.09 18.12 20.51 21.35
DPS (USD) 0.5400 0.6550 0.9650 1.2450 1.4300
EPS (USD) 1.8683 2.7640 3.3606 4.1375 4.7102
[Source: POEMS, as at 12 Jun 2014.]

Looks like a great buy right? So I did. A couple of days later, I discovered to my horror that the value of the shares I had bought had dropped to half the price I paid! Holly crap. What happened? 

A couple of frantic checks later, I realised that it had undergone a 2-for-1 split, effective the day I bought the shares. Such coincidence! I hadn't thought to check if there were any news on such things then. A couple of frantic e-mails with the online broker, it was subsequently ascertained that I had indeed been credited with the split shares. So it was all good in the end. I had not stupidly paid double the value for my Union Pacific shares. Phew. Bodoh bodoh.

Lesson learnt: Check for news of stock split, merge and dividend ex-dates before diving into a buy.

Choo choo! She'll be coming round the mountain when she comes ...


14 June 2014

Investopedia, the Secret Millionaires Club and MyMoney

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

I just came across another website which does a decent job of extending the educational materials further.  You may want to give it a go: Orcam Group Educational Resources.

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

For Singaporeans, the best available source is probably the serious of talks organised by SIAS MyMoney series to educate Singaporean investors:

Happy reading.

Orcam Group Educational Resources [Orcam Group]
Secret Millionaires Club
MyMoney [SIAS]

G K Goh - who is this guy?

Came across this company recently and the financials sure look interesting.  The company is an investment holding company.

DPS (SGD) 0.0150 0.0300 0.0400 0.0400 0.0400
EPS (SGD) 0.0172 0.0916 0.1778 0.0609 0.0685
[Source: POEMS.]

Debt level below 40%.  Not over-leveraged.

High gross and net profit margins above 40%.  Looks like a business that doesn't suffer from competitive pressures. Possible moat?

Dividends above 3%.   Its 5-year trend shows that the dividends payout (DPS) have been steadily increasing from 0.015 (FY09) to 0.04 (FY13) while consistently maintaining its DPS below earnings (EPS).  

P/E ratio below 15.  P/B below 1.0.  Which means it is valued below its current worth.

From the information at its website (http://www.gkgoh.com/), the company owns brokerage businesses in Singapore, invests in various retirement services in Australia, with smaller stakes in networks in European cities, property and hotel businesses in Malaysia. 

  • G. K. Goh Financial Services (S) Pte Ltd (100%), a futures and foreign exchange brokerage in Singapore;
  • G. K. Goh Strategic Holdings Pte Ltd (100%), which invests in liquid markets;
  • Habitat Assets Pte Ltd (100%), which invests in retirement living assets primarily in Australia;
  • Boardroom Ltd (81%), an SGX-listed company, one of Asia’s leading providers of corporate and advisory services, providing clients with an integrated suite of Smart Business Solutions, namely Accounting & Finance, Corporate Secretarial, HR & Payroll, Internal Audit & Risk Management, Shareholder Services, and Taxation services in Singapore, Malaysia, Hong Kong, China and Australia;
  • Domain Principal Group (48%), an Australian aged care provider with 56 facilities totalling more than 4,800 bed-spaces in the states of New South Wales, Queensland, Victoria and Western Australia;
  • Eastern & Oriental Bhd (6%), a KLSE-listed property and lifestyle group;
  • euNetworks Limited (9%), an SGX-listed company which owns and operates fibre networks in 14 European cities.
Interestingly, it expanded its ownership of Boardroom and now owns 81% of it.  Boardroom itself is a SGX-listed company that provides support services for many publicly-listed companies and gives out regular stream of dividends. Looks like a very stable line of business.  Many letters that I received from SGX companies carry the Boardroom letterhead on their envelopes.  

    Domain Principal Abbey Garden
    There was a negative cash flow for FY13 and that was likely due to an investment in a 47.6% stake in Domain Principal Group, an Australian aged care services company, as indicated in its 2013 Annual Report. This investment was funded by a combination of cash and loans. Despite which, its gearing has maintained below 40%.  Seems sound and not a red flag.

    Its Malaysian hotel and property investments are centered in Penang and Iskander Region. A touristy place and a growth region. Holds potential.

    A bunch of very different businesses. But each with an interesting story which suggest prudent and stable income streams. Owners pay themselves handsomely, but also collectively own a large chunk of its own stocks.

    In recent weeks, GKG Investment Holdings appear to be buying quite a bit of this stock. On 3 occasions in Jun 14, they have bought 23000, 121000 and 29000 shares. Insider buying is always an interesting indicator for me.

    [Disclaimer: This is not a call to buy this stock. I am only recording this as a reminder to myself why I bought this stock.]

    Maximising returns with minimal risks - for the ultra conservative investor

    Most of us probably are guilty of unnecessary 'expenses' that could have been avoided with a little bit more education and interest.  And you don't have to avoid that cup of Starbucks coffee to do so!

    Tax Avoidance

    Not the illegal kind of course!  But one could easily avoid paying tons of tax by establishing a Supplementary Retirement Scheme (SRS) account and maxing out the annual contribution of $12,750.  Contibutions to your SRS are tax deductible.  If you were at a tax bracket of 17% for instance, this translates into a tax avoidance of $2,167.50!  In addition, that $12,750 should be further invested to achieve higher returns. 

    The catch: SRS cannot be withdrawn till after retirement age (62-65 years old), and has to be extracted over a period within 10 years thereafter, taxable at half the amount.  That means that if one had no other sources of income by then, withdrawal of $40,000 annually would be tax free since the first $20,000 of taxable income enjoys 0% tax.  This assumes the taxation system remains unchanged.

    Caveat: My take on the subject of SRS is that it may not be meaningful to do so if your tax bracket is still very low.

    More Tax Avoidance

    If your spouse is earning less than $2,000 a year, you could contribute up to $7,000 to your spouse CPF-SA (Speical Account) which is then tax deductible for you!  That's a further $1,190 of tax avoidance at the 17% tax bracket - i.e. an immediate 17% yield!  Consider in addition that the $7,000 in your spouse's CPF-SA would be benefiting from 4% returns as well.  Of course, there is no guarantee the interest rate for CPF-SA would continue to be 4%, since officially it is now benchmarked against SGS 10-year bond + 1%.

    The catch: CPF-SA is of course not withdrawable till after 55 years of age, subject to any balance left after the minimum required transfer to CPF-RA (Retirement Account).  Check out the CPF website for more information.

    Risk-free Investments

    Aside from low risk but rather hopeless options of putting our money into savings account (earning a pittance of a return) or fixed deposits (equally miserable returns), other options would be Singapore Government Securities (SGS) Bonds and Money Market Funds. 

    SGS Bonds can be bought off secondary markets such as from Fundsupermart. The yield is in the region of 2-3% for 10-20 year maturity. Not bad, compared to 0.5% in savings account. These days, SGS Bonds are publicly traded on SGX.

    Money Market Funds (MMF) on the other hand are unit trusts that invest in short-term (<1 year) maturity and probably yield about 1% right now, although it could well be 2-3% over the longer term.  MMF are however very fluid.  While it carries slightly more risk than savings account, the risks are relatively low given the short term maturities and AAA-rated holdings.  I view MMF as 'equivalent' to a savings account, but with a latency of 1-2 weeks when the money needs to be cashed out.  Such funds would include LionGlobal Money Market Fund, Philip Money Market Fund, and Pru Cash Fund.

    There are various Singapore Corporate Bonds, including from government or statutory boards, which may well offer better yields than SGS Bonds.  Unfortunately, these are not easily accessible for the typical retail investor for now.  But recent news suggest that SGX is looking into opening up this market in the not so distant future.

    There is a good video presentation from Mah Ching Cheng to explain this subject (a SIAS event): Investing in Bonds.

    In Summary

    For the ultra conservative investor therefore, the above would reap immediate benefits in maximising the little cash that we could put to better use, avoiding unnecessary wastage, and simple solutions to getting better returns, rather than leaving our money in the bank idling away.

    We start off by working hard for our money.  It's time to make our money work harder for us.

    Supplementary Retirement Scheme [IRAS]
    Investing in Bonds [SIAS MyMoney investor education]
    SRS & CPF Cash Top Up Schemes [Nexia Pulse]

    02 June 2014

    Soup Restaurant - Slurping with a Discount

    Soup Restaurant can be found at quite a few shopping malls. My family like their Samsui chicken, soup and various other dishes. It is not particularly pricey. I discovered that they have a scheme where you can get a 15% discount card if you are a shareholder of at least 2,000 shares. They call it the "S Card". So, some years back, I bought a few thousand shares in order to apply for the discount card.

    I figured that since I frequent the restaurant that often, buying the shares to get the discount was as good as paying a membership fee. Many restaurants offer membership schemes, but I have never encountered any that linked it to share ownership. Soup goes one step further by allowing you to own a part of the business to boot!

    Turned out, it was an even greater blessing in disguise. Over time, I bought more shares, eventually averaging at a price of $0.123. Recently, the stock has run up to $0.23. Its historical P/E has gone through the roof - 152x! I figured, it's time to sell and promptly did so, keeping the minimum share holding only to maintain the Soup Restaurant Discount Card. Meantime, it remains a good dividend stock at 3.13%.

    Ratios & Other data
    ROA (%) 15.24 18.64 5.88 1.11 2.13
    ROE (%) 18.21 22.64 10.00 1.66 2.82
    DPS (SGD) 0.0035 0.0085 0.0018 0.0070 0.0075
    EPS (SGD) 0.0098 0.0127 0.0055 0.0010 0.0016
    [Source: POEMS]

    It's rather hard to make the margin for such a labour intensive business. There just aren't enough workers to go around the service industry. It has started selling its special sauce as another line of business. Regardless, Soup does have a good brand and a decent product. I hope it continues to thrive - maintain the quality of its dishes, innovate new dishes, optimise its supply chain and maintain its cost structure.

    You can pick up the Discount Card application form from the cashier counter at any Soup Restaurant outlet or at their Investor Relations website (Soup Restaurant - Investor Relations). Chomp! Chomp!

    Soup Restaurant - Investor Relations [S Card application form downloadable at this link]

    [Disclaimer: This is not a recommendation to buy or sell. It is only a reflection of my personal view and actions that I have taken. I continue to own shares in Soup.]

    CPF - a lifeline for retirement, or till death do us part

    The subject of CPF has been a hot topic of late.  I guess a lot of that comes from the sense that one's money contributed to the CPF is constrained to only certain things that one can do with it.  Some individuals will always have issues with all things compulsory that the government imposes.  But in reality, there are plenty of things that one can do with your own CPF funds.

    Minister Tan Chuan Jin gave a good go at explaining what the CPF scheme is all about: Tan Chuan Jin on AsiaOne.  CPF Board is of course the authoritative source on CPF Life.

    Blogger SG Young Investment also weighed in to explain All About CPF Minimum Sum and CPF Life.

    For an estimate on how much CPF Life would provide, try CPF Life Estimator (tool).

    An article from MoneySmart.sg discussed about the adequacy of CPF to Cover Home Loans

    There's more than one can do with CPF money, and Cheerful Egg (Blog) elaborated on What You Can Do About this CPF Thing.

    Pay for housing, support your child's education, prepare for retirement for a lifetime post-retirement and pay/or for hospitalisation insurance.  Invest or do nothing; leave it in there to collect small but risk-free interests.  There're just so much that one can actually do!

    Going beyond CPF, Epsilon Luxe addresses Inflation and Tackling the CPF, SRS and other Tax Saving Tips.  CPF/SRS, these are conceptually not very different from the US Social Security/Roth-IRA, the UK's Pension/ISA or the Aussie's Superannuation.  Every country has similar systems, albeit with implementation differences. The differences tend to be on whether you are paying to a pool or paying to your OWN account. The earlier has generally seen a lot more problems due to politicking and under-funding, resulting in future generations bearing the cost of an inadequate system.

    Alas, some individuals choose to take the lazy way out, remain ignorant and just complain and complain and complain.  Sheesh.

    Investment Moat Thought CPF Life Gave a High 8.4% Return but realised that it wasn't quite so. The $155,000 minimum sum is taken out at age 55 to contribute to CPF Life which is effectively an annuity scheme. Given 10 years to age 65, that means the future value at a growth of 5% would grow this capital to $252,479. I did the same maths for varying growth rates and produced the following result:

    Growth Future_Value Yield
    4.0% $229,438 5.8%
    5.0% $252,479 5.2%
    6.0% $277,581 4.8%
    7.0% $304,908 4.3%

    I would expect a growth of 6.5% from investment returns to be realistic. That would produce an annual yield of 4.5% for the subsequent payouts which I view as reasonable when we compare against the expectation of 4% withdrawal rate for a "perpetual" retirement income.

    Personally, I'm glad to see the minimum sum being raised yet again. I expect this to continue with each passing year to keep pace with inflation. It just means that there is more room for me to do voluntary contributions to my wife's CPF Special Account and benefit from the tax deductions for my personal income tax bill.

    There is of course the risk that retirement age will be extended beyond age 65. Hence, if's really difficult for the younger ones, considering that it is so far, far away. Perhaps a softer policy touch is needed to alleviate this concern. Raise the retirement age if need be, but leave the age at which one can touch their CPF (and SRS!) as it is. Or have a 2-step approach, allowing part of the CPF Life payout to begin at a lower amount at age 65, and scale up thereafter. Give people the choice and the confidence that it wouldn't go further and further away. Let's see how this unfolds.

    Tan Chuan Jin on AsiaOne [AsiaOne]
    CPF Life | CPF Life Estimator (tool)
    All About CPF Minimum Sum and CPF Life [SG Young Investment]
    CPF to Cover Home Loans [MoneySmart.sg]
    What You Can Do About this CPF Thing [Cheerful Egg]
    Inflation and Tackling the CPF, SRS and other Tax Saving Tips [Epsilon Luxe]
    Thought CPF Life Gave a High 8.4% Return [Investment Moats]

    Golden Harvests for Golden Years

    The weekend papers on 1 Jun 2014 carried a couple of interesting advertisements.  Thought it was interesting to compare and contrast each offering ...


    The advertisement from Manulife suggested 4 ways to fund a retirement income:
    • Insurance with Income Payout Facilities.  Provides a regular income stream during retirement.
    • Dividend-Paying Stocks and Unit Trusts.  Dividends are used as an additional source of passive income during retirement.
    • CPF Life.  Provides monthly payouts of $1,200 (less for women).  
    • Unlock Property Value. Renting out in full or in part, reverse mortgage or HDB Lease Buyback Scheme (LBS) so as to capitalise on our property.

    Aggregate Asset Management

    On the other page, an advertisement from Aggregate Asset Management featuring Teh Hooi Ling explained the Rule of 72.  It illustrated the returns via various means of investments:

    • Bonds/Unit Trusts @ 3 to 5% p.a. Over 24 years, $100,000 would have become $200,000.
    • Index Funds/ETF/Blue Chips @ 6 to 7% p.a. The same $100,000 would have become $400,000.
    • A Basket of Value Stocks @ 10 to 12% p.a.  $100,000 would have become $1,600,000.

    The 2-3% spread from Unit Trusts compared to ETF probably accounted for the management fees of such actively managed funds compared to index funds.

    CPF - A Lifeline for Retirement or Till Death Do Us Part